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Bennett v. Hedglin (2/11/00) sp-5239
Bennett v. Hedglin (2/11/00) sp-5239
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
WILLIAM H. BENNETT, )
) Supreme Court No. S-8830
Appellant, )
) Superior Court No.
v. ) 3AN-97-6872 CI
)
YVONNE J. HEDGLIN and PATE ) O P I N I O N
INSURANCE AGENCY, INC., )
) [No. 5239 - February 11, 2000]
Appellees. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Rene J. Gonzalez, Judge.
Appearances: Rebecca J. Hozubin, Law Offices
of George M. Kapolchok, Anchorage, for Appellant. Gary A. Zipkin
and Kari C. Kristiansen, Guess & Rudd, P.C., Anchorage, for
Appellees.
Before: Matthews, Chief Justice, Eastaugh,
Fabe, Bryner, and Carpeneti, Justices.
FABE, Justice.
I. INTRODUCTION
William Bennett lost his Anchor Point cabin in a fire and
now argues that Pate Insurance Agency, Inc. must cover the loss
because it issued, and never canceled, a binder on the property.
We conclude that, regardless of the binder's existence at the time
of the loss, Bennett made material misrepresentations on his
insurance application that voided any coverage he might have had.
Accordingly, we affirm the superior court's grant of summary
judgment in favor of Pate.
II. FACTS AND PROCEEDINGS
In March 1996 William Bennett contacted Yvonne Hedglin,
a licensed insurance agent at Pate Insurance Agency, Inc., an
independent insurance agency. He sought homeowner's insurance on
a log cabin located outside Anchor Point. After their
conversation, Hedglin contacted Montgomery & Collins and asked it
to insure Bennett's property. She then told Bennett to send her
photographs of the cabin and a first premium payment of $779. On
June 18 Bennett sent Hedglin the photos and the check.
After receiving the photos and the check, Hedglin on June
20 faxed Bennett the Montgomery & Collins application form, along
with a note stating: "As soon as I receive the signed forms back
via fax, I will bind coverage for you." Bennett faxed the
completed and signed application to Hedglin the same day. Hedglin
gave Bennett's check to Pate's accountant for deposit and faxed the
completed application to Montgomery & Collins, asking that it bind
coverage for Bennett.
On June 21 Montgomery & Collins informed Hedglin that it
had declined Bennett's application for insurance. On the same day,
Hedglin left Bennett a telephone message stating that Montgomery &
Collins had rejected his application and asking him to call her.
Despite the rejection, Pate cashed Bennett's premium check on June
24. On June 25 Bennett returned Hedglin's call. She told him that
Montgomery & Collins would not insure the cabin and that he should
look elsewhere for coverage. Bennett informed Hedglin that he
possessed an existing homeowner's policy on an Anchorage residence
through a different insurer, Allstate. [Fn. 1] Hedglin advised
Bennett to contact Allstate to obtain a policy on the Anchor Point
cabin. Hedglin told Bennett that if Allstate did not insure the
cabin, Bennett should call her back and she would attempt to obtain
insurance for him. She advised him, however, that his remaining
coverage options through Pate were very limited. After speaking
with Bennett, Hedglin wrote him a "close-out letter"summarizing
their phone call and sent it to Bennett along with a full refund
and the cabin photographs.
Bennett contacted Allstate on June 27 and began
negotiations to insure the Anchor Point cabin. He spoke with an
insurance agent, who requested that he forward photographs of the
cabin and a premium check to Allstate. Although he intended to
apply to Allstate for insurance on the cabin, Bennett never
completed an application. In his deposition, he explained that he
could not forward the photographs or premium payment to Allstate
because Pate had not yet returned these items to him.
On July 2, 1996, the Anchor Point cabin burned to the
ground. Bennett filed a claim with Pate, but Pate denied coverage.
On July 22 Hedglin returned to the office after a vacation and
discovered that Bennett's close-out letter and refund check had
been returned to Pate after three unsuccessful delivery attempts.
Bennett sued Hedglin and Pate (collectively Pate) in
August 1997 for damages resulting from the fire and for defamation.
