State Farm General Ins. Co. v. Oliver, Civ. A. No. 86-AR-5484-NW.

• Decision Date: 04 May 1987
• Docket Number: Civ. A. No. 86-AR-5484-NW.
• Citation: 658 F. Supp. 1546
• Parties: STATE FARM GENERAL INSURANCE COMPANY, Plaintiff and Counterclaim Defendant, v. William Wayne OLIVER, et al., Defendants and Counterclaimants.
• Court: U.S. District Court — Northern District of Alabama

658 F. Supp. 1546

STATE FARM GENERAL INSURANCE COMPANY, Plaintiff and Counterclaim Defendant, v. William Wayne OLIVER, et al., Defendants and Counterclaimants.

Civ. A. No. 86-AR-5484-NW.

United States District Court, N.D. Alabama, Northwestern Division.

May 4, 1987.

COPYRIGHT MATERIAL OMITTED

John R. Benn, Florence, Ala., Michael B. Beers, Miller and Beers, Montgomery, Ala., for plaintiff and counterclaim defendant.

Henry H. Self, Jr., Michael J. Bernauer, Self & Bernauer, Florence, Ala., for defendants and counterclaimants.

MEMORANDUM OPINION

ACKER, District Judge.

The court has for consideration the motion of State Farm General Insurance Company, plaintiff and counterclaim defendant in the above-entitled cause, for judgment n.o.v. and, in the alternative, for a new trial. This post-judgment motion, although prematurely filed prior to the entry of final judgment, shall be deemed filed after the judgment was entered. The court will not attempt to deal with each and every ground asserted in State Farm's motion but will address the issues which the court thinks sufficiently meritorious to deserve comment.

In chambers during trial the court shared with counsel its belief that there was an issue of Alabama law which, if properly raised in a post-trial motion, would be certified to the Supreme Court of Alabama pursuant to its Rule 18. Rule 18, A.R.A.P., provides, inter alia:

When it shall appear to a court of the United States that there are involved in any proceeding before it questions or propositions of law of this state which are determinative of said cause and that there are no clear controlling precedents in the decision of the supreme court of this state, such federal court may certify such questions or propositions of law of this state to the supreme court of Alabama for instructions concerning such questions or propositions of state law....

This court harbored doubt as to whether there were "controlling precedents" on whether or not an arson defense supported only by circumstantial evidence must, in order to be submitted to the jury in Alabama, exclude every reasonable hypothesis other than arson. After thorough consideration, the court gave the benefit of the doubt on this issue to State Farm and did not give the charge on this subject requested by the insureds, William Wayne Oliver and Katherine Oliver, although they may well have been correct. It is an interesting question, but the jury verdict mooted it and obviated the need to certify the question to the Supreme Court of Alabama. If the verdict had been different and if the Olivers were the post-trial movants, the court would invoke Rule 18, A.R.A.P., on this issue. The post-trial issues now presented by State Farm do not, in this court's opinion, qualify for certification under Rule 18, A.R.A.P.

State Farm interposed three alternative defenses to the Olivers' claim on a fire insurance policy. In chronological order they are:

1. An alleged misstatement or concealment by Mr. Oliver in the application for insurance so as to permit a rescission under Alabama Code § 27-14-7(a)(2) and/or (3).

2. Alleged arson by one of the insureds.

3. An alleged violation of the policy provisions requiring truth-telling during the presentment of the claim.

In its motion for judgment n.o.v., State Farm does not contend that there was no rational way for the jury to find that State Farm failed in its burden of proving the essential elements of its arson defense or the essential elements of its post-loss fraud defense. State Farm's evidence on these defenses was weak. Rather, State Farm now relies only upon its contention that it was and is entitled to a directed verdict on the defense which invokes Alabama Code § 27-14-7(a)(2) and/or (3). In its post-judgment motion, State Farm states its position thusly:

... there are no controverted issues of fact upon which reasonable persons can differ as to whether or not the Defendant William Wayne Oliver in his application for insurance to State Farm General Insurance Company misrepresented, omitted, concealed a fact, or made incorrect statements in the application which were material to the acceptance of the risk, or Plaintiff in good faith would not have issued the policy if the true facts had been made known to Plaintiff as set forth in the application as they relate to the previous refusal of Farm Bureau Insurance Company to write said policy. The evidence in this case was so overwhelming that a reasonable person could not reach a different conclusion.

