York Mut. Ins. v. Bowman

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MAINE SUPREME JUDICIAL COURT			Reporter of Decisions
Decision:2000 ME 27
Docket:Pen-99-149
Argued:	December 6, 1999
Decided:	February 14, 2000


Panel:	WATHEN, C.J., and CLIFFORD, RUDMAN, DANA, SAUFLEY,
ALEXANDER, and CALKINS, JJ.
Majority:	WATHEN, C.J., and CLIFFORD, RUDMAN, DANA, and CALKINS, JJ.
Concurrence:	SAUFLEY, J. and ALEXANDER, JJ.

YORK MUTUAL INSURANCE COMPANY

v.

BRUCE BOWMAN and WANDA BOWMAN

WATHEN, C.J.

	
	[¶1]  Plaintiff York Mutual Insurance Company appeals from the
judgment of the Superior Court (Penobscot County, Mead, J.) denying its
claim for rescission of an insurance contract on the basis of
misrepresentation in the application.  York Mutual argues that the court
misconstrued the requirement that the misrepresentation be material
pursuant to 24-A M.R.S.A. § 2411 (1990).  We agree and we vacate the
judgment.
	[¶2]  The relevant facts may be summarized as follows:  During late
January and early February, 1993, Wanda Bowman applied through insurance
agents for automobile liability insurance with York Mutual.  During the
application process, Mrs. Bowman identified herself and her husband, Bruce
Bowman, as prospective insureds, but failed to identify her sons Chad
Bowman, then age 17, and Shawn Bowman, then age 20, as either having an
ownership interest in any of the vehicles being insured or as being
temporarily away from home.  In connection therewith, she also failed to
inform the insurance agents that as of the date of the application, Shawn had
the following convictions on his driving record: (1) speeding, July 23, 1990;
(2) failure to keep right, December 18, 1990; (3) unnecessary tire noise,
July 22, 1991; (4) blood alcohol content of .02 or more, August 3, 1991. 
Nor did she inform them that as of that same date, Chad had the following
convictions on his driving record: (1) speeding, October 21, 1991; (2)
speeding, May 20, 1992.  Had the insurance agents known that two of the
five vehicles to be insured were jointly owned with the sons, they would
have required Wanda and Bruce Bowman to produce the sons' driving
records and the convictions would have been revealed.  Further, Wanda
Bowman failed to inform the insurance agents that she and her husband had
experienced the cancellation of an insurance policy in the previous three
years, more particularly, that their auto liability policy with Patrons Oxford
Mutual Insurance Company had been canceled, effective January 24, 1993,
and that, as of the date of the application, they had been without auto
liability insurance for nearly ten days.
	[¶3]  On or about May 2, 1993, Bruce Bowman was involved in a motor
vehicle collision with Michael Michaud and Cynthia Michaud.  The Michauds
made a claim against him.  York Mutual filed a complaint for declaratory
judgment asking the court to rescind the insurance liability contract with
Bruce and Wanda Bowman.  The Michauds filed a petition to intervene and a
cross-claim against Bruce and Wanda Bowman.  The court granted the
Michauds' petition to intervene, but ordered that the claim asserted by the
Michauds against the Bowmans be tried separately from and after the
resolution of the claim of York Mutual against the Bowmans.  The Bowmans
filed a counterclaim against York Mutual and a third party complaint against
the insurance agents for York Mutual's refusal to defend the Bowmans in the
underlying personal injury claim and seeking indemnification from the
insurance company and agents for any damages awarded to cross-claimants.
	[¶4]  The third party action against the insurance agents was
dismissed, and, after a jury-waived trial, the court entered a judgment
denying York Mutual's claim for rescission of the insurance contract and
declared that York Mutual has the duty to defend and indemnify Bruce
Bowman under the terms of the subject policy. York Mutual filed a motion
for findings of fact and conclusions of law and reconsideration of the order.
The court adopted York Mutual's findings, but denied its motion for
reconsideration.  York Mutual now appeals.
	[¶5]  York Mutual argues that the court erred by misconstruing the
meaning of materiality in 24-A M.R.S.A. § 2411(2).  Statutory interpretation
is a matter of law,  see Cook v. Lisbon Sch. Comm., 682 A.2d 672, 676 (Me.
1996), and "we first examine the plain meaning of the statutory language
seeking to give effect to the legislative intent and we construe the statutory
language to avoid absurd, illogical, or inconsistent results."  See Nasberg v.
City of Augusta, 662 A.2d 227, 229 (Me. 1995).  We also construe the "'whole
statutory scheme of which the section at issue forms a part so that a
harmonious result, presumably the intent of the Legislature, may be
achieved.'" Id. (citations omitted). 
	[¶6]  The statute in effect at the time of this action provides as follows:

