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IN THE SUPREME COURT OF THE STATE OF KANSAS No. 99,291 KAREN CHISM, Appellant, v. PROTECTIVE LIFE INSURANCE CO. and QUALITY MOTORS OF INDEPENDENCE, INC., Appellees.

SYLLABUS BY THE COURT 1. In a civil case, when the Kansas Supreme Court grants a petition requesting review of a Court of Appeals' decision and obtains jurisdiction under K.S.A. 20-3018(b), only issues presented in the petition, or fairly included therein, will be considered.

2. Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to dispute must be material to the conclusive issues in the case. On appeal, we apply the same rules and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied.

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3. Fraud is never presumed and must be established by clear and convincing evidence.

4. The existence of fraud is normally a question of fact.

5. An insurer has the right to rescind a policy ab initio for fraudulent misrepresentation in the application process.

6. To establish fraudulent misrepresentation in an action to rescind an insurance contract, the following elements must be established: (1) There was an untrue statement of fact made by the insured or an omission of a material fact, (2) the insured knew the statement was untrue, (3) the insured made the statement with the intent to deceive or recklessly with disregard for the truth, (4) the insurer justifiably relied on the statement, and (5) the false statement actually contributed to the contingency or event on which the policy is to become due and payable.

7. An insurer is estopped from setting up a defense of fraud on the part of the insured in the application process where such fraud was on the part of the insurer's agent. This rule applies with particular force where false answers are inserted by the agent without the knowledge of the applicant, regardless of whether such statements be considered representations or strict warranties. Thus, where an application is prepared without even consulting or interrogating the insured, and the insured had no knowledge of the making of such statements, much less their verity, an estoppel arises.

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8. In cases where the truth of the representations or the facts surrounding the taking of an insurance application are in dispute, the questions presented are for a jury's determination.

9. The general rule is that an insurance applicant has a duty to understand the contents of a policy application before signing it and to answer all questions fairly and truthfully. A failure to read the application does not excuse a misrepresentation by an applicant absent fraud by the insurer's agent, undue influence, or mutual mistake.

10. An applicant for an insurance policy has no absolute duty to read a policy in anticipation of fraud or mistake of an insurer's agent.

11. Signing an application for insurance in good faith without reading it is not such negligence as would render the applicant responsible for the insurance agent's fraud or mistake.

12. Kansas courts have consistently recognized that an insurer may not rescind a policy on a mere negligent misrepresentation or omission in an application for insurance.

13. In the absence of an insurer's fraud or undue influence or of a mutual mistake, the failure to read an insurance application before signing it may be evidence of a reckless disregard for the truth and may estop the applicant from claiming to be ignorant of the document's content. 3

Review of the judgment of the Court of Appeals in 40 Kan. App. 2d 629, 195 P.3d 776 (2008). Appeal from Montgomery District Court; FREDERICK WILLIAM CULLINS, judge. Opinion filed June 11, 2010. Judgment of the Court of Appeals affirming the district court is reversed on the issues subject to review. Judgment of the district court on the issues subject to review is reversed and remanded

William J. Fitzpatrick, of Independence, argued the cause and was on the brief for appellant Karen Chism.

James P. Rankin, of Foulston Siefkin LLP, of Topeka, argued the cause, and Stephen M. Kerwick, of the same firm, was with him on the briefs for appellee Protective Life Insurance Company.

W. James Foland, of Foland, Wickens, Eisfelder, Roper & Hofer, P.C., of Kansas City, Missouri, argued the cause, and Rhonda K. Mason and John M. Brigg, of the same firm, were with him on the brief for appellee Quality Motors of Independence, Inc.

The opinion of the court was delivered by

LUCKERT, J.: Past decisions of this court have held that an insurance company may rescind an insurance contract if an insured makes fraudulent material misrepresentations when applying for an insurance policy. A different rule applies, however, if the insurance company's agent completed the application and either knowingly entered false information or failed to ask the applicant for the information. Under those circumstances, the insurance company is estopped from rescinding the policy. This is true even if the applicant could have discovered the misrepresentation by reading the application form.