Before closing argument to the jury, State Farm, probably wisely, gave up its alternative invocation of § 27-14-7(a)(1), which is the equivalent of common law fraud, in order to avoid the court's giving a jury charge describing State Farm's burden on that particular alternative defense. Such a charge would have placed the burden on State Farm to prove that Mr. Oliver's misrepresentation or concealment was with actual intent to deceive and that State Farm must have reasonably relied upon the misrepresentation or concealment to its prejudice. Section 27-14-7 provides three distinct and alternative grounds for avoiding a policy of insurance at its inception. Stephens v. Guardian Life Insurance Co., 742 F.2d 1329 (11th Cir.1984); National Life & Accident Insurance Co. v. Mixon, 291 Ala. 467, 282 So.2d 308 (1973). As stated, after both sides rested, State Farm asked to withdraw its defense under § 2714-7(a)(1), and the withdrawal was allowed.

The statutory provisions upon which State Farm now relies read, in pertinent part:

Misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent recovery under the policy or contract unless either:

(2) Material either to the acceptance of the risk or to the hazard assumed by the insurer; or

(3) The insurer in good faith would either not have issued the policy or contract, or would not have issued a policy or contract at the premium rate as applied for, or would not have issued a policy or contract 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 known to the insurer as required either by the application for the policy or contract or otherwise.

Ala.Code § 27-14-7(a)(2) and (3) (emphasis supplied).

The court will briefly outline the evidence, or the absence of evidence, which bears on whether or not State Farm met its burden of proving the essential elements of the alternatives in § 27-14-7(a)(2) and (3) in such an overwhelming fashion as to be entitled to a directed verdict. At this stage, the benefit of the doubt must be given to the Olivers. The evidence or absence of evidence bearing on State Farm's allegations that Mr. Oliver misrepresented or concealed facts material to the acceptance of the risk or hazard assumed, and bearing on State Farm's alternative allegation that State Farm would not have issued its policy if "the true facts had been made known to insurer as required either by the application or the policy or contract" all must be viewed in the light most favorable to Mr. Oliver. Deference must be given to the jury findings if any evidence or lack of evidence, considering logical inferences, can support those findings. That evidence or absence of evidence is as follows:

The Evidence or Absence of Evidence on State Farm's Defense Under § 27-14-7(a)(3)

On November 16, 1984, Mr. Oliver filed a written application for fire insurance coverage with State Farm's agent, Gus Garrard. The only handwriting on the application by Mr. Oliver, who is semi-literate, is his own signature at the bottom. Mr. Garrard asked the questions and explained the questions to Mr. Oliver and noted Mr. Oliver's answers. Nowhere in the insurance application can be found any words which track the words in § 27-14-7(a)(3) permitting the insurance company to contractually require the applicant to tell the truth upon penalty of a voidance of the contract. The policy itself, when it was subsequently issued, also fails to contain any of the express language contemplated by § 27-14-7(a)(3) if the insured is to be placed on notice of the potential disastrous effect of any initiating misstatement or omission. Instead, the policy under a paragraph entitled "Concealment or Fraud" only says:

If you or any other insured under this policy has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance, whether before or after a loss, this policy is void as to you and any other insured.

(emphasis supplied).

State Farm informed the court that it chose not to invoke this contractual language in its attack on the policy ab initio, but relied instead on § 27-14-7(a)(3). In its policy language, State Farm chose, perhaps as a matter of salesmanship, not to take advantage of the opportunity provided by § 2714-7(a)(3). Perhaps for good reason it decided not to incorporate the language contemplated by § 27-14-7(a)(3) as a means of contractually invoking § 27-14-7(a)(3) and setting up an avenue of escape from liability. Looking back on it, the court should not have submitted any issue under § 2714-7(a)(3) to the jury, because the undisputed evidence shows that neither the application nor the policy by its express terms required exact and full truth if a misstatement, no matter how innocent, might affect the risk. As it turned out, by submitting the defenses under § 27-14-7(a)(3) to the jury the court committed harmless error.

Another reason for not having submitted any question under § 27-14-7(a)(3) to the jury is the statutory language which provides as an essential element that the insurer would not have issued the "policy or contract" but for the misinformation. The only "policy or contract" here issued in response to Mr. Oliver's application of November 16, 1984, was not the "policy or contract" which was in force at the time of the fire. The policy here involved was a renewal policy issued one year...