§ 2411.  Representations in applications

	All statements and descriptions in any application for
insurance or for an annuity contract, by or in behalf of the
insured or annuitant, shall be deemed to be representations and
not warranties.  Misrepresentations, omissions, concealment of
facts, and incorrect statements shall not prevent a recovery
under the policy or contract unless either:

	1.  Fraudulent; or

	2.  Material either to the acceptance of the risk, or to the
hazard assumed by the insurer; or

	3.  The insurer in good faith would either not have issued
the insurance or contract, or would not have issued it at the
same premium rate, or would not have issued insurance in as
large an amount, or would not have provided coverage with
respect to the hazard resulting in the loss, if the true facts had
been made known to the insurer as required either by the
application for the policy or contract or otherwise.

24-A M.R.S.A. § 2411 (1990), amended by P.L. 1999, ch. 223, § 1 (effective
September 18, 1999).{1}  In American Home Assurance Co. v. Ingeneri, 479
A.2d 897 (Me. 1984), we ruled that the applicable version of the statute
spoke in the conjunctive rather than the disjunctive, and that all three
criteria must be met before the misrepresentation or omission could
prevent a recovery under the policy.  See id. at 900.  We ruled that
materiality was defined only in subsection 2, whereas subsection 1
concerned fraud and subsection 3 concerned actual reliance.  See id. at 901
& n.4.  
	[¶7]  The court in the present case concluded that the criteria in
subsections 1 and 3 were met.  The court found that Wanda Bowman's
omitted statements concerning her sons and their driving records and the
cancellation of her automobile insurance policy were willfully withheld and
constituted fraudulent statements to the insurance agents and York Mutual. 
Had the insurance agents and York Mutual been aware of the sons or the
cancellation of the prior policy, the agents would not have placed the
insurance contract with York Mutual and York Mutual would not have issued
the auto liability policy to the Bowmans. 
	[¶8]  The court concluded, however, that York Mutual failed to
establish materiality as required by subsection 2.  The court determined that
the language of subsection 2 "hones in on whether misstatements went to
the heart of '. . . the risk . . .' or were simply regarding some superfluous,
non-germane point." The court defined the risk as follows: "the insurer
undertook to insure the risk that Wanda or Bruce Bowman might operate a
motor vehicle negligently." The court found that, although the
misstatements or omissions in the application were material to the question
of whether the policy would have issued at all, they were not material to the
underwriting of the risk "that Wanda Bowman or Bruce Bowman might
operate a vehicle negligently."
	[¶9] The court focused too narrowly on the actual cause of the loss in
the subject accident.  When section 2411 is read as a whole, subsection 2
imposes an objective test of materiality.  The relevant inquiry is not whether
the misrepresentations related to the cause of the particular loss in
question. Rather, it is whether the facts, if truly stated, would have
influenced a reasonable insurer in deciding whether to accept or reject the
risk of entering into the contract, in fixing the premium rate, in fixing the
amount of insurance coverage, or in providing coverage with respect to the
hazard resulting in the loss. 
	[¶10]  Our interpretation of subsection 2 is supported by decisions in
other jurisdictions with similar statutes.  Although courts differ in whether
they treat the criteria in the disjunctive or conjunctive and in whether they
distinguish between subsections 2 and 3, the common factor is that
materiality is treated as an objective test.  See Central Nat'l Life Ins. Co. v.
Peterson, 529 P.2d 1213, 1216 (Ariz. Ct. App. 1975); Singer v. Nationwide
Mut. Fire Ins. Co., 512 So.2d 1125, 1128-29 (Fla. Dist. Ct. App. 1987);
Woods v. Independent Fire Ins. Co., 749 F.2d 1493, 1497 (11th Cir. 1985)
(applying Georgia law); John Hancock Mut. Life Ins. Co. v. Conway, 240
S.W.2d 644, 646 (Ky. Ct. App. 1951); Massachusetts Mut. Life Ins. Co. v.
Allen, 416 P.2d 935, 941 (Okla. 1965); Powell v. Time Ins. Co., 382 S.E.2d
342, 349-50 (W. Va. 1989).  As one treatise notes, 

