Tri-State Ins. Co. v. Ford

• Decision Date: 06 March 1954
• Docket Number: No. 2387.,2387.
• Citation: 120 F. Supp. 118
• Parties: TRI-STATE INS. CO. v. FORD et al.
• Court: U.S. District Court — District of New Mexico

120 F. Supp. 118

TRI-STATE INS. CO. v. FORD et al.

No. 2387.

United States District Court, D. New Mexico.

March 6, 1954.

COPYRIGHT MATERIAL OMITTED

Gilbert, White & Gilbert, Santa Fe, N. M., for plaintiff.

Donald D. Hallam, Dewie B. Leach, Joseph O. Walton, Hobbs, N. M., and Harry L. Bigbee, Santa Fe, N. M., for defendants.

WALLACE, District Judge.

The plaintiff, Tri-State Insurance Company, an Oklahoma corporation, duly licensed to transact insurance business in the State of New Mexico, brings this action pursuant to the Federal Declaratory Judgment Act¹ to determine what liabilities, if any, exist by virtue of two policies issued by plaintiff to the defendant, Marshall C. Ford.

Both the physical damage policy² and the public liability policy³ were issued on January 7, 1953, through plaintiff's local soliciting agent at Sweetwater, Texas. On February 22, 1953, the insured while driving his car in which defendants Inez Ford, Jake Q. Carrell, Leola Carrell, J. W. Harris and Callie S. Harris were riding as passengers collided with a car being driven by defendant James A. Abshier, in which car defendants Terry Mitchell, Homer A. Mitchell, Marie Mitchell, Wanda Lee Abshier, James Clifford Abshier and Sidney Stephen Abshier, were riding as passengers.

This Court is called upon to determine the coverage, if any, given by the physical damage policy to the insured as well as the insured's mortgagee, Southwestern Investment Company, a Texas corporation; and, the coverage, if any, given by the public liability policy insofar as the passengers in both cars are concerned.

Although the Court must deal separately with the rights of the parties in relation to the physical damage policy and the public liability policy the introduced evidence established the following pertinent facts:

1. At the time the two policies in question were obtained, the insured, Marshall C. Ford, represented to the plaintiff's local soliciting agent, Marshall Morgan, that no policy of automobile insurance issued to the said insured had been cancelled by an insurer during the previous year; this representation was false inasmuch as at least five different policies issued by five different companies had been cancelled during the preceding twelve month period.

2. The plaintiff insurance company relied on the false and fraudulent representation made by the insured when the two policies in question were issued; and, said misrepresentation was material to the risks in said policies of insurance.

3. The plaintiff insurance company would not have issued these two policies, or either of them, or permitted them to remain in force, if the plaintiff company had known or learned of the cancellations which had occurred in the year prior to the issuance of these policies.

4. The insured's false representation was embodied in the written terms of both policies of insurance by language which appeared in Item 6(b) of the declarations which provided:

"During the past year no insurer has cancelled any automobile insurance issued to the named insured."

with a notation in the public liability policy of "no exception" and a notation in the physical damage policy of "nil".

5. Each of the two insurance policies provided in the policy declaration:

"By acceptance of this policy the named insured agrees that the statements in the declarations are his agreements and representations, and that this policy embodies all agreements existing between himself and the company or any of its agents relating to this insurance."

6. The plaintiff insurance company (that is, the home office or corporate officers) did not discover the false representation of the insured until March 30, 1953; however, the local soliciting agent of the plaintiff corporation was guilty of negligence in not further verifying the truthfulness of the insured's representation inasmuch as the facts and circumstances existing at the time the policy application was written were such as to have placed a reasonably prudent person in the position of the local soliciting agent on notice of possible misrepresentation; and, in the exercise of reasonable diligence said agent could have learned of said misrepresentation prior to the time the accident in question occurred.⁴

7. The plaintiff insurance company on or about April 3, 1953, upon determining the falsity of the representation in question notified the defendants Marshall C. Ford (the insured) and Southwestern Investment Company, Inc. (the insured's mortgagee) that the insurer was rescinding the policies and tendered the full amount of the policies' premiums; this tender was refused.

