James K. Bettes v. Stonewall Insurance Company ( 1973 )

DYER, Circuit Judge:

On May 3, 1968, two days after his release from a hospital where he was treated for hemianesthesia, Bettes, an air line pilot, applied to Stonewall Insurance Company for two $25,000 occupational disability insurance policies, which were subsequently issued with effective dates of July 1, 1968. On July 25, 1968, Bettes suffered a cerebral vascular accident, became permanently disabled as a result, and shortly thereafter filed a claim under each policy. Stonewall refused payment pending an investigation of Bettes’ insurance application in which he failed to mention his recent hospitalization, his family history of heart trouble, and his personal history of elevated blood pressure. Unable to obtain payment, Bettes brought this diversity action on the policies. After an initial judgment for Bettes based on the jury’s answers to a series of special interrogatories, the district court set aside its judgment and entered final judgment for Stonewall. Bettes appeals and raises three questions for review. We conclude, however, that the district court ruled correctly on each issue and, therefore, we affirm.

The primary issue at the trial centered on the alleged misrepresentations that Bettes made in his insurance applications, and whether they constituted a defense for Stonewall.¹ After a trial devoted largely to the development of the substantive elements of the defense, Bettes belatedly raised another issue which continues as the most important point on appeal — whether Stonewall should be entitled to the misrepresentation defense at all because of its alleged failure to show compliance with Article 21.17, Insurance Code, V.A.T.S. Article 21.17 provides that, before an insurance company can rely on a misrepresentation defense, it must show on trial that within 90 days of learning of the falsity of any such representation it notified the insured that it refused to be bound by the policy.

A. Amendment of Pre-Trial Order

Bettes first argues that the district court erred in refusing his request to modify the pre-trial order so that it would include, as a contested issue of law, compliance with Article 21.17. We disagree. The request was an eleventh-hour appeal to the district court made only after other trial tactics had failed. The pleadings had been completed, the discovery concluded, the pre-trial order entered, the evidence taken,² the charge conference held, the arguments to the jury finished, the jury charged, and the objections to the charge made before Bettes sought this modification of the pre-trial order to show his intent to rely on Article 21.17.³

A pre-trial order, while not to be lightly set aside, should be modified if that action is necessary to prevent manifest injustice. Sherman v. United States, 5 Cir. 1972, 462 F.2d 577; Central Distributors, Inc. v. M. E. T., Inc., 5 Cir. 1968, 403 F.2d 943; Laird v. Air Carrier Engine Service, Inc., 5 Cir. 1959, 263 F.2d 948; Fed.R.Civ.P. 16. See also Henry v. Commissioner of Internal Revenue, 5 Cir. 1966, 362 F.2d 640. The trial judge is vested with broad discretion in considering when a pre-trial order should be amended and we conclude that there was no abuse of that discretion here.

Bettes sought to amend the pre-trial order to include compliance with Article 21.17, not as a contested issue of fact as an element of Stonewall’s defense, but as a contested issue of law. It is clear, however, that notice only arguably became a matter of law because of his own delay (until all the evidence had been taken) in apprising the district court of his intentions. If his requested amendment had been timely presented to the district court, evidence could have been adduced, which in turn would have made notice a question of fact for the jury and not a matter of law. Similarly, Bettes can glean no solace from the fact that the burden of proof on notice would have been on Stonewall if the issue had been contested. Although Stonewall was aware of the existence of Article 21.17, it was entitled to be surprised, as was the district court, when Bettes sought to inject it as a legal issue minutes before the case finally went to the jury. Any detriment to Bettes caused by denying the proposed amendment to the pre-trial order was occasioned by his own actions.

We see nothing in our holding that in any way conflicts with this court’s recent pronouncement in Pacific Indemnity Co. v. Broward County, 5 Cir. 1972, 465 F.2d 99. In Pacific Indemnity the key issue — whether the county had been notified of a claim against it within one year of the claim becoming due— had been fully framed in the pleadings, thereby putting all parties on notice that a substantial disagreement of fact existed. When the pre-trial order then failed to include notice as an issue, the onus for this omission was placed on the party with the burden of proof on notice and Broward County was granted a judgment N.O.V. See 465 F.2d at 103-104. The facts in this case are readily distinguishable. Bettes was promptly put on notice by Stonewall’s answer that the insurance company intended to rely on a misrepresentation defense, but at no time subsequently was the issue of notice as an element of that defense clearly drawn. In such a case, even with the ultimate burden of proof potentially on his opponent, a litigant cannot strategically lie behind the log until after the trial and receipt of evidence, argument, and charge to the jury before raising an issue not found in the pleadings nor included in the pre-trial order and then raise it when it is too late for his opponent to do anything about it. The manifest prejudice of such tactics would make a shambles of the efficacy of pre-trial orders and a fair trial.

