Modisette v. Foundation Reserve Ins. Co.

• Decision Date: 01 May 1967
• Docket Number: No. 8066,8066
• Citation: 1967 NMSC 94,77 N.M. 661,427 P.2d 21
• Parties: Charles E. MODISETTE, Plaintiff-Appellee, v. FOUNDATION RESERVE INSURANCE COMPANY, Inc., Defendant-Appellant.
• Court: New Mexico Supreme Court

Page 21

427 P.2d 21

77 N.M. 661

Charles E. MODISETTE, Plaintiff-Appellee, v. FOUNDATION RESERVE INSURANCE COMPANY, Inc., Defendant-Appellant.

No. 8066.

Supreme Court of New Mexico.

May 1, 1967.

Leslie D. Ringer, Santa Fe, for appellant.

Eugene E. Brockman, Tucumcari, for appellee.

OPINION

OMAN, Judge, Court of Appeals.

This is a suit on a comprehensive policy of automobile insurance issued by defendant to plaintiff. The policy included collision coverage, and it was stipulated that the insured vehicle was damaged in a collision on about January 21, 1964 in the amount of $2,370.16.

The trial court found and concluded that the policy of insurance, which was issued on about December 23, 1963, was in force on the date of the collision. He also concluded that no material or fraudulent misrepresentations were made by plaintiff in order to obtain the insurance, that defendant was estopped from claiming any fraud or misrepresentation on the part of the plaintiff, and that plaintiff was entitled to recover judgment in the stipulated amount. Judgment was entered accordingly, and defendant appeals.

It is expressly provided in the initial sentence of the policy of insurance that defendant:

'Agrees with the insured (plaintiff), named in the declarations made a part hereof, in consideration of the payment of the premium and in reliance upon the statements in the declarations * * *'

The very last provision of the policy, which appears as one of the conditions, is as follows:

'Declarations. By acceptance of this policy the named insured (plaintiff) agrees that the statements in the declarations are his agreements and representations, that this policy is issued in reliance upon the truth of such representations and that this policy embodies all agreements existing between himself and the company or any of its agents relating to this insurance.'

The declarations with which we are here concerned are printed and read as follows:

'11. Within the last 36 months no owner or driver named herein, or a resident of their household, has:

'(a) had insurance coverage declined, canceled, cancelation requested, or renewal refused;

'(b) been involved in more than one accident;

'(c) had a drivers license suspended, revoked, or placed on probation, or been cited for violation thereof;

'(d) been cited for Driving While Intoxicated, Reckless or Careless Driving, Hit and Run, Leaving the Scene of an Accident, Failure to Report an Accident, or for engaging in any speed contest;

'(e) been cited for three or more violations of motor vehicle laws, other than overtime parking;

'(f) or had a restricted driver's license, except for glasses;

'except as follows ^*

'If there is any exception to Declaration 11, I attach a Supplementary Rating Statement which is made a part of this policy and any renewals thereof.

After 'e' there is typed, 'yes--speeding 3 times.' No other entry appears by way of answer or exception to any of these declarations.

Answers were taken from the plaintiff to questions of a like import on a printed application form, and after the answers were shown thereon it was signed by him. The answers to these questions are all in the negative, except there is an affirmative answer to the question:

'Has any driver been cited for violation of any motor vehicle laws, except parking, in past three years'?

By way of explanation there are written the words, 'speeding--three.'

The parties stipulated to the following facts pertinent to the issues on this appeal:

'2. On December 23, 1963 at the time of applying for the insurance in question, plaintiff told defendant's agent that he had had three or four speeding tickets in the preceding three years, and told him that at such time (the time of making the application) he didn't have a New Mexico drivers license; that he wouldn't get it back until January. He told the agent that he had a California license which he had got while working there, and showed him the California license. He told the agent also that he had had a previous insurance policy cancelled; that he had stopped paying for it because it was too expensive. He told the agent no other facts which would constitute exceptions to Declaration 11 of the policy.

'3. During the preceding 36 months, plaintiff had had insurance coverage on his automobile declined by Motors Insurance Corp. on October, 1963, as shown by Exhibit A hereto; had had such insurance cancelled by Motors Insurance Corp. in July, 1962, and by Western Farm Bureau Mutual in January, 1963. The grounds for declination by Motors Insurance Corp. in October, 1963, were not stated. The cancellations mentioned all were for non-payment of premium. The policy cancelled by Motors Insurance Corp. in July, 1962, was superseded by simple interest coverage for the protection of a mortgagee.

