Pitner v. Federal Crop Ins. Corp.

• Decision Date: 27 December 1971
• Docket Number: No. 10832,10832
• Citation: 491 P.2d 1268,94 Idaho 496
• Parties: Lyle G. PITNER, Plaintiff-Appellant, v. FEDERAL CROP INSURANCE CORPORATION, Defendant-Respondent.
• Court: Idaho Supreme Court

Page 1268

491 P.2d 1268

94 Idaho 496

Lyle G. PITNER, Plaintiff-Appellant, v. FEDERAL CROP INSURANCE CORPORATION, Defendant-Respondent.

No. 10832.

Supreme Court of Idaho.

Dec. 27, 1971.

Scott W. Reed, Coeur d'Alene, for plaintiff-appellant.

Sidney E. Smith, U. S. Atty., Boise, for defendant-respondent.

DONALDSON, Justice.

In the summer of 1968, plaintiff-appellant Lyle G. Pitner planted barley on certain acreage in Kootenai County, Idaho, and thus there was no summer fallow of this land. A substantial portion of this barley crop was lost before harvest. Pitner then planted winter wheat on the same land. The wheat crop was also almost completely destroyed by winterkill. As a result of this loss of the wheat crop, Pitner commenced this suit to recover insurance benefits under a policy issued by the Federal Crop Insurance Corporation (hereinafter referred to as FCIC).

The facts developed at trial are as follows. In October of 1968, Pitner was contacted by an agent of the FCIC regarding crop insurance, and he applied for crop insurance on the wheat in question. There is a conflict in the testimony as to what was said on that day. At the trial, Pitner testified that he told the FCIC agent that the wheat to be insured was to be grown on fields which had been planted with barley during the immediately preceding summer. The agent testified that he told Pitner that when winter wheat is to be insured, the land must lie fallow during the preceding summer; he further testified that Pitner told him that the land to be insured was coming out of the Soil Bank. Pitner's application for insurance was accepted by FCIC on November 4, 1968.

In the winter of 1968-69, snow fell in great depths, and as a result Pitner's wheat was destroyed by snow mold. On May 1, 1969, Pitner notified FCIC of the loss and stated his intention to resow to spring barley. An FCIC agent conducted an investigation, found that the crop was almost completely destroyed by winterkill, and advised Pitner not to replant but to harvest what he could and then make a claim based on the final loss.

On June 26, 1969, an agent from FCIC informed Pitner that his wheat crop was not insurable because there had been no summer follow after the preceding barley crop. The summer-fallow requirement was contained in the county actuarial table for Kootenai County-a document incorporated by reference in the FCIC insurance policy issued on Pitner's wheat. It was the usual practice to show one of these tables to the customer while soliciting his application, and one was allegedly shown to Pitner at that time.

After advising Pitner that his wheat crop was not insured, the FCIC agent presented him with a revised 'crop insurance acreage report,' which Pitner signed. Pitner testified that he was told that the only reason he should sign this was so that he would not be held responsible for the premium which would otherwise be due under his insurance policy. This testimony was corroborated by that of his partner who was present at the time. But the agent testified:

'I made out a revised acreage report for him to sign and he didn't want sign it because he said it would put him out of insurance for the year and I told him that apparently he didn't have any insurance anyway because it was continuous cropping, so he eventually signed the revised acreage report.'

This report stated that zero acres of wheat were insured and that the wheat listed as insured on the original acreage report was 'wheat after barley' and 'not insurable.'

After all the evidence was in, the trial court directed a verdict in favor of FCIC on the ground that the signing of the revised acreage report constituted a voluntary cancellation of the insurance coverage, the court stating: 'The parties on June 26, 1969, voluntarily withdrew this wheat coverage under the policy and therefore there could be no insurance coverage and no recovery against the Federal Crop Insurance Corporation * * *.' Pitner appeals from the directed verdict and the resulting judgment in favor of FCIC.

Although the appellant assigns as error several actions taken by the trial court, the crucial question for determination on this appeal is whether the trial court erred in directing a verdict for the Federal Crop Insurance Corporation on the ground that the execution of the reversed acreage report constituted an agreement between the parties to cancel insurance coverage on the wheat which had been lost.

