First Nat. Bank of Duluth v. Nat'l Liberty Ins. Co. of Am.

• Decision Date: 25 May 1923
• Docket Number: No. 23433.,23433.
• Parties: FIRST NAT. BANK OF DULUTH et al. v. NATIONAL LIBERTY INS. CO. OF AMERICA et al.
• Court: Minnesota Supreme Court

156 Minn. 1

194 N.W. 6

FIRST NAT. BANK OF DULUTH et al.

v.NATIONAL LIBERTY INS. CO. OF AMERICA et al.

No. 23433.

Supreme Court of Minnesota.

May 25, 1923.

Appeal from District Court, St. Louis County; Herbert A. Danier, Judge.

Action by the First National Bank of Duluth and another against the National Liberty Insurance Company of America and another. Finding for plaintiffs, new trial denied, and defendant named appeals. Affirmed.

Syllabus by the Court

Section 3300, Gen. St. 1913, places warranties in insurance upon the basis of representations. A breach of warranty will not avoid the policy unless made with intent to deceive and defraud or unless the matter misrepresented increases the risk of loss.

There is no pleading or finding in this case that the alleged false statement was made with intent to deceive or that the matter represented increased the risk.

Where a policy makes the loss, if any, payable to the mortgagee the mortgagee is not bound by an adjustment between the insurance company and the mortgagor. Nathan H. Chase, of Minneapolis, for appellant.

A. Feldman, of Duluth, for respondents.

HALLAM, J.

On July 18, 1921, defendant insurance company insured defendant Lavick for $1,800 against loss by fire or theft of his Westcott automobile. The amount was later reduced to $1,600. The car was mortgaged to plaintiffs to secure payment of the purchase price of $1,250. On November 8, 1921, while the insurance policy was still in force the car was stolen and totally destroyed by fire. Lavick made proofs of loss and the insurance company adjusted the loss with him at $840. The car was at that time worth $1,150. Plaintiffs were not parties to the adjustment. The amount due on their mortgage was $1,150, and they brought action to recover that amount from the insurance company.

The court found that, ‘as an inducement for the issuance of said policy,’ Lavick represented to said insurance company that said automobile actually cost him $1,800, and said insurance company, in reliance upon said statement and believing the same, issued and delivered to defendant Lavick ‘said policy.’ The court then found that Lavick purchased said car from plaintiff Motor Sales Company ‘for the agreed price of twelve hundered and fifty ($1,250) dollars.’ It will be noticed that the court found the ‘price’ paid to plaintiff Sales Company, and the representation as to what the car ‘cost’ Lavick. There is no finding that the ‘cost’ to Lavick was no more than the purchase price. In fact, there is evidence to show that there were other items of cost in the way of equipment. It is perhaps fair to assump, however, that the court intended to find that the representation of the insured was untrue.

[1] 1. The principal point raised by defendant is that the policy was ‘rendered null and void prior to the loss, by reason of breach of warranty on the part of the assured.’ In other words, defendant seeks to treat the statement in the application as a warranty, and to invoke the common-law doctrine that a breach of a warranty in a policy of insurance avoids the policy, without regard to whether the statement warranted relates to a material or an immaterial fact. In 1895 the Legislature passed a law (section 20, c. 175, Laws of 1895) which is now section 3300, G. S. 1913. It reads as follows:

‘No oral or written misrepresentation made by the assured, or in his behalf, in the negotiation of insurance, shall be deemed material, or defeat or avoid the policy, or prevent its attaching, unless made with intent to deceive and defraud, or unless the matter misrepresented increases the risk of loss.’

This statute does not in terms mention warranties, and, had it never been construed, the question whether it should be held to change the common-law rule as to warranties would be an interesting one. This statute has, however, been construed in previous decisions of this court and that it applies to warranties is no longer an open question. In Price v. Standard Life & Accident Ins. Co., 90 Minn. 264, 95 N. W. 1118, it was inferentially held that this statute applies to warranties, and in Johnson v. National Life Ins. Co., 123 Minn. 453, 144 N. W. 218, Ann. Cas. 1915A, 458, this court expressly so held. Speaking of this statute, this court said:

‘Our statutes, and statutes like them, were intended to put warranties upon substantially the basis of representations and to do away with defenses made by incorporating conditions and terms in policies, making them by agreement material representations or warranties, and controlling on the right of recovery. As we construe the statute a material misrepresentation, made with intent to deceive and defraud, avoids the policy. A material misrepresentation, not made with intent to deceive or defraud, does not avoid the policy, unless by the misrepresentation the risk of loss is increased. If a material misrepresentation increases the risk of loss the policy is avoided, regardless of the intent with which it was made. An immaterial representation, though made with intent to deceive and defraud, does not avoid the policy.’

See, also, McAlpine v. Fidelity & Gas. Co. of New York, 134 Minn. 192, 158 N. W. 967.

Defendant cites Cerys v. State Ins. Co., 71 Minn. 338, 73 N. W. 849. In that case section 3300 was not considered or mentioned. The same is true of Aiple v. Boston Ins. Co., 92 Minn. 337, 100 N. W. 8, and Rupert v. Supreme Court, United Order of Foresters, 94 Minn. 293, 102 N. W. 715. The case of Farm v. Royal Neighbors, 145 Minn. 193, 176 N. W. 489, cited by defendant, involved a case to which ...