Nationwide Mut. Fire Ins. Co. v. Dungan

• Decision Date: 15 June 1987
• Docket Number: No. 86-4266,86-4266
• Parties: NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Plaintiff-Appellee, v. Harold DUNGAN and Bobbie Dungan, United States of America, Farmer's Home Administration, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1239

818 F.2d 1239

NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Plaintiff-Appellee, v. Harold DUNGAN and Bobbie Dungan, United States of America, Farmer's Home Administration, Defendants-Appellants.

No. 86-4266.

United States Court of Appeals, Fifth Circuit.

June 15, 1987.

John Arthur Eaves, Pshon Barrett, Asst. U.S. Atty., Eaves & Eaves, George Phillips, U.S. Atty., Jackson, Miss., for defendants-appellants.

James L. Carroll, Rebecca Lee Wiggs, Watkins & Eager, Jackson, Miss., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Mississippi.

Before WISDOM, WILLIAMS, and HILL, Circuit Judges.

ROBERT MADDEN HILL, Circuit Judge:

Nationwide Mutual Fire Insurance Company (Nationwide) filed this action pursuant to 28 U.S.C. Secs. 2201 and 2202 seeking a declaratory judgment concerning whether it was liable on a homeowner's insurance policy issued by it to Harold and Bobbie Dungan. The Dungans counterclaimed alleging breach of contract and bad faith refusal by Nationwide to pay benefits under the homeowner's policy. The United States, on behalf of Farmer's Home Administration (FmHA), intervened seeking a declaratory judgment that it was entitled to recover the proceeds of the policy by virtue of its priority lien on the Dungans' home, notwithstanding any defenses Nationwide may be able to assert against the Dungans. The district court concluded that Nationwide was not liable to either the Dungans or the FmHA on the insurance policy and granted the declaratory judgment in its favor. The court also denied both the Dungans' and the FmHA's claims, 634 F.Supp. 674 (S.D.Miss.1986). We affirm.

I.

In 1974 the Dungans constructed a home near Pattison, Mississippi. In January 1982 Harold Dungan sought insurance coverage for this home from Nationwide. About January 6, 1982, ¹ Dungan called Early on July 19, 1984, the Dungans' home was completely destroyed by fire. At the time the Dungans were not at home. Nationwide received notice of the loss the same day and assigned the claim to Bill Stevenson. Stevenson later met with Dungan and secured his signature on a non-waiver agreement ² and his permission to go onto the premises to investigate the cause of the fire. Stevenson conducted a brief investigation of the fire damage, determining that there was a total fire loss.

                June H. Farrar, a Nationwide agent, to inquire about obtaining insurance.  Shortly thereafter, Farrar and Whitlatch drove to Dungan's home to take his application for insurance.  Following a review of the premises, Farrar and Dungan returned to the den of the house to fill out the application form.  Because it was normal practice in the application process and because Dungan's eyeglasses were being repaired and no others were available to him, Farrar stated the questions on the form verbatim and filled out the form in accordance with the answers provided by Dungan.  Basically, his answers indicated that there had been no past losses, that he had never had any policy cancelled or not renewed, that he had never filed for bankrupty, and that no mortgages were held on the property.  The application was then signed by Dungan as the insured.  The signature of the insured was located just below and presumably in accordance with a warranty appearing on the face of the application which stated, "I hereby declare that the facts stated in the above application are true and request the company to issue the insurance and any renewals thereof in reliance thereon."    Thereafter Nationwide issued its policy insuring the Dungans' home
                

The next day Stevenson met with the Dungans at a motel in Vicksburg, Mississippi, for the purpose of taking a statement and disbursing claim materials to them. A transcript of the statement was admitted in evidence. In this statement Dungan stated that he owed the FmHA about $250,000 to $275,000; that he was current on his debt; that there was no mortgage on his home; that the only previous loss that he claimed insurance for was eight to ten years ago on a mobile home that burned, for a total loss of about $12,000; and that he never had an insurance policy cancelled or refused renewal.

After meeting with the Dungans, Stevenson went to Fayette, Mississippi, to perform a routine search of the courthouse records to verify ownership of the property. He learned from the records that FmHA held a mortgage on the Dungan residence. Stevenson then went to the Jefferson County office of the FmHA in Fayette and talked with James O. Taylor, FmHA County Supervisor, concerning the Dungans' mortgage. Taylor informed him that FmHA held a mortgage on the Dungans' home and that the Dungans were delinquent in payment of accounts owed to FmHA totaling $381,736.84. Stevenson produced to Taylor a waiver of records form signed by the Dungans, and Taylor allowed him to examine the Dungans' file. There Stevenson found an old insurance policy issued to the Dungans by United States Fidelity & Guaranty Company (USF & G) through the Gage Insurance Agency (Gage) in Port Gibson, Mississippi.

