Crnkovich v. Columbus Life Insurance , 141 Idaho 821 ( 2001 )

Chief Judge SCHWARTZMAN,

dissenting:

I respectfully dissent. Crnkovich has not raised a claim that his insurance contract with Columbus is voidable; he argues it is void ab initio as an illegal contract for noncompliance with I.C. § 41-305(1) of the insurance code. An illegal contract is one that rests on illegal consideration consisting of any act or forbearance that is contrary to law or public policy. Quiring v. Quiring, 130 Idaho 560, 566, 944 P.2d 695, 701 (1997); see also Miller v. Haller, 129 Idaho 345, 351, 924 P.2d 607, 613 (1996); Kunz v. Lobo Lodge, 133 Idaho 608, 611, 990 P.2d 1219, 1222 (Ct.App.1999). Whether a contract is void as against public policy is a question of law for the court to determine from all the facts and circumstances of each case. Quiring, 130 Idaho at 566, 944 P.2d at 701; Stearns v. Williams, 72 Idaho 276, 283, 240 P.2d 833, 837 (1952). Public policy may be set forth in statutes, judicial decisions or the constitution. Stearns, 72 Idaho at 287, 240 P.2d at 840.

In the instant case, neither party argues that the contract rests upon consideration that is illegal or contrary to law or public policy. Rather, Crnkovich argues that Columbus was not permitted to sell life insurance within the state of Idaho without a certificate of authority from the Idaho Department of Insurance, and that lacking such, Columbus’ policy with him is void ab initio.

The statutes of this state do not render, and the decisions of our courts have never held, an insurance policy to be void ab initio on the ground that the insurer did not possess a certificate of authority as required by 1.C. § 41-305. Indeed, just the opposite may be true. Idaho Code § 41-310(2) provides that:

(2) Any insurer not theretofore authorized in this state which, within three (3) years prior to its application for authority to transact insurance in Idaho has transacted insurance in this state in violation of the laws of Idaho, shall not be granted such authority unless it is otherwise fully qualified therefore, files with the director a written statement sworn to by two (2) of its executive officers of all premiums received by it during such three (3) years with respect to insurance on subjects resident, located or to be performed in Idaho, and pays to the director as an additional fee for the filing of its application for certificate of authority, an amount of money equal to the premium tax which it would have paid to this state with respect to such premiums if it had been an authorized insurer in this state throughout such period.

This provision implicitly recognizes that insurance contracts sold in Idaho without a certificate of authority as required by I.C. § 41-305 are not void ab initio.¹ Idaho Code § 41-310(2) encourages insurers not in compliance with I.C. § 41-305 to pay back premium taxes on those contracts entered into before securing a certificate of authority and then apply for a certificate of authority. In doing so, Idaho’s insurer authorization scheme employs a “carrot and stick” approach consistent with the public’s interest in the integrity of insurance.² While Messerli v. Monarch Memory Gardens, Inc., 88 Idaho 88, 101-105, 397 P.2d 34, 42-45 (1964), would appear to allow rescission of an insurance contract with an unqualified insurer, the public policy consideration of preventing consumer fraud is not implicated in the present case where the insurer was fully qualified — possessing a valid certificate of authority — at the time Crnkovieh brought suit.

Although I agree with the district court’s conclusion that an insurer’s failure to obtain a certificate of insurance does not render its insurance contracts void ab initio, I reach it as a matter of statutory interpretation. Williams and related cases do not address the situation encountered here, where the insured, not the insurer, is seeking to void the contract under a theory that the contract was void ab initio.

Columbus obtained a certificate of authority in 1995, nearly two years before Crnkovieh filed the instant suit. Having received the benefit of the bargain — insurance coverage since 1993 — Crnkovieh cannot point to any injury sustained by Columbus’ previous noncompliance. Under these facts, an insurance contract is not void ab initio where consideration has been fully exchanged by both parties and the insurer obtains a certificate of authority before the insured files suit.

Crnkovieh still argues that he is entitled to rescind the insurance contract due to Columbus’ prior non-compliance. Rescission is an equitable remedy aimed at restoring the parties to their pre-contract status quo, Blinzler v. Andrews, 94 Idaho 215, 485 P.2d 957 (1971), overruled on other grounds, Barnard & Son, Inc. v. Akins, 109 Idaho 466, 708 P.2d 871 (1985), and is proper where a mutual mistake of fact is material or fundamental to the creation of a contract, Murr v. Selag Corp., 113 Idaho 773, 777, 747 P.2d 1302, 1306 (Ct.App.1987), or where one party induces the other to enter the contract through fraud. McEnroe v. Morgan, 106 Idaho 326, 329, 678 P.2d 595, 598 (Ct.App.1984). The record does not reflect such fraud or mutual mistake.³ Accordingly, the district court correctly ruled that the policy was not subject to rescission.

I would affirm the district court’s ruling that Columbus’ contract with Crnkovieh was legally binding and that rescission does not lie in this case.

1 . I express no opinion as to whether such contracts might be voidable at the insistence of the insured up until the time the insurer obtains a certificate of authority.

2 . I.C. § 41-113 sets forth the public policy behind Idaho's insurance regulatory scheme:

The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters. Upon the insurer, the insured, and their representatives, and all concerned in insurance transactions, rests the duty of preserving the integrity of insurance.

3 . The record, however, is "ambiguous” as to whether Crnkovieh actually paid out any money for the 1992 one million dollar term life insurance policy prior to its conversion in 1993 to a fully paid up universal life policy. Apparently, an IRS inquiry brought this whole matter to light.