Neill v. Nationwide Mut. Fire Ins., Co., 03-214.

• Decision Date: 18 December 2003
• Docket Number: No. 03-214.,03-214.
• Citation: 139 S.W.3d 484,355 Ark. 474
• Parties: Lamar NEILL and Rose Neill v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY.
• Court: Arkansas Supreme Court

139 S.W.3d 484

355 Ark. 474

Lamar NEILL and Rose Neill v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY.

No. 03-214.

Supreme Court of Arkansas.

December 18, 2003.

Appeal from the Circuit Court, Logan County, Paul E. Danielson, J Gibson Law Office, by: C.S. "Chuck" Gibson, Dermott, for appellants.

Harrison, Watts, Donovan & Tilley, P.A., by: Jim Tilley and Michael McLarty, Little Rock, for appellee.

JIM HANNAH, Justice.

Lamar Neill appeals a summary judgment entered in favor of Nationwide Mutual Fire Insurance Company finding a policy was void ab initio because the insurance application signed by Neill and prepared by an agent of Nationwide indicated Neill had no prior history of fire losses when he did. Neill asserts that the trial court erred in granting summary judgment because genuine issues of material fact remain regarding whether Neill or Nationwide is responsible for the mistakes about prior fire history on the application. Nationwide argues that Neill is bound by the application because he signed it certifying that the facts stated in the application were true. We hold that where an insured signs an application which was prepared by an insurance company's agent, and a conflict in the evidence arises as to whether an error on an insurance application was caused by the fraud, negligence or mistake of the agent, a question of material fact is presented which precludes entry of summary judgment.

This court has jurisdiction pursuant to Ark. Sup.Ct. R. 2-4(c)(ii)(iii)(2003).

Facts

On November 18, 1993, Neill applied for homeowners insurance with Nationwide. As a part of the application process, Nationwide's agent verbally asked Neill a series of questions and entered responses on a computer. The agent then printed the application and handed it to Neill. Neill signed the application. It is undisputed that Neill did not read the application before signing it. Printed on the application under the heading, "PAST LOSSES," is the word "NONE."

This loss report on the application was false. Neill had suffered three previous fire losses. On April 16, 1997, the Neill mobile home was damaged by fire. After the fire, Nationwide's adjustors asked Neill if he had suffered prior fire losses. He stated that he had. Nationwide then obtained an examination under oath of Neill and determined that Neill had suffered three prior losses by fire. After the examination under oath and completion of its investigation, Nationwide issued a written denial of coverage to Neill, alleging that the policy was void ab initio as a consequence of Neill's misrepresentation on the insurance application regarding prior fire losses.

Nationwide filed a Complaint for Declaratory Judgment and Damages asserting that the policy was void based on a material misrepresentation on the application for insurance regarding prior losses. Neill and his wife responded with a counterclaim for damages sustained in the fire, which was later amended to include causes of action for breach of contract and bad faith. Nationwide moved for summary judgment alleging that the policy was void ab initio because of misrepresentation in the application, and alleged further that had Nationwide known of the prior losses, the policy would not have been issued. Although Neill's position in this case was that any error in the application was Nationwide's fault because he was never asked about losses in the application process, Nationwide did not address that issue in its motion for summary judgment. Instead, Nationwide presented the trial court with the single issue of whether by signing the application that lacked information on prior losses Neill was bound by its contents. The trial court agreed with Nationwide and granted the motion for summary judgment finding that the three prior fire losses were material and entitled Nationwide to void the policy. Neill appealed the trial court's decision to the court of appeals which reversed and remanded the case. See Neill v. Nationwide Mut. Fire Ins. Co., 81 Ark.App. 67, 98 S.W.3d 448 (2003). Nationwide filed a Petition for Review in this court which was granted.

Standard of Review

When we grant a petition for review, we consider the matter as if the appeal had been originally filed in this court. BPS, Inc. v. Parker, 345 Ark. 381, 47 S.W.3d 858 (2001). A trial court may grant summary judgment only when it is clear that there are no genuine issues of material fact to be litigated, and the party is entitled to judgment as a matter of law. Craighead Elec. Coop. Corp. v. Craighead County, 352 Ark. 76, 98 S.W.3d 414 (2003); Cole v. Laws, 349 Ark. 177, 76 S.W.3d 878 (2002). Once the moving party has established a prima facie case showing entitlement to summary judgment, the opposing party must meet proof with proof and demonstrate the existence of a material issue of fact. Id. On appellate review, we determine if summary judgment was appropriate based on whether the evidentiary items presented by the moving party in support of its motion leave a material fact unanswered. Id. This court views the evidence in a light most favorable to the party against whom the motion was filed, resolving all doubts and inferences against the moving party. Craighead Elec., supra; Adams v. Arthur, 333 Ark. 53, 969 S.W.2d 598 (1998).

