Appeal from the Superior Court of Cook county; the Hon.
ABRAHAM L. MAROVITZ, Judge, presiding. Judgment affirmed.
JUSTICE ROBSON DELIVERED THE OPINION OF THE COURT.
Rehearing denied September 18, 1958.
This is an appeal from a declaratory judgment declaring void a policy of automobile liability insurance. The cause was tried upon the pleadings and upon a stipulation of facts signed by counsel. Plaintiff has predicated this action on the theory that the policy was void because of a misrepresentation of the true identity of the owner of the automobile. Defendants have resisted on the grounds that all necessary parties defendant were not joined and that any misrepresentation as to ownership was not material to Lonnie May's right to maintain liability insurance on his son's automobile.
The facts may be simply stated as follows: In 1954, Charles W. May owned an automobile which was duly registered in his name in the office of the Secretary of State of Illinois. Though still a minor when he purchased the automobile in December, 1953, Charles W. May became twenty-one years old on April 28, 1954. He resided with his parents, the defendants herein, in Chicago. In February, 1954, Charles and his father discussed automobile liability insurance. One Warren E. Klug, a licensed life insurance salesman, was present during the discussion and volunteered to place such insurance with an insurer. It was stipulated by counsel that Klug was not acting as agent for plaintiff. On the following day Klug returned to the May residence and Charles paid him $230 for premiums on a policy of automobile liability insurance. Klug delivered plaintiff's application for insurance, which he prepared, to Meyer Kronberg, an insurance broker, who in turn submitted it to Karl Treen, an agent for plaintiff. The application was never submitted to Lonnie or Charles May and was never signed by either of them. On April 16, 1954, plaintiff issued a policy of insurance in the name of the father, Lonnie, as insured and owner of the vehicle.
While Lonnie was present, Klug delivered the policy to Charles. At that time Lonnie informed Klug that he was not the owner of the car and that he would assume no responsibility for it. The record indicates that Klug then told Lonnie that he "would take care of it in a few weeks." Klug never paid over to plaintiff the premiums paid him by Charles. Meanwhile, Lonnie received a statement from plaintiff's agent, Karl Treen, requesting payment for the premiums. Lonnie went to Treen's office and explained that premium payments had been made by Charles to Klug. Charles then retained an attorney and recovered the money he had paid to Klug. Charles also applied for another policy of insurance which was issued to him by the Allstate Insurance Co. The premium on the plaintiff's policy was never paid.
On July 13, 1954, while his policy with Allstate was in full force and effect Charles and two of his passengers were killed in an accident which occurred while Charles was driving his car two miles southeast of Whitwell, Tennessee. Three other passengers were injured. All the passengers were residents of Whitwell, Tennessee. Suits for damages were thereafter filed in Tennessee by the injured passengers and the personal representatives of those who had been killed. Lonnie May was named defendant both individually and as administrator of the estate of Charles. The accident was reported to plaintiff, and, upon investigation, plaintiff ascertained that Lonnie May was not the owner of the automobile as described in the application for insurance. The plaintiff disclaimed liability on the policy because of misrepresentations as to the ownership of the automobile. Lonnie then tendered a premium payment of $162.97 to plaintiff and it was refused. Two weeks thereafter plaintiff filed this suit for a declaratory judgment against Lonnie H. May, individually and as administrator of the estate of Charles May. While this suit was in progress, Ida May, the mother of Charles, was substituted as the administrator of his estate.
As to defendants' first contention that plaintiffs in the Tennessee actions were necessary parties defendant to this suit, we do not agree. The controversy between the insurer and the named insured involves simply the question whether or not there was ever a valid contract between them. We distinguish such a controversy from that between an insured and insurer in which the insurer seeks a suspension of its liability because of a failure on the part of the insured to comply in some respect with the terms of a valid contract, or because the claim against the insured does not fall within the coverage of the policy to which defendants' cited cases apply. American General Ins. Co. v. Booze, 146 F.2d 329 (CCA 9th, 1944); Standard Accident Ins. Co. v. Meadows, 125 F.2d 422 (CCA 5th, 1942); Aetna Casualty & Surety Co. v. Yeatts, 99 F.2d 665 (CCA 4th, 1938); Associated Indemnity Corp. v. Davis, 45 F. Supp. 118 (D.C.M.D. Pa., 1942); Automobile Mut. Indemnity Co. v. Dupont, 21 F. Supp. 606 (D.C.D. Del., 1937); Utica Mut. Ins. Co. v. Beers Chevrolet Co., 250 App. Div. 348, 294 N.Y. Supp. 82 (1937). In the latter type of dispute the claim against the insured and the basis upon which the insurer seeks a suspension of its liability may all be part of a single controversy. In the instant case, the question of the father's legal right to maintain insurance on the use of his son's automobile goes to the validity of the contract. The fact that a claim or series of claims has been filed against the purported insured is of no significance in determining whether or not an insurance relationship ever existed.
Defendants' second contention that the judgment of the trial court denied them insurance protection to which they were entitled as a matter of law, requires careful analysis.
Under the stipulated facts, it is clear that no relationship of principal and agent existed between plaintiff and Klug, the insurance agent. Instead, it is clear that Klug was Lonnie's deceased son's agent. The representations that were made by Klug in the application for insurance were as agent of Lonnie's deceased son. Nowhere does it appear that Lonnie ever used the car or had any claimed interest in it. In fact, the stipulation of facts is to the contrary. It was not until after the accident in which his son was killed that Lonnie attempted to claim rights under the policy. Attached to and made a part of the insurance policy, which was introduced as an exhibit, is the application for insurance prepared by Klug naming Lonnie as the insured.
Our decision involves the application of paragraph 766 of chapter 73 of the Illinois Revised Statutes, 1957, which provides that:
"No misrepresentation or false warranty made by the insured or in his behalf in the negotiation for a policy of insurance, or breach of a condition of such policy shall defeat or avoid the policy or prevent its attaching unless such misrepresentation, false warranty or condition shall have been stated in the policy or endorsement or rider attached thereto, or in the written application therefor, of which a copy is attached to or endorsed on the policy, and made a part thereof. No such misrepresentation or false warranty shall defeat or avoid the policy unless it shall have been made with actual intent to deceive or materially affects either the acceptance of the risk or the hazard assumed by the company. This section shall not apply to policies of marine or transportation insurance."
In Hamberg v. Mutual Life Ins. Co. of New York, 322 Ill. App. 138, this court in construing the second sentence of the foregoing statute held that the word "or" after the word "deceive" should be construed to mean "and." See also La Penta v. Mutual Trust Life Ins. Co., 4 Ill. App.2d 60. For contrary holding see Campbell v. Prudential Ins. Co. of America, 16 Ill. App.2d 65.
In that the policy in the instant case contained the application for insurance as a part of it, the requirement set forth in the first sentence of the statute is complied with. The question then is whether the misrepresentation in the application voided the policy. Defendants argue that the representation as to ownership was not made with actual intent to deceive and did not materially affect the risk or hazard assumed by the company. The exception as set forth in the second sentence of the statute is therefore controlling.
It is a matter of common knowledge that the rate frequency of accidents for drivers between the ages of sixteen and twenty-four is substantially greater than that for all drivers who are twenty-five years old or more. (National Safety Council 1956 and 1957 Report.) The risk or hazard of writing liability insurance in this group is, therefore, substantially greater. This in turn determines the premium rate to be charged, the extent of coverage which the insurer is willing to underwrite and the restrictions it may impose as to the conditions under which it will assume the risk. It is apparent that Klug in making the application in Lonnie's name sought to avoid revealing the fact that the owner of the car ...