Giles v. Lanford & Gibson, Inc., 0435

• Decision Date: 21 January 1985
• Docket Number: No. 0435,0435
• Court: South Carolina Court of Appeals
• Parties: William D. GILES, Respondent, v. LANFORD & GIBSON, INC., Appellant. . Heard

Page 916

328 S.E.2d 916

285 S.C. 285

William D. GILES, Respondent, v. LANFORD & GIBSON, INC., Appellant.

No. 0435.

Court of Appeals of South Carolina.

Heard Jan. 21, 1985.

Decided April 11, 1985.

Herman E. Cox, Greenville, for appellant.

Henry F. Floyd, of Acker, Acker, Floyd & Welmaker, Pickens, for respondent.

BELL, Judge:

This is an action for fraud in the issuance of an insurance policy. The jury returned a verdict of $25,000 for constructive fraud in favor of the insured, William D. Giles. The insurance agent, Lanford & Gibson, appeals. We affirm.

In June 1978, Giles borrowed $25,000 from the Bank of Greer to purchase ten acres of land on Frady Road in Greenville County. Giles planned to restore an unoccupied, fire damaged house on the property as a residence for himself and his family. To secure the loan, Giles gave a mortgage covering the Frady Road property and his existing residence in the Blue Ridge section of Greenville County. The mortgage required Giles to insure the house and buildings on the Frady Road property for not less than $12,000 fire and extended coverage.

Giles had previously obtained fire insurance on his Blue Ridge home through Lanford & Gibson, an insurance agency with whom he had done business for some nine years. On Friday, June 16, 1978, immediately following the closing on the Frady Road property, Giles went to the office of Lanford & Gibson in Greer. He spoke with Brenda Mullinax, who was not a licensed agent, but who had actual authority to deal with him. Giles explained his plans to renovate the fire damaged house and told Mullinax he needed $25,000 insurance on the property to cover his mortgage with the Bank of Greer. Mullinax wrote a $25,000 "Builders' Risk" policy on the property with a loss payable clause to the Bank of Greer. She told Giles the policy covered him for $25,000. After Giles paid the premium in cash, Mullinax gave him a copy of the policy. She did not explain the policy to Giles. Without reading it, Giles took the policy home and put it in his dresser drawer.

On July 20, 1978, the day before building materials were delivered to the Frady Road site, a second fire gutted the house. Giles filed a $25,000 claim for the loss. The insurer denied coverage on the ground that the "Builders' Risk" policy did not cover the loss, because construction had not yet begun on the house. Giles sued the insurer on the policy and recovered a judgment of $12,500. Thereafter, he commenced this action against Lanford & Gibson for fraud in issuing the policy.

I.

Lanford & Gibson first argue the trial judge should not have submitted the case to the jury on the theory of constructive fraud. They contend the pleadings and proof were based solely on a theory of actual fraud. Consequently, they argue it was error for the judge to charge the jury on a theory not raised by the pleadings or the evidence. See Dunsil v. E.M. Jones Chevrolet Co., 268 S.C. 291, 233 S.E.2d 101 (1977) (error in fraud and deceit action to instruct jury on breach of contract accompanied by a fraudulent act); cf. Crocker v Crocker, 281 S.C. 154, 314 S.E.2d 343 (S.C.App.1983) (judgment must be supported by theory of action upon which pleadings are based).

In Greene v. Brown, 199 S.C. 218, 223, 19 S.E.2d 114, 116 (1942), our Supreme Court defined constructive fraud as follows:

Constructive fraud is a breach of legal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the law declares fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure public interests.

Neither actual dishonesty of purpose nor intent to deceive is an essential element of constructive fraud. An intent to deceive is an essential element of actual fraud. The presence or absence of such an intent distinguishes actual fraud from constructive fraud.

(citation omitted); accord, O'Quinn v. Beach Associates, 272 S.C. 95, 249 S.E.2d 734 (1978).

In his complaint, Giles alleged that Lanford & Gibson falsely told him the "Builders' Risk" policy would provide $25,000 coverage for loss to the fire damaged house. He further alleged that Lanford & Gibson "knew or should have known" this representation was false.

An allegation that the defendant ought to have known the falsity of the misrepresentation is sufficient to support an action for constructive fraud. Lillie v. Andrews, 24 Cal.App. 10, 139 P. 1081 (1914). In this case, Giles made such an allegation and supported it by proof at trial. Accordingly, the trial judge committed no error when he instructed the jury on constructive fraud.

II.

Lanford & Gibson next argue that there was insufficient evidence to submit the case to the jury or to support the jury's verdict, because Giles failed to prove (1) Mullinax had an intent to deceive him, or (2) he had a right to rely on her statement that the policy covered the fire damaged house.

The jury returned a verdict for constructive fraud. Since intent to deceive is not an element of constructive fraud, it was unnecessary for Giles to prove Mullinax intended to deceive him. The argument on this point is without merit.

Concerning the right to rely, Lanford & Gibson argue that Giles could have ascertained the nature of his coverage by reading the policy. Since he failed to read the policy, they insist he had no right to rely on Mullinax's representation as to the coverage the policy provided. It is true that

one cannot complain of fraud in the misrepresentation of the content of a written instrument when the truth could have been ascertained by reading the instrument, and one entering into a written contract should read it and avail himself of every reasonable opportunity to understand its contents and meaning.

Guy v. National Old Line Ins. Co., 252 S.C. 47, 49, 164 S.E.2d 905, 906 (1968) (citation omitted). However, with respect to insurance policies our courts have also held:

Whether or not reliance upon a representation in a particular case is justifiable or excusable, what constitutes reasonable prudence and diligence with respect to such reliance, and what conduct constitutes a reckless or conscious failure to exercise such prudence, will depend upon the various circumstances involved, such as the form and materialty [sic] of the representations, the respective intelligence, experience, age, and mental and physical condition of the parties, and the relation and respective knowledge and means of knowledge of the parties.

Thomas v. American Workmen, 197 S.C. 178, 182, 14 S.E.2d 886, 888, 136 A.L.R. 1, 4 (1941).

Given the circumstances involved in this case, we hold that Giles had a right to rely on the representation that the policy gave him coverage on the fire damaged house. Lanford & Gibson concede that when he came to their office to request insurance, Giles did not know what type of coverage he needed. Thus, they were in the position to know Giles was relying on their expertise as insurance agents to provide him...