Vernon v. Aetna Insurance Company

• Decision Date: 11 May 1962
• Docket Number: No. 18840.,18840.
• Citation: 301 F.2d 86
• Parties: C. A. VERNON and Marianne Vernon, Appellants, v. AETNA INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

301 F.2d 86 (1962)

C. A. VERNON and Marianne Vernon, Appellants, v. AETNA INSURANCE COMPANY, Appellee.

No. 18840.

United States Court of Appeals Fifth Circuit.

March 30, 1962.

Rehearing Denied May 11, 1962.

George E. Cire, James J. Hippard, Percy Foreman, Houston, Tex., for plaintiffs-appellants. Foreman & Walsh, Cire & Jamail, Houston, Tex., of counsel.

David Bland, Houston, Tex., for appellee. Barrow, Bland & Rehmet, Houston, Tex., of counsel.

Before TUTTLE, Chief Judge, and HUTCHESON and RIVES, Circuit Judges.

HUTCHESON, Circuit Judge.

The case is before us upon appeal from a summary judgment rendered in behalf of the insurer, appellee here, in an action by the insured on a personal property floater policy of insurance. As a statement of the facts of the case will show, this is another of those all too numerous instances of the mis-use of the summary judgment procedure to cut a trial short; as so often before, it has served only to prove that short-cutting of trials is not an end, and that in the conduct of trials, as in other endeavors, it is quite often true that the longest way around is the shortest way through.¹

Among the articles of property covered by the policy were certain scheduled pieces of jewelry of the value of $49,150.00. Appellants stated in their original petition that on or about January 17, 1960, some of the jewelry, valued at $27,700.00, was taken from their home under circumstances constituting burglary or theft. Aetna, the insurer, was made aware somehow,² that the insured claimed the right to recovery for a covered loss, and denied liability because according to appellants' petition, of Aetna's stated belief "that plaintiffs were liars and frauds". Appellants then instituted suit in a district court of Texas for the amount of the alleged loss and punitive damages. The suit was removed on petition of the insurer to the United States District Court for the Southern District of Texas.

On May 20, 1960, before Aetna had filed its answer in the suit, Marianne Vernon, one of the plaintiffs-appellants and owner of most of the jewelry, subscribed and swore to a statement in which she declared that the burglary or theft of jewelry which was the basis of her claim against Aetna was in fact feigned by her father, C. A. Vernon, the other appellant herein, pursuant to a plan for obtaining a recovery on the policy, to which she, her mother, and her father were all parties.

On May 23, 1960, Aetna filed its answer, relying affirmatively on the defense that a clause in the policy provided:

"This policy shall be void if the assured has concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof or in case of any fraud, attempted fraud or false swearing by the assured touching any matter relating to this insurance or the subject thereof, whether before or after a loss."

and that the action of C. A. Vernon, Marianne Vernon, and Mrs. C. A. Vernon, as described in Marianne Vernon's statement of May 20, 1960, was a clear violation of this clause, voiding the contract. In addition, Aetna filed a counterclaim for actual and punitive damages.

Thereafter, on September 8, 1960, Aetna moved for partial summary judgment, with Marianne Vernon's affidavit of May 20, 1960 attached, on the ground that the Vernon's fraud vitiated the insurance and released the liability of the insurer as a matter of law. On October 17, 1960, no controverting affidavits having been filed, the motion was set for hearing on October 31st. Prior to the date set for hearing, however, on October 28th, C. A. Vernon, his wife, and Marianne Vernon all executed affidavits repudiating Marianne's affidavit and denying knowledge of, or complicity in, the theft of the insured jewelry as sworn to by her. In repudiating her statement of May 20, 1960, Marianne Vernon stated:

"I have read the statement made and executed by me on May 20, 1960. The representations in that statement regarding the theft of jewelry from our house are not true. I had no prior knowledge of the theft, was not in anyway implicated, and I do not know the whereabouts of the jewelry.

