State Auto. Mut. Ins. Co. v. Spray
| Decision Date | 14 January 1977 |
| Docket Number | No. 76-1338,76-1338 |
| Citation | 547 F.2d 397 |
| Parties | STATE AUTOMOBILE MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. Sherry SPRAY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Victor W. Ewen, Louisville, Ky., for plaintiff-appellant.
Richard L. Mattox, J. Spencer Harmon, New Albany, Ind., for defendant-appellee.
Before FAIRCHILD, Chief Judge, HASTINGS, Senior Circuit Judge, and SWYGERT, Circuit Judge.
We consider the question of whether an automobile insurance company should be estopped to raise the defense of material misrepresentations made by an applicant for insurance.
On April 21, 1975, plaintiff State Automobile Mutual Insurance Company (State Auto) filed a diversity complaint in the district court, 1 for declaratory relief pursuant to 28 U.S.C. § 2201. 2 State Auto sought a declaration that a policy of automobile liability insurance it had issued to Marvin R. Phillips (Phillips) was void ab initio because of certain fraudulent and material misrepresentations made by Phillips on the application for said policy; and, further, that State Auto was under no duty or obligation to defend Phillips in any lawsuit arising out of an accident which occurred on February 2, 1974, in which defendant Sherry Spray was injured, or to assume any liability incurred by Phillips as a result of said accident.
The case was submitted to the trial court for judgment based upon a stipulation of the parties, certain exhibits and documents, briefs of the parties, and the depositions filed with the court.
The trial court stated, however, that State Auto had sufficient information prior to the accident to put it on notice of what an investigation would have revealed but failed to investigate, and that State Auto failed to act in a prudent manner between the time Phillips filled out his application and the time it subsequently commenced its action to cancel the policy.
Accordingly, the trial court concluded that State Auto was not entitled to the declaratory relief it sought and that the policy was in full force and effect and covered the accident of February 2, 1974. The trial court found for defendant Sherry Spray and entered judgment for her. This appeal followed.
On February 2, 1974, Sherry Spray, an infant of six years, was injured when the car in which she was riding was struck by an automobile driven by Phillips in Clark County, Indiana. Sherry Spray was a resident of Indiana. At that time Phillips was a resident of the State of Kentucky. He had purchased his car and garaged it in Kentucky for use principally in Kentucky. Neither party to the insurance contract resided in or was domiciled in the State of Indiana.
1. Whether the trial court erred in failing to apply Kentucky law.
2. Whether under Kentucky law the trial court erred in holding that State Auto was estopped from raising its defense of fraudulent misrepresentation.
3. Whether the trial court's disposition of the case was incorrect in light of the authorities it cited.
BASIC FACTS
In addition to the facts found by the trial court, as hereinabove set out, the following matters appear to be relevant to the issues.
The information on Phillips' application regarding his Florida address was gained by State Auto's Agent Hockensmith from the applicant's Florida driver's license. This was transcribed by the agent onto the insurance application form together with the applicant's Florida automobile license number. Subsequently, State Auto caused an investigation to be made in Florida which revealed that no adverse entries appeared on Phillips' Florida driving record and that no one at the Florida address knew of Phillips' residing there at the time indicated on the application. Nothing on Phillips' application indicated that he had ever been a resident of Indiana.
Following the accident of February 2, 1974, State Auto filed an SR-21 Form with the Indiana Bureau of Motor Vehicles affirming insurance coverage for Phillips for such accident. State Auto, as of May 20, 1974, had a Retail Credit Report indicating the prior convictions of Phillips for driving violations and the suspension of his Indiana driver's license.
State Auto paid for the collision damage to the Phillips motor vehicle. On June 17, 1974, State Auto mailed a notice of cancellation of its insurance policy to Phillips, stating that such termination would not be effective until July 17, 1974. Defendant does not claim that this was an election by State Auto to treat the policy as in effect until cancellation. Thereafter, on April 21, 1975, State Auto filed the instant declaratory judgment action.
Defendant-appellee Spray contends that Indiana had the most intimate contact with the facts of this case and that Indiana law should govern. Defendant seeks to buttress this contention by pointing out that (1) Phillips was operating his car in Indiana at the time of the accident, (2) Phillips struck and injured a minor child who was an Indiana resident, (3) the State of Indiana has an interest in seeing that such an infant citizen is protected from and compensated for injuries received upon its public highways, as evidenced by the Indiana Safety-Responsibility Act, I.C. §§ 9-2-1-1, et seq. (1971), and (4) State Auto was required to and did file its Form SR-21 on behalf of Phillips. The case of W. H. Barber Co. v. Hughes, 223 Ind. 570, 586, 63 N.E.2d 417, 423 (1945), recognized the choice of law rule to be: "The court will consider all acts of the parties touching the transaction in relation to the several states involved and will apply as the law governing the transaction the law of that state with which the facts are in most intimate contact." Accord, Watts v. Pioneer Corn Co., 7 Cir., 342 F.2d 617, 620 (1965); Bowles v. Zimmer Manufacturing Co., 7 Cir., 277 F.2d 868, 873-874 (1960).
State Auto points out that, even if the law of the state with the most intimate contacts with the transaction ought to apply, as stated in Barber, supra, Kentucky law should be applied because Kentucky had the most intimate contacts with the contract of insurance. Further, that in Watts, supra, we held that the "place of wrong" doctrine no longer applied. 342 F.2d at 618-619. See Restatement (Second) on Conflict of Laws, § 193, comment b (1971).
We hold that under the facts of this case the state with the most intimate contacts with the insurance contract is Kentucky and that the law of the State of Kentucky should be applied. See also Restatement (Second), supra, at § 188(2). The trial court erred in failing to apply Kentucky law. The Indiana court applied Indiana law.
We next move to consider whether under Kentucky law the trial court erred in holding that State Auto was estopped from raising its defense of fraudulent misrepresentation.
In determining the applicable law, we begin with the relevant statute. K.R.S. § 304.14-110 (Representation in Application) provides:
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