[Fn. 2] Both parties moved for summary judgment. Bennett
requested oral argument, but Judge Rene J. Gonzalez denied the
motion after "finding that the parties memoranda adequately present
the parties' respective positions and legal arguments and
additionally finding that oral argument would not be helpful to the
court." On June 2, 1998, Judge Gonzalez granted summary judgment
in Pate's favor. Bennett moved for reconsideration, which the
court denied. Bennett appeals.
III. STANDARD OF REVIEW
This court reviews de novo a trial court's decision to
grant summary judgment. [Fn. 3] Summary judgment is appropriate
only when there are no material disputed facts such that the moving
party is entitled to judgment as a matter of law. [Fn. 4] We must
draw all reasonable inferences in favor of Bennett, the non-moving
party. [Fn. 5]
IV. DISCUSSION
A. Bennett's Misrepresentations on the Insurance Application
Voided Any Insurance Coverage.
Bennett claims that Hedglin's promise to insure the cabin
created a valid insurance binder that was not effectively canceled.
Pate alleges that Bennett made numerous misrepresentations on his
insurance application and therefore may properly be denied
coverage.
In particular, Pate points to Bennett's statements with
respect to his full-time residence, business conducted on the
Anchor Point property, and losses occurring on the premises in the
past five years. Bennett claimed that he resided full time at the
Anchor Point cabin and did not own, occupy, or rent any other
dwelling. Bennett also stated that he conducted no business on the
premises despite his intention to open a sawmill there in the
future. Further, Bennett stated that no insured or uninsured
losses had occurred at the Anchor Point cabin within five years,
despite a 1995 vandalization of the premises.
Alaska Statute 21.42.110 states that
"[m]isrepresentations, omissions, concealment of facts, and
incorrect statements"may prevent recovery under an insurance
contract when they are either:
(1) fraudulent;
(2) material either to acceptance of the
risk, or to the hazard assumed by the insurer; or
(3) the insurer in good faith would either
not have issued the policy or contract, or would not have issued a
policy or contract in as large an amount, or at the same premium or
rate, or would not have provided coverage with respect to the
hazard resulting in the loss, if the true facts had been made known
to the insurer as required . . . by the application for the policy.
1. Bennett's application responses constituted
misrepresentations.
We must first determine whether Bennett's application
responses were false or misleading so as to qualify as a
misrepresentation under AS 21.42.110. Generally, the question of
whether an applicant's statements were false or misleading is a
jury question. [Fn. 6] But when the facts are not in dispute --
such as when an applicant admits that a statement is false or when
there is no conflicting evidence -- courts can decide this question
as a matter of law. [Fn. 7] Bennett's deposition testimony reveals
that he may have given false or misleading responses to a number of
the application's underwriting questions.
In particular, we conclude that Bennett misrepresented
the fact that he resided full time in the Anchor Point cabin,
rather than in one of his two homes in Anchorage. In response to
Question 6 of the application, Bennett denied owning, occupying, or
renting any residence other than the Anchor Point cabin. [Fn. 8]
But Bennett later admitted that, at the time of the application, he
owned two homes in Anchorage, living in one and renting out the
other. In response to Question 7 of the application, Bennett
stated that he was a "full-time resident"of the Anchor Point
cabin. [Fn. 9] Bennett later explained this response by stating
that he intended to reside full time at the Anchor Point cabin.
Based on the inconsistency between application responses and his
deposition testimony, we conclude, as a matter of law, that Bennett
falsely stated the location of his full-time residence, thereby
providing "[m]isrepresentations, omissions, concealment of facts,
and incorrect statements"[Fn. 10] in his insurance application.
2. Bennett's misrepresentations were material to the
insurer's acceptance of the risk.