B. Notice Tried by Consent

Bettes’ second argument is that the district court erred in entering judgment for Stonewall after the insurance company failed to show compliance with Article 21.17, because he maintains that the issue of notice was tried by consent. Bettes claims that certain evidence offered by him was so particularly and uniquely appropriate to the issue of notice that Stonewall’s lack of objection constituted implied consent for the issue to be tried, despite its omission from the pre-trial order.

At no time during the trial was a request made for an amendment of the pleadings to conform to the evidence, but Bettes correctly notes that this is not necessarily fatal to his argument. Fed.R.Civ.P. 15(b). Instead, the death knell for this argument results from a careful reading of the record which discloses no evidence that Stonewall gave any consent — express, implied, or otherwise — to trying this issue. Bettes’ evidence did not pertain solely to the issue of notice, but had general relevance to the entire defense of misrepresentation. See Wirtz v. Savannah Bank & Trust Co., 5 Cir. 1966, 362 F.2d 857; C. Wright & A. Miller, Federal Practice and Procedure § 1493 at 466 (1971). Furthermore, for an issue allegedly tried by consent, mention of it was conspicuously absent at the charge conference, in the arguments of both counsel to the jury, and in the charge to the jury. As such, without warning that this evidence was being offered to prove a new issue, its admission without objection cannot be said to be “implied consent” within the meaning of Fed.R.Civ.P. 15(b).

C. Meaning of Article 21.16

Bettes’ final argument is addressed not to Article 21.17, but to Article 21.16, Insurance Code, V.A.T.S. Article 21.16 provides that for an insurance company to assert successfully a misrepresentation defense, it must show on trial,

that the matter or thing misrepresented was material to the risk or actually contributed to the contingency or event on which said policy became due and payable, and whether it was material and so contributed shall be a question of fact to be determined by the court or jury trying such case, (emphasis added).

From this language and from a dictum in Trinity Reserve Life Insurance Co. v. Hicks, Texas Civ.App.1956, 297 S.W.2d 345, Bettes asserts that a misrepresentation must be material and must contribute to the loss before that misrepresentation constitutes a defense to a claim under a policy. The district court’s final judgment rejected this argument and held that it is sufficient if the misrepresentation either is material to the risk or contributes to the loss. We agree with that disposition.

Our court has faced this precise question once in the past in Fireman’s Fund Insurance Co. v. Wilburn Boat Co., 5 Cir. 1962, 300 F.2d 631, cert. denied, 370 U.S. 925, 82 S.Ct. 1562, 8 L.Ed.2d 505. We there expressed our view that the disjunctive construction was the preferred alternative. See also Occidental Life Insurance Co. v. Bob LeRoy’s Inc., 5 Cir. 1969, 413 F.2d 819, cert. denied, 396 U.S. 939, 90 S.Ct. 373, 24 L.Ed.2d 241. This disjunctive construction has also found consistent, albeit implicit, support in the decisions of the Texas appellate courts. See, e. g., Harrington v. Aetna Casualty & Surety Co., Texas Civ.App.1972, 489 S.W.2d 171; Odom v. Insurance Co., Texas Civ.App.1969, 441 S.W.2d 584, aff’d, Texas 1970, 455 S.W.2d 195; Southern Life & Health Insurance Co. v. Grafton, Texas Civ.App.1967, 414 S.W.2d 214.

Finding no error in any of the questions presented for review, we affirm.

Affirmed.

1 . Stonewall raised the misrepresentation defense in its answer, and the pre-trial order included, as a contested issue of fact, “[w]hether plaintiff gave untrue answers to questions on the two insurance applications that were relied upon by defendant and were material to the risk involved.”

2 . Bettes did introduce some evidence that could bear on the Article 21.17 question, but it was not denominated as such. The effect, of this evidence is discussed in the second section of this opinion.

3 . The Article 21.17 issue w.as mentioned by Bettes at two earlier procedural stages of the trial, but the failure of the district court to rule in his favor at either of these times has not been presented as error on appeal. It was first raised in a motion for a directed verdict, filed in written form on the day the trial concluded. It next arose as an objection to the charge to the jury after the charge had already been given, despite the fact that no such instruction had been requested previously. This objection was followed closely by the attempt to amend the pre-trial order, which is one subject of this appeal.