Webb v. Insurance Co. of North America

• Decision Date: 30 January 1984
• Docket Number: No. 82-2702-H.,82-2702-H.
• Parties: Sue WEBB and Sue K. Madelon, Plaintiffs, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant.
• Court: U.S. District Court — Western District of Tennessee

581 F. Supp. 244

Sue WEBB and Sue K. Madelon, Plaintiffs, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant.

No. 82-2702-H.

United States District Court, W.D. Tennessee, W.D.

January 30, 1984.

Charles S. Kelly, Dyersburg, Tenn., for plaintiffs.

Fred M. Ridolphi, Jr., and H. Fredrick Zimmerman, of Armstrong, Allen, Braden, Goodman, McBride & Prewitt, Memphis, Tenn., for defendant.

ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

HORTON, District Judge.

Plaintiffs E. Sue Webb and her daughter Sue K. Madelon filed this diversity action against defendant Insurance Company of North America (INA) alleging wrongful denial of payments on a contract of insurance. INA issued an insurance policy insuring plaintiffs' residence and the contents thereof. Plaintiffs' residence was destroyed by fire while this policy was in effect; defendant has refused to honor plaintiffs' claim for loss. Defendant has moved for summary judgment. For the reasons discussed below, the Court enters this order denying defendant's motion.

Defendant bases its motion for summary judgment on three grounds: (1) plaintiffs misrepresented their loss history in the application for the policy at issue here; (2) plaintiffs did not comply with the policy by providing timely proof of loss and itemized inventory; (3) plaintiffs did not comply with the policy's one year limitation period.

I. INSUREDS' MISREPRESENTATION IN POLICY APPLICATION

INA contends that the insureds misrepresented facts regarding their prior loss history on the application for the policy now being sued upon. INA further contends that such misrepresentation increased the risk of loss within the meaning of Tenn.Code Ann. § 56-7-103.

Plaintiffs contend Mrs. Webb was the actual applicant for the policy in issue and that Mrs. Webb correctly represented she had never experienced any prior insurance loss. Plaintiffs also contend Mrs. Madelon was added to the insurance policy as an afterthought at INA Agent Larry White's suggestion. Plaintiffs contend that after Agent White advised them to add Mrs. Madelon to the policy, he did not ask Mrs. Madelon about her prior loss history or explain that she need furnish such information.

Tenn.Code Ann. § 56-7-103 provides:

No written or oral misrepresentation or warranty therein made in the negotiations of a contract or policy of insurance, or in the application therefor, by the assured or in his behalf, shall be deemed material or defeat or void the policy or prevent its attaching, unless such misrepresentation or warranty is made with actual intent to deceive, or unless the matter represented increases the risk of loss.

If, in applying for the INA policy, the insureds made misrepresentations concerning a matter that would increase the risk of loss on the policy, then the insurer may avoid the policy. Hammond v. Independent Life & Accident Insurance Co., 589 S.W.2d 913 (Tenn.App.1979). Once it has been determined that the insured made a misrepresentation, then the issue whether such misrepresentation increased the risk of loss is a question of law for the court to decide. Collins v. Pioneer Title Insurance Co., 629 F.2d 429, 434 (6th Cir.1980); Broyles v. Ford Life Insurance Co., 594 S.W.2d 691, 693 (Tenn.1980).

The facts submitted show that after living in Alaska for a number of years, plaintiff Webb returned to Tennessee, where her only child Sue K. Madelon lived. Mrs. Webb intended to reside permanently in Tennessee and wanted to purchase a house where she, Mrs. Madelon, Mrs. Madelon's husband and the Madelon's five children could reside together. With her own funds Mrs. Webb purchased a residence located on a 54 acre tract located at Scotts Hill, Henderson County, Tennessee. Mrs. Webb had Mrs. Madelon listed as a co-owner on the deed to the Scotts Hill property.

On February 26, 1979, apparently either the day before Mrs. Webb purchased the property or the day before plaintiffs assumed possession of it, INA's independent agent Larry White completed a commercial farm insurance policy application for the Scotts Hill property. (White deposition, pp 5-6). Agent White also visited the Scotts Hill property in connection with this initial application. (White deposition, p. 25).

Under the section of the application concerning prior losses, the word "none" was filled in by Agent White. It is now admitted by plaintiffs that Mrs. Madelon and her husband had suffered an insurance loss prior to the time the application was completed. That loss occurred when an outside storage building, located in the backyard of the Madelon's Dyersburg home, burned and $10,000 worth of wigs stored therein were destroyed. A second loss occurred six days after the INA application was completed, when fire damaged the attic and roof of the Madelon's Dyersburg house.

