Vernon Fire & Cas. Ins. Co. v. Thatcher, 371A51

• Decision Date: 03 August 1972
• Docket Number: No. 371A51,371A51
• Citation: 152 Ind.App. 692,285 N.E.2d 660
• Parties: VERNON FIRE & CASUALTY INSURANCE COMPANY, Appellant, v. Charles E. THATCHER, Betty Thatcher, Appellees.
• Court: Indiana Appellate Court

Page 660

285 N.E.2d 660

152 Ind.App. 692

VERNON FIRE & CASUALTY INSURANCE COMPANY, Appellant, v. Charles E. THATCHER, Betty Thatcher, Appellees.

No. 371A51.

Court of Appeals of Indiana, Second District.

Aug. 3, 1972.

Hickam & Hickam, Spencer, for appellant.

Vernon J. Petri, Spencer, for appellees.

WHITE, Judge.

Appellees, Mr. and Mrs. Thatcher (Thatchers), suffered a fire loss, a part of which was not covered by the insurance policy they had purchased from appellant (Company) through an agent (Schepper). They recovered a verdict and judgment against the company in the sum of $7,500.00 on a complaint which alleged that the agent had falsely represented to them that the policy would cover such a loss. ¹ We today affirm that judgment.

The appellant Company has saved and argued some nineteen specifications of error. The issues those contentions of error present to us may be summarized as follows:

A. Election. Whether by affirming a contract a party thereto gives up his right to claim damages for misrepresentations as to its provisions.

B. The parol evidence rule. Whether the parol evidence rule applies procedurally in the trial of such a claim to exclude evidence of the allegedly false representations and/or substantively to preclude liability therefor and to confine the rights and liabilities of the parties to the provisions of the contract.

C. Scienter. Whether evil intent and knowledge of falsity are essential to the liability to one who makes false representations or whether recklessness is sufficient.

D. Agency, scope of authority and vicarious liability. Whether evidence that one claiming to be an insurance company's agent solicited and obtained an order for a policy which he later delivered (being admittedly sufficient to warrant an inference of agency to solicit) is sufficient to imply that the agent is authorized by the company to represent to the solicitee, for the purpose of inducing an order, the provisions of the policy coverage and whether the company is liable for a reckless or intentional misrepresentation.

E. Measure of Damages. Whether the damages awarded are excessive in view of the company's limit of liability under the coverage allegedly misrepresented.

This lawsuit has its remote origin in the fact that Thatchers were simultaneously engaged in two separately located business enterprises. The owned and operated a farm in Owne County and also operated the saddle barn concession in McCormick's Creek State Park, some fifteen miles from their farm home. The Saddle Barn burned on October 17, 1966, destroying personal property of the Thatchers located in the barn. At that time they held a farmowners policy issued by defendant and which had been sold to them by the agent Schepper. Among the categories of property insured by the policy was 'unscheduled personal property' both on the farm premises and away from the farm. As to coverage away from the premises, however, the policy contained this exclusionary provision: 'Property pertaining to a business is not covered'. Some of Thatchers' personal property destroyed in the fire did not pertain to business and is not directly involved in this lawsuit. ² What is involved is the loss in that fire of approximately $7,500.00 worth of personal property used by the Thatchers in the business of operating the Saddle Barn. That property was not covered by the policy, but as stated in the Company's brief, '(t)he evidence is replete with testimony . . . that in soliciting the Farmowner's Policy and in taking Thatcher's application before delivery of the policy Schepper, on numerous occasions, represented to Thatcher that all his property at the saddle barn would be covered by the policy . . ..' Also, 'testimony . . . that Schepper and Fiscus, Vernon's filed representative, about March 1, 1964, at Thatcher's home almost a year after the policy was delivered, again represented to Thatcher that his property in question at the saddle barn would be covered by the policy . . ..' On the latter date there was a discussion of Workmen's Compensation and Public Liability policies which had previously been in another company through another agent but were thereafter issued by appellant Company. There is also evidence, which is undisputed, that a small loss was paid (prior to the fire) for damage to a horse drawn vehicle used in the Saddle Barn business.