"I was induced to make and sign this statement out of fear for the liberty of Mark Tenalio." This man had been employed by investigators representing the insurer to make inquiries in Bryan, Texas, where the Vernons lived. "At the time I made the statement I was deeply in love with Mark Tenalio. He had asked me to marry him and I was pregnant by him. He told me that if I did not `help to clear him\' he would go to the penitentiary for this theft. I did not want the father of my unborn child to be a convict, so, together we invented this story about my father and mother. It is all false."³

On October 31, 1960, a hearing on Aetna's partial motion for summary judgment was held. At this time the court had before it all of the affidavits referred to above. After stating that the affidavits raised material issues of fact, and announcing that the motion for summary judgment would be overruled, the court granted Aetna leave to file an amended motion. The amended motion abandoned the motion for partial summary judgment made in connection with the Aetna's counter claim, set up the policy provision voiding the policy in the event of fraud, attempted fraud, or false swearing by the insured, and the two affidavits executed by Marianne Vernon, and urged that since one of the affidavits must necessarily be false, the policy provision was violated and the policy voided.

Finding that the two affiadavits given by Marianne Vernon established fraud, attempted fraud, false swearing, concealment and misrepresentation, as a matter of law, the district court rendered judgment for Aetna. The published opinion may be found at 189 F.Supp. 233.

Appellee was entitled to judgment on its motion only if there were no genuine issues as to any material fact and if the uncontroverted facts established its right to judgment as a matter of law. Fed.R.Civ.P. 56(c), 28 U.S.C.A. State law is controlling, and the question we must decide is whether, under the law of Texas a provision in a policy of insurance purporting to void the policy of in the event of fraud, attempted fraud, or false swearing by the insured may be invoked as the basis for a summary judgment when the insured executes two affidavits of the character of those involved in the instant case by taking one or both as false. Aetna urges both that the policy provision in question should be construed to require that, because of the making of two affidavits, the policy be voided, and that this result is not contrary to Texas law. We shall examine both of these propositions.

The Texas Insurance Code (Acts 1951, 52d Leg. ch. 491), Art. 21.16, V.A. T.S., provides that any provision in a policy which provides that untrue or false answers or statements made in the application or contract shall render the policy void shall not constitute a defense to a suit on the policy unless it is shown upon trial that the matter or thing represented was material to the risk or actually contributed to the contingency or event upon which the policy became payable. Materiality is a question of fact. Article 21.19 provides that a provision voiding a policy for false statements made in the proofs of loss shall be ineffective as a defense unless it is shown upon trial that the false statement was fraudulently made, misrepresented a fact material to the liability of the insurer, and that the insurer was thereby misled and caused to waive or lose some valid defense to the policy. It will be observed that the foregoing statutory provisions apply by their terms only to false statements made in the application for the policy or in the proofs of loss, respectively. So far as we have been able to determine, no Texas statute or decision deals directly with the question of avoidance of a policy because of false statements made subsequent to the institution of suit upon the policy, after denial of liability by the insurer. The statutory provisions referred to above do, however, bespeak the public policy of Texas in insurance matters. Part of a comprehensive Insurance Code and remedial in nature, they are to be construed liberally to accomplish the legislative purpose, with the evil to be remedied kept clearly in view. Mecca Fire Ins. Co. v. Stricker, 136 S.W. 599 (Civ.App. 1911), no writ history; McPherson v. Camden Fire Ins. Co., 222 S.W. 211 (Tex.Com.App.1920).

The policy plainly revealed by these provisions is one flatly opposed to the use of forfeiture clauses to avoid the obligations of insurance contracts solely upon a showing that the insured has made, at any time, a false statement with respect to the insurance or the subject thereof. Under the statutory scheme, only those falsehoods which are material to the risk, if made before the loss occurs, and only those which are material, fraudulently made, and which mislead the insurer and cause it to lose some valid defense, if made after the loss occurs, may be made the basis for voiding a policy pursuant to a forfeiture clause.

To be sure, the Legislature, in expressing its policy, referred specifically to only two kinds of false statements, those in the application and those in the proofs of loss. The reason for this is apparent. These are the only kinds of statements, in the vast majority of cases, which the insured will ever make to the insurer, and are by far the most important which can be made, for the former serves to provide the information upon which the insurer determines to accept or refuse the risk, and the latter notifies the insurer of the occurrence of the risk insured against and the circumstances surrounding it. The Legislature having specifically prohibited the forfeiture of policies because of falsity (unless the insurer can demonstrate existence of the statutory prerequisites to voiding the policy) in even those communications with the insurer upon which the latter might...