Hendrix v. Insurance Co. of North America

• Decision Date: 18 April 1984
• Citation: 675 S.W.2d 476
• Parties: Wayne HENDRIX, Plaintiff-Appellee, v. INSURANCE COMPANY OF NORTH AMERICA and Larry White and Associates, Inc., Defendants-Appellants. 675 S.W.2d 476
• Court: Tennessee Court of Appeals

Page 476

675 S.W.2d 476

Wayne HENDRIX, Plaintiff-Appellee, v. INSURANCE COMPANY OF NORTH AMERICA and Larry White and Associates, Inc., Defendants-Appellants.

675 S.W.2d 476

Court of Appeals of Tennessee,

Western Section, at Jackson.

April 18, 1984.

Permission to Appeal Denied by

Supreme Court Aug. 27, 1984.

Permission to Appeal Dismissed by Supreme Court October 27,

1986.

Charles S. Kelly, Dyersburg, for plaintiff-appellee.

R.A. Ashley, Jr. and Stephen D. Scofield, Dyersburg, for Larry White and Associates, Inc., defendant-appellant.

Fred M. Ridolphi, Jr., Daniel P. Jaffe, Memphis, for Insurance Company of North America defendant-appellant.

HIGHERS, Judge.

The plaintiff, Wayne Hendrix, and the defendant, Insurance Company of North America (INA), entered into an insurance contract covering the Midway Truck Stop. The insurance policy was to be effective from October 10, 1980, to October 9, 1981, and covered fire loss on the structure for $85,000.00, on the contents for $25,000.00, and on loss of income for $30,000.00. The contract also contained the following provision:

This entire policy shall be void if the insured has concealed or misrepresented, in writing or otherwise, any material facts or circumstances concerning this insurance or the subject thereof, or if the insured shall make any attempt to defraud the company either before or after the loss ...

In September of 1980, the plaintiff and Robert Daniel had agreed that Daniel would have the exclusive right to place amusement or vending machines in the truck stop. On June 11, 1981, the plaintiff and Daniel agreed to insure seven or eight amusement and vending machines belonging to Daniel through the plaintiff's insurance policy. They planned either to have Daniel listed on the policy or to have Daniel give the plaintiff a bogus bill of sale for the machines in case of loss. The plaintiff contends that this plan was suggested by Larry White, INA's agent. The plaintiff asked Larry White that the contents coverage be increased to $70,000.00 and that the building coverage be increased to $130,000.00. Although White denies that an agreement was reached concerning the increase, the plaintiff contends that White agreed to arrange the increased coverage through either INA or another insurance company, Great American Insurance Company (GAI). INA declined to approve the increase, and Hendrix was aware that INA had not approved the added coverage.

Two fires damaged the truck stop on June 24 and 25, 1981. The plaintiff claimed $70,000.00, the alleged policy limit on loss of contents, which included $30,000.00 for damage to the amusement machines. The machines, however, were taken from the truck stop after the first fire on June 24, and it is undisputed that they were damaged only to the extent of $6,736.30.

At trial, the plaintiff denied that he had claimed $30,000.00 from INA on the machines. He stated that he had originally claimed the machines under the INA policy because he did not know whether White had insured them through INA or through GAI. The plaintiff later claimed only the original $25,000.00 policy limit from INA on the contents, and $15,000.00 from White for additional contents loss for which White allegedly was to have procured coverage.

The plaintiff and his wife, Wanda K. Hendrix, filed suit on July 30, 1981, against INA, GAI, and Larry White. Arson charges were brought in a criminal proceeding against the plaintiff, but were dismissed on or about February 10, 1982. GAI was granted summary judgment on June 1, 1982. Mrs. Hendrix took a voluntary non-suit as to Larry White, and her complaint against INA was dismissed. The case was tried before a jury, and a verdict based upon special interrogatories was returned against INA for $84,000.00 plus interest on the structure, $25,000.00 plus interest on the contents, and $23,000.00 plus interest for lost income, and judgment was given against White for $15,000.00 plus interest for additional loss of contents.

INA brings this appeal, alleging that the trial court should have granted a summary judgment or a directed verdict in its favor on its defense of fraud, and that it was entitled to a new trial because of improper instructions to the jury and because the weight of the evidence was against the verdict. The defendant, Larry White, also appeals, arguing that there is no liability for his failure to provide insurance because the plaintiff committed fraud, and there was error in the jury instructions, that the verdict is not sustained by the sufficiency of the evidence, and that there was never an agreement between the plaintiff and White concerning an increase in insurance coverage.

INA contends that the plaintiff committed fraud by claiming damages on amusement machines owned by Robert Daniel, by claiming a $30,000.00 loss on the machines when they were damaged only to the extent of $6,736.30, by attempting to insure Daniel's machines under plaintiff's insurance, by claiming lost rental income from undamaged portions of the truck stop, by claiming total losses on contents only minimally damaged, by claiming a total building loss when the building was not completely destroyed, and by committing arson. The crux of INA's argument at trial was that the plaintiff was guilty of fraud. In defining fraud, INA cites Tartera v. Palumbo, 224 Tenn. 262, 453 S.W.2d 780 (Tenn.1970), which states that "fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false." 453 S.W.2d at 782, citing Derry v. Peek, 14 App.Cas. 337, 58 L.J.Ch. 864 (1889). In order to defeat a policy of insurance on the basis of fraud in the procurement, an insurer must prove actual intent to defraud, or an increased risk of loss. T.C.A. Sec. 56-7-103 states:

No written or oral misrepresentation or warranty therein made in the negotiations of a contract or policy of insurance, or in the application therefor, by the assured or in his behalf, shall be deemed material or defeat or void the policy or prevent it attaching, unless such misrepresentation or warranty is made with actual intent to deceive, or unless the matter represented increases the risk of loss.

In Boston Marine Ins. Co. v. Scales, 101 Tenn. 628, 49 S.W. 743 (Tenn.1899), prior to the adoption of T.C.A. Sec. 56-7-103, the Court held that an insurer must show a more specific degree of intent to avoid a contract for fraud in swearing to the proofs of loss than for fraud in the procurement of the policy. In that case, and more recently in Baker v. Nationwide Mutual Fire Ins. Co., 646 S.W.2d 440 (Tenn.App.1982), the principle was enunciated that when the insurer raises the defense of fraud in the proofs of loss, the plaintiff must be shown to have acted with an intent to deceive the insurer. In Scales, in discussing a similar case, the Court stated:

That case also intimates a distinction between cases of false swearing in the application for insurance and false swearing in the proofs of loss after it happens. And there must, from the nature of things, be a difference between the cases, even though the policy provide that false swearing, either before or after the loss, shall vitiate the policy. When the false swearing is in the application, it forms the basis upon which the contract rests, and, if fraud enters into it, the policy would be voided, even though the policy do not so provide. But, after the loss occurs, then voiding the policy is in the nature of a penalty or forfeiture. In other words, in such cases the holding is virtually that although the insured has had a loss, and may be entitled to recover from it, yet, as he has been guilty of fraud in the proofs, he must have his policy vacated and set aside as a punishment for such fraud or attempted fraud. In the latter case, as in all cases of forfeiture, a strict construction should be adopted, and the forfeiture not enforced except on the plainest grounds, if at all.

49 S.W. at 746.

INA contends that based upon its defense of fraud, it moved for summary judgment in the trial court and that plaintiff's counter-affidavit was not specific enough to bring factual issues into controversy. INA concludes that summary judgment in its favor was improperly denied. Plaintiff's affidavit in support of its answer to INA's motion for summary judgment stated:

I, Wayne Hendrix, being duly sworn, make oath as...