Federal Kemper Ins. Co. v. Brown

• Decision Date: 15 January 1997
• Docket Number: No. 18A02-9604-CV-191,18A02-9604-CV-191
• Citation: 674 N.E.2d 1030
• Parties: FEDERAL KEMPER INSURANCE COMPANY, Appellant-Plaintiff, v. Carl W. BROWN, Jackie Galloway, Virgil Robinson, and Estate of Leonard Walker, Appellees-Defendants, and Westfield Insurance Company, Intervenor.
• Court: Indiana Appellate Court

Page 1030

674 N.E.2d 1030

FEDERAL KEMPER INSURANCE COMPANY, Appellant-Plaintiff, v. Carl W. BROWN, Jackie Galloway, Virgil Robinson, and Estate of Leonard Walker, Appellees-Defendants and Westfield Insurance Company, Intervenor.

No. 18A02-9604-CV-191.

Court of Appeals of Indiana.

Jan. 15, 1997.

Rehearing Denied March 6, 1997.

Mark D. Gerth, Kightlinger & Gray, Indianapolis, for Appellant-Plaintiff.

P. Gregory Cross, Cross, Marshall, Schuck, DeWeese, Cross & Feick, Muncie, Jeffrey L. Arnold, Diane M. Frye, McClellan, McClellan & Arnold, Muncie, for Appellees-Defendants.

OPINION

ROBERTSON, Judge.

Plaintiff-Appellant Federal Kemper Insurance Company [Kemper] initiated the present lawsuit asserting that it was entitled, as a matter of law, to rescind an automobile liability policy issued to Appellee Carl W. Brown, and also to avoid liability under the policy to innocent third-party accident victims, Appellees Virgil V. Robinson and the Estate of Leonard Walker. We agree, and therefore, reverse and remand with instructions that judgment be entered in favor of Kemper.

FACTS

The facts in the light most favorable to the appellees reveal that in March of 1992, Brown spoke to an insurance agent about obtaining automobile liability insurance for a Chevrolet Cavalier for which his stepson, who lived with Brown, would be the principal driver. Brown needed to obtain a new insurance policy for the car because the insurance company which had insured the stepson planned to cancel the stepson's insurance due his driving record. Brown informed the insurance agent that the stepson had accumulated more than one speeding ticket in the previous five years. The agent told Brown that insurance on the stepson alone would cost more than $1,000.00 per year.

However, in order to save Brown money, the agent filled out an application for insurance which misrepresented that Brown's wife was the only other person in Brown's household over the age of twelve and that no operator of the Cavalier had any moving violations or had had his or her license suspended within the previous five years.¹ The application contained the following verification:

For all applicants: I certify that all statements on this application are true and correct and that they are offered as an inducement to the Company to issue the policy for which I am applying.

Brown signed the application without reading it, having relied on the agent to fill it out correctly.

Kemper issued Brown an automobile liability policy for the Cavalier based on the false application. It is not disputed that Kemper would not have issued the policy had it known that the stepson was the principal driver of the Cavalier.

The stepson did live with Brown, was the principal driver of the Cavalier, and had accumulated speeding tickets within the previous five years. In fact, the stepson's driver's license had been suspended on more than one occasion. In April of 1993, the stepson, driving the Cavalier, was involved in an automobile accident with a car driven by Virgil V. Robinson in which Leonard Walker was a passenger. Robinson suffered serious personal injuries, and Walker suffered fatal injuries in the accident.

Robinson was covered under an automobile liability insurance policy issued by Appellee Westfield Insurance Company [Westfield] that had uninsured/underinsured motorist coverage. Westfield paid Robinson $25,000.00 and sought subrogation of Robinson's rights under the Kemper policy. Westfield also expects that it may be required to pay sums to Walker's Estate under Robinson's policy.

Kemper denied coverage under Brown's automobile liability policy based upon the fraudulent application and brought the present action against Brown, the stepson, Robinson, and Walker's estate seeking rescission of the policy. Westfield was permitted to intervene in the action. The trial court entertained cross-motions for summary judgment. The trial court denied Kemper's motion for summary judgment finding that a genuine issue of material fact existed with respect to whether Brown could be charged with making a fraudulent application for insurance.² The trial court entered summary judgment in favor of Westfield, Robinson, and the Estate of Walker finding that, regardless of any fraud on Brown's part, Kemper could not avoid liability to third parties under American Underwriters Group, Inc. v. Williamson, 496 N.E.2d 807 (Ind.Ct.App.1986).

This appeal ensued. Additional facts are supplied as necessary.