This appeal raises the question of whether the same estoppel principles apply if an insurance company's agent does not write a false answer on an insurance application but makes fraudulent misrepresentations that lead an applicant to sign an application without knowing that the signature represents there are no disqualifying health conditions. We conclude these circumstances are comparable to a situation where an insurance agent 4

does not ask an applicant for information used to complete an application and an insurance company could be estopped from rescinding its policy. In this case, however, the insurance company disputes that the agent made misrepresentations. Because there is sharply conflicting evidence regarding the facts surrounding the completion of the application, we hold that the district court erred in granting summary judgment. FACTS AND PROCEDURAL BACKGROUND This appeal arises from Karen Chism's claim as the beneficiary on a life insurance policy issued by Protective Life Insurance Co. (Protective). The life insurance policy was offered to Karen and her husband Steve Chism during transactions related to the Chisms' purchase of a new vehicle from Quality Motors of Independence, Inc. (Quality Motors). As part of the transaction, the dealership's business manager, Dennis Urban (also referred to as "the agent"), explained that the Protective life insurance policy could be purchased and the insurance would pay off the remaining debt on the auto loan if either of them died.

According to Karen's deposition testimony, when Urban first discussed the life insurance he told them they qualified for the insurance because they were younger than 66 years of age. After the Chisms agreed to purchase the insurance, Urban used his computer to complete a portion of the insurance application form. Most of the information was data used in the paperwork relating to the sale and financing of the vehicle. This included basic biographical information about the Chisms (names, address, telephone number, age, gender, and Social Security numbers), details about the vehicle, and information about the loan. In addition, Urban filled in the amount of life insurance requested and the designated beneficiaries.

Urban printed out the application along with other documents relating to the purchase and financing of the vehicle. According to Karen, as Urban presented the life insurance application to the Chisms he "just told us how much the payments were going 5

to be, how much the insurance was, and this is the Protective Life policy and sign down here." She denied that Urban said anything about there being certain health conditions that disqualified an applicant or that he indicated there was a portion of the application regarding preexisting health conditions that they needed to review and complete.

Both Karen and Steve signed and dated the document, and Urban signed as the licensed resident agent for Protective. Karen testified at her deposition that she did not read the application before signing. In addition, when asked if Steve had read the application, she stated: "I don't know, but I'm sure he didn't because we were just passing the deals and we signed them and passed that other one and he signed it. He didn't have time to read it I'm sure."

Urban's deposition testimony presents a sharply conflicting version of events. He testified it was not his practice to tell applicants they were qualified for insurance. In addition, according to Urban, Karen signed the documents at a different time than did Steve and both applicants had time to read the application before signing. Further, he testified he told both Karen and Steve they needed to review the application, initial where appropriate in the self-qualifying portion of the application, and then sign at the bottom.

Nevertheless, according to Karen's deposition testimony, the Chisms were not aware of the section of the application that related to health qualifications. That section began with the heading: "WARNING--YOU MUST BE ELIGIBLE TO APPLY FOR INSURANCE." Below this heading the form stated:
"You are not eligible to apply for any insurance if you have attained age 66 as of the Effective Date, if you will have attained age 69 as of the Expiration Date of the insurance; or if you are not the named Debtor or Co-Debtor in the Schedule above."

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A paragraph followed that contained conditions of eligibility for disability insurance. Then, in a shaded box, another heading stated: "APPLICATION." These instructions and text followed:
"CIRCLE (item) and INITIAL (line) if any item applies to you. OTHERWISE, DO NOT MAKE ANY MARKS. "1. I am not eligible for any insurance if I now have, or during the past 2 years have been seen, diagnosed or treated for: (a) A condition, disease or disorder of the brain, heart, lung(s), liver, kidney(s), nervous system or circulatory system; or (b) Tumor; Cancer; Uncontrolled High Blood Pressure; Diabetes; Alcoholism; Drug Abuse; Emotional or Mental Disorder; Acquired Immune Deficiency Syndrome (AIDS); the Aids Related Complex (ARC); or received test results showing evidence of antibodies of the AIDS virus (HIV Positive). _____________ Debtor Initials _____________ Co-Debtor Initials

(initial here only if you have circled any item) "2. I am not eligible for disability insurance if I now have, or during the past 2 years have been seen, diagnosed or treated for a condition, disease or disorder of the neck, back, knee(s) or any joint(s) or for carpal tunnel syndrome. _____________ Debtor Initials _______________ Co-Debtor Initials

(initial here only if you have circled any item)

"The sales representative is not authorized to waive or change any of the insurability requirements or any provision of the Certificate.