Back in Port Gibson and upon information provided by Gage employees, Stevenson learned that less than a month prior to the issuance of the Nationwide policy, USF & G had cancelled four policies of insurance which it had with the Dungans. These included a homeowner's policy in the names of the Dungans covering their Pattison residence and an inland marine policy and two fire policies, all payable to Harold Dungan. The effective date of the USF & G policies was November 16, 1981, and they were cancelled effective December 28, 1981.

Stevenson also learned that contrary to the statements contained on the Nationwide application, USF & G had paid Harold Based on the investigation by Stevenson, Nationwide exercised its right under the policy to demand that the Dungans submit to an examination under oath on September 14, 1985, concerning the fire loss. Dungan's responses to questions posed in the examination were adopted by Mrs. Dungan. The substance of pertinent parts of his responses were: that his total outstanding debt to FmHA was between $250,000 and $300,000; that their financial condition was "good"; that the only prior cancellations or non-renewals of insurance policies had been in connection with automobile policies; that the only prior losses he had suffered were fires in his trailer and his father's home, in which he was living at the time it burned; and that the contents loss inventory form filled out in connection with the home fire was accurate. The examination under oath was never amended by the Dungans prior to trial.

Dungan $54,500 on a bulldozer fire that occurred on April 9, 1981, and that Foremost Insurance Company had paid him for a total loss on a double-wide mobile home that burned on January 26, 1974, and some $200 for a loss occasioned by lightning's striking the mobile home on May 18, 1971. Stevenson calculated that the debts owed by the Dungans as of July 25, 1984, including outstanding notes to the Federal Land Bank Association of Brookhaven, two Port Gibson banks and a Vicksburg bank, collectively totaled $464,470.56.

On October 23, 1984, the Dungans submitted a sworn statement in proof of loss to Nationwide claiming coverage under the policy in the amount of $200,600 including in excess of $60,000 for loss of contents and home furnishings. The claim was forwarded to Ken Yeager, Nationwide's district claims manager for all of Mississippi, who determined, based upon advice of counsel, to deny the claim on November 9, 1984. ³ On November 16, 1984, the action requesting declaratory relief was filed by Nationwide.

The Dungans' version of the facts of this case is substantially at odds with the proof adduced by Nationwide. In their case-in-chief, Dungan took the position that he informed Farrar of all previous fire losses, previous cancellations of his USF & G policies, and the FmHA's mortgage on much of his land. To the extent that he may have neglected to inform Farrar of all previous losses or cancellations, particularly with regard to the bulldozer fire, a fire in a chicken house he owned, and the prior USF & G cancellations, Dungan stated that he was under the impression that Farrar was asking only if he had any previous fire loss on his home, or if he had any homeowner's insurance cancelled. Dungan pled the same ignorance when confronted with answers he gave Stevenson in the initial statement taken in Vicksburg on July 24. In explanation of the fact that the application bears misinformation concerning his financial and insurance history, the Dungans contend that Farrar, motivated by blind desire to write the coverage and secure her commission, ignored the accurate answers given by Dungan.

In support of their contention that accurate information was provided Farrar, the Dungans called Bill Nicholson as a witness. Nicholson, a close friend of the Dungans for over 30 years, testified that he visted the Dungan home in January 1982. The substance of his testimony was: that he drove alone from his home in Florence, Mississippi, on a day-long ride through west Mississippi to visit friends and relatives; that he arrived at the Dungans' home in the late morning; that he saw a man, presumably Whitlatch, sitting in a car with the motor running on the circular drive in front of the house; that Mrs. Dungan answered the door and led him into the den area; that Dungan and a lady, presumably Farrar, were seated together on the couch; that the lady was apparently filling out a paper which she held in her lap; that After a bench trial, the district court concluded that Nationwide's version was more plausible and credible and therefore believed that version. Because of the misrepresentations, the court held that the policy was void ab initio and therefore the Dungans could not recover on the policy.

Dungan and the lady did not stop talking when he came into the den, as Dungan was explaining to her about a bulldozer...