To justify denying coverage under AS 21.42.110, Pate
primarily argues that the misrepresentations about Bennett's full-
time residence were material to the insurer's acceptance of the
risk. [Fn. 11] Pate urges this court to hold that Bennett's false
statements and omissions were material as a matter of law. In
general, materiality is a question of fact for the jury, but courts
may decide it as a matter of law when "the evidence is such that
there can be no reasonable difference of opinion."[Fn. 12]
Here, Pate presented evidence that Bennett's
misrepresentations regarding his full-time residence were material
to an insurer's acceptance of the risk. An insurance expert
retained by Pate concluded that Bennett's truthful revelations
about his Anchorage residency and Anchor Point vacation cabin
"would make the risk ineligible for Homeowner's Coverage."This
expert stated that "[t]he fact that the dwelling is not a primary
dwelling is material both to the acceptance of the risk and to its
eligibility for the kind of insurance sought, namely a homeowners
policy." This expert testimony comports with common sense -- full-
time residency in a dwelling increases the chances of promptly
detecting and mitigating fires and other hazards. And a remote
vacation home may be more likely subject to break-ins and
vandalism, as Bennett's cabin was in 1995. Thus, whether the
Anchor Point cabin was Bennett's full-time residence was material
to the insurer's decisions regarding whether to insure the cabin
and the proper premium rate. Bennett failed to present any
evidence showing that his answers were not material to the risk of
insuring the Anchor Point cabin. We therefore hold that Bennett's
misrepresentation regarding full-time residence in the Anchor Point
cabin is material to the risk of insuring that cabin.
3. Bennett's material misrepresentations would render
any coverage provided by the binder void ab initio under the
insurer's rescissionary remedy.
When an applicant misrepresents a fact material to the
acceptance of the risk, AS 21.42.110 permits the insurer to deny
coverage under the policy or binder. Other courts have construed
analogous statutes as preserving the insurer's common law remedy of
rescission -- a remedy which renders the policy void ab initio.
[Fn. 13] But AS 21.36.210(f)(3) and AS 21.36.220 expressly state
that fraud and material misrepresentation are grounds for
cancellation -- a pre-loss remedy which renders the policy void
prospectively from the effective date of cancellation. [Fn. 14]
The question then becomes whether these cancellation provisions
abrogate the common law remedy of rescission for fraud or material
misrepresentation and establish cancellation as the sole method for
denying coverage under AS 21.42.110.
The legislative history and the statutory framework
reveal no evidence that the legislature intended to abrogate this
remedy. [Fn. 15] In fact, statutory language added at the same
time as AS 21.36.210 and AS 21.36.220 specifically contemplates
rescission as a remedy. [Fn. 16] The cancellation provisions in AS
21.36.210 and AS 21.36.220 do not exclude the remedy of rescission,
but rather protect policy holders by limiting the grounds and
immediacy of cancellation. [Fn. 17] Other courts have construed
analogous statutory provisions addressing cancellation due to fraud
and material misrepresentation as preserving the insurer's right to
rescission, at least with respect to claims made by the insured and
not by innocent third parties. [Fn. 18] We agree with this
approach and construe AS 21.42.110 to codify the availability of
rescission as a remedy.
Public policy justifies retaining the rescissionary
remedy. If AS 21.36.220 barred rescission, the mendacious
applicant would retain coverage for which he is ineligible until
ten days after the insurer both discovers the false representations
and sends notice of cancellation. And often the insurer will not
discover the false or misleading character of the applicant's
statements until after the loss has occurred. Permitting only
prospective cancellation would place upon the insurer the risk of
the applicant's misrepresentations and the burden of investigating
the applicant's responses to ascertain their veracity and
completeness. [Fn. 19]
Notice-of-cancellation provisions are designed to protect
the insured by providing time to obtain insurance elsewhere before
the cancellation becomes effective and the insured is exposed to
risk without protection. [Fn. 20] If the insured procured the
policy by fraud or material misrepresentation, he should not
benefit from this protection by recovering on personal claims. [Fn.
21] Thus, we hold that the insurer may rescind the binder or
policy -- rendering the contract void ab initio -- when the
applicant makes a misrepresentation material to the risk. [Fn. 22]
In this case, Pate seeks to deny coverage for a loss
suffered by Bennett. Because Bennett made material
misrepresentations on his application, Pate was entitled to rescind
Bennett's binder ab initio and deny coverage of the cabin fire.
Accordingly, we hold that the superior court properly granted
summary judgment in Pate's favor.
B. The Superior Court's Refusal to Grant Oral Argument Was
Not Reversible Error.
Finally, Bennett argues that the superior court
improperly denied oral argument before granting summary judgment.
Pate concedes that under Civil Rule 77(e), the court should have
granted oral argument, but argues that this error is harmless. We
agree that the superior court erred in denying oral argument but
conclude that the denial does not constitute reversible error.