"By signing below, I state that I have read and understand this Application and represent that I am eligible and insurable for the coverage as requested in the Schedule. I have read and understand the above Application and understand that I am not insurable for [] any coverage if I have circled (any item) and initialed application statement #1 or; disability coverage if I have circled (any item) and initialed application statement #2. I understand

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this insurance is not required to obtain credit. I understand and agree that I am insured only if I have signed below and agree to pay the additional cost of the insurance. I have detached and retained the 'INSURED'S COPY' of this form and Certificate for my records."

The instructions to circle and initial applicable health conditions were printed in red, as was the instruction to provide initials at the end of sections one and two if any item was circled.

The Chisms did not circle any health conditions or place initials in the applicable blanks, even though Steve suffered from diabetes. He also had a history of high blood pressure; however, the question related to uncontrolled hypertension and Karen's deposition testimony was that Steve's hypertension was under control at the time of the application.

About 7 months after purchasing the vehicle, Steve died. The death certificate listed the cause of death as sudden death. No underlying cause of death was indicated, but diabetes mellitus, hypertension, morbid obesity, and peripheral vascular disease were listed as "significant conditions contributing to death but not resulting in the underlying cause" of Steve's death. Diabetes and uncontrolled hypertension were conditions that would render a person ineligible for credit life insurance if disclosed on the Protective application.

Karen submitted a claim for benefits under the policy. Protective denied the claim and rescinded the policy based on Steve's failure to disclose disqualifying medical conditions.

In September 2006, Karen filed suit against Protective for breach of contract and against Quality Motors for negligent procurement of the policy. Ultimately, the parties 8

filed competing motions for summary judgment. The district court granted summary judgment in favor of Protective and Quality Motors. The court found that Quality Motors "does not review the medical interrogatories section" with applicants, but the Chisms had a duty to read the application, which they failed to do, and "unknowingly enrolled themselves into a credit life insurance program they were not eligible for." Because of the Chisms' duty to read and Steve's disqualifying health conditions, the court held that Protective's subsequent denial of coverage did not constitute a breach of the insurance policy and that Protective had rightfully rescinded the contract. Moreover, because the application required an eligibility determination--or self-disqualification--by the applicants, the district court stated Quality Motors was not negligent in its presentation of the application to the Chisms.

Karen appealed, and the Court of Appeals affirmed in Chism v. Protective Life Ins. Co., 40 Kan. App. 2d 629, 195 P.3d 776 (2008). Regarding the issue of rescission, the Court of Appeals concluded the Chisms made material misrepresentations on the insurance application that barred any recovery under the policy. The Court of Appeals also concluded the policy language specifically negated Steve's eligibility for coverage due to his health conditions, and the policy clearly denoted that the agent had no authority to waive Protective's insurability requirements. Chism, 40 Kan. App. 2d at 634. In addition, the Court of Appeals noted it was uncontroverted that the Chisms knew about Steve's health conditions, so even if the failure to disclose those conditions was not, as described by Karen, "deliberate deceit," Protective had the power to rescind the policy after misrepresentations were made with "reckless disregard" for the truth. Chism, 40 Kan. App. 2d at 636.

The Court of Appeals also rejected Karen's argument that Protective waived its right to rescind the insurance policy. The Court of Appeals pointed out, inter alia, that Karen was bound by the provisions in the application regardless of her failure to read or 9

understand its terms, unless her execution of it was the product of fraud, undue influence, or mutual mistake. The Chisms were, according to the Court of Appeals, not able to attribute the misrepresentations to the agent because the agent did not complete the medical portion of the application and the Chisms had "the opportunity and duty to correctly complete the portion of the application form relating to health issues." Chism, 40 Kan. App. 2d at 635-36. The lack of complicity or fault of the agent, according to the Court of Appeals, distinguished this case from two Kansas cases and cases from other jurisdictions cited by Karen. The Court of Appeals concluded that Protective was entitled to summary judgment. Chism, 40 Kan. App. 2d at 637.

