Van Horn v. Atlantic Mut. Ins. Co.

Decision Date01 September 1990
Docket NumberNo. 20,20
Citation334 Md. 669,641 A.2d 195
CourtMaryland Court of Appeals

I. Elliott Goldberg and David A. Sherbow (Jane A. Canter, Charles E. Chlan, David D. Levine and Jill Coleman, James J. Temple, Anello and Temple, Baltimore, all on briefs), I. Elliott Goldberg (Christine A. Malanga, Baltimore, both on brief), for petitioners.

Martin H. Freeman, David A. Sherbow, Baltimore, as amicus curiae, for Maryland Trial Lawyers Ass'n Roger O. Robertson (A. Douglas Owens, Owens & Robertson, P.A., Baltimore, all on brief), for respondent.

James J. Doyle, III, James J. Doyle, Jr., Doyle & Craig, PA, Baltimore, as amicus curiae, for American Ins. Ass'n.

Argued Oct. 10, 1990 before MURPHY, C.J., and ELDRIDGE, RODOWSKY, McAULIFFE * and CHASANOW, JJ.



The issue in this case is whether Maryland's statutory motor vehicle insurance regulatory scheme has changed an insurer's common law contract right to void ab initio an automobile liability insurance policy when the insured applicant had made a material misrepresentation in the application for the policy.


In early October 1985 Raymond J. Van Horn signed and submitted, through an insurance agency, an application to the Atlantic Mutual Insurance Company for an automobile insurance policy on a 1983 Toyota automobile owned by Mr. Van Horn. Mr. Van Horn was listed on the application as the only driver of the automobile. In a section of the application containing a series of questions with boxes to mark "Yes" or "No," one of the questions was whether the "driver listed above" has "a physical impairment," and it was answered by an "X" in the "No" box. Atlantic Mutual issued a policy for a six-month period beginning October 4, 1984, and it was subsequently renewed at intervals of six months through April 4 1987. The policy carried personal injury liability limits of $100,000/$300,000.

On January 14, 1987, the insured automobile, being driven by Raymond Van Horn on Reisterstown Road in Baltimore County, collided with a bicycle ridden by Douglas Wines. Van Horn was arrested by the investigating police officer and charged with driving while intoxicated. At the time, Van Horn told the investigating officer that he had taken medication for his epilepsy about two hours earlier. Douglas Wines was injured in the accident and was treated at the University of Maryland Hospital, which is part of the University of Maryland Medical System Corporation.

Atlantic Mutual was notified of the accident, began an investigation, and, in the course of the investigation, obtained on February 9, 1987, a copy of the police accident report. The insurer first received information that Van Horn had epilepsy from the accident report. Three days later, on February 12, 1987, Atlantic Mutual obtained a detailed statement from Van Horn in which he described his history of "seizures" which began in 1983. Thereafter Atlantic Mutual obtained Van Horn's medical records.

Shortly after Atlantic Mutual commenced its investigation, Douglas Wines filed with the insurer a claim for compensation under the liability provisions of Van Horn's policy. The insured, Raymond Van Horn, made a claim under the collision coverage of his policy, and that claim was paid by Atlantic Mutual a few days after it was made. No other claims under the policy have been made.

In early March 1987, Atlantic Mutual sent to Van Horn a "reservation of rights" letter, although in late March 1987, Atlantic Mutual renewed Van Horn's policy for another six-month period from April 4, 1987, to October 4, 1987. Then, according to the testimony of an Atlantic Mutual official, in late April 1987 Atlantic Mutual reached a "decision that it was a policy that should be void ab initio." Atlantic Mutual sent a letter to Van Horn dated April 28, 1987, which stated that the insurer has "determined that there does indeed exist a material misrepresentation on your application," that the "withheld information" concerning Van Horn's "epileptic condition" would "have significantly influenced the decision as to whether to issue you a policy of automobile liability insurance," and that

"you are hereby notified your policy of automobile liability insurance with the Atlantic Mutual Insurance Company is rescinded as of the date of its issuance and will be treated as void from its inception. Hence, there is no coverage available to you for any claims arising out of the January 14, 1987 motor vehicle accident.

"A full refund of all premium payments which you have made since the issuance of the Atlantic Mutual Insurance Company's policy will be refunded to you in the near future."

