Travelers Indemnity Company v. Harris, 60 C 344.

• Citation: 216 F. Supp. 420
• Decision Date: 03 October 1961
• Docket Number: No. 60 C 344.,60 C 344.
• Parties: The TRAVELERS INDEMNITY COMPANY, a corporation, Plaintiff, v. Thomas HARRIS, Jr., Lenos G. Cannon, Harry Singleton and Rose Mary Singleton, Defendants.
• Court: U.S. District Court — Eastern District of Missouri

216 F. Supp. 420

The TRAVELERS INDEMNITY COMPANY, a corporation, Plaintiff, v. Thomas HARRIS, Jr., Lenos G. Cannon, Harry Singleton and Rose Mary Singleton, Defendants.

No. 60 C 344.

United States District Court E. D. Missouri, E. D.

October 3, 1961.

John F. Evans, of Evans & Dixon, St. Louis, Mo., for plaintiff.

Alphonse Lynch, St. Louis, Mo., for defendant. Harris Merle L. Silverstein, Clayton, Mo., for defendants Cannon and Singleton.

HARPER, Chief Judge.

This is an action for a declaratory judgment to void an automobile liability policy of insurance issued by the plaintiff to the defendant, on the grounds that the defendant fraudulently procured the insurance contract by misrepresentations in his application.

Notwithstanding defendant's argument that this court is without jurisdiction, it seems clearly within the discretion of the Federal District Court to entertain the suit pursuant to 28 U.S.C. § 2201, which creates the declaratory judgment remedy, subject only to the existence of (1) a case or actual controversy, (2) within its jurisdiction, and (3) the filing of appropriate pleadings.

The existence of a case or controversy in the instant case is clear, in that plaintiff will have to defend suits by defendants Cannon and Singleton if they get judgments in their action against Harris, and, in the alternative, suit by Harris for losses and expenses, based on wrongful refusal to defend. Cases holding that there was a case or controversy in basically similar factual situations include Aetna Life Ins. Co. of Hartford, Conn. v. Martin, 8 Cir., 108 F.2d 824; New York Casualty Co. v. Lewellen, 8 Cir., 184 F.2d 891; and Maryland Casualty Co. v. Pacific Coal & Oil Company, 312 U.S. 270, 61 S.Ct. 510, 85 L.Ed. 826.

The declaration of rights and duties in reference to whether or not the policy is void ab initio is proper at this juncture to avoid a possible multiplicity of suits.

Nor is defendant's contention that plaintiff has an adequate remedy at law sufficiently persuasive to defeat jurisdiction. There are many cases in which Federal District Courts have entertained declaratory judgment actions under similar circumstances. Commercial Standard Ins. Co. v. Central Produce Company, D.C., 42 F.Supp. 31. Similarly there are many cases in which District Courts have retained jurisdiction even though actions had been commenced in the state courts. Maryland Casualty Company v. Tighe, D. C., 29 F.Supp. 69, affirmed 9 Cir., 115 F. 2d 297; General Accident, Fire & Life Assur. Company Limited, of Perth, Scotland v. Morgan, D.C., 30 F.Supp. 753.

It has also been said that a court may not refuse to assume jurisdiction in a declaratory judgment action on the grounds that another remedy is available or because another suit is pending in a state court, if the controversy between the parties will not necessarily be determined thereby. Brillhart v. Excess Insurance Co. of America, 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620. The latter seems particularly applicable to the situation at hand. The insurer has not been made a party in either of the state court suits and its specific obligations will not be determined in those actions.

The basic facts here are as follows: Defendant Harris applied for an auto liability policy on February 2, 1960, during which transaction the questioned representations were made. The policy was issued by the plaintiff on February 10th. An accident occurred on February 16th which resulted in injuries to defendants Cannon and Singleton, and they filed separate suits as plaintiffs in the Circuit Court of the City of St. Louis on October 10, 1960. Plaintiff received the Retail Credit report on Harris somewhere between the 19th and 25th of February, and a report of the accident on the 24th of February. Somewhere between February 23rd and 25th, the record of violations was referred to plaintiff's Claims Department. It is not clear whether adjuster Quigg began routine investigation of the accident before or after notice of Harris' violations reached the Claims Department, however. Nevertheless, within ten days from the time he had begun the investigation, he was ordered to stop it, and run a check on Harris' traffic record. On April 8, 1960, Harris was first notified that the insurance company was voiding the policy.

