Queen City Farms, Inc. v. Central Nat. Ins. Co. of Omaha

Decision Date22 March 1995
Docket NumberNo. 59594-1,59594-1
CourtWashington Supreme Court

It is hereby ordered that the dissenting opinion of Justice Utter in the above cause, as the same appears at 124 Wash.2d 536, 590, 882 P.2d 703, 733, be changed as follows: The last two paragraphs of the dissenting opinion are deleted, and the following is inserted in their place:

Page 111

Queen City maintains that Lloyd's was required to tender back all premiums to preserve the defense of misrepresentation. The argument is unpersuasive.

The record contains a letter prior to trial on behalf of two of the named insurers offering to tender back the premiums and indicating that "it is our understanding that the premiums were tendered in a single sum on behalf of all the named insureds under the policies, making it difficult to now go back and compute QCF's proportionate share of the premium." (Italics mine.) Letter (app. A) to Br. II of Resp'ts (Misrepresentation and Evidence Issues). The letter further states that the proportionate share of the premiums owed should be postponed pending a ruling on the misrepresentation issue, after which the proportionate share of the sums owed could be computed with the court's supervision.

The letter does not refer to Lloyd's and could be construed to only refer to Industrial Indemnity and U.S. Fire. If given its broadest interpretation to include Lloyd's, there still remains the question of whether one insured can speak for another, a question that need not be reached. Only if the defrauded party elects the remedy of recision must the party tender the payments received under the contract. See Glandon v. Searle, 68 Wash.2d 199, 204, 412 P.2d 116 (1966) and Neat v. United States Fid. & Guar. Co., 170 Wash. 625, 17 P.2d 32 (1932) (tender of payments required of a party who seeks to rescind a policy).

Under contract law, a material misrepresentation permits the defrauded party to elect from three possible remedies: damages, recision, or enforcement of the bargain against the fraudulent party according to the fraudulent party's representation of the bargain. See 12 Samuel Williston, Contracts § 1523, at 606-07 (3d ed. 1970). In this case, Lloyd's could have sought to rescind the policy, affirm the policy and sue for misrepresentation, or, as it did, affirm the policy and assert misrepresentation as a defense.

If, as here, the defrauded party elects not to rescind the contract, tender of payments is not required:

Page 112

There is a wide distinction between an action brought to rescind a contract on the ground of fraud, and an action to recover damages for fraud arising out of a contract. The action to rescind is of an equitable nature, and the party seeking equity must do equity. On discovering the fraud, the party injured must tender back to the other party the benefits of the contract, so far as received by him, and place the other party as nearly as possible [in status quo]. He must act promptly, keep his tender available, and bring his action without unreasonable delay. The action for damages is a law action for a money judgment, requires no tender, and may be brought by the injured party at any time within the statute of limitations. Nor does an affirmance of the contract after discovery of the fraud extinguish the right to an action for damages on account of the fraud.

An affirmance bars only the right to rescind. (Italics and boldface mine.) Pronger v. Old Nat'l Bank, 20 Wash. 618, 625-26, 56 P. 391 (1899).

QCF's reliance on Glandon v. Searle, 68 Wash.2d 199, 204, 412 P.2d 116 (1966) and Neat v. United States Fid. & Guar. Co., 170 Wash. 625, 17 P.2d 32 (1932) is misplaced. In both cases, the insurers sought to rescind the contract on the ground the insured's misrepresentations rendered the policies void ab initio. Glandon, 68 Wash.2d at 203, 412 P.2d 116; Neat, 170 Wash. at 632, 17 P.2d 32. Because Lloyd's does not seek to rescind the contract, but rather to affirm the contract under the terms as represented by Queen City Farms, the absence of tender does not operate to waive its right to assert the defense of misrepresentation.

Also unpersuasive is Queen City's contention that RCW 48.18.080 required the trial court to exclude from evidence the correspondence preceding Lloyd's issuance of the insurance policy. The statute requires the insured's application for insurance to be attached to the policy when issued:

No application for the issuance of any insurance policy or contract shall be admissible in evidence in any action relative to such policy or contract, unless a true copy of the application was attached to or otherwise made a part of the policy when issued and delivered.

RCW 48.18.080.

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