Katrice Jones-Smith v. Safeway Insurance Company

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2014-CA-00180-SCT
KATRICE JONES-SMITH AND NANCY JONES
v.
SAFEWAY INSURANCE COMPANY
DATE OF JUDGMENT: 01/02/2014
TRIAL JUDGE: HON. WILLIAM E. CHAPMAN, III
TRIAL COURT ATTORNEY: ROY GREGG ROGERS
COURT FROM WHICH APPEALED: RANKIN COUNTY CIRCUIT COURT
ATTORNEY FOR APPELLANTS: TAUREAN DERNELL BUCHANAN
ATTORNEYS FOR APPELLEE: JEREMY TRISTAN HUTTO
WILLIAM H. CREEL, JR.
JOSEPH WALTER GILL
NATURE OF THE CASE: CIVIL - INSURANCE
DISPOSITION: AFFIRMED - 09/03/2015
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
EN BANC.
DICKINSON, PRESIDING JUSTICE, FOR THE COURT:
¶1. For more than one hundred and thirty years, this Court has held that an insurance
company may void a policy when the insured made material misrepresentations during the
application process.1 When this insurance company learned that Michelle Busby had made
a material misrepresentation when she applied for the motor-vehicle-liability policy at issue
here, it had the policy declared void, so we affirm the circuit judge’s grant of summary
judgment.
1
Coop. Life Ass’n of Miss. v. Leflore, 53 Miss. 1, 12 (1876).
FACTS AND PROCEDURAL HISTORY
¶2. While driving his mother’s 2003 Chevy Silverado in Rankin County, sixteen-year-old
William Busby crashed into Kenneth Tarlton’s car, which in turn collided with a car driven
by Katrice Jones-Smith. When William’s mother, Michelle, applied to Safeway Insurance
Company for an insurance policy on the Silverado, the application required her to warrant
that she had provided the names of all regular frequent drivers of the covered vehicles, as
well as all residents of her household fourteen years old or older. Michelle failed to disclose
that fifteen-year-old William resided in her home, and Safeway issued her a policy on the
Silverado at a premium that was lower than the premium would have been had Safeway
known about William.
¶3. So after William’s accident, Safeway sought a declaratory ruling that Michelle’s
failure to identify William was a material misrepresentation, rendering the policy voidable.
In response, Katrice—along with her mother Nancy Jones, who owned the car Katrice was
driving—filed an answer and counterclaim asserting that William was at fault in the accident
and that he was covered by the Safeway policy. The parties filed competing motions for
summary judgment, and the circuit judge—finding Michelle’s failure to disclose William
was a material misrepresentation—granted summary judgment to Safeway.
ANALYSIS
¶4. The appellants contend that, under this Court’s recent decision in Lyons v. Direct
General Insurance Company of Mississippi, the circuit judge was precluded from declaring
2
this policy void because an injured third party cannot be denied recovery up to the statutorily
imposed minimum-policy limits.2 But Lyons is inapposite because it addressed an entirely
distinct legal issue.
I. Lyons v. Direct General does not control this case.
¶5. In Lyons, Roderick Holliday caused an accident while driving a car insured by his
mother.3 When Machon Lyons, who was injured in the accident, asserted a claim against
that policy, Direct General Insurance Company argued that its policy contained a named-
driver exclusion for Roderick.4 Said differently, Direct did not dispute that it had issued a
valid insurance policy which covered the car at the time of the accident. Rather, Direct
claimed that the admittedly valid policy excluded Roderick from coverage.
¶6. On appeal, we concluded that the named-driver exclusion violated Mississippi’s
statutorily imposed minimum-liability insurance law.5 Our reasoning was two-fold. First,
we recognized that Section 63-15-4(2)(a) required an insurance company that issues a
motor-vehicle-liability policy also to issue an insurance card which serves as proof that the
policy provided the statutory minimum-liability limits.6 Second, we recognized per the
2
Lyons v. Direct Gen. Ins. Co. of Miss., 138 So. 3d 887 (Miss. 2014).
3
Id. at 888.
4
Id.
5
Id. at 890-91.
6
Id. at 890 (quoting Miss. Code Ann. § 63-15-4(2)(a) (Rev. 2013))
3
statutory language that “[t]his mandatory liability insurance requirement pertains to vehicles,
not owners or operators.”7 Direct had issued an insurance card, representing that the policy
provided the minimum limits required by law, so the named-driver exclusion was
unenforceable.8
¶7. Our analysis in Lyons, which assumed a valid insurance policy had been issued,
prohibited the insurance company from excluding statutorily required coverage, but it
created no duty to issue a policy. It did no more than address an invalid exclusion within
a valid insurance policy.
