Ingalls v. Paul Revere Life Ins. Group

Decision Date20 March 1997
Docket NumberNo. 960145,960145
Citation561 N.W.2d 273
PartiesLee INGALLS, Plaintiff and Appellee, v. PAUL REVERE LIFE INSURANCE GROUP, Defendant and Appellant. Art Stuhlmiller, National Guardian Insurance Group, and Harley Hoff, Defendants. Civil
CourtNorth Dakota Supreme Court

Randall J. Bakke (argued), of Smith Bakke Hovland & Oppegard, Bismarck, for plaintiff and appellee. Appearance by Scott K. Porsborg.

Patricia R. Monson (argued), of Dorsey & Whitney, Fargo, for defendant and appellant. Appearance by Todd E. Zimmerman.

Lyle W. Kirmis, of Zuger Kirmis & Smith, Bismarck, for amicus curiae Health Insurance Association of America and American Council of Life Insurance. Submitted on brief.

MESCHKE, Justice.

¶1 Paul Revere Life Insurance Company (Revere) has appealed a judgment against it for breach of a disability insurance policy with its insured, Lee Ingalls, that awarded past and continuing benefits, damages for mental anguish, and exemplary damages. We affirm.

¶2 In August 1990, Ingalls began working as a railroad switchman while also operating his 2,700-acre farm and ranch. On September 14, 1990, and October 15, 1990, Ingalls applied to Revere for disability insurance on forms completed for him by Art Stuhlmiller, an insurance agent. Ingalls listed his occupation as being a farmer, rancher, and railroad switchman. On October 31, 1990, Revere conducted a telephonic Personal History Interview (PHI) with Ingalls. Revere insured Ingalls against a loss of income due to injury or sickness for up to $1,300 per month.

¶3 On December 22, 1990, Ingalls lost a large part of his right foot in a railroad accident, resulting in four surgical operations within two years. Ingalls submitted a claim to Revere in January 1991. Revere paid benefits through October 2, 1992. Then Revere offered a lump sum settlement of $15,600 that Ingalls declined. At Revere's request, Ingalls furnished copies of his tax returns for 1988, 1989, and 1990. In April 1993, Revere rescinded Ingalls's policy, claiming that Ingalls misrepresented his income in his application.

¶4 Ingalls sued Revere and Stuhlmiller for breach of contract, bad faith, and fraud. Revere answered and counterclaimed, alleging Ingalls fraudulently or negligently misrepresented his income, seeking a declaration it properly rescinded the policy, and seeking restitution of the $18,915 in benefits paid Ingalls before its rescission. After a jury verdict for Ingalls, the trial court entered a judgment awarding Ingalls $62,013.36 for breach of contract, requiring Revere to pay Ingalls disability benefits of $1,300 per month until he reaches age 65, awarding Ingalls $500,000 for mental anguish, awarding him $2,500,000 in exemplary damages, and awarding Ingalls costs and disbursements of $54,060.08. The trial court later revised the judgment to add Ingalls's litigation costs and attorney fees of $242,981.88.


¶5 Revere contends the trial court erred in ruling that misrepresentations of Ingalls's income did not increase the insurer's risk of loss as a basis for rescission of the policy.

An oral or written misrepresentation made in the negotiation of an insurance contract or policy by the insured or in the insured's behalf is material or defeats or avoids the policy or prevents its attaching only if the misrepresentation has been made with actual intent to deceive or unless the matter misrepresented increased the risk of loss.

NDCC 26.1-29-25. In applying this law to Ingalls's alleged misrepresentation of income, the trial court instructed the jury:

(3) On [Ingalls's] bad faith claim there are three issues:

A. Has [Revere] proved as a defense that [Ingalls] misrepresented his income in his application for the insurance so as to provide a reasonable basis for rescission of the policy;....

The trial court also instructed the jury:

Defendant Paul Revere rescinded (which means canceled) the disability policy previously issued to [Ingalls] based on its contention that [Ingalls] misrepresented his income on the application. As a defense to the bad faith claim [Revere] claims its rescission was reasonable.

A representation is false when the facts fail to correspond to the assertion or representation. A representation may be altered or withdrawn before the effective date of the insurance but not afterwards.

An insurer is entitled to rely on the truthfulness of answers given in an insured's application. This right to rely on the truthfulness of answers given in an insured's application is only waived when the falsity of such answers is distinctly implied or made clear by other facts available to the insurer. The answers in an application for life insurance must be given a reasonable interpretation.

