Phoenix Assur. Co. of Canada v. Runck

• Citation: 366 N.W.2d 788
• Decision Date: 17 April 1985
• Docket Number: No. 10596,10596
• Parties: PHOENIX ASSURANCE COMPANY OF CANADA, Norwich Union Fire Society, Ltd., Royal Insurance Office, and Wawanesa Mutual Insurance Company, Plaintiffs and Appellees, v. Clayton E. RUNCK, Jr. and Herman Sobania, Defendants and Appellants, George Schulz, Defendant. Civ.
• Court: United States State Supreme Court of North Dakota

Page 788

366 N.W.2d 788

PHOENIX ASSURANCE COMPANY OF CANADA, Norwich Union Fire

Society, Ltd., Royal Insurance Office, and Wawanesa Mutual Insurance Company, Plaintiffs and Appellees, v. Clayton E. RUNCK, Jr. and Herman Sobania, Defendants and Appellants, George Schulz, Defendant.

Civ. No. 10596.

Supreme Court of North Dakota.

April 17, 1985.

Vogel, Brantner, Kelly, Knutson, Weir & Bye, Fargo, for plaintiffs and appellees; argued by C. Nicholas Vogel.

Robert Vogel Law Office, Grand Forks, for defendant and appellant Clayton E. Runck, Jr.; argued by Robert Vogel.

GIERKE, Justice.

Clayton E. Runck, Jr., and Herman Sobania ¹ appealed from a district court judgment ² against them and George Schulz in an action brought by several insurance companies to recover insurance proceeds paid to Runck, interest, and punitive damages. We affirm.

The trial court made the following findings of fact:

"3. In the fall of 1971 Runck purchased a building and the surrounding land located in Starbuck, Canada, and had the building and any contents insured under a policy of co-insurance subscribed to by the plaintiffs.

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"5. After the purchase of the building and prior to December 18, 1971, Runck made arrangements with Sobania and Schulz to set fire to the Starbuck building so that he could collect the insurance on the building and its contents.

"6. On December 18, 1971, pursuant to Runck's directions, Sobania succeeded in setting fire to the Starbuck building after Schulz's initial attempts to start the fire had proven unsuccessful. The building burned to the ground and all of the contents were destroyed....

"7. After the fire Runck filed a fire loss claim with the plaintiff insurance companies. Jack Scott, an insurance adjuster employed by the plaintiff companies, conducted a reasonable investigation of the fire but was unable to determine its cause or to discover Runck's involvement in setting it. Runck himself denied to Mr. Scott having any knowledge as to the cause of the fire. Eventually, Runck and Scott agreed that the amount of the insured loss to the building and contents resulting from the fire totaled $75,715.00.

"8. A proof of loss showing a total insured loss of $75,715.00 was signed and sworn to by Runck and submitted to the insurance companies. The proof of loss stated that Runck had no knowledge of the cause of the fire and that the fire was not caused through any procurement, means, or connivance on his part. This representation of Runck was false and misleading and Runck knew that the statement was untrue at the time he signed the proof of loss.

"9. In reasonable reliance upon the statements and the proof of loss, the plaintiff insurance companies paid Runck a total of $75,715.00."

The trial court concluded that the insurance companies had established fraud by clear and convincing evidence. As an alternative ground for judgment against Runck, the trial court concluded that the insurance companies were entitled to entry of a default judgment because of Runck's refusal to answer interrogatories. As another alternative ground for judgment against Runck, the trial court struck Runck's answer to the complaint and deemed the allegations in the complaint admitted because of Runck's refusal to answer questions posed to him at trial.

Runck has raised the following issues:

"Whether the District Court committed reversible error when it concluded that Plaintiffs' action was not barred by the statute of limitations.

"Whether the District Court erred in concluding that Plaintiffs established by clear and convincing evidence that Mr. Runck committed [sic] a fraud upon Plaintiffs.

"Whether the District Court erred when it held Mr. Runck in contempt and struck his Answer, when Mr. Runck, on Fifth Amendment grounds, refused to answer incriminating questions posed to him at trial.

"Whether the District Court erred when it held Mr. Runck in contempt and entered a default judgment against Mr. Runck, after Mr. Runck, on Fifth Amendment grounds, refused to answer interrogatories posed by Plaintiffs.

"Whether the District Court erred when it refused to rule that an adverse inference cannot be drawn from the fact that Mr. Runck refused to testify on Fifth Amendment grounds.

"Whether the District Court erred when it admitted evidence of fires other than the Starbuck fire."

Runck asserts that the trial court erred because it applied Sec. 28-01-16(6), N.D.C.C., rather than Sec. 28-01-24, N.D.C.C. Section 28-01-16(6), N.D.C.C., provides:

"28-01-16. Actions having six-year limitations. The following actions must be commenced within six years after the cause of action has accrued:

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6. An action for relief on the ground of fraud in all cases both at law and in equity, the cause of action in such case not to be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud."

