Prudential v. Estate of Rojo-Pacheco
| Decision Date | 23 December 1997 |
| Docket Number | CA-CV,No. 2,ROJO-PACHEC,L,2 |
| Citation | 962 P.2d 213,192 Ariz. 139 |
| Parties | , 259 Ariz. Adv. Rep. 59 The PRUDENTIAL, aka Prudential Property and Casualty Insurance Company, aka Prudential General Insurance Company, Plaintiff/Appellee, v. The ESTATE OF Leandrouis Rojo-Pacheco, Florencio Rojo-Pacheco, Arturo Valdez-Castro, Cameron J. Snider, Francisco Rojo-Montoya, Francisca Montoya De Rojo, Anjelica Yadira Rojo De Pacheco, Carmen Rojo-Montoya, Leonardo Rojo-Montoya and Jose Humberto Rodriguez-Blanco, Defendants/Appellants. 96-0029. |
| Court | Arizona Court of Appeals |
This declaratory relief action raises issues of first impression in Arizona relating to whether, when, and to what extent an insurer may rescind ab initio an automobile insurance policy's liability coverage based on the insured's fraudulent misrepresentations in the application. Defendants/appellants appeal from the trial court's judgment, entered after a jury verdict, in favor of plaintiff/appellee Prudential and from the trial court's denial of appellants' motion for new trial. The trial court ruled on cross-motions for summary judgment before trial that, upon proof of the elements of legal fraud in A.R.S. § 20-1109, Prudential could rescind its policy as to any liability coverage in excess of the minimum amount required by Arizona's Motor Vehicle Safety Responsibility Act, A.R.S. §§ 28-1101 through 28-1262, 1 without complying with the notice of cancellation requirements in A.R.S. § 20-1632. We agree with that legal ruling and therefore affirm. Because only the summary judgment issues warrant a published opinion, we dispose of the numerous other issues appellants raise by a separate memorandum decision. See Fenn v. Fenn, 174 Ariz. 84, 847 P.2d 129 (App.1993).
On June 3, 1991, Thomas Martin Rogers completed an application for automobile insurance with Prudential. Rogers paid the $193 premium and Prudential issued a binder which provided temporary insurance to Rogers, effective at 12:01 a.m. on that day. The binder was for a single limit of $300,000 in liability coverage 2 and provided:
I hereby declare that all of the foregoing declarations, elections and statements are complete and true to the best of my knowledge and belief. Any Company may rely on them in the issue of any policy from this application....
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[T]he Company hereby binds, effective as of 6/3/91 at 12:01 [A.M.] the COVERAGES and LIMITS OF LIABILITY shown in the application, subject to the declarations, conditions, exclusions and other terms of the policy applied for in the application. The temporary insurance provided by this BINDER will end:
(1) when a policy is issued by the Company applied for;
(2) when a policy is issued by any other Prudential Company replacing the policy applied for;
(3) when the policy is cancelled by the Applicant or the Company;
(4) at the end of 30 days if the temporary insurance has not been ended as in (1), (2), or (3).
Rogers answered "no" to the following questions on the application: (1) whether any automobile insurance company had cancelled, refused to renew, or declined acceptance within the last three years; (2) whether he had a previous insurer; (3) whether he had been cited or convicted for a moving traffic violation, been required to make a Financial Responsibility filing, or had his driver's license suspended or revoked within the past 60 months; (4) whether he had been involved in an automobile accident while operating any car resulting in damage to any property or bodily injury or death within the past 36 months; and (5) whether he had been involved in any losses, claims, or other accidents within the past 36 months. Those representations were false in several respects. In 1988, Rogers was convicted of driving while his license was suspended or revoked, and in 1989 he was cited for failing to give information or render aid in a hit-and-run accident.
On June 19, 1991, Prudential's Scottsdale office received an Equifax 3 report which provided information about Rogers's driving record. An underwriter reviewed the application and report on that date and marked the application "Decline, void, two major violations." Using electronic mail, she notified the agent who had issued the binder to Rogers that she needed to decline coverage because of Rogers's driving record. The agent telephoned Rogers immediately and told him he no longer had insurance with Prudential and his premium would be refunded. 4 The next day, on June 20, Rogers was involved in an automobile collision which killed Leandro Rojo-Pacheco and injured several other appellants.