Mrs. Webb testified at her deposition and stated in her affidavit that at the time the INA application was completed she had never experienced any insurance loss. Defendant does not dispute this.

It is not clearly established, from the evidence before the Court, who was present when the insurance application was completed. Plaintiffs, and perhaps Mr. Madelon, visited Mr. White in his office to answer the questions for the policy application. Plaintiffs contend that their initial intent was for Mrs. Webb to apply for the INA insurance. Mrs. Webb planned to reside at the Scotts Hill property, but she first had to return to Alaska to complete some business. During Mrs. Webb's absence, the Madelon family planned to live at the Scotts Hill house. Learning of this, Agent White advised "that plaintiff Madelon be listed on the deed as co-owner with her mother in order for the property to be covered by the insurance, as INA required one of the named insureds to live in the insured property." (Defendant's 7/22/83 Memo, p. 4). Agent White listed both Mrs. Webb and Mrs. Madelon as insureds under the policy. Neither insured was required to sign the policy application and there is no evidence before the Court to indicate that Agent White explained to the insureds the implications of naming Mrs. Madelon as an additional insured on the policy.

In interpreting Tenn.Code Ann. § 56-7-103, the Tennessee Supreme Court has held that

the concept of "misrepresentation" is totally distinct and separate from the concepts of "intent to deceive" or "increase in the risk of loss." The latter elements are not analyzed at all until and unless a matter has been "misrepresented." ... In order to determine whether a matter has been misrepresented, it must first be determined what the insurer asked, required, or expected the applicant to represent.

Gatlin v. World Service Life Insurance Company, 616 S.W.2d 606, 608 (Tenn.1981) (emphasis in original).

Based on the information before the Court, one could reasonably conclude that Mrs. Webb purchased the Scotts Hill property with her own funds and invited her daughter, son-in-law and their children to reside there with her. One could further conclude that based on the advice of INA's Agent White, Mrs. Webb listed Mrs. Madelon as co-owner on the deed solely to guarantee insurance coverage during Mrs. Webb's temporary absence. The Court believes there are genuine issues of material fact regarding: (1) whether Agent White addressed the insurance application questions to Mrs. Webb, Mrs. Madelon, or both; and (2) whether Agent White explained the ramifications of his advice that Mrs. Madelon be made a co-owner and an insured. Although plaintiffs need not have acted with the intent to deceive in order for INA to avoid the policy, Lane v. Travelers Indemnity Co., 499 S.W.2d 643, 647 (Tenn. App.1973), it is necessary to determine that there was a misrepresentation. This can be done only by determining "what the insurer asked, required, or expected the applicant to represent." Gatlin v. World Service Life Insurance Co., supra. The Court finds that there are genuine issues of material fact regarding what Agent White asked plaintiffs, which plaintiffs were asked which questions and what Agent White expected plaintiffs to represent. Thus, defendant's motion for summary judgment on this ground is denied.

II. PLAINTIFFS' FAILURE TO FURNISH PROOF OF LOSS

Defendant contends the policy requires the insureds to furnish sworn proof of loss of their claim within sixty days of the loss. Defendant contends plaintiffs have not furnished such proof of loss. Defendant also contends the policy requires plaintiffs to furnish an inventory of the contents destroyed by the fire as a prerequisite for filing any action based on the loss. Defendant contends plaintiffs did not file such inventory until two years after the loss. Because of plaintiffs' failure to comply with these policy requirements, defendant contends INA is entitled to summary judgment.

Plaintiffs contend they advised INA of their loss within two days of the fire. Plaintiffs contend that, shortly after the fire, plaintiffs were informed by C.J. Pruett, an adjuster for the General Adjustment Bureau retained by INA to investigate the loss, that INA would not pay plaintiffs' claim. Plaintiffs contend they made every effort to comply with the policy provisions and after Mr. Pruett informed them of INA's intentions to avoid the policy, plaintiffs retained legal counsel to assist them in recovering on the policy.

The fire at the Scotts Hill property occurred on April 14, 1980. Agent White testified that the day after the fire plaintiffs notified his office of the loss and his employees then notified INA's claims department in Memphis, Tennessee. INA's Memphis branch office claims manager John Turner testified that INA received prompt notice of the total loss of plaintiffs' residence and its contents. (Turner deposition, pp. 32-33).

INA bases its motion on plaintiffs' failure to comply with the policy's requirement that:

SUIT—No suit, action or proceeding for the recovery of any claim under this policy shall be sustainable in any court of law or

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