Section 28-01-24, N.D.C.C., provides:

"28-01-24. Limitations on claims for relief fraudulently concealed.--When, by fraud or fraudulent concealment, a party against whom a cause of action exists prevents the person in whose favor such cause of action exists from obtaining knowledge thereof, the latter may commence an action within one year from the time the cause of action is discovered by him or might have been discovered by him in the exercise of diligence...."

Runck asserts that they are in "conflict" because:

"... each identifies a different time limit within which fraud actions, which have been tolled, must be brought after a fraud cause of action is discovered."

Runck relies on Morton County v. Tavis, 66 N.W.2d 201 (N.D.1954), for the proposition that Sec. 28-01-16, N.D.C.C., is a "general" provision; asserts that Sec. 28-01-24, N.D.C.C., is a "special" provision; and argues that Sec. 28-01-24 must prevail over Sec. 28-01-16, pursuant to Sec. 1-02-07, N.D.C.C. He relies on Krueger v. St. Joseph's Hospital, 305 N.W.2d 18 (N.D.1981), and Linke v. Sorenson, 276 F.2d 151 (8th Cir.1960), in asserting that Sec. 28-01-24, N.D.C.C., has a superimposing effect upon Sec. 28-01-16(6), N.D.C.C.

The statute relied upon in each of the cited cases was construed in such a manner as to extend the time within which the aggrieved party could bring suit upon a cause of action otherwise barred by the passage of time. This is consistent with other decisions in which we have held that where there is doubt as to which of two limitations statutes is applicable, the longer term applies. See Sprecher v. Magstadt, 213 N.W.2d 881 (N.D.1973); Adams v. Little Missouri Minerals Association, 143 N.W.2d 659 (N.D.1966).

In our view, there is no irreconcilable conflict between Secs. 28-01-24 and 28-01-16, N.D.C.C. Section 28-01-24, N.D.C.C., is designed to extend the period of time within which an action, otherwise barred by the passage of time because of a statute of limitation, may be brought when one, by fraud or fraudulent concealment, has prevented another from obtaining knowledge of the existence of a cause of action. Section 28-01-24, N.D.C.C., is applicable only when an action is otherwise barred by the passage of time.

Unlike the other actions listed in Sec. 28-01-16, N.D.C.C., a cause of action on the ground of fraud does not accrue until the aggrieved party discovers the facts constituting the fraud. There is no limitation upon the time for discovery of the cause of action. A fraud action is not barred by the passage of time until six years after discovery of the facts constituting the fraud. Because Sec. 28-01-24, N.D.C.C., is only applicable when an action is otherwise barred by the passage of time, it is inapplicable in an action for relief on the ground of fraud.

Runck next argues that even if Sec. 28-01-16(6), N.D.C.C., is applicable, the action is barred because the insurance companies "failed to commence their action within six years of the date they could have with due diligence discovered their cause of action."

The fire occurred on December 18, 1971. The insurance companies commenced this action in 1980. The trial court found that the insurance adjuster employed by the insurance companies "conducted a reasonable investigation of the fire but was unable to determine its cause or to discover Runck's involvement in setting it." The trial court also found that the "insurance companies did not learn of the fraud perpetrated on them by Runck until late 1977 or early 1978." The trial court also determined that the insurance companies "did not discover and could not reasonably have discovered the fraud until late 1977 or early 1978."

Upon review of the record, we have not been left with a definite and firm conviction that a mistake has been made with regard to the reasonableness of the adjuster's investigation, his inability to determine the cause of the fire or to discover Runck's involvement in setting it, or the time when the companies learned of the fraud. Those findings of fact are, therefore, not clearly erroneous. We are also unable to conclude from our review of the record and the arguments of counsel that the trial court erred in determining that the companies "did not discover and could not reasonably have discovered the fraud until late 1977 or early 1978." The trial court did not err in determining that the insurance companies' action was not barred by either Sec. 28-01-16, N.D.C.C., or Sec. 28-01-24, N.D.C.C.

Runck next argues that the insurance companies failed to meet their burden of proof because they failed to prove that they relied upon the statements provided by Runck in reaching their decision to pay insurance proceeds.

"[F]raud must be proved by evidence that is clear, satisfactory, and convincing." Verry v. Murphy, 163 N.W.2d 721, 731 (N.D.1968). A plaintiff in a fraud action must show that he relied on the alleged false representations. Buehner v. Hoeven, 228 N.W.2d 893 (N.D.1975); Leach v. Kelsch, 106 N.W.2d 358 (N.D.1960).

Runck relies on certain testimony of Peter...