Gates v. General Casualty Co. of America

Decision Date05 June 1941
Docket NumberNo. 9707.,9707.
Citation120 F.2d 925
PartiesGATES et al. v. GENERAL CASUALTY CO. OF AMERICA.
CourtU.S. Court of Appeals — Ninth Circuit

David E. Peckinpah, Harold M. Child, and L. N. Barber, all of Fresno, Cal., for appellants.

Redman, Alexander & Bacon, Jewel Alexander, and W. C. Bacon, all of San Francisco, Cal., for appellee.

Before DENMAN, MATHEWS, and HEALY, Circuit Judges.

DENMAN, Circuit Judge.

This is an appeal from a judgment that the appellee insurance company, hereafter called insurer, justifiably had cancelled an insurance policy insuring the R. O. Deacon Lumber Company, a corporation, hereafter called insured, against liability to other persons from injury from the operation of insured's fleet of lumber trucks, trailers and automobiles operating over a wide area of California. Appellants, widow and children of Elmer Gates, had recovered judgment against the insured for his killing by lumber falling from insured's truck. They sued the insurer for the amount of insured's judgment liability. This appeal followed the judgment below denying them recovery.

The policy was issued, the loss occurred, and the claim made on the insurer in the State of California. Hence the insurance laws of California and the California decisions determine the insured's right of recovery.

The district court found that the insured corporation fraudulently misrepresented at the time it sought to obtain the policy, the fact that "for a period of time prior to the issuance of defendant's policy" insured "was insured with the Metropolitan Casualty Company and during said time several serious liability claims for personal injuries and a number of property damage claims were made against said R. O. Deacon Lumber Company resulting in substantial losses to said Metropolitan Casualty Company," and that "had said information been furnished defendant in response to its specific inquiry prior to the issuance of said policy, defendant would not have issued or delivered said policy," and concluded that the insurer had justifiably rescinded the policy and was not liable for the claim for the killing of Elmer Gates.

There is ample evidence to sustain the finding that the insured corporation so had been insured in the Metropolitan Casualty Company and had the unsatisfactory experience as to frequency of claims found by the court. It is obvious that these facts are "material to the contract" sought to be procured by the insured corporation from the insurer. Strangio v. Consolidated Indemnity & Ins. Co., 9 Cir., 66 F.2d 330, 336. The following provisions of the California Insurance Code, St.Cal. 1935, p. 505, require their disclosure to the insurer prior to making its insurance policy:

"§ 330. Definition. Neglect to communicate that which a party knows, and ought to communicate, is concealment.

"§ 331. Effect. Concealment, whether intentional or unintentional, entitles the injured party to rescind insurance.

"§ 332. Required disclosures. Each party to a contract of insurance shall communicate to the other, in good faith, all facts within his knowledge which are or which he believes to be material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.

* * * * * *

"§ 334. Materiality of fact concealed, determination. Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries."

Construing these code provisions (formerly in the Civil Code) we have held that the failure to disclose one recent accident to an automobile of the applicant for such insurance warranted a cancellation of the policy. Strangio v. Consolidated Indemnity & Ins. Co., supra. In so interpreting these code provisions we held them to embody the principle stated by Mr. Justice Stone in Stipcich v. Metropolitan Life Insurance Co., 277 U.S. 311, 316-318, 48 S.Ct. 512, 513, 72 L.Ed. 895, "Insurance policies are traditionally contracts uberrimæ fidei and a failure by the insured to disclose conditions affecting the risk, of which he is aware, makes the contract voidable at the insurer's option. Cases cited * * *."

With regard to the court's finding that the concealment was "fraudulently" made, we regard it as surplusage, for under the California law "* * * a concealment of fact whether intentional or unintentional, which is material to the risk vitiates the policy. The presence of an intent to deceive is not essential." Telford v. New York Life Ins. Co., 9 Cal.2d 103, 105, 69 P. 2d 835, 837.

This court applied the same rule in Strangio v. Consolidated Indemnity & Ins. Co., supra, 66 F.2d 336, where it said: "Under the California statute, quoted above, the failure to disclose to the insurer that an accident had happened authorized the cancellation of the policy, notwithstanding the fact that Strangio Bros. were not guilty of any intentional wrong in not making the disclosure to the insurance company before the policy was issued."

Appellants contend that the court's finding of misrepresentation and concealment is not sustained by the evidence. On this issue appellants must show the court's findings are "clearly erroneous" due regard being "given to the opportunity of the trial court to judge of the credibility of the witnesses,"1 all but one of whom was heard by that court.

The insured procured the policy through the solicitation of a broker, who, it is agreed, was the insured's agent. Concerning an interview with this broker, the insurer's chief underwriter, who worked out the details of handling of the risk, testifies:

"* * * And I told him at that time that we would have to have the names of the previous carriers and the experience for three or four years in order to judge whether or not we could accept the risk or not. I told him that if the experience were good for that period of time we would give it very favorable consideration. I happen to remember that I said three or four years because that is one of the fundamentals of underwriting that business, and I always insist on at least that much information, for that much experience on a risk of that nature because one year won't give you the experience on it. * * *."

In reply to this inquiry concerning the insured's experience over the three or four years and of its carrier during that period, the broker furnished the chief underwriter a letter to the broker from the insured corporation. This letter, given to the insurer in response to its request for insured's prior three-year experience, gave the experience of but a single year, though not stating it was for the shorter period. Whether this was an intentional misrepresentation or due to a misunderstanding between the broker and his insured principal is a matter of indifference so far as concerns the effect of a concealment or false representation of a matter material to the risk. Telford v. New York Life Ins. Co., supra.

The letter contained other misrepresentations. It described the applicant's experience as involving a single accident — the destruction of a truck and a claim for its loss, — whereas there is viva voce evidence from which the district court properly could infer that there had been five property damage claims and several personal injury claims in 1933, the last of the three years about which the insurer had made its inquiry. There was similar evidence that in 1932 there had been four cases of accidents to the insured's trucks, some including personal injuries. The information suppressed would have disclosed a very different kind of risk from that disclosed. Here, certainly, was not the uberrima fides of Strangio v. Consolidated Indemnity Ins. Co., supra.

The letter also misrepresented that the insurance at the time of the truck loss had been with Maryland Casualty Company, instead of the ...

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