Next, the Court of Appeals addressed Karen's negligent procurement claim in which she alleged that Quality Motors failed to properly present and record the medical inquiries on the application. The Court of Appeals upheld the order granting Quality Motors summary judgment, holding there was no evidence that Urban, an employee of the dealership, was an agent for the Chisms or owed any legal duty to the Chisms "when it came to their obligation to read, understand, and accurately respond to the inquiries made" about their health in the application. Chism, 40 Kan. App. 2d at 639.

Finally, the Court of Appeals concluded the district court did not abuse its discretion when it quashed subpoenas for depositions of certain witnesses, excused the defendants from producing certain documents, and struck a witness' affidavit. Chism, 40 Kan. App. 2d at 640-42.

Karen filed a petition for review in which she raised only issues relating to her breach of contract claim against Protective and its rescission of the insurance contract. She did not discuss the other issues considered on direct appeal relating to negligent procurement and discovery orders. We granted the petition, and our jurisdiction arises from K.S.A. 20-3018(b).

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After Karen's petition for review was granted, she filed a supplemental appellate brief in which she asserted that she was not "waiving" review on all issues decided by the Court of Appeals. Nevertheless, under the rules relating to appellate procedure, this court's consideration of any issue considered by the Court of Appeals in a civil case is limited to the issues raised in the petition for review or fairly included therein. Supreme Court Rule 8.03(a)(5)(c) (2009 Kan. Ct. R. Annot. 67); cf. Supreme Court Rule 8.03(c) (2009 Kan. Ct. R. Annot. 68) (discussing issues raised in responses to petitions for review). The appeal before this court is limited, therefore, to the issues relating to the entry of summary judgment on Karen's claim against Protective for breach of contract and Protective's rescission of the policy. The Court of Appeals' decision to affirm summary judgment in favor of Quality Motors and its ruling on the discovery issues are not impacted by our decision.

Regarding her claim that Protective breached its contract, Karen argues in her petition for review that the Court of Appeals (1) failed to review the record in the light most favorable to Karen; (2) erred by distinguishing this case from Schneider v. Washington National Ins. Co., 200 Kan. 380, 437 P.2d 798 (1968), and Cooley v. National Life & Acc. Ins. Co., 172 Kan. 10, 238 P.2d 526 (1951); and (3) erred by holding that the failure to read an application for credit life insurance containing selfdisqualifying medical inquiries is sufficient proof of fraudulent misrepresentation justifying rescission.

STANDARD OF REVIEW/GENERAL PRINCIPLES The standard for summary judgment is well known:

"'Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The trial court is required to resolve all facts and inferences which may

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reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to dispute must be material to the conclusive issues in the case. On appeal, we apply the same rules and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied.' [Citation omitted.]" Nelson v. Nelson, 288 Kan. 570, 578, 205 P.3d 715 (2009).

Karen's arguments focus on the requirement that facts be considered in the light most favorable to the party opposing the summary judgment. We will discuss the areas where Karen argues the Court of Appeals failed to apply the correct standard of review in the context of our discussion of the Court of Appeals' legal conclusions.

These legal conclusions relate to the parties' competing claims regarding who is responsible for the failure to disclose Steve's diabetes (and perhaps other disqualifying health conditions) on the insurance application. The Chisms claim it was Urban's misrepresentations that caused the error and they never intended to make any representations regarding health conditions, much less a false representation. On the other hand, Protective argues Urban had no responsibility for the error and the Chisms committed fraud.

As we consider these competing arguments, three general principles further define our standard of review: (1) Fraud is never presumed; (2) fraud must be established by clear and convincing evidence; and (3) the existence of fraud is normally a question of fact. Alires v. McGehee, 277 Kan. 398, 403, 85 P.3d 1191 (2004).