The following day, April 29, 1987, Atlantic Mutual commenced the present action by filing in the Circuit Court for Baltimore County a complaint for a declaratory judgment, requesting a declaration that the insurance policy "is void from its inception, and has been properly rescinded by Atlantic because of the material misrepresentation by Van Horn in his application for insurance." Named as defendants were Raymond J. Van Horn, Douglas Wines, University of Maryland Medical System Corporation, and the Maryland Medical Assistance Program, Maryland Department of Health and Mental Hygiene. The last named defendant had paid a portion of the medical expenses incurred by Douglas Wines. Thereafter the defendant Van Horn filed a counterclaim for a declaratory judgment that the insurance policy was valid at the time of the accident and that Atlantic Mutual's attempt to void the policy ab initio was improper.

After the commencement of this action, Atlantic Mutual, on May 21, 1987, sent Van Horn a check for $1,190.86, purporting to reflect "all premium payments" paid to Atlantic Mutual for the policy. Van Horn has not cashed the check. Van Horn did, however, obtain an automobile insurance policy from another insurer, the Maryland Automobile Insurance Fund.

In contesting Atlantic Mutual's request for a declaration that the insurance policy was void ab initio, the defendants made various arguments in the circuit court. It was claimed that the answer on the insurance application was not a misrepresentation because Van Horn's condition did not amount to a physical impairment, that if the statement constituted a misrepresentation it was not material, and that Atlantic Mutual had waived any right which it otherwise may have had to void the policy. Van Horn also contended that he had fully disclosed his epileptic condition to the insurance agency during August and September 1985 when the agency was attempting to persuade him to switch his automobile insurance from his prior insurer to Atlantic Mutual, that the agency and not Van Horn filled out the application, and that, in this regard, the agency was acting as "Atlantic Mutual's agent and/or representative." Finally, the defendants argued that voiding a motor vehicle insurance policy ab initio is contrary to the Maryland statutory scheme regulating motor vehicle insurance and providing for compulsory insurance on all Maryland automobiles.

At the nonjury trial, there was medical evidence about Van Horn's history of epilepsy, testimony from the insurance agency concerning the circumstances of the application, evidence regarding the State Motor Vehicle Administration's procedures if an epileptic applies for a new or renewal driver's license, and testimony from several Atlantic Mutual officials concerning the company's procedures, policies with respect to insuring epileptics, and the circumstances of the present case.

Among other things, the evidence at trial disclosed that when Van Horn renewed his Maryland driver's license in May 1984, one of the questions on the renewal application was as follows: "Do you have any physical or mental disability, other than vision, which may affect your driving?" Van Horn answered the question in the negative. A representative from the State Motor Vehicle Administration ("M.V.A.") testified that if the question had been answered in the affirmative, the M.V.A.'s Medical Advisory Board would have contacted "the medical doctors involved and request[ed] a ... prognosis of the individual ..., and the Medical Advisory Board would then make a decision as to whether or not [Van Horn] would be licensed...."

Ted Brockman, Atlantic Mutual's personal lines manager and formerly an underwriting manager, testified that the insurer has no rule that it will not insure epileptics. The witness seemed to indicate that Atlantic Mutual will issue an automobile insurance policy to Marylanders with "physical impairments" if they are cleared by the M.V.A.'s Medical Advisory Board. At the conclusion of the trial, Atlantic Mutual's counsel conceded that "Atlantic will insure them [persons with epilepsy] if they meet [the] requirements of M.V.A."

Thereafter, the circuit court issued an opinion and declaratory judgment which declared that the insurance policy was not void from its inception and that Atlantic Mutual was not entitled to rescind the policy ab initio. The circuit court found "that Van Horn knew of his epileptic condition by April 1983, the time of his first seizure." The court further found that Van Horn made a misrepresentation on the application for insurance when he gave a "No" answer to the question whether he had a physical impairment. Nevertheless, the circuit court found that Atlantic Mutual had failed to establish that the misrepresentation was material. The court quoted the test for materiality set forth in Life Insurance Co. v. Samis, 172 Md. 517, 528, 192 A. 335, 339 (1937), namely whether the facts concealed from the insurer " 'were of such probative force as in all reasonable probability, if brought to the knowledge of the company, would have precluded the...

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