Fraud or Misrepresentation on the Application

There is no dispute that the application failed to list three prior fire losses suffered by Neill. The question presented is whether the act of signing the application binds Neill to its contents. Nationwide asserts that "[i]f anyone has a duty to assure that the responses in the application were true, it is an applicant, such as Appellant, not Nationwide." It is, however, undisputed that Nationwide's agent generated the application and put Neill's responses to the questions on the application. It is also undisputed that Neill did not read the application before signing it.

We begin our analysis by stating the basic principle that an insurance company may retroactively rescind a policy because of fraud or misrepresentation of the insured. Ferrell v. Columbia Mut. Cas. Ins. Co., 306 Ark. 533, 816 S.W.2d 593 (1991); Old Colony Life Ins. Co. v. Fetzer, 176 Ark. 361, 3 S.W.2d 46 (1928). In the case before us, Nationwide asserts Neill made misrepresentations on the application when he signed the application that failed to list prior losses suffered by Neill. Nationwide stated in its response to interrogatories that it was Nationwide's position that its agent "inquired of Lamar Neill on November 18, 1993, whether he had any prior losses, and that Mr. Neill's answer was, `No." However, in its motion for summary judgment, Nationwide did not argue about whether the question was asked, but instead argued that since Neill signed the application, he is bound by its false contents. In his response to the motion for summary judgment, Neill argued that the question about losses had not been asked. As evidence in opposition to the motion for summary judgment, Neill offered a portion of his examination under oath taken by Nationwide after the fire where Nationwide asks Neill if the agent asked the question about prior losses in the application process and Neill responded that the question was not asked.

Neill signed the false application. The general rule is that a if a person signs a document, he or she is bound under the law to know the contents of the document. Banks v. Evans, 347 Ark. 383, 64 S.W.3d 746 (2002); Carmichael v. Nationwide Life Ins. Co., 305 Ark. 549, 810 S.W.2d 39 (1991). Further, one who signs a contract, after an opportunity to examine it, cannot be heard to say that he or she did not know what it contained. Dodson v. Abercrombie, 212 Ark. 918, 208 S.W.2d 433 (1948); Pittsburgh Steel Co. v. Wood, 109 Ark. 537, 160 S.W. 519 (1913); Mitchell Mfg. Co. v. Kempner, 84 Ark. 349, 105 S.W. 880 (1907).

That is the general rule, however; as found in Dodson, supra, there is an exception to the general rule where a signature is procured by fraudulent misrepresentations of what a document contains. See also Massachusetts Mut. Life Ins. Co. v. Brun, 187 Ark. 790, 62 S.W.2d 961 (1933). In Belew v. Griffis, 249 Ark. 589, 460 S.W.2d 80 (1970), we characterized this exception as follows:

Although a person is ordinarily bound to know the contents of a contract which he signs, we have often recognized an exception to the principle when fraud or inequitable conduct is charged.

Belew, 249 Ark. at 591, 460 S.W.2d 80. In Clark v. Trammell, 208 Ark. 450, 186 S.W.2d 668 (1945), we similarly stated:

If there were no elements of fraud, concealment, misrepresentation, undue influence, violation of confidence reposed, or of other inequitable conduct in the transaction, the party who knows, or had an opportunity to know, the contents of an agreement or other instrument, cannot defeat its performance, or obtain its cancellation or reformation, because he mistook the legal meaning and effect of the whole, or of any of its provisions.

Clark, 208 Ark. at 452, 186 S.W.2d 668. The exception with respect to contract law generally may therefore be summarized as one is bound by a document signed where there was an opportunity to examine it, unless there was undue influence, misrepresentation, violation of confidence, fraud, concealment or other inequitable conduct involved in procuring the signature.

This exception in the context of insurance contracts is broader than in general contract law. This is because there is a "judicial recognition that most insurance contracts rather than being the result of anything resembling equal bargaining between the parties are truly adhesion contracts in which many insureds face two options: (1) accept the standard insurance policy offered by the insurer, or (2) go without insurance."

2 Lee R. Russ, Couch on Insurance § 22.11 (3d ed.1997). An insured has no voice in the preparation of insurance forms. Old Equity Life Ins. Co. v. Crumby, 241 Ark. 982, 411 S.W.2d 292 (1...