Harkrider v. Posey

• Decision Date: 05 December 2000
• Docket Number: No. 92,911.,92,911.
• Citation: 24 P.3d 821,2000 OK 94
• Parties: Dustin HARKRIDER, Plaintiff-Garnishor-Appellee, v. Raymond POSEY, Defendant, v. Oklahoma Property and Casualty Insurance Company, Defendant-Garnishee-Appellant.
• Court: Oklahoma Supreme Court

24 P.3d 821

2000 OK 94

Dustin HARKRIDER, Plaintiff-Garnishor-Appellee, v. Raymond POSEY, Defendant, v. Oklahoma Property and Casualty Insurance Company, Defendant-Garnishee-Appellant.

No. 92,911.

Supreme Court of Oklahoma.

December 5, 2000.

Rehearing Denied May 29, 2001.

Jon Ed Brown, LeForce & McCombs, P.C., Idabel, OK, for Appellee.

Micky Walsh and Tom M. Moore, Oklahoma City, OK, for Appellant.

Rex K. Travis, Oklahoma City, Oklahoma, for amicus curiae, Oklahoma Trial Lawyers Association.

OPALA, J.

¶ 1 The dispositive issue on certiorari is whether the trial court's summary judgment for plaintiff-garnishor is correct. We answer in the affirmative.

I ANATOMY OF LITIGATION

¶ 2 On the night of 28 June 1996 Dustin Harkrider ("Harkrider") was crossing an intersection in his automobile when it was struck by a 1979 Ford pickup driven by Raymond Edward Posey ("Posey"). The pickup belonged to Robin Denise Pond ("Pond"), with whom Posey was then living. Pond had given Posey (implied) permission to drive her truck. Harkrider suffered bodily injuries and property damage in the collision.

¶ 3 Approximately one year earlier, Pond had purchased from Oklahoma Property and Casualty Insurance Company ("Oklahoma Property") a liability insurance policy covering the pickup with the minimum amount of liability insurance required under Oklahoma's Compulsory Insurance Law.¹ In her insurance application, Pond had represented that there were no other persons fourteen years of age or older residing in her household. This answer was untrue inasmuch as Posey was then living with her. At no time relevant to this case did Posey have a valid driver's license.

¶ 4 Shortly after the accident, Oklahoma Property notified Pond it was denying coverage for the collision because she had failed to disclose (in her insurance application) that Posey was living with her. Had it known of an unlicenced driver's presence in her household, Oklahoma Property stated, it would have issued a named-driver exclusion for Posey. After reminding Pond of a provision in the insurance application that any misrepresentation would render the policy void, Oklahoma Property informed her that it was canceling the policy and refunding her remaining premium. Shortly thereafter, Oklahoma Property sent Harkrider a claim denial letter as well.

¶ 5 Harkrider then brought an action against Posey for bodily injuries and property damage. Also named as a defendant was Oklahoma Property, from whom Harkrider sought damages for bad faith and fraud in connection with the insurer's conduct in adjusting the claim. The parties agreed on a judgment against Posey for $31,000 to be satisfied out of any applicable proceeds of Pond's liability policy with Oklahoma Property.²

¶ 6 Harkrider, as Posey's judgment creditor, then brought a garnishment proceeding against Oklahoma Property. The insurer denied coverage. Harkrider moved for summary judgment, arguing that an insurer may not avoid liability to an innocent third party under a policy of compulsory automobile liability insurance based upon a misrepresentation by the insured in his (or her) insurance application. To permit the insurer such a defense, Harkrider contended, would violate the public policy underlying compulsory automobile liability insurance. Oklahoma Property countered that its right to retrospectively avoid coverage under the policy due to a misrepresentation by the insured in the application process is conferred by the provisions of 36 O.S.1991 § 3609.³ That section contains no public-policy exception for mandatory automobile liability coverage. The trial court agreed with Harkrider and gave summary judgment to him. Oklahoma Property appealed.

