Castle, Swygert and Cummings, Circuit Judges.
In this diversity action, governed by Indiana law, the plaintiff Insurer sought to rescind a family automobile policy that it had issued to Richard J. Gaul of Crown Point, Indiana.
On September 4, 1963, Gaul appeared at the Cedar Lake, Indiana, office of Richard C. Gross, an insurance agent for plaintiff, in order to obtain automobile insurance. Gaul answered three vital questions in a box on plaintiff's application form as follows:
"Has any insurer ever cancelled or refused any auto insurance to applicant or any driver? 1948 Accident -- Only loss
"Has any drivers license of applicant or any driver ever been suspended, revoked, or refused?
"Has applicant or any driver been convicted or forfeited bail for any moving traffic violation in past three years?"
These answers were false.
Gaul's unsigned application was then forwarded to plaintiff's home office in Bloomington, Illinois. On September 6, 1963, plaintiff's underwriter, Francis E. Brown, decided that Gaul was not an appropriate risk because an A.B.C. Service Bureau confidential card attached to Gaul's application by one of plaintiff's clerical employees showed Brown that a 1961 policy issued to Gaul by another insurer had been cancelled shortly after its issuance. Brown wrote Gross on September 9, 1963, that plaintiff could not accept Gaul's application because the risk did not comply with its underwriting requirements. On September 10, Gross wrote Gaul that the plaintiff refused to write the requested insurance because Gaul's "insurance was cancelled in 1961."
On September 23, Gross telephoned Frederick Backsmeier, one of plaintiff's underwriters, requesting reconsideration of Gaul's application. Backsmeier was told by Gross that he had no adverse information about Gaul. Backsmeier requested Gross to resubmit the Gaul application and stated that an inspection would be made of the risk. Backsmeier then employed Jasper's Reports, Inc. to make a neighborhood investigation of Gaul. That organization uncovered no information to contradict the information given in Gaul's application.
Backsmeier received the favorable Jasper's report on October 31, 1963, and on the following day caused a policy of insurance to issue to Gaul, with an effective date of September 23, 1963. Gross delivered the policy ...