State Farm Mut. Auto. Ins. Co. v. Crouch, 85-CA-2265-S

• Decision Date: 14 March 1986
• Docket Number: No. 85-CA-2265-S,85-CA-2265-S
• Citation: 706 S.W.2d 203
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant, v. Norma R. CROUCH, Administratrix of the Estate of Michael R. Norsworthy, Deceased, and Norma R. Crouch, Individually, Appellee.
• Court: Kentucky Court of Appeals

Page 203

706 S.W.2d 203

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant, v. Norma R. CROUCH, Administratrix of the Estate of Michael R Norsworthy, Deceased, and Norma R. Crouch Individually, Appellee.

No. 85-CA-2265-S

Court of Appeals of Kentucky.

March 14, 1986.

John P. Gregory, Jr., Murray, for appellant.

James B. Brien, Jr., Mayfield, for appellee.

Before CLAYTON, DUNN and McDONALD, J.

CLAYTON, Judge.

On September 7, 1984, Norma Crouch, individually, and as administratrix of the estate of Michael R. Norsworthy, filed suit against State Farm Mutual Automobile Insurance Company based upon its supposedly wrongful refusal to pay benefits under a binder for automobile insurance issued on November 10, 1983, by E.H. Jordan, exactly two weeks before Norsworthy's death on November 24, 1983. By answer filed November 8, 1984, State Farm admitted that Jordan, as its agent, did issue a 30-day binder on the 1976 Oldsmobile involved in the fatal accident and that Michael Norsworthy was listed as a driver on the binder. However, the insurer maintained that as a result of material misrepresentations or omissions relating to Norsworthy's prior driving record by Patricia France at the time she applied for the policy, the insurer properly rescinded the policy and revoked the binder on November 29, 1983, the day following submission of the claim thereunder.

Following the taking of discovery, Crouch filed a motion for summary judgment. Included with the motion is a legal memorandum in which Crouch alleges the following facts. On November 10, 1983, Pat France, sister of Michael Norsworthy, discussed the possibility of obtaining additional auto insurance for her brother with Betty Curtsinger, secretary to Mose Jordan, the local State Farm agent. Pat and Michael drove to the offices of Jordan. While Pat made application for the insurance, Michael visited friends across the street. When asked by Betty if Michael had been involved in any wrecks or tickets, Pat recalls that she answered that she did not know. Betty remembers that Pat said "no." After the application was completed by Betty (Mose Jordan was never present), Pat signed it. Michael's presence was not requested. On November 29, 1983, the day following the submission of Pat's claim, she received a letter informing her that her application for insurance was rescinded due to misrepresentations concerning Michael's driving record. A review of Norsworthy's record with the Transportation Cabinet reveals that he had previously been ticketed for speeding three times within the past three years and that his license had been suspended the year before following a citation for reckless driving. Based upon the language of the binder, Crouch argued that State Farm was obligated to make payment under the policy. The binder provides that State Farm is bound for 30 days from the requested effective date "subject to all terms and conditions of the automobile insurance policy...."

In response to this motion, State Farm filed its own motion for summary judgment arguing that France's material misrepresentations with respect to her brother's driving record caused the binder, under KRS 304.14-110, to be void ab initio. In addition, State Farm included the following distinctions with respect to Crouch's statement of the facts. Contrary to France's testimony by deposition, Betty Curtsinger did not recall having received a call from Pat France regarding acquiring insurance for Michael Norsworthy, nor did Curtsinger know that Michael was waiting outside the office while Pat applied for the insurance. Curtsinger testified she asked France several times about Norsworthy's driving record, and that France replied that Michael had never been fined, convicted or forfeited bail. Again, France maintains that she said she did not know the answer to these questions.

Deposition testimony by Mose Jordan indicates that upon returning to his office, he asked Curtsinger if she asked the standard questions about Norsworthy's driving record to which she replied, "yes, two or three times." He reviewed the application and forwarded it to Murfreesboro, Tennessee, where it was further reviewed. Jordan additionally testified he cannot issue a valid binder if any driver on the application has more than one ticket in the past 18 months. The company, according to Jordan, will never issue a policy to anyone who has ever had his or her license revoked or suspended. This testimony is confirmed by the affidavit of James H. Thomas, operations supervisor for State Farm.

On May 5, 1985, Crouch filed a response to State Farm's motion, again arguing that the language of the binder speaks for itself and that Sentry Indemnity Co. v. Brady, 153 Ga.App. 168, 264 S.E.2d 702 (1980), relied upon by State Farm is inapplicable as it applied to a policy of insurance and not a binder. State Farm responded on May 15, 1985, arguing that no material distinction could be made between a binder and an insurance policy as a binder will not issue for a risk for which a policy would not have issued.

In compliance with a pre-trial order, further memoranda were filed by both parties in June and July of 1985. In this instance, State Farm argued that it had no duty to further investigate, State Auto Mut. Ins. Co. v. Spray, 547 F.2d 397 (7th Cir.1977), that the applicant herself was negligent and therefore estoppel could not apply against it, and that the binder was invalid due to misrepresentation. Nationwide Mut. Ins. Co. v. Conly, 156 W.Va. 391, 194 S.E.2d 170 (1972); Adriaenssens v. Allstate Ins. Co., 258 F.2d 888 (10th Cir.1958); Fed. Mut. Ins. Co. v. Deal, 239 F.Supp. 618 (W.Va.1965); State Farm v. Gaekle, 131 F.Supp. 745 (D.C.Ind.1955).

Plaintiff/appellee, by supplemental memorandum, countered that State Farm could not rely upon KRS 304.14-110 regarding misrepresentations due to KRS 304.20-030 prohibiting retroactive annulment of an insurance contract after the occurrence of an injury. Further, Crouch pointed out that the insurance acquired was of a compulsory nature so that once a certificate of insurance had been issued, the insurance contract ceased to be a private contract as a supervening public interest attaches restricting the right of the party in accordance with statutory provisions. In support of this argument, appellees cited Sentry Indemnity Co. v. Sharif, 248 Ga.App. 395, 282 S.E.2d 907 (1981), in which the Court of Appeals of Georgia refused to declare void ab initio a binder for no-fault auto insurance due to a statute prohibiting retroactive annulment of such policies.

On July 22, 1985, the Graves Circuit Court entered a summary judgment on behalf of Crouch. Notice of appeal was then filed on August 14, 1985. We reverse.

We address the issues raised in the order they appear in the parties' various memoranda below, beginning with appellee's memorandum in support of its motion for summary judgment filed April 10, 1985. In that memorandum, Crouch argues that upon issuance of the binder by Mose Jordan on November 10, 1983, a valid contract for insurance arose irrevocably binding State Farm to provide insurance coverage for thirty days. A close examination of the language of the binder reveals, however, that this temporary coverage was not unconditional. In specific terms, the binder provides that,

State Farm Mutual Automobile Insurance of Bloomington, Illinois, hereby binds as of the requested effective date for a period of 30 days from such date, the insurance applied for, subject to all of the terms and conditions of the automobile insurance policy and applicable indorsements in current use by such company. The issuance by the company of the declarations page of the policy applied for voids this binder. (Our emphasis)

Looking to the declarations section of the automobile insurance policy to have been issued, two of the specified terms upon which State Farm conditioned its insurance, and therefore its binder, were based upon the applicant's...