Relying on certain provisions governing unilateral cancellation, appellant contends that the alleged cancellation in this case was prohibited by the FCIC insurance policy issued to Pitner. Section 13(a) of the Federal Crop Insurance Policy (plaintiff's exhibit number 11) provides in pertinent part: 'Insurance on any insured crop may not be canceled for the first crop year but thereafter either party may cancel insurance on any insured crop * * *.' Emphasis added. This language indicates that the procedure set out in this section governs only unilateral cancellations. The cancellation alleged to have occurred in this case was one by mutual agreement-a bilateral contract modifying the parties' former insurance policy contract. Unquestionably, insurance coverage may be canceled by mutual consent of the contracting parties notwithstanding a provision in the policy specifying a method of cancellation. Prillaman v. Century Indemnity Co., 138 F.2d 821 (4th Cir. 1943); Continental Casualty Co. v. Giller Concrete Co., 116 F.2d 431 (5th Cir. 1940), cert. denied, 313 U.S. 567, 61 S.Ct. 941, 85 L.Ed. 1525 (1941); Shunga Plaza, Inc. v. American Employers' Ins. Co., 204 Kan. 790, 465 P.2d 987 (1970), vacated on other grounds, 206 Kan. 16, 476 P.2d 642 (1970); Dill v. Lumbermen's Mut. Ins. Co., 213 S.C. 593, 50 S.E.2d 923 (1948); Blomquist v. Grays Harbor County Medical Serv. Corp., 48 Wash.2d 718, 296 P.2d 319 (1956); 45 C.J.S. Insurance § 444 (1946); Annot., 152 A.L.R. 95 (1944). An insurance policy may be rescinded by mutual consent even after a loss purportedly insured against has occurred. Peterson v. New York Life Ins. Co., 185 Minn, 208, 240 N.W. 659 (1932); Klanian v. New York Life Ins. Co., 68 R.I. 126, 26 A.2d 608 (1942); Fox v. Bankers Life & Casualty Co., 61 Wash.2d 636, 379 P.2d 724 (1963); Annot., 80 A.L.R. 185 (1932).

A cancellation of insurance coverage by mutual agreement is a contract which must be formed like any other contract. A necessary element in the formation of a valid bilateral contract of cancellation is mutual assent. Fox v. Bankers Life & Casualty Co., supra; 45 C.J.S. Insurance § 444 (1946). Such assent is vitiated where it is procured by fraud or given under a mistake of material fact. In determining the legal effect of an alleged cancellation agreement, recent cases have held that a factual issue is raised where it is not clear that the insurer was entitled to rescission-i.e., where it is not clear that the loss incurred was not covered by the policy issued by the insurer. In Kilty v. Mutual of Omaha Ins. Co., 287 Minn. 403 178 N.W.2d 734 (1970), the Supreme Court of Minnesota held that where there is insufficient evidence to entitle the insurer to a rescission as a matter of law, a factual issue is raised:

'Defendant's contention on appeal is that it is entitled to judgment on any interpretation of the evidence because plaintiff accepted and cashed the check defendant tendered as a refund of all unearned premiums paid under the policy. Defendant asserts that this conduct constituted consent to rescission of the policy as a matter of law under Peterson v. New York Life Ins. Co., 185 Minn. 208, 240 N.W. 659. The Peterson case did not involve the issue of bad faith or fraud on the part of the insurer in procuring consent to the rescission. In that case, there was compelling evidence of misrepresentation on the part of the insured in her application for insurance. There is no clear evidence of misrepresentation in the application for insurance in this case, of fraudulent concealment of medical history relevant to the application, nor of justifiable reliance by the insurer upon any such alleged misrepresentation. We must interpret the verdict in plaintiff's favor as a finding of no misrepresentation in the application for insurance which would bar recovery under the policy.

'Where there is insufficient evidence of misrepresentation in an application for insurance to entitle the insurer to rescission, a factual question is raised as to whether an alleged rescission by consent is viodable because obtained through bad faith or fraud on the part of the insurer.' 178 N.W.2d at 736.

In Fox v. Bankers Life & Casualty Co., supra, the Supreme Court of Washington, after holding that the question of full disclosure had properly been submitted to the jury, which found that there had been no material misrepresentations on the part of the insured, proceeded as follows:

'The defendant contends also that the action cannot be maintained because there was an agreed cancellation of the policy. The evidence showed, however, that there was no agreement of the parties, but the cancellation was the unilateral act of the defendant, which sent its agent to see Mr. Fox with a release form and a check for premiums paid. The agent told him that the policy had been canceled because of the inaccuracy of the medical history. This was after Mr. Fox had submitted his claim. His rights under the policy had matured, but he was ignorant of the fact and signed the rescission. He did not cash the check which was left with him but consulted an attorney, and this action followed almost immediately thereafter.

'As the rule is stated in 45 C.J.S. Insurance § 444b, p. 70, to effect a cancellation of an insurance policy by mutual consent there must be a meeting of the minds, or mutual assent, and each party must act with knowledge of the material facts. Here, there was no attempt to reach a mutual understanding, but the cancellation was presented to Mr....