8. The defendant Southwestern Investment Company, Inc. (the insured's mortgagee) relied upon the issuance by plaintiff of the physical damage policy to protect its mortgage on the insured's car, and in reliance thereon cancelled out a single interest policy which was in effect to protect the mortgagee's interest during the time the insured himself had no insurance. However, by the exercise of reasonable diligence at the time the mortgagee received a duplicate copy of the physical damage policy containing the loss-payable clause in favor of said mortgagee, the mortgagee could readily have learned the physical damage policy had been obtained by means of a material misrepresentation on the part of the insured, and said mortgagee was guilty of neglect in not so learning.

9. Subsequent to the accident in question the local soliciting agent of plaintiff collected from the defendant insured the premium on the issued public liability policy; however, at such time neither the soliciting agent nor the plaintiff insurance company (that is, the home office or corporate officers) knew of the falsity of the representation made by the insured, although as recognized in Finding No. 6, supra, the local agent was guilty of neglect in not previously learning of such misrepresentation.

10. On or about March 17, 1953, the plaintiff company notified the defendant insured, Marshall C. Ford, that the public liability policy would be cancelled as of March 28, 1953; at such time the plaintiff company had no knowledge of the false representation by the insured.

11. A bona fide and justiciable controversy exists between the parties hereto in regard to the relative rights and liabilities of the parties by virtue of the two issued policies.

In determining the rights of the parties litigant the Court will deal with the two policies separately:

I.

The Physical Damage Policy.

A. The Insured's Rights Under the Policy.

As recognized in the enumerated findings of facts, the insured secured this policy by fraudulently representing a fact material to the involved risk; and, although the soliciting agent for the plaintiff was negligent in not establishing that said representation was false, the policy was in fact issued in reliance upon the insured's false warranty. Under such circumstances the insured has no standing in a court of equity to resist a petition for cancellation.

Although there is a rule, applicable particularly in the law of sales, that where the one on whom the alleged fraud was perpetrated, knew or could have known of the fraud, said person cannot urge the misrepresentation in order to vitiate the contract between the parties,⁵ such rule has no application in the instant case.

The plaintiff company, on whom the fraud was practiced, had no actual knowledge of the misrepresentation and cannot be deemed to have waived this material risk element and to have knowingly entered into the contractual arrangement.⁶ Although, admittedly the plaintiff's soliciting agent had facts which upon inquiry would have revealed the truth the plaintiff company cannot be bound by the agent's failure to inquire inasmuch as this soliciting agent was not clothed with ostensible authority to waive a matter so material to the risk, even if said agent had possessed actual and not merely constructive notice himself.⁷ The insured cannot be purged from his own fraud upon the rationale that the plaintiff through its soliciting agent engaged in conduct which in legal fiction amounted to a waiver of a material warranty by the insured when the agent accepted the premium payments.⁸ The case at bar must be sharply distinguished from those lines of cases wherein the agent of the insurer in order to write the policy either mistakenly or fraudulently fills in an insurance application warranty when the warranted representation material to the risk was in fact truly and accurately stated by the prospective insured.⁹ Obviously, where the applicant in the utmost of good faith truthfully states all facts pertinent to inquiry and pays his premium with the understanding that the policy has been accepted by the insurer, any negligent or fraudulent conduct on the part of the agent must be imputed to the insurance company and not to the insured.

In addition, the insured in the case at bar cannot by means of parol evidence attempt to impeach the unambiguous terms of the written insurance contract.¹⁰

Condition 20. of the instant physical damage policy provides:

"Changes — Notice to any agent or knowledge possessed by any agent or by any other person shall not effect a waiver or a change in any part of this policy or estop the company from asserting any right under the terms of this policy; nor shall the terms of this policy be waived or changed, except by endorsement issued to form a part of this policy, signed by the secretary."

And, significantly, condition 24. provides further:

"Declarations — By acceptance of this policy the named insured agrees that the statements in the declarations are his agreements and representations, that this policy is issued in reliance upon the truth of such representations and that this policy embodies all agreements existing between himself and the company or any of its agents relating to this insurance."

The insured cannot at this juncture urge that the plaintiff's soliciting agent waived a...