State Farm Fire & Cas. Ins. Co. v. Graham

• Decision Date: 14 March 1991
• Docket Number: No. 61S01-9103-CV-206,61S01-9103-CV-206
• Citation: 567 N.E.2d 1139
• Court: Indiana Supreme Court
• Parties: STATE FARM FIRE & CASUALTY INSURANCE COMPANY, Appellant (Defendant Below), v. Robert J. GRAHAM and Carrie Graham, Appellees (Plaintiffs Below).

Page 1139

567 N.E.2d 1139

STATE FARM FIRE & CASUALTY INSURANCE COMPANY, Appellant (Defendant Below), v. Robert J. GRAHAM and Carrie Graham, Appellees (Plaintiffs Below).

No. 61S01-9103-CV-206.

Supreme Court of Indiana.

March 14, 1991.

Michael V. Gooch, John S. Beeman, Timothy J. Hulett, Harrison & Moberly, Indianapolis, for appellant.

Luther G. Johnson, Keith L. Johnson, Mann Chaney Johnson, Goodwin & Williams, Terre Haute, for appellees.

DICKSON, Justice.

Following the denial of their fire loss claims under a rental dwelling insurance policy, the plaintiffs-appellees, Robert J. Graham and Carrie Graham, (hereafter "the Grahams") were awarded a judgment of $27,200.00 against the defendant-appellant, State Farm Fire & Casualty Insurance Company (hereafter "State Farm"). The Court of Appeals reversed and remanded for a new trial upon finding erroneous a jury instruction concerning one of the conditions of the insurance contract. State Farm Fire & Casualty Insurance Company v. Graham (1989), Ind.App., 543 N.E.2d 676.

In accordance with a pre-appeal order and a supplemental pre-appeal order entered by the Court of Appeals pursuant to Ind.Appellate Rule 2(C)(3), the following issues are presented:

A. Whether the court erred in instructing the jury that false swearing and material misrepresentation are not a bar to recovery if not relied upon by the insurance company.

B. Whether the court erred in granting pre-judgment interest.

A. Jury Instruction

Among its various contentions at trial, State Farm alleged that the Grahams made willful concealment and misrepresentations as to the extent of the loss and the cause and origin of the fire. Defendant's Contentions, Record at 36-7. ¹ State Farm concedes that it was not deceived and did not rely upon any false representations. Pre-appeal Order, Record at 115. The insurance policy contained the following condition:

2. Concealment or Fraud. This entire policy shall be void if any insured has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance.

Record at 23. Seeking to use this condition as a basis for avoiding payment of the claim, State Farm tendered a proposed final instruction which attempted to expand the language of its condition to make the policy void if an insured "attempted to deceive," or "made an attempt to commit false swearing or material misrepresentations," even if later withdrawn or corrected. The proposed instruction was modified by the trial court and given as follows:

If you find from a consideration of all of the evidence that Robert Graham or Carrie Graham attempted to deceive State Farm or make an attempt to commit false swearing or material misrepresentations to State Farm, but later withdrew or corrected this wrongful conduct, then this intention to deceive is sufficient to bar recovery by the plaintiffs, if not corrected prior to reliance upon them by the insurance company. (Emphasis added to identify trial court's modification of tendered instruction.)

State Farm contends that this instruction modification erroneously added the concept of "insuror reliance" to its misrepresentation provision. It argues that such an interpretation will permit or encourage an insured to exaggerate claimed losses. We agree that the "concealment or fraud" condition does not require detrimental reliance in order to void the policy. To impose such element would render the condition moot by requiring State Farm to first pay improper claims as a precondition to its denial of the same claims on grounds of violation of the policy condition.

However, as used in the policy condition, the phrase "if any insured has intentionally concealed or misrepresented any material fact or circumstance" reasonably means more than momentary or inadvertent concealment or misrepresentation. Facts demonstrating a voluntary correction of error would be probative evidence on the issue of intentional concealment or misrepresentation.

We first observe that the questioned instruction does not actually require reliance by State Farm in order to bar recovery by the Grahams. Rather it establishes a final deadline, "prior to reliance," before which a misrepresentation must be withdrawn or corrected. More significantly, because State Farm's proposed instruction would have expanded the policy condition so as to void the policy upon any attempt to...