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Crest v. State Farm Mut. Auto. Ins. Co.

JULY 2, 1974.




APPEAL from the Circuit Court of Kane County; the Hon. JAMES CALDWELL, Judge, presiding.


This is an action for breach of a contract based upon the refusal of defendant to pay the plaintiff's loss under a collision and public liability policy. The case was tried without a jury and resulted in a judgment for the plaintiff in the amount of $3042.60.

From the judgment of the trial court the defendant appeals on several grounds which will be considered separately.

The main contention of the defendant is that due to a material misrepresentation by the plaintiff in his application for the insurance, the defendant elected to rescind the contract and thus rendered it void ab initio.

In order to judge the merits of the defense, a brief review of the facts is necessary. On April 22, 1969, the plaintiff having purchased a new automobile applied to an agent of the defendant, one Sam Lupei, for insurance against liability, for personal injury and property damage and for collision damage to the automobile. The agent prepared a form, designated thereon "automobile application" and the plaintiff signed it after the agent had read it back to him, but plaintiff did not read it. The application contained a question as follows: "Has license to drive or registration been suspended, revoked or refused for the applicant or any member of his household within the past three years?" In the boxes designated "yes" and "no" for answer to this question, the "no" box was marked with an "X".

Actually, the plaintiff had been involved in an accident several years before as a result of which his license to drive had been suspended or revoked as of August 10, 1966. After the application was signed on April 22, 1969, the plaintiff paid the agent $60 as a preliminary payment on the premium and the agent said the application would be binding and would cover for 30 days. On May 16, 1969, the plaintiff collided with a Commonwealth Edison Company utility pole, resulting in damage to his automobile to the extent of $2,224.04 and the destruction of the pole, which cost the plaintiff $418 to replace. The plaintiff reported the accident to Agent Sam Lupei on the evening of the same day that it occurred. The following day, May 17, the plaintiff received a letter from the defendant's office at Bloomington stating that the defendant had elected to rescind the coverage and return the premium payment of $60 which was in fact returned with the letter. The defendant claims the letter rescinding the coverage was written and mailed before it had any knowledge of the accident.

Subsequently, the plaintiff made claim against the defendant and payment was refused on the ground that the policy had been rescinded by defendant "because of plaintiff's misrepresentation on the application." (We quote from appellant's brief, since the letter of rescission was apparently not made a part of the record.)

While the defendant in its brief adverts to certain general principles it contends are controlling in connection with the rescission of contracts generally (citing an article entitled "Reformation and Rescission" by Milton M. Hermann, 1960 U. Ill. L.F. 1) it appears to us that the particular situation before us is governed by the provisions found in the Illinois Insurance Code (Ill. Rev. Stat. 1969, ch. 73, par. 766). This section reads as follows:

"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."

The defendant does not seriously contend that the misrepresentation as to the suspension or revocation of plaintiff's driver's license was made with actual intent to deceive. The plaintiff testified that he did not read the application before he signed it and the defendant's attorney did not cross-examine plaintiff as to his knowledge of the misrepresentation or his intent to deceive and, in fact, in his closing argument remarked "apparently there was no intent to deceive." In its affirmative defense the defendant does not allege either an intent to deceive or that a misrepresentation was made which was material to the acceptance of the risk. In the pertinent paragraph stating the basis for the rescission, the affirmative defense refers to the application as providing, "in accordance with this statute that no coverage is afforded under said policy where there is a misrepresentation regarding suspension of driving privileges within a three year period." However, actually the application does not make this statement but merely says, "If the answer to either question [as to prior cancellation or as to suspension of driver's license within three years] is `yes' a non-binding application may be submitted." The affirmative defense pleading is therefore defective both in asserting a positive defense which has no actual basis in the language of the application itself, and because it misquotes the statute it relies on.

The plaintiff served interrogatories on the defendant seeking the answers to certain questions bearing on the materiality of the misrepresentations in question to the acceptance of the risk, but these interrogatories were never answered by the defendant and no evidence as to the materiality of the misrepresentation to the acceptance of the risk was ever put into the record by the defendant.

• 1 From the wording of the statute quoted above it is clear that the burden is on the party raising a misrepresentation in a policy or application as a ground for avoidance to establish either that the misrepresentation was made with actual intent to deceive or that it was material to the hazard assumed or to the acceptance of the risk. Likewise, it appears to be the general rule in Illinois that the materiality of the misrepresentation is a question of fact for the jury. (Mooney v. Underwriters at Lloyd's, London (1966), 33 Ill.2d 566; Hofeld v. Nationwide life Insurance Co. (1972), 7 Ill. App.3d 226; Downey v. John Alden Life Insurance Co. (1972), 3 Ill. App.3d 638 (abstract opinion); Ehret v. Loyal Protective Life Insurance Co. (1969), 112 Ill. App.2d 289.) In Mooney v. Lloyd's, London, supra, our supreme court said, at page 569:

"The materiality of false representations in an application for insurance is a question of fact for the jury, and a verdict should not be set aside if there is any evidence which, standing alone, tends to support it."

It is true that in the case of Pruitt v. Allstate Insurance Co. (1968), 92 Ill. App.2d 236, this court held that a false statement which concealed the fact that another company had cancelled a similar automobile policy was material to the acceptance of the risk as a matter of law. However, that case is distinguishable from the present case on two grounds. First, in the Pruitt case the insurance carrier not only raised the materiality of the misrepresentation by way of affirmative defense but also filed a request to admit facts in connection with the application which the plaintiff failed to answer. In addition, the defendant in Pruitt filed an affidavit by the division supervisor on underwriting stating that it was the company's policy to declare void ab initio any policy in which a ...

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