* * * * * *

Paul Revere was entitled to rescind Ingalls' policy if:

(1) [Ingalls] misrepresented facts in the application process for insurance; and

(2) The facts misrepresented increased the risk of loss under the policy.

In proceedings prior to this trial, this court decided as a matter of law that even if [Ingalls] misrepresented his income it did not increase the risk of loss under the policy. Prior to my ruling, the North Dakota courts had not addressed such an issue. However, I did not decide whether [Ingalls] misrepresented his income in the application process as that is a matter for the jury to decide.

Thus, you must decide if [Revere's] action in investigating and then rescinding on the basis of an income misrepresentation was reasonable or whether it was in violation of the duty of dealing fairly and in good faith with [Ingalls].

You need not concern yourselves whether any alleged misrepresentation increased the risk of loss since that was a question of law which I have already decided. You need only decide whether [Revere's] assertion that [Ingalls] misrepresented his income was reasonable under the duty to deal fairly and in good faith.

¶6 The trial court also instructed the jury about Ingalls's possible fault in the application process contributing to his damages:

Defendant Paul Revere has alleged that [Ingalls] himself committed negligence in the application process thus causing all or part of the damages claimed under the bad faith claim.

Everyone has a duty to exercise ordinary care in conducting his affairs and in doing so, to make reasonable use of his faculties to avoid damage to himself. If he fails to do so, he is guilty of negligence. Accordingly, negligence of an injured claimant is "contributory fault" if it concurs or combines with the fault of a defendant so that the fault of both is a cause of the claimant's injury, although the fault of a defendant may have been different in degree or its effect.

* * * * * *

The law requires that fault be apportioned among those parties you have found to be at fault in causing [Ingalls's] injuries.

Defendant Paul Revere's fault may consist of breach of the duty to deal fairly and in good faith.

[Ingalls's] fault may consist of contributory negligence.

If, by your answers, you have determined that [Ingalls] and [Revere] are both at fault and that their fault was a cause of [Ingalls's] damages, you must apportion fault among them on the verdict form.

¶7 Revere argued to the jury that Ingalls misrepresented his income:

The first question on your jury verdict form talks about whether or not Paul Revere was reasonable in its decision to rescind in this case....

Now, remember the reason for rescission was misrepresentation of income. And I don't think there is any question but that there was a huge misrepresentation of income on Mr. Ingalls' application for benefits.

* * * * * *

Mr. Ingalls' conduct must also be considered in this case. You've been given an instruction on contributory negligence. And you are going to be asked to consider what, if anything, Mr. Ingalls did that caused his own damages in this case. And that's every step of the way....

Third, rescission. That is really the most important decision, the most critical for you to make in this case on the issue of rescission and whether or not it was reasonable. What did the company know about Mr. Ingalls' condition, his financial condition at the time that it issued this policy, and what did it learn later on and what did Mr. Ingalls contribute to that misrepresentation? Well, I don't think he not only contributed to it, but he was the sole cause of the misrepresentation. The only cause. The application clearly indicates that he had positive net earnings, the Personal History Interview likewise.

¶8 The special verdict of the jury answered specific bad faith interrogatories:

(1) Do you find that [Revere] has proved that it had a reasonable basis for rescission of the policy by the greater weight of the evidence?



(Yes or No)

(2) If you answered (1) above "no," Do you find that plaintiff has proved defendant to have acted in bad faith and to have caused damage to plaintiff by the greater weight of the evidence?



(Yes or No)

(3) If you answered "no" to (1) above and "yes" to (2) above, do you find that [Revere] has proved [Ingalls] to have been contributorily negligent and the cause of all or part of his claimed damages by the greater weight of the evidence?



(Yes or No)

¶9 The special verdict form did not directly ask the jury to determine if Ingalls misrepresented his income. Revere did not ask the trial court to submit that specific question to the jury in the verdict form. Under N.D.R.Civ.P. 49(a), Revere waived jury trial of that issue. 1 In ordering entry of judgment on the jury verdict, the trial court expressly invoked Rule 49 and found against Revere on all factual issues not submitted to the jury. What is more, in light of the evidence, instructions, and arguments presented to the jury, a fair reading of the special verdict makes it clear that the jury implicitly found Ingalls did not misrepresent his income.

¶10 The evidence supports that implicit finding Ingalls did not misrepresent his...

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