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Stone v. Those Certain Underwriters At Lloyds





APPEAL from the Circuit Court of St. Clair County; the Hon. FRANCIS E. MAXWELL, Judge, presiding.


Plaintiff appeals from a judgment rendered for defendant insurance carrier upon plaintiff's complaint for loss of 14 oriental art objects in a burglary. The principal issue presented is whether under the facts of the case there had been a failure to disclose information regarding the manner of acquisition and the value in plaintiff's application for insurance coverage so as to justify a rescission of the coverage. The trial court found that rescission was justified. We affirm.

Plaintiff is a dean of educational administration at Belleville Area College and, since about 1972, a collector of art objects. In the spring and early summer of 1975 plaintiff purchased 14 separate items of oriental art objects from a Charles Bueche of San Antonio, Texas, for $19,800. The purchases were effected over a time span of several weeks. In what may be described as acts contemporaneous with the purchases, Charles Bueche furnished to plaintiff his appraisal of the 14 items of art in which he stated their value to be $275,800.

In June 1975 plaintiff made a request for coverage of fine art works through a local broker. The request was ultimately lodged with "Those Certain Underwriters at Lloyds, London, subscribing to cover note No. SL 10001" (defendant). The appraisals furnished plaintiff by Bueche were submitted to defendant with the application for coverage. Defendant's representative requested plaintiff to execute a proposal form (application) which was done. Question number 19 of the proposal asked the applicant:

"Is there any other material fact, within your knowledge, regarding this proposal of insurance, which should be submitted to the Insurers for consideration?"

Plaintiff answered this question "no." Plaintiff never advised the defendant that the same dealer who sold him the 14 art objects for $19,800 contemporaneously appraised them at a value of $275,800. Defendant made no further investigation and, on August 8, 1975, issued to plaintiff a cover note of insurance of the objects in the amount of the appraisal.

On or about March 6, 1976, all of the items, except a boxwood screen, were feloniously taken from plaintiff's apartment in a burglary. Plaintiff notified defendant of the loss. The defendant made an investigation, discovered the great discrepancy between plaintiff's cost and the appraised value, and the fact that the seller of the art objects had also furnished the appraisals, and declined payment of the loss but offered to refund the premium paid. The basis of defendant's denial was that plaintiff had made material misrepresentations in procuring the coverage.

Plaintiff filed suit on the policy seeking to recover $245,800 for the stolen items. Defendant filed an answer and two affirmative defenses, the first for rescission for material misrepresentations, and the second for reformation of the coverage to reflect the actual nature and value of the items. At the trial, evidence was presented by defendant which showed that the art items were not of the nature and value plaintiff had represented them to be. Bueche's valuations were also brought into serious question by delving into his own acquisition of the items in question.

In its judgment the court found that the nature and value of the items purchased by plaintiff from Bueche did not remotely approach items of the value of $275,800 and that the statements as to the nature and value of the items were material. It further found that if information of the transaction between plaintiff and Bueche had been submitted to defendant the coverage would not have been issued, and the failure to reveal such facts prevented defendant from appraising the risk as it actually existed. Finally, the court found that plaintiff did not enter into a planned scheme to defraud defendant. Judgment was then entered for defendant upon its first affirmative defense by rescinding the coverage of cover note SL 10001 and directing defendant to refund to the plaintiff the premium paid.

There are numerous Illinois cases which hold that false or misleading statements on applications for insurance are sufficient to avoid the policy if material to the risk. These include Weinstein v. Metropolitan Life Insurance Co. (1945), 389 Ill. 571, 60 N.E.2d 207, where it was held that misrepresentations in an application for life insurance will avoid the policy if they are false and material to the risk even though the applicant acted through mistake or in good faith. Also see Campbell v. Prudential Insurance Co. of America (1958), 15 Ill.2d 308, 155 N.E.2d 9; Logan v. Allstate Life Insurance Co. (1974), 19 Ill. App.3d 656, 312 N.E.2d 416, and cases cited.

However, this case is not concerned with an instance where a misleading statement was made; rather, it involves plaintiff's failure to disclose information. The question presented by this case thus becomes: Did the plaintiff's failure to disclose information regarding the wide variation between purchase price and the contemporaneous appraised value and the fact that the seller and appraiser were one and the same person constitute a misrepresentation that affected the materiality of the risk and furnished grounds for rescission? Justice and precedent compel an affirmative answer.

We have not been cited and are unable to find an Illinois case precisely in point. There are cases and precedents, however, which furnish an indication of the propriety of the result we reach. Carroll v. Preferred Risk Insurance Co. (1966), 34 Ill.2d 310, 215 N.E.2d 801, and Western Fire Insurance Co. v. Moss (1973), 11 Ill. App.3d 802, 298 N.E.2d 304 (and cases cited therein), stand for the proposition that an applicant for a policy of insurance that is to be predated, or retroactively dated, has a duty to notify the insurer of any material changes (such as an accident claim) affecting his coverage during the interim between his application and the issuance of the policy.

The Restatement of Contracts § 472(1)(b) (1932), speaks to factual situations similar to the one presented in this ...

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