Ware v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 11 May 1957
• Docket Number: No. 40485,40485
• Parties: Kenneth WARE and Marvelle Ware, Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Corporation, Appellee.
• Court: Kansas Supreme Court

Page 316

311 P.2d 316

181 Kan. 291

Kenneth WARE and Marvelle Ware, Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Corporation, Appellee.

No. 40485.

Supreme Court of Kansas.

May 11, 1957.

Rehearing Denied June 14, 1957.

Syllabus by the Court.

1. A petition alleging that plaintiffs had a valid claim for wrongful death of their son against owner and driver of insured automobile; that insurance adjuster obtained release from plaintiffs of their cause of action by means of false and fraudulent representations as set out in the opinion; that adjuster knew of falsity of representations and intended they should be acted upon; plaintiffs' ignorance of falsity, their reliance on its truth, and their proximate damage stated a cause of action for fraud against the insurance company.

2. False statements and representations of fact made by insurance adjuster to plaintiffs for the purpose of inducing them to part with a valuable right--a right to sue the tort feasors for wrongful death of their son--when relied upon by plaintiffs are actionable, regardless of whether the adjuster knew his statements to be false or regardless of whether he made them in reckless disregard of their truth.

3. One who has suffered damage by fraud or deceit of another has option to rescind transaction consummated by fraud and proceed to recover on that basis or to waive right to rescind and sue to recover such damages as he may have suffered in consequence of the fraud.

4. An insurance company by accepting the fruits of the fraud of its adjuster renders itself liable for the fraud.

Aubrey Neale, Coffeyville, argued the cause, and Raymond Belt, Coffeyville, was with him on the briefs for appellants.

Herman W. Smith, Jr., Parsons, argued the cause, and Elmer W. Columbia and John B. Markham, Parsons, and Kirke C Veeder, Independence, were with him on the brief for appellee.

WERTZ, Justice.

This was an action brought by Kenneth and Marvelle Ware, appellants, against State Farm Mutual Automobile Insurance Company, appellee, to recover damages, actual and punitive, alleged to have been sustained by them as a result of fraudulent conduct resorted to by appellee's insurance adjuster in obtaining a release from appellants of a cause of action for damages for the wrongful death of their eight and one-half year old child as a result of the negligent operation of an automobile driven by the twelve-year-old son of the appellee's assured. Appellants will hereinafter be referred to as plaintiffs and appellee as defendant or insurance company. Defendant demurred to plaintiffs' amended petition on the ground that it did not state a cause of action in favor of plaintiffs and against defendant. From an order of the trial court sustaining the demurrer, plaintiffs appeal.

For purposes of this appeal it is sufficient to note the petition alleged that plaintiffs were the parents of Duane Ware, eight and one-half years of age, who died as a result of injuries received while riding in an automobile owned by Clarence W. Smith, defendant's assured, and driven by his son, Wesley Eugene Smith, twelve years of age, under his instructions; that during the ride the car was driven in such a negligent manner that it skidded across the road and into a concrete bridge, turning over and killing plaintiffs' son; that the owner of the vehicle was negligent in permitting his son, then twelve years of age, to drive his automobile when he knew his son was neither authorized nor licensed to so do under the laws of Kansas and was not competent to drive.

It was further alleged that defendant had insured the automobile owned by Clarence W. Smith, indemnifying him against liability in the amount of $10,000 and providing for the payment of medical or funeral expenses to occupants not exceeding $500, which policy was in full force at all times; that three days after the death of plaintiffs' son, on the day following the funeral, one Joe D. Allen, adjuster, agent and employee of the defendant, came to plaintiffs' home and informed them he represented the insurance company that had written the liability insurance on the automobile in which plaintiffs' son had been killed; that at this time plaintiffs were distressed, unnerved, and physically and mentally unable to transact business, and their condition was well known to defendant's agent. Plaintiffs further alleged that at the time defendant's agent wrongfully and fraudulently informed them they had no claim whatsoever against Clarence W. Smith, defendant's assured, but because of a policy change since June 1, 1955, he could pay them $500--the medical coverage under the policy--and this was all he could pay as there was no liability; that he further represented he was familiar with the new policy and if plaintiffs would furnish the funeral bill he would pay them $500; that because of their distressed mental state they relied upon such representations and accepted a $500 draft drawn on defendant by its agent; that the agent asked plaintiffs to sign a release, telling them it was a release for the $500 payment; that plaintiffs thereupon signed the release, which they did not read, relying upon the agent's representation that it was for the payment of funeral expenses under the policy, but, subsequently, learned it was a complete release of their claims against defendant's assured. Clarence W. Smith, and Wesley Eugene Smith, his son.

It was further alleged that the representations of defendant's agent in procuring the release were false and fraudulent, as plaintiffs actually had a valid claim against defendant's assured for $15,000 for the wrongful death of their son; that the change in defendant's policy was not only for medical payment of $500 but was also for $10,000 liability insurance for wrongful death; that the release should have been for the medical payment only and not for the release of plaintiffs' claim for the wrongful death of their son; that the fraudulent procuring of the release was for the purpose of preventing plaintiffs from prosecuting a claim against defendant's assured; and that because of the release so procured defendant refused to pay plaintiffs' claim on the ground that they had released its assured from further liability.

Plaintiffs asked for actual and punitive damages against the insurance company.

At the outset, it may be stated that this is not an action to recover damages for the wrongful death of plaintiffs' son. It is an independent suit for damages sustained, based upon alleged fraud and deceit claimed to have been practiced upon plaintiffs by defendant's agent and adjuster, resulting in plaintiffs signing a release of their cause of action against defendant's assured, and, therefore, depriving them, through fraud and deceit, of their valuable right to be compensated for damages sustained. Although the validity of plaintiffs' original claim against Clarence W. Smith, defendant's assured, has to be established to determine plaintiffs' damages, it does not follow that it must be litigated in advance or that it cannot be litigated in this action.

The issues raised are whether plaintiffs had a valid claim against defendant's assured, whether defendant by false and fraudulent representations deprived them of that claim, and whether as a result of the fraud they have been damaged.

First, did plaintiffs have a cause...