Midland Risk Management Co. v. Watford

Decision Date30 June 1994
Docket NumberCA-CV,No. 2,2
Citation876 P.2d 1203,179 Ariz. 168
PartiesMIDLAND RISK MANAGEMENT COMPANY, a Tennessee corporation, Plaintiff/Appellant, v. Dovie Pauline WATFORD and Robert M. Watford, Defendants/Appellees. 94-0037.
CourtArizona Court of Appeals

ESPINOSA, Presiding Judge.

Appellees Dovie Pauline Watford and Robert M. Watford (the Watfords) were involved in an automobile accident with Phillip Genaro Sanchez while he was driving a vehicle insured by appellant Midland Risk Insurance Company (Midland) in the name of his wife, Tamara Louise Sanchez. 1 Midland denied automobile liability coverage for any claims arising out of the accident on the ground that Tamara Sanchez had obtained the policy from Midland by fraudulent misrepresentations and filed this declaratory judgment action. The trial court granted the Watfords' motion for summary judgment and denied Midland's cross-motion for summary judgment, finding that A.R.S. § 28-1170(F) mandates automobile liability insurance coverage after an injury has occurred regardless of whether the policy was fraudulently procured. This appeal followed the denial of Midland's motion for reconsideration.


The facts are uncontested. In February 1992, Tamara Sanchez completed and signed a Personal Automobile Application (Application) for automobile liability insurance with Midland in which she stated that she was single, that there were no other drivers in her household, and that there were no other residents of her household over the age of 14. Later, at Midland's request, she completed and signed a Driver Disclosure Certification which required disclosure of all members of her household age 14 and over who were not listed as drivers or excluded on her Application. Sanchez again represented that there were no other residents of her household age 14 or over. In fact, when Sanchez completed the Application and Driver Disclosure Certification, she was married to Phillip Genaro Sanchez, and they resided together in Peoria, Arizona.

In March 1992, Phillip Sanchez was operating the vehicle insured in Tamara's name when he rear-ended a vehicle driven by Dovie Watford. As a result of this accident, Midland learned of Phillip Sanchez's existence and further discovered that he had been convicted of driving under the influence of alcohol, driving on a suspended license on two occasions, and violating the Financial Responsibility Act, 2 and that his driving privileges had been revoked for almost a year. Pursuant to Midland's underwriting guidelines and A.R.S. § 28-1170(B)(3), Midland would have excluded Phillip Sanchez from coverage had he been previously disclosed.

Standard of Review

In reviewing a summary judgment, we view the evidence in a light most favorable to the losing party, and give that party the benefit of all favorable inferences that may reasonably be drawn from the evidence. Hill-Shafer Partnership v. Chilson Family Trust, 165 Ariz. 469, 799 P.2d 810 (1990); Wisener v. State, 123 Ariz. 148, 598 P.2d 511 (1979). Summary judgment is appropriate where the facts are settled and a pure question of law is presented. United California Bank v. Prudential Ins. Co., 140 Ariz. 238, 681 P.2d 390 (App.1983). We review such questions de novo. Employer's Mut. Casualty Co. v. McKeon, 170 Ariz. 75, 821 P.2d 766 (App.1991).

Liability of the Insurance Carrier

The primary issue raised by this appeal is whether A.R.S. § 28-1170(F)(1) precludes an automobile liability insurer from avoiding coverage as to injured third parties even though the policy providing coverage was procured by the insured's deliberate and material misrepresentations in the insurance application. The trial court determined that, as a matter of law, § 28-1170 does not permit Midland to avoid coverage for the Watfords' claims.

The parties agree that but for the accident Midland could have rescinded the policy it issued to Tamara Sanchez as a result of her fraud. Midland, however, maintains that despite the accident it may avoid liability coverage in the instant case, contending that A.R.S. § 28-1170(F)(1) is inapplicable and the resolution of this issue is controlled by A.R.S. § 20-1109, which provides in part:

Misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent a recovery under the policy unless:

1. Fraudulent.

2. Material either to the acceptance of the risk, or to the hazard assumed by the insurer.

3. The insurer in good faith would either not have issued the policy ... or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or otherwise.