Protective's claims are based on the general rule of law that an insurer has the right to rescind a policy ab initio for fraudulent misrepresentation in the application process. American States Ins. Co. v. Ehrilich, 237 Kan. 449, 701 P.2d 676 (1985). To establish fraud in this context, Protective must establish: (1) There was an untrue statement of fact 12

made by the insured or an omission of material fact, (2) the insured knew the statement was untrue, (3) the insured made the statement with the intent to deceive or recklessly with disregard for the truth, (4) the insurer justifiably relied on the statement, and (5) the false statement actually contributed to the contingency or event on which the policy is to become due and payable. See K.S.A. 40-2205(C) (imposing fifth element); Miller v. Sloan, Listrom, Eisenbarth, Sloan and Glassman, 267 Kan. 245, 260, 978 P.2d 922 (1999) (analyzing claim of fraud by silence); Waxse v. Reserve Life Ins. Co., 248 Kan. 582, 586, 809 P.2d 533 (1991) (stating elements one to three as stated here but stating the fourth element as "another party justifiably relied on the statement and acted to his injury and detriment"); Ehrlich, 237 Kan. at 452 (same); Scott v. National Reserve Life Ins. Co., 143 Kan. 678, 680, 56 P.2d 76, modified on other grounds 144 Kan. 224, 58 P.2d 1131 (1936) (recognizing fraud to be a known misrepresentation or a nondisclosure).

Other than the legislative refinement of the fifth element, these elements parallel those of a fraud claim generally. See Alires, 277 Kan. at 403 (stating elements of fraud as "an untrue statement of fact, known to be untrue by the party making it, made with the intent to deceive or with reckless disregard for the truth, upon which another party justifiably relies and acts to his or her detriment").

ESTOPPEL The primary thrust of Karen's petition for review is her argument that Protective is estopped from rescinding the contract because of its agent's wrongdoing. In response, Protective does not deny that Urban acted as its agent, but it denies that Urban is in anyway responsible for the false statement on the application. Protective's view, which was adopted by the district court and the Court of Appeals, is that Protective can be estopped only if Urban placed false information on the application. To support this position, Protective cites Schneider v. Washington National Ins. Co., 200 Kan. 380, 437

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P.2d 798 (1968), and Cooley v. National Life & Acc. Ins. Co., 172 Kan. 10, 238 P.2d 526 (1951), which were both discussed by the district court and the Court of Appeals.

In the earliest of these cases, Cooley, 172 Kan. 10, a father discussed purchasing life insurance for his three daughters with a life insurance agent and the agent's supervisor. According to the father, he explained he was not interested in purchasing policies unless he could do so for the benefit of all of his daughters and he was concerned that one diabetic daughter would not qualify for coverage. He told the agent that the diabetic daughter had not seen a doctor for some time and was "getting along all right." The agent and supervisor asked to see the daughter, so the father sent them to the family home and indicated the mother could complete the application. Once at the home, the agent filled out the application, asking the mother questions and completing the application with her answers. According to the mother, when the agent reached a question about diabetes, the agent indicated the father had already answered the question. The mother testified she signed the application but did not read it. The life insurance agent and his supervisor disputed the father's and mother's testimony by asserting the mother had answered "no" to the question about diabetes and that they had no knowledge one of the applicants had that health condition.

This court affirmed the district court's determination that the disputed facts created a jury question, stating:

"The rule in this state is that an insurance agent in making out an application for insurance acts as the agent of the company and not of the applicant, and if the applicant makes truthful answers to the questions propounded, the company cannot generally take advantage of false answers entered by the agent contrary to the facts as stated by the applicant. . . . The rule stated represents the great weight of authority. [Citations omitted.] No reason is suggested, and we know of none, why an applicant for insurance, who is not asked a question contained in the application, but to which an agent enters a

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false answer, is not entitled to a rule as favorable as that stated." Cooley, 172 Kan. at 1516.

Subsequently, this court considered similar facts in Schneider, 200 Kan. 380. There, two insureds testified that an insurance agent filled in an application without consulting with or directing questions to the applicants. In sharp conflict with this testimony, the agent testified he filled out the application with the specific answers given by the applicants.

The court discussed the holding in Cooley, on which the Schneider court relied, and provided additional authorities and explanation for the holding by stating:

"The rule adhered to by this court in Cooley is stated in 17 Appleman, Insurance Law and Practice

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