Under Rule 77(e)(4), a judge lacks discretion to deny
oral argument on a summary judgment motion:
Except on motions to dismiss; motions for
summary judgment; motions for judgment on the pleadings; other
dispositive motions; motions for delivery and motions for
attachment, oral argument shall be held only in the discretion of
judge.
In this case, both parties moved for summary judgment. The
superior court denied Bennett's request for oral argument and
subsequently granted summary judgment in Pate's favor. Regardless
of the strength and thoroughness of the parties' briefing, the
superior court should have permitted oral argument on these
dispositive motions. Thus, the superior court erred in denying
oral argument.
But this error is harmless because Bennett has failed to
demonstrate that the denial of oral argument caused him prejudice.
"A party on appeal who alleges that oral argument was improperly
denied must show both that the denial was in error and that the
error caused substantial prejudice."[Fn. 23] This case was
thoroughly briefed below, and Bennett points to no arguments that
he was unable to make at the trial level. He argues only that the
superior court wrongly adjudicated his summary judgment motion on
its merits. Because Bennett has neither alleged nor demonstrated
any prejudice, we reject Bennett's claim that the superior court's
denial of oral argument was reversible error.
V. CONCLUSION
Regardless of the binder's existence at the time of the
loss, Bennett's material misrepresentations on his insurance
application void ab initio any coverage the binder would have
provided. Bennett has not shown that the lack of oral argument
prejudiced him and therefore has failed to demonstrate a reversible
error. Accordingly, we AFFIRM the superior court's grant of
summary judgment in its entirety.
FOOTNOTES
Footnote 1:
Although Allstate provided Bennett's existing insurance, he
may have mistakenly told Hedglin that his primary insurer was State
Farm. Some of the correspondence from Pate and litigation-related
documents accordingly mention State Farm rather than Allstate. For
simplicity, we refer to Bennett's primary insurer as Allstate.
Footnote 2:
Bennett has not appealed the superior court's dismissal of the
defamation claim.
Footnote 3:
See Parson v. Marathon Oil Co., 960 P.2d 615, 618 (Alaska
1998).
Footnote 4:
See id.
Footnote 5:
See id.
Footnote 6:
See Spellmeyer v. Tennessee Farmers Mut. Ins. Co., 879 S.W.2d
843, 846 (Tenn. App. 1993).
Footnote 7:
See id.
Footnote 8:
Question 6: "Any other premises, property owned, occupied or
rented by or to applicant?" Bennett's Answer: "No."
Footnote 9:
Question 7: "Applicant owns and is full-time resident of
home?" Bennett's Answer: "Yes."
Footnote 10:
AS 21.42.110.
Footnote 11:
Bennett contends that any false statements were not material
to the risk because Montgomery & Collins stated an altogether
different reason for denial of coverage -- that the cabin was
uninsured at the time of his application. But this fact is not
relevant to the materiality analysis. The materiality inquiry
addresses the question of whether truthful answers would have
altered the insurer's decision to insure the property and set the
premium. See Couch on Insurance 3d sec. 81:78. Indeed, such
claims
often arise after a policy has issued and a loss sustained. See,
e.g., Northern Life Ins. Co. v. Ippolito Real Estate Partnership,
601 N.E.2d 773, 775-76 (Ill. App. 1992); Sanford v. Federated
Guar. Ins. Co, 522 So. 2d 214, 215 (Miss. 1988).
Footnote 12:
Ruhlig v. American Community Mut. Ins. Co., 696 N.E.2d 877,
880 (Ind. App. 1998); see also Miller v. Nationwide Ins. Co., 415
S.E.2d 700, 701 (Ga. App. 1992); Ippolito, 601 N.E.2d at 780;
Hanover Ins. Co. v. Leeds, 674 N.E.2d 1091, 1094-96 (Mass. App.
1994); Continental Ins. Co. v. RLI Ins. Co., 555 N.Y.S.2d 325, 327-
28 (App. Div. 1990).
Footnote 13:
See, e.g., Federal Mut. Ins. Co. v. Deal, 239 F. Supp. 618,
621-22 (S.D.W. Va. 1965) (applying West Virginia law); Prudential
v. Estate of Rojo-Pacheco, 962 P.2d 213, 217-18 (Ariz. App. 1997).