In a letter dated July 25, 1991, Prudential's underwriting manager notified Rogers:
This is to more formally notify you that the above captioned insurance is hereby declared null and void as of June 3, 1991, and that, therefore, no such coverage exists or will be deemed to have existed with Prudential. As you know, our agent previously alerted you to this action.
A check in the amount of $193.00 is enclosed as a result of this action, representing the return of all funds tendered in respect of the application for insurance.
This action has been taken by the Company because of what are believed to be material misrepresentations on, and omissions with respect to, your application for the captioned insurance.
* * * * * *
Had these facts been disclosed when the application was being completed, the captioned application of insurance would not have been taken nor would a binder have been issued; as the foregoing activity clearly would have rendered you ineligible under our underwriting rules.
Prudential filed this declaratory judgment action in July 1992. Its complaint alleged that material misrepresentations in Rogers's application entitled Prudential to rescind his insurance coverage ab initio pursuant to A.R.S. § 20-1109, and sought a court ruling that Prudential's only obligation was to pay appellants up to the limits set by Arizona's Financial Responsibility Act pursuant to A.R.S. § 28-1170(B)(2). After extensive discovery, numerous pretrial motions, and the aforementioned partial summary judgment ruling, the case proceeded to trial. The main contested issues were whether Prudential had grounds to rescind the policy under § 20-1109, and whether Prudential had made an initial decision to cancel rather than to void the policy, thereby waiving its right to rescind. After an 18-day trial, the jury returned a general verdict in favor of Prudential and against appellants.
In its judgment entered on the verdict, the trial court ruled that "any coverage afforded under a binder issued to Thomas Martin Rogers by plaintiff is validly rescinded and that Prudential's only duty is to pay to defendants up to the minimum limits set forth in the Arizona Financial Responsibility Act, A.R.S. § 28-1170 B." This appeal followed the trial court's denial of appellants' alternative, combined motions for new trial, for judgment notwithstanding the verdict, or to amend judgment.
Appellants contend the trial court erred in its partial summary judgment ruling that Prudential could rescind Rogers's liability insurance ab initio for any coverage over and above the $15,000/$30,000 minimum limits required by the Act. That ruling did not involve disputed factual issues but rather pure legal questions of statutory interpretation, which we review de novo. Grisham v. Five Star Ins. Co., 186 Ariz. 624, 925 P.2d 1075 (App.1996); Midland Risk Management Co. v. Watford, 179 Ariz. 168, 876 P.2d 1203 (App.1994).
Appellants present two related arguments. First, they contend § 28-1170(F)(1) of the Financial Responsibility Act and the notice of cancellation requirements in § 20-1632 preclude an insurer from voiding or rescinding an automobile liability policy ab initio, at least when claims of innocent third parties are involved. Thus, they assert, § 20-1109 "is inapplicable to automobile liability insurance policies." Second, appellants argue that Prudential's undisputed failure to comply with the notice requirements of § 20-1632, in conjunction with the Act's fundamental purpose and broad policy goals, mandate that Prudential's policy and its $300,000 liability coverage limit were still in full force and effect at the time of the accident. These issues require us to analyze several overlapping statutes and pertinent cases governing automobile liability insurance in Arizona.
At common law, an insurer had the right to rescind a policy that had been obtained through material misrepresentation. See, e.g., Illinois Bankers' Life Ass'n v. Theodore, 44 Ariz. 160, 34 P.2d 423 (1934); Greber v. Equitable Life Assur. Soc., 43 Ariz. 1, 28 P.2d 817 (1934). In 1954, the Arizona Legislature codified that right. Code 1939, Supp.1954 § 61-2309. The current form of that statute, § 20-1109, seems to apply to all forms of insurance and provides as follows:
All statements and descriptions in any application for an insurance policy or in negotiations therefor, by or in behalf of the insured, shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent a recovery under the policy unless:
1. Fraudulent.
2. Material either to the acceptance of the risk, or to the hazard assumed by the insurer.
3. The insurer in good faith would either not have issued the policy, or would not have issued a policy in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by...
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