Although fraud is a policy defense under § 20-1109, Midland's argument fails to recognize the full import of the Motor Vehicle Safety Responsibility Act, and specifically § 28-1170(F)(1), which provides:

Every motor vehicle liability policy is subject to the following provisions which need not be contained in the policy:

1. The liability of the insurance carrier with respect to the insurance required by this chapter shall become absolute when injury or damage covered by the motor vehicle liability policy occurs. The policy may not be cancelled or annulled as to such liability by an agreement between the insurance carrier and the insured after the occurrence of the injury of damage, and no statement made by the insured or on his behalf and no violation of the policy shall defeat or void the policy.

This statute broadly mandates that an insurer's obligation to provide coverage "shall become absolute" whenever injury occurs. Unlike the provisions of § 20-1109, which apply to insurance policies of all kinds, § 28-1170 is applicable only to automobile insurance policies. It is a fundamental rule of statutory construction that courts will construe conflicting statutes in harmony when possible. Baker v. Gardner, 160 Ariz. 98, 770 P.2d 766 (1988). Where two statutes dealing with the same subject are seemingly in conflict, the more specific statute controls. Pima County v. Heinfeld, 134 Ariz. 133, 654 P.2d 281 (1982). As a matter of statutory construction, the general provisions of § 20-1109 do not override the more specific provisions of § 28-1170(F)(1). See, e.g., Farmer's Insurance Exchange v. Rose, 411 F.2d 270 (9th Cir.1969).

This result is further supported by our supreme court's determination that every automobile liability policy is subject to A.R.S. § 28-1170(F)(1), whether or not "certified" under the Act or expressly stated in the insurance contract. See Sandoval v. Chenoweth, 102 Ariz. 241, 428 P.2d 98 (1967); Jenkins v. Mayflower Ins. Exchange, 93 Ariz. 287, 380 P.2d 145 (1963). Because this was an automobile liability policy, once the Watfords were injured in the accident, § 28-1170(F)(1) superseded § 20-1109.

Midland relies on our decision in Keplinger v. Mid-Century Insurance Company, 115 Ariz. 387, 565 P.2d 893 (App.1977), for the proposition that § 20-1109 is controlling due to the fraudulent conduct which occurred here. We have reexamined Keplinger and can find no support for Midland's conclusion. In that case, the accident victim appealed the trial court's finding that an automobile liability policy issued by the insurer to her husband was vitiated by his alleged misrepresentations in the application and did not cover injuries she sustained as a passenger in the insured car. Although we cited § 20-1109 as authority for the general policy defense of fraud or misrepresentation, we concluded that the carrier had not sustained its burden of establishing grounds for avoiding liability primarily because it had not shown it would have refused coverage for the loss had it known of the intended use of the insured vehicle. Thus, it was not necessary to consider the applicability of § 28-1170(F)(1).

Alternatively, Midland contends that even if A.R.S. § 28-1170(F)(1) is applicable, it does not mandate coverage under all circumstances and would not here. Midland asserts that § 28-1170(F)(1) must be interpreted to exclude from its application those insurers who undertake a reasonable investigation of insurability but are unable to discover the fraudulently concealed information. This is so, Midland argues, because it had the right to specifically exclude Phillip Sanchez under § 28-1170(B)(3), and would have had it known of his existence. Thus, requiring coverage under the instant circumstances places form over substance and promotes the fraudulent procurement of automobile insurance coverage. Although there is merit to Midland's argument, we find it contrary to the plain language and intent of § 28-1170(F)(1).

The primary principle of statutory interpretation is to determine and give effect to the legislative intent behind the statute, considering among other things the context of the statute, the language used and the spirit and purpose of the law. See Martin v. Martin, 156 Ariz. 452, 752 P.2d 1038 (1988); State Farm Mutual Auto Ins. Co. v. Wilson, 162 Ariz. 251, 782 P.2d 727 (1989). The Financial Responsibility Act was enacted in response to social and economic problems arising from the increasing casualty rate on Arizona streets and highways. Sandoval, supra. Its primary purpose is the protection of the travelling public from financial hardship resulting from the operation of motor vehicles by financially irresponsible persons. Farmers Ins. Group v. Home Indemnity Co., 108 Ariz. 126, 493 P.2d 909 (1972); Schwab v. State Farm Fire & Casualty Co., 27 Ariz.App. 747, 558 P.2d 942 (1976). Midland suggests, however, that this purpose has since been undercut by the enactment of the ...

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