Footnote 14:
Under AS 21.36.210(f), "[a]n insurer may not exercise its
right to cancel a policy of personal insurance . . . except for the
following reasons: . . . (3) discovery of fraud or material
misrepresentation made by the insured . . . in obtaining the
insurance or . . . in pursuing a claim under the policy." Under AS
21.36.220(a), notice of cancellation for reasons of fraud or
material misrepresentation must be mailed "at least 10 days before
the effective date of cancellation."
Footnote 15:
See Methonen v. Stone, 941 P.2d 1248, 1251 n.4 (Alaska 1997)
("Legislative enactments are presumed not to abrogate the common
law, except where the intent to do so is manifest.").
Footnote 16:
AS 21.36.255 ("If an insurance policy is cancelled, rejected,
or rescinded . . . .").
Footnote 17:
See generally Couch on Insurance 3d sec. 30:6.
Footnote 18:
See Rojo-Pacheco, 962 P.2d at 222 n.13; Dunn v. Safeco Ins.
Co. of Am., 798 P.2d 955, 958-60 (Kan. App. 1990); United Sec. Ins.
Co. v. Commissioner of Ins., 348 N.W.2d 34, 35 (Mich. App. 1984);
Cunningham v. Citizens Ins. Co., 350 N.W.2d 283, 286 (Mich App.
1984) (cancellation statutes do not preclude rescission); Glockel
v. State Farm Mut. Ins. Co., 400 N.W.2d 250, 255-57 (Neb. 1987)
(enactment of cancellation statute did not abrogate common law
remedy of rescission).
Footnote 19:
In jurisdictions where the cancellation statutes are deemed to
proscribe rescission, courts have stated that insurers should bear
this burden of an initial investigation of the application
responses. See, e.g., Wisconsin Hous. & Econ. Dev. Auth. v. Verex
Assurance, Inc., 464 N.W.2d 10, 14 (Wis. App. 1990).
Footnote 20:
See Couch on Insurance 3d sec. 32:1.
Footnote 21:
But an absolute right to rescind could unfairly burden an
innocent third party who may be relying on the insured status of
the other party. Other courts have held that cancellation statutes
have abrogated the right to rescission where it would deny coverage
of claims brought by innocent third parties. See Munroe v. Great
Am. Ins. Co., 661 A.2d 581, 584-85 (Conn. 1995) (finding statutory
abrogation of insurer's right to rescind insurance ab initio as to
deny recovery to innocent third party); Continental W. Ins. v.
Clay, 811 P.2d 1202, 1207 (Kan. 1991) (permitting rescission as
against insured but not against innocent third party); Dunn, 798
P.2d at 958-60 (discussing cases distinguishing insured and
innocent third-party claims); National Ins. Ass'n v. Peach, 926
S.W.2d 859, 861-863 (Ky. App. 1996). These courts have reasoned
that the risk for the insured's material misrepresentations is more
fairly placed upon an insurer than an innocent third party. See,
e.g., Peach, 926 S.W.2d at 863. Because a third-party claim is not
before us, we need not decide that issue in this case.
Footnote 22:
See, e.g., Fabric v. Provident Life & Acc. Ins. Co., 115 F.3d
908, 912-14 (11th Cir. 1997), cert. denied, 118 S. Ct. 1563
(material misrepresentation on application permits insurer to
unilaterally rescind policy under Florida law); Deal, 239 F. Supp.
618 at 621-22 (applying West Virginia law); State Farm Mut. Auto
Ins. Co. v. Crouch, 706 S.W.2d 203, 205-07 (Ky. App. 1986)
(misrepresentation material to risk entitles insurer to void binder
ab initio under similar misrepresentation statute); United Sec.
Ins. Co., 348 N.W.2d at 38 (automobile insurance binder rescinded
ab initio); Claborn v. Washington Nat'l Ins. Co., 910 P.2d 1046,
1049-51 (Okla. 1996) (rescission due to misrepresentation material
to risk); Haas v. Integrity Mut. Ins. Co., 90 N.W.2d 146, 150 (Wis.
1958) (insurer may deny liability under binder because of material
misrepresentations in application).
Footnote 23:
Cleary Diving Serv., Inc. v. Thomas, Head & Greisen, 688 P.2d
940, 942 (Alaska 1984); see also Breeze v. Simms, 778 P.2d 215, 218
(Alaska 1989).