The pleadings on which this case was tried were filed in 1969 under the so-called code pleading rules. ³ Those pleadings are Paragraphs III and IV of the third amended complaint (hereafter merely 'complaint') and the Company's answers thereto. The answers are merely admissions and denials, no affirmative defense having been pleaded. We find the material allegations of the complaint to be accurately summarized in the Court's Instruction No. 1 which told the jury that the plaintiffs had the burden of proving, as to Paragraph III:

'First: That the Defendant, Vernon Fire and Casualty Insurance Company, at the time of the fire in question was negligent in:

'A. That Defendant knew or should have known through the exercise of reasonable care that the insurance policy issued by the Defendant to Plaintiffs did not cover loss to Plaintiffs' personal property when kept away from the 'premises' on which said policy was written and used in plaintiffs' business, or

'B. That Defendant advised plaintiffs that defendant had, pursuant to the request of Plaintiffs, chosen a policy of insurance which covered loss by fire of plaintiffs' personal property located at said Saddle Barn when in fact such policy did not cover such property so located.

'Second: That the agent or employee of the Defendant acted within the scope of their authority, real or apparent, and that plaintiffs had no knowledge to the contrary.

'Third: That Plaintiffs sustained damage as claimed.

'Fourth: The aforesaid negligence was the proximate cause of such Plaintiffs' damages.'

As to Paragraph IV, the same instruction stated plaintiffs had the burden of proving:

'First: That the defendant, Vernon Fire and Casualty Insurance Company, at the time of the fire in question through its agent or employee falsely represented to the plaintiffs that plaintiffs' personal property in the Saddle Barn was insured against loss by fire by the policy issued by defendant when in fact said policy as issued did not cover plaintiffs' personal property in the Saddle Barn.

'Second: That the Agent of the defendant acted within the scope of their authority, real or apparent, in making such false representation knowing such representation to be false or recklessly made such representation without knowledge of its truth or falsity and that such representation was made for the purpose of inducing plaintiffs to act upon it and that plaintiffs had no knowledge to the contrary and relied and acted upon such representation of the defendant.

'Third: That plaintiffs sustained damages as claimed.'

Each paragraph contained a list of the personal property lost in the fire and not covered by the policy. The total listed value thereof is $7,402.22, which is alleged to be the amount of Thatchers' damage.

Since this appeal is from a judgment based solely on Paragraph IV of the complaint ⁴ we are now concerned with Paragraph III only to the possible extent that its allegations or theory may affect the admissibility of evidence or the propriety of any jury instruction.

The parties appear to agree that Paragraph III is a negligence action while Paragraph IV is a fraud action. Neither paragraph seeks relief by virtue of the policy. Neither makes any claim that the policy covers more than its printed word states it covers. Both paragraphs concede that the policy does not cover the property listed as lost in the fire. But both assert, however, that plaintiffs have been damaged to the extent of the value of that property by reason of the defendant's negligence and/or misrepresentation.

A. Election.

The defendant-company first raised this issue in its motion for summary judgment. ⁵ It was also raised at subsequent stages and has been preserved in the motion to correct errors. The company contends that by suing on the policy for the value of the nonbusiness property lost in the fire at the Saddle Barn, by recovering judgment therefor, and by thereafter accepting payment of that judgment, plaintiffs have ratified the policy as written and may not now repudiate it and recover damages. In support of that contention the Company relies on language in Doherty v. Bell (1876), 55 Ind. 205, 208, and St. John v. Hendrickson (1882), 81 Ind. 350, 352. Applied to the facts in those cases, the principles there stated produced just results. Only by misinterpretation of that easily misunderstood language do those cases furnish any basis for contending that plaintiffs' suit on the policy has released defendant from liability for the alleged misrepresentation of the policy's coverage.

In Johnson v. Culver (1888), 116 Ind. 278, 285, 19 N.E. 129, 133, the Supreme Court said:

'The retention of property by a party who has suffered loss from the fraud of another does not preclude the loser from maintaining an action for damages, nor does even an express waiver of the fraud and explicit ratification of the contract have the effect to deprive the party of his action, unless, indeed, the ratification is of such a character as to imply a release from the consequences of the fraud. (Emphasis added).'

The principle applicable here is that a 'ratification' implies a release from the consequences of the fraud only if the ratification is inconsistent with a claim for damages caused by the fraud. Union Central Life Insurance Co. v. Schidler (1891), 130 Ind. 214, 216, 29 N.E. 1071, 1072, holds

'that an action on the contract and one predicated on the fraud are not inconsistent, and that both may be prosecuted concurrently, and recovery in the one will not bar a recovery in the other.'

The only election plaintiffs made by...