¶8. By contrast, the question in this case is not whether the terms of Michelle’s policy
with Safeway covered the accident, but whether the policy itself was voidable. And the
longstanding, well-established law of this State renders voidable a policy issued as a result
of material misrepresentations.
II. The circuit judge correctly voided Busby’s policy.
¶9. In 1876, in Cooperative Life Association of Mississippi v. Leflore, this Court stated:
Nothing is better settled, both in regard to insurance contracts and contracts
of all sorts, than that an untrue statement by either party, as to a matter vital
7
Lyons, 138 So. 3d at 890.
8
Id. We note that, after our decision in Lyons exposed what many considered to be
a glitch in the law, the Legislature promptly fixed it by amending Section 63-15-
3(j)—effective July 1, 2015—to provide that “[l]iability insurance required under this
paragraph (j) may contain exclusions and limitations on coverage as long as the exclusions
and limitations language or form has been filed with and approved by the Commissioner of
Insurance.”
4
to the agreement, will avoid it, though there be no intentional fraud in the
misrepresentation.9
There, the beneficiaries to a life-insurance policy brought an action in the Montgomery
County Circuit Court to recover the proceeds of that policy after the insured’s death.10 The
insurer defended by asserting that the insured had made material misrepresentations in the
application for insurance.11 The circuit judge instructed the jury that the company could
void the policy only by a showing of actual fraud, and the jury found for the beneficiaries.12
The company appealed and this Court set out a thorough explanation of the law regarding
the effect of misrepresentations during the insurance-application process.
¶10. This Court first considered whether insurance contracts should be considered under
their own set of legal rules, or whether they should sit on equal footing with other contracts,
controlled by the general law of contracts.13 This Court stated:
An immense amount of labor and learning is displayed in the books in the
consideration of what are, and what are not, material matters in contracts of
insurance, a false statement in relation to which will avoid the policy; and it
is impossible to resist the conclusion, in perusing the cases, that the courts, in
order to avoid supposed hardships in this class of suits, have been disposed to
adopt other rules than those applicable to ordinary contracts. For this
difference we can recognize no sound principle. Contracts of insurance are
9
Coop. Life Ass’n of Miss., 53 Miss. at 12.
10
Id.
11
Id.
12
Id.
13
Id. at 14-15.
5
neither mala prohibita nor mala in se, and, where entered into by persons sui
juris, are to be regulated and determined by the same rules that govern
ordinary agreements, with neither more nor less favor than is shown in other
cases.14
The Court also posited that:
No man can read the history of the struggle between the courts and the
insurance companies on the question of what false statements, made by the
applicant, will avoid the policy, as that history is developed in the adjudged
cases, without perceiving a manifest disposition to apply to such agreements
a rule far more rigid than that which governs ordinary contracts. However
commendable the disposition to protect unsuspecting, and frequently ignorant,
men from the evil consequences of agreements into which they have been
entrapped by cunningly and obscurely worded conditions, so written or
printed as to escape observation, there can be no justification for disregarding,
in their behalf, fundamental principles of law, or relieving them from
engagements as to which there is no pretence for charging fraud. If the
insurance companies, conforming their policies to the requirements of each
successive decision, have protected themselves against all possible loss by any
misrepresentation, no matter how insignificant or unintentional, it would be
most unseemly in the courts to seek, by new exactions, to nullify these
advantages. It is neither the duty nor the right of courts to protect adults
against the consequences of their agreements incautiously entered into. Their
functions are exhausted when they construe and enforce them as written.15
¶11. In other words, jurists had been reluctant to invalidate insurance policies based on the
misrepresentations of the insured when the invalidation would deny innocent beneficiaries
the right to recover, giving rise to the idea that insurance policies should not be treated
equally with other contracts. But, in this Court’s opinion, the desire to avoid the unpalatable
result was not a “sound principle” upon which the Court could recognize a distinct law of
14
Id.
15
Id. at 18-19.
6
insurance contracts. Instead, insurance contracts were “to be regulated and determined by
the same rules that govern ordinary agreements, with neither more nor less favor than is
shown in other cases.”16
¶12. Then, having determined that insurance contracts should be treated like all other
contracts, the Court explained when a contract becomes invalid based on misrepresentations
in the application process. The Court rejected the circuit court’s instruction that actual fraud
need be shown, and instead explained that the relevant law was that of warranties and
material misrepresentations.17 The Court held that “[n]othing is better settled, both in regard
to insurance contracts and contracts of all sorts, than that an untrue statement by either party,
as to a matter vital to the agreement, will avoid it, though there be no intentional fraud in the
misrepresentation.”18
¶13. That is, when “the misstatements of which the applicant was guilty were manifestly
as to matters material to the contract, . . . according to all the authorities, [they] avoided the
policy.”19 The Court also distinguished misrepresentations from warranties, stating that “[i]f
parties have deliberately agreed that the validity of their contract shall depend upon the truth
16
Id. at 15.
