Washington Nat. Ins. Co. v. Dale Benz, Inc., Contractors

• Decision Date: 19 June 1963
• Docket Number: No. 7049,7049
• Citation: 382 P.2d 678,94 Ariz. 204
• Parties: WASHINGTON NATIONAL INSURANCE COMPANY, a foreign corporation, Appellant, v. DALE BENZ, INC., CONTRACTORS, an Arizona corporation, Appellee.
• Court: Arizona Supreme Court

Page 678

382 P.2d 678

94 Ariz. 204

WASHINGTON NATIONAL INSURANCE COMPANY, a foreign corporation, Appellant, v. DALE BENZ, INC., CONTRACTORS, an Arizona corporation, Appellee.

No. 7049.

Supreme Court of Arizona, In Banc.

June 19, 1963.

Evans, Kitchel & Jenckes, by Ralph J. Lester, Phoenix, for appellant.

Williby E. Case, Jr., Yuma, for appellee.

T. J. MAHONEY, Superior Court Judge.

The appellee, plaintiff below, brought suit to rescind three policies of insurance with the appellant-defendant insurance company, and to recover the premiums paid on these policies. Judgment was entered against the insurance company for $5,232.80 and costs, this being the full amount of the premiums paid by plaintiff on the three policies.

Rescission of the policies was based on alleged fraudulent misrepresentations made by the agent of the defendant, K. E. Porter, which misrepresentations induced the plaintiff to take out the insurance policies. The defendant's first assignment of error charges that the plaintiff's evidence is not sufficiently 'clear and convincing' to sustain a finding that fraudulent misrepresentations were in fact made.

Review of evidence by this court to determine whether it meets the standard 'clear and convincing' is limited to testing the inherent reasonableness of the evidence, viewed in a light most favorable to sustaining the findings of the trial court, Smith v. Connor, 87 Ariz. 6, 347 P.2d 568 (1959); Murillo v. Hernandez, 79 Ariz. 1, 281 P.2d 786 (1955). When the occasion demands, we will examine the evidence, extensively and in detail, to judge whether a reasonable and unprejudiced mind could reach the conclusion reached by the trial court, cf. Smith v. Connor, supra.

It is the plaintiff's contention that Porter, in the negotiations leading up to the issuance of the insurance policies, represented to the plaintiff that premiums paid on the policies would be tax deductible to the corporation, and that Porter or the defendant insurance company would obtain approval of the Internal Revenue Service for this deductibility. The sole evidence in support of this contention came from the president of the plaintiff corporation, who was the insured:

'Q What was your purpose in buying these policies of life insurance, Mr. Benz?

'A It actually had a twofold purpose; one of them, we could spend tax dollars buying insurance that was payable to the corporation in the event of my death to more or less beef up the assets of the company.

'Q What was your primary purpose in the purchase of this life insurance?

'A It was to purchase it with tax dollars that we would have normally lost.

'Q At any times during these conversations that eventually led up to the purchase of insurance did Mr. Porter represent to you that the premium paid by that corporation would be a tax deductible expense to the corporation?

'A He did.

'Q Did he at any time represent to you that he would obtain a clearance of this tax deductibility from the Bureau of Internal Revenue?

'A That was the stipulation upon which I bought it and did not get.

'Q That was your primary purpose in purchasing the insurance, to obtain a tax write-off for the corporation?

'A I asked for an approval by the Internal Revenue Department that it was within the code.'

The defendant's version of these matters is that one of the policies was sold for the purpose of permitting the corporation, in the event of Benz's death, to redeem from the Benz estate sufficient of his stock in the corporation to permit the estate to pay taxes and administrative expenses. It was represented that under 26 U.S.C. § 303, the proceeds of this policy would not be taxed as a dividend when received by his estate. The two remaining policies were sold with the idea that they would become part of a pension trust, which would pay retirement benefits to Benz and other high level employees of the corporation. It was represented that, if the pension plan was approved by the IRS, the premium payments would be deductible to the corporation under 26 U.S.C. § 401. No clearance was obtained from the IRS because Benz failed to provide the information necessary to include other employees in the pension program, a requirement for IRS approval.

With regard to this version of the negotiations, the plaintiff (Benz) testified:

'Q Do you recall any conversation with Mr. Porter about the possibility of the corporation setting up some sort of system, pursuant to which you and the other hightly paid officers of the company would receive compensation after you retired from the corporation's activities in connection with the corporation?

'A I had a conversation with him pertaining to myself but no other employees.

'Q What was the substance of that conversation?

'A It was some form of a retirement program which I don't understand insurance and it didn't make too much of an impression at the time.' (Emphasis added.)

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'Q Did you understand whether or not the $150,000 which the corporation would receive would be subject to income tax when it got it?

'A No, I did not.

'Q What was your understanding in that regard?

'A I didn't understand it at all, that is why we hired these people.' (Emphasis added.)

Benz also gave the following testimony concerning the efforts of Porter to secure the IRS clearance:

'Q After your purchase of these policies and the payment of premiums, did you thereafter request of Mr. Porter that he supply you with these acceptance or clearances from the Bureau of Internal Revenue?

'A. I did.

'Q How did you do that?

'A By letter.

'Q Were you subsequently supplied such?

'A No, I did not get it.

'Q Did you have any further conversation with Mr. Porter relative to his obtaining such a clerance or acceptance?

'A We had one or two phone calls but I don't remember what they were about.' (Emphasis added.)

Porter's version of the transaction is supported by the testimony of John Pope, bookkeeper of the plaintiff corporation who was called by the plaintiff:

'Q Mr....