	Under the most widely accepted test of materiality, a fact
that has been misstated or omitted is deemed "material" if it
could reasonably be considered as affecting the insurer's
decision to enter into the contract, or its evaluation of the
degree or character of the risk, or its calculation of the premium
to be charged.  "Materiality is determined solely by the probable
and reasonable effect which truthful answers would have had
upon the insurer." The standard by which materiality is judged
is an objective one. Moreover, "materiality must be assessed as of
the time the contract was entered into." 

	The test of materiality is whether the misrepresentation
has deprived the insurance company of its free choice as to the
nature of the risk it wishes to insure.  The question is "not
whether the company might have issued the policy even if the
information had been furnished; the question . . . is whether the
company has been induced to accept an application which it
might otherwise have refused."

Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage
Disputes § 3.01[e] at 88-89 (9th ed. 1998) (citations omitted); see also 6 Lee
R. Russ & Thomas F. Segalla, Couch on Insurance 3d §§ 82:13 & 82:14
(1996). 
	[¶11]  In the present case, the court interpreted materiality too
narrowly and did not determine whether a reasonable insurer would have
accepted or rejected the risk of entering the insurance contract at all or
would have fixed a higher premium or a different coverage amount.  The
record contains sufficient facts, if believed, for the court to conclude on
remand that the misrepresentations and omissions would have caused a
reasonable insurer to refuse to issue the policy or to have fixed a higher
premium or a different coverage amount.  
	The entry is:
Judgment vacated. Remanded for further
proceedings consistent with this
opinion.
ALEXANDER, J., with whom SAUFLEY, J., joins concurring.

	[¶12]  I concur that we should vacate the trial court's judgment.  The
trial court found that Wanda Bowman's willfully omitted statements were
fraudulent statements.  The trial court also found that York Mutual would not
have issued the auto liability policy to the Bowmans had they been aware of
the sons' status and the cancellation of the prior policy.  With these findings
and the objective materiality standard that must be applied, there is no
dispute as to material fact that no reasonable insurer would have accepted
this risk at the same premium and coverage amount.  There are no further
facts to be found and no need for remand for further factfinding.  I would
remand for entry of judgment for York Mutual on its claim for rescission of
the insurance contract.
                                    
Attorney for plaintiff:

Timothy C. Woodcock, Esq., (orally)
Weatherbee, Woodcock, Burlock & Woodcock, P.A.
P O Box 1127
Bangor, ME 04402-1127

Attorney for invervenors Michael & Cynthia Michaud:

Wm. Thomas Hyde, Esq., (orally)
Merrill, Hyde, Fortier & Youney, P.A.
P O Box 3100
Skowhegan, ME 04976

Defendants Bowman did not participate in this appeal.

FOOTNOTES******************************** {1} . The statute as amended provides as follows: All statements and descriptions in any application for insurance or for an annuity contract, by or in behalf of the insured or annuitant, are deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts and incorrect statements may not prevent a recovery under the policy or contract unless either: 1. Fraudulent; or 2. Material either to the acceptance of the risk, or to the hazard assumed by the insurer, such that the insurer in good faith would either not have issued the insurance or contract, or would not have issued it at the same premium rate, or would not have issued insurance in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise. 3. Deleted. To prevent a recovery under this section for any application for life, credit life, disability, long-term care, accidental injury, specified disease, hospital indemnity or credit or accident insurance, an insurer need only prove one of the acts described in this section, not an act under subsections 1 and 2. P.L. 1999, ch. 223, § 1 (effective September 18, 1999) (codified at 24-A M.R.S.A. § 2411 (Supp. 1999)). The statute was amended to clarify the Legislature's intent that section 2411 be read in the disjunctive, in response to American Home Assurance Co. v. Ingeneri, 479 A.2d 897 (Me. 1984). Comm. Amend. A to L.D. 1762, No. H-246, Statement of Fact (119th Legis. 1999).