There are two main issues involved, each requiring a simultaneous weighing of both evidence and law. They are: (1) Was there such a fraudulent misrepresentation by Harris that plaintiff, Travelers, should be allowed to void the policy? (2) If the policy is otherwise voidable, did Travelers waive the defense by delay or other affirmative actions which would estop them from raising the defense in this action?

While the term "fraud" is used in many branches of the law, the restitutionary or contract sense is relevant here, and the definition of fraud in these areas generally encompasses (1) misrepresentation known to be such, (2) non-privileged non-disclosure, and (3) concealment. (Restatement of Contracts, Sec. 471, Restatement of Restitution, Sec. 8.) An additional requisite is that the misrepresentation must be of a material fact, and a misrepresentation is material "where (it) would be likely to affect the conduct of a reasonable man" (Restatement of Contracts, Sec. 470(2)). However, "It is not essential to constitute fraud (as defined in the Restatement of Contracts) that the mistake intended or expected shall be material. * * * It is enough that the mistake is intended or expected to induce either affirmative or negative conduct with respect to contractual relations." (Restatement of Contracts, Sec. 471, Comment C. (Emphasis added.))

Further, in order to be actionable, as to create a right of avoidance in the defrauded party, the misrepresentation must actually induce the complaining party's entry into the transaction. McNealy v. Bartlett, 123 Mo.App., 58, 99 S.W. 767. However, it need not be the sole inducement, at least not in Missouri. Bledsoe v. Letson, Mo.App., 215 S.W. 513.

It should also be noted that a misrepresentation that may be fraud "includes all possible affirmative conduct that amounts to an assertion of fact." (Restatement of Contracts, Sec. 471, Comment d.) In short, misrepresentation need not be oral, and this may have some specific application to the consequences of signing the policy by Harris. I have not gone into the legal consequences of the "signing" because there is sufficient evidence of fraud without it.

What actually transpired when Harris applied for the insurance is crucially important in establishing fraud. Item #9 is the key part of the application, and reads as follows:

"Have you or any other person named in item 8 been convicted of a moving traffic violation as a result of operating any private passenger type automobile during the past 5 years' period preceding the date of this application?"

Had this question been read verbatim to Harris, or had he read it himself, the "no" answer appearing on the application, or at least the "no" answer that Rogers testified Harris gave, would be a clear case of fraud in view of the actual violation. But it is not this easy since there is conflict as to what actually did happen. Rogers, the "producer" of the insurance, the man who took Harris' application, testified that he asked Harris if he had any violations in the past five years. Rogers admittedly did not read from the application verbatim, but insisted, and repeated in his testimony, that he asked Harris if he or his wife had any moving traffic violations in the past five years.

Harris, on the other hand, stated in his depositions and in testimony at the trial that Rogers asked only if he had any moving violations and that he did not put any time limit on it. Harris testified that he admitted having such violations but that "he was a little vague on the dates." The implication was that since, under his version, Rogers put no time limit on it, there was little inducement to think of the exact dates, and his admission of having such violations was an ample answer. Harris also testified that he signed the policy without reading it.

The testimony of Rogers and Harris is hopelessly contradictory, and very important, as is, therefore, their credibility. If Rogers is to be believed, there is a pretty clear case of fraud, otherwise, a rather difficult case.

Harris, in his March 27th deposition, said that to the best of his knowledge he had been involved in no moving traffic violations since 1948, and doggedly adhered to that position, while in fact, he had at least four traffic violations. It seems obvious that Harris was intentionally concealing the violations when he made his application.

Materiality and reliance on misrepresentation are interrelated. As mentioned before, a misrepresentation is material by the Restatement definition "where (it) would be likely to affect the conduct of a reasonable man." Had the company or the underwriter known of the four actual violations totalling ten points, and particularly of the drunken driving charge, no policy would have been issued.

Defendant's efforts to distinguish the cases of Minich v. MFA Mutual Ins. Co., Mo.App., 325 S.W.2d 56, and Gooch v. Motors Ins. Co., Mo.App., 312 S.W.2d 605, are without avail. Both involved misrepresentations in applications for insurance. The court in Minich, supra, l. c. 57, said: "`A material misrepresentation made by an applicant for insurance, in reliance on which a policy is issued to him, renders the policy voidable * * *.' * * * This is true whether such misrepresentation be made intentionally or through mistake and in good faith." l. c. 58: "He is bound, in law, to have known the contents of the instrument he signed, whether he read it or did not read it."

Did plaintiff waive its defense, or is it estopped from asserting it because of delay or other affirmative action? The Restatement of Contracts, Sec. 483, in discussing elements of waiver or estoppel, indicates that:...