DECISION

We begin our analysis by noting that our supreme court has recently expressed its commitment to advancing the public policy in favor of enforcing contracts. See Fresh Cut, Inc. v. Fazli, 650 N.E.2d 1126, 1129 (Ind.1995). Indiana courts recognize that it is in the best interest of the public not to unnecessarily restrict persons' freedom to contract. Id. Thus, as a general rule, the law allows persons of full age and competent understanding the utmost liberty in contracting; and their contracts, when entered into freely and voluntarily, will be enforced by the courts. Pigman v. Ameritech Publishing Company, 641 N.E.2d 1026, 1029 (Ind.Ct.App.1994); reh'g denied, 650 N.E.2d 67. Accordingly, Indiana has long adhered to the rule that contracting parties may enter into any agreement they desire so long as it is not illegal or contrary to public policy. Id. at 1030.

As stated in Motorists Mutual Insurance Co. v. Morris, 654 N.E.2d 861 (Ind.Ct.App.1995):

Summary judgment is appropriate only if no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. On the review of summary judgment proceedings where there is no factual dispute, we determine whether the trial court correctly applied the law. When the evidence is undisputed, as in the case at bar, and there are no unresolved facts to be determined, it is appropriate for the appellate court to determine as a matter of law that summary judgment was rendered for the wrong party.

Id. at 862 (Citations omitted). Summary judgment is appropriate when there is no dispute or conflict regarding facts which are dispositive of the litigation. Madison County Bank & Trust Co. v. Kreegar, 514 N.E.2d 279, 281 (Ind.1987).

I. Whether Brown is Chargeable with Fraud

Kemper first argues that the trial court erred in denying its motion for summary judgment based upon the alleged fraud of the insurance agent and Brown. Brown insists that, because he had disclosed all material information to the insurance agent, he cannot be charged with the agent's fraud in obtaining insurance from Kemper. He insists that he signed the application without reading it and without knowledge that it contained misrepresentations.

Generally, the law imputes an agent's knowledge, acquired while the agent was acting within the scope of his agency, to the principal, even if the principal does not actually know what the agent knows. Stump v. Indiana Equipment Co., Inc., 601 N.E.2d 398, 403 (Ind.Ct.App.1992), trans. denied. When an agent authorized to solicit and take applications for insurance fraudulently inserts false answers without the knowledge of the applicant, the insurance company must suffer the loss, and not the insured, who is without fault. Phoenix Insurance Co. v. Stark, 120 Ind. 444, 22 N.E. 413, 414 (1889); Pickels v. Phoenix Insurance Co., 119 Ind. 291, 21 N.E. 898, 900 (1889) (Where the misstatement was not authorized by the applicant for insurance, the wrong should be imputed to the company). Knowledge will not be imputed to the principal in cases where the agent colludes with the person who claims the benefit of the principal's knowledge in a fraudulent scheme to defraud the principal. Vincennes Savings & Loan Association v. St. John, 213 Ind. 171, 12 N.E.2d 127, 130 (1938).

Another 1938 decision by our supreme court contains the most recent expression of the law applicable to this case. In Metropolitan Life Insurance Co. v. Alterovitz, 214 Ind. 186, 14 N.E.2d 570 (1938), the insured claimed ignorance of the falsity of answers on an application of insurance, which had been supplied by the insurance company's medical examiner, asserting that the applicant had signed the application without reading it and without knowledge of the misrepresentations. 14 N.E.2d at 575. The Alterovitz court stated:

'There is no reason, in contracts of insurance, that a party should be, by law, relieved from the duty of exercising the same ordinary care and prudence that is required from the duty of exercising the same ordinary care and prudence that is required in every other business transaction. It is the duty of every man to read what he signs. His failure to do so will or should not relieve him or allow him to avoid the contract. This seems to us to be a sound statement of law and especially in view of the fact that in the instant case the appellee under his own signature stated that the answers to the questions in the application were correctly written as given by the applicant and were full, true, and complete. It is at once apparent that in any ordinary contract the appellee would be bound by such a statement and we see no sound reason why the same rule should not apply in the instant case although it is a contract of insurance.'

Id. at 574-575 (Citations omitted). Accordingly, the Alterovitz court adopted the following rule:

'In the case at bar, when the agent was taking the application of the assured and was explaining the questions and the meaning of the terms used, he was very properly to be regarded for those purposes, as the representative of the company; but, if the evidence offered by the plaintiff is true, the agent must have attempted to commit a deliberate fraud upon the company. He knew that if correct answers were given to the questions, the applicant would not be considered a fit subject for insurance, and no policy would be issued. It was his duty not only to write down truly the answers given by the applicant, but also...