¶ 7 The Court of Civil Appeals reversed based upon this court's holding in Pierce v. Oklahoma Property and Casualty Insurance Company,⁴ that a named-driver exclusion is compatible with compulsory automobile liability insurance and that an insurer hence cannot be held liable (to an innocent third-party claimant) for damages caused by one named in an insurance contract as an excluded driver.⁵ Deeming itself bound by Pierce, the Court of Civil Appeals held in the instant case that the provisions of 36 O.S. 1991 § 3609 may be interposed by an insurer to avoid liability under a compulsory liability insurance policy to the extent that the insured's misrepresentation in the insurance application prevents the insurer from exercising its right to issue a named-driver exclusion.⁶ Having granted Harkrider's certiorari petition, we now reject the Court of Civil Appeals' extension of Pierce beyond the narrow context of a permissible contractual exclusion and affirm the trial court's summary disposition of this cause.⁷

II STANDARD OF REVIEW

¶ 8 Summary process is a procedural pretrial device for the prompt and efficient disposition of an action sans forensic combat where there is no dispute as to the material facts or as to the inferences to be drawn from undisputed facts, and the law favors the movant's claim or liability-defeating defense.⁸ It is not the purpose of summary process to substitute a trial by affidavit for one by jury, but rather to afford a method of summarily terminating a case (or eliminating from trial some of its issues) when only questions of law remain.⁹ The material facts in the cause here under review are not in dispute, and the sole issue is whether the trial court correctly applied the law when it ruled that Oklahoma Property could not interpose misrepresentation as a defense in Harkrider's garnishment proceeding. Summary relief issues stand before us for de novo review, in which this court's scrutiny is exercised independently and without deference to the trial court's resolution of the law.¹⁰

III THE MISREPRESENTATION MADE BY POND IN HER INSURANCE APPLICATION DOES NOT RENDER THE POLICY IN QUESTION VOID, BUT MERELY VOIDABLE

¶ 9 Oklahoma Property argues that the provisions of 36 O.S. 1991 § 3609¹¹ provide it with a statutory defense to Harkrider's garnishment claim based upon Pond's failure to reveal in her insurance application that Posey, an additional and unlicenced driver, was residing in her household. Upon learning of Pond's misrepresentation, Oklahoma Property moved affirmatively to rescind her policy, treating it as void ab initio by refusing to provide coverage for an accident which occurred before rescission was attempted. While we accept Oklahoma Property's contention that § 3609 is applicable to the insurance contract before us,¹² we cannot accede to Oklahoma Property's argument that the misrepresentation made in this case by Pond renders the policy ipso jure¹³ void ab initio. Rather, a policy issued in reliance on a misrepresentation of the kind here under review is merely voidable.

¶ 10 We note at the outset that § 3609 does not use either term, void or voidable. Rather § 3609 provides that a misrepresentation in an application for an insurance policy "does not prevent recovery under the policy unless" the misrepresentation is either fraudulent, material to the risk to be insured, or causes the insurer to issue the policy or include terms in the policy when the insurer would not have done so had the true facts been known. Nothing in the statutory text suggests that in enacting § 3609 the legislature intended to abrogate the common-law distinction between void and voidable contracts.¹⁴ The common law supplements our statutes.¹⁵It remains in full force unless it is clearly and expressly modified or abrogated by our constitution or by statute.¹⁶ This court has never before been called upon to consider in the context of § 3609 the distinction between void and voidable contracts. The word void has occasionally been used by this court in our § 3609 jurisprudence, but it is clear from the context that we were not in those decisions using the term as a word of art to distinguish it from voidable.¹⁷ Nothing in the statutory text of § 3609 nor in our extant jurisprudence prevents us from interpreting § 3609 in conformity with the general common law of contracts which recognizes the distinction between contracts that are void and those that are merely voidable.

¶ 11 At common law a contract procured through misrepresentation can be either void or voidable, depending on the nature of the misrepresentation.¹⁸ Where a contract is entered into on the basis of a misrepresentation which deceives one of the parties as to the true nature of the proposed agreement, the purported contract is rendered void.¹⁹ Known as fraud in esse contractus, fraud in the execution, or fraud in factum, a misrepresentation of this sort results in a contract which is a nullity.²⁰ No legal rights are created and either (or any) party may ignore the purported contract at his pleasure, to the extent it remains executory.²¹ On the other hand, where a contract is entered into on the basis of a misrepresentation which goes to the contract's inducement, as a notion distinct from its nature, the tainted agreement is rendered merely voidable.²² Fraud in the inducement is defined as a

"misrepresentation as to the terms, quality or other aspects of a contractual relation, venture or other transaction that leads a person to agree to enter into the transaction with a false impression or understanding of the risks, duties or obligations she has undertaken."²³

A contract voidable for fraud in the inducement creates a valid contractual relationship, which subsists in contemplation of law until the parties are relieved of their obligation by a decree of rescission.²⁴

¶ 12 Applying this distinction to the facts of this case, we hold that the misrepresentation made by Pond in her insurance application falls within the category of fraud in the inducement. There is no allegation or proof that Oklahoma Property was deceived as to the true nature of the insurance contract so as to render the contract void. Rather, Pond misled Oklahoma Property as to the risk it was insuring and the...