'4. During the same period, plaintiff's driver's license was put under probation in March, 1961, and in July, 1962, and was suspended in April, 1963.

'5. During the same period, he was cited for speeding four times, as stated to the agent, and in addition was cited for reckless driving in April, 1962, and for reckless driving by drag racing in January, 1963.

'6. No question as to the truthfulness or accuracy of plaintiff's statements to its agent were raised by the defendant until after the accident complained of.

'8. At the time of taking the application from plaintiff, defendant's agent discussed the desired facts with plaintiff as stated above in paragraph 2, and then on a form of his own he prepared the application. Plaintiff then signed it.'

It is undisputed that defendant follows a merit rating plan in writing automobile insurance. An applicant is assigned certain points, or demerits, for exceptions to the declarations contained under declaration 11 above quoted. The answers made by an applicant for insurance to an agent are the basis for the initial assignments of points. The total number of these points determines whether or not the agent can issue the policy. If the points exceed thirty in number, the application must be referred to the home offices of the company for evaluation and determination as to whether or not the policy will be issued, and, if issued, the premium rate.

Had plaintiff made complete and truthful statements of exceptions to declaration 11, he would have been assigned thirty-seven points. Even if we deduct the proper points for the fourth speeding ticket, which it is stipulated was made known to the agent, we still have a total of thirty-three points, which would have required the submission of the application to defendant's home office. However, in view of the information furnished by plaintiff, the agent proceeded to issue the policy.

The defendant's vice-president in charge of claims testified that had all the facts been known, the defendant's application for insurance would have been rejected. This evidence is undisputed.

It is also undisputed that even when the agent issues the policy, as was done in this case, the procedures at the home office of defendant require about thirty days before the underwriting department finally approves or disapproves the policy. In this case the application was taken on December 23, 1963; the policy was dated and issued on December 24; the daily, or copy of the policy, was received in the home office on December 26; the accident occurred and defendant's agent was so notified on January 21, 1964; notice of the accident was received at the home office on January 27; on January 31 defendant undertook to void or cancel the policy and wrote plaintiff so notifying him; and on March 30 plaintiff filed his suit.

Defendant has asserted ten separate points upon which he relies for reversal. These points, with one exception, are attacks on the court's findings and conclusions and asserted errors of the court in failing to make certain requested findings and conclusions. The one point, which does not relate to the findings and conclusions, is a claim of error on the part of the trial court in excluding certain tendered evidence. This point is in no way material to our determination of this appeal.

The undisputed facts, and in particular the stipulated facts, demonstrate unmistakably that full and complete disclosure by plaintiff of all information called for by the declarations of the policy was not made.

A policy of insurance is a contract between the insurer and the insured. McGregor v. Inter-Ocean Ins. Co., 48 Wash.2d 268, 292 P.2d 1054; McKanna v. Continental Assur. Co., 165 Kan. 289, 194 P.2d 515; 12 Appleman, Insurance Law & Practice § 7001 (1943).

An application for insurance is a mere offer or proposal for a contract of insurance. Before a contract of insurance is effected and any contractual relationship exists between the parties, it is necessary that the application be accepted by the insurer, since insurance companies are not compelled to accept every application presented and may stipulate upon what terms and for what period of time the risk will be accepted. Porter v. Butte Farmers Mut. Ins. Co., 68 N.M. 175, 360 P.2d 372. The insurer has the right to set up its own standards, to avail itself of its own experience and the experience of others, to secure information from the applicant, and to rely upon the information furnished as true and to govern its actions accordingly. Chamberlain v. National Life & Accident Ins. Co., 256 Ky. 548, 76 S.W.2d 628; 12 Appleman, Insurance Law & Practice § 7292 (1943).

The obligation to deal fairly and honestly rests equally upon the insurer and the insured. Commercial Cas. Ins. Co. v. Schmidt, 166 Md. 562, 171 A. 725; Chaachou v. American Cent. Ins. Co., 241 F.2d 889 (5th Cir. 1957); Prudential Ins. Co. v. Ford, 37 Del.Ch. 425, 144 A.2d 234; American Cas. Co. v. Ford, 41 Del.Ch. 39, 187 A.2d 425; Brinkoetter v. Pyramid Life Ins. Co., 377 S.W.2d 560 (Mo.App.1964); Gallagher v. New England Mut. Life Ins. Co., 33 N.J.Super. 128, 109 A.2d 457; George v. Guarantee Mut. Life Co., ...