17
Id. at 18.
18
Id. at 12.
19
Id. at 18.
7
or falsehood of certain statements, neither court nor jury can say that the matters about which
the false statement is made are too trivial to work a forfeiture of its advantages.”20
¶14. Then, in the 1908 case Fidelity Mutual Life Insurance Company v. Miazza, this
Court expanded on these principles, stating that “[i]t is the universal rule that any contract
induced by misrepresentation or concealment of material facts may be avoided by the party
injuriously affected thereby.”21 The Court explained that under this “principle of general
application,” when “the misstatement is material, it can make no difference as to whether or
not it was made in good faith.”22
¶15. There, an insured obtained life insurance by failing to disclose previous illnesses
when requested to do so in the application.23 This Court found that the insurance company
could avoid paying the life-insurance proceeds to the insured’s beneficiaries because “[i]n
this case it can hardly be doubted that, if there had been a full disclosure on the part of
Miazza as to the character of his illness in 1903, it might reasonably have influenced the
company not to make the contract of insurance.”24
20
Id. at 15.
21
Fid. Mut. Life Ins. Co. v. Miazza, 93 Miss. 18, 46 So. 817, 819 (1908).
22
Id.
23
Id. at 817-18.
24
Id. at 819.
8
¶16. This law, though old, has persisted. Eighty years later, an insured submitted a claim
for damages his truck incurred in an accident, and the insurer denied coverage based on the
insured’s failure to disclose two speeding tickets when asked to do so in the application
process.25 The Court reiterated the distinction between warranties and representations, and
that any warranty that is not literally true will invalidate the policy, while a misrepresentation
will invalidate the policy only if it is not substantially true and material.26
¶17. Because the policy and application were in conflict as to whether the answers were
warranties or representations, they were considered representations, as the characterization
in the policy had to prevail and because ambiguities must be construed against the insurer.27
Analyzing the materiality requirement for a misrepresentation to invalidate an insurance
policy, the Court explained that “[t]he materiality of a representation is determined by the
probable and reasonable effect which truthful answers would have had on the insurer.”28
¶18. Applying this century-old precedent on insurance contracts to the facts before us
today, there can be no doubt that the circuit judge properly voided the policy issued by
Safeway. The application required Michelle to warrant that she had provided the names of
25
Sanford v. Federated Guar. Ins. Co., 522 So. 2d 214, 215-16 (Miss. 1988).
26
Id. at 216 (quoting Colonial Life & Accident Ins. Co. v. Cook, 374 So. 2d 1288,
1291 (Miss. 1979)).
27
Sanford, 522 So. 2d at 217 (citing Nat’l Life and Accident Co. v. Miller, 484 So.
2d 329, 337 (Miss. 1985), overruled on other grounds by Miss. Bar v. Attorney ST, 621 So.
2d 229, 232 (Miss. 1993)).
28
Sanford, 522 So. 2d at 217.
9
all residents of her home over the age of fourteen. She admittedly failed to do so by failing
to disclose fifteen-year-old William, to whom she even gifted a car covered by the policy.
Because the parties to the contract characterized this assertion as a warranty, its materiality
need not be questioned, and the circuit judge properly voided the contract because the
statement was not literally true.
¶19. And we would reach the same result even if we characterized Michelle’s failure to
disclose William as a misrepresentation, because it was both material and not substantially
true. The representation was entirely false because the application required Michelle to
disclose all household residents over age fourteen and she did not provide all of the names
she was required to provide. The representation was material because, without a 209 percent
increase in Michelle’s rate, Safeway would not have issued the policy. So, under either
standard, the circuit judge reached the right result.
CONCLUSION
¶20. Because Michelle obtained her Safeway policy through what was at best a material
misrepresentation, we affirm the circuit judge’s decision to void the policy.
¶21. AFFIRMED.
WALLER, C.J., RANDOLPH, P.J., LAMAR, CHANDLER, PIERCE AND
COLEMAN, JJ., CONCUR. KITCHENS, J., DISSENTS WITH SEPARATE
WRITTEN OPINION JOINED BY KING, J.
KITCHENS, JUSTICE, DISSENTING:
10
¶22. Because I believe Mississippi Code Section 63-15-4(2) (Rev. 2013) and this Court’s
decision in Lyons v. Direct General Insurance Company of Mississippi, 138 So. 3d 887
(Miss. 2014), prohibit Safeway’s voiding Busby’s automobile insurance policy, I respectfully
dissent.
¶23. Mississippi law requires liability insurance for every motor vehicle operated on the
streets, roads, and highways of the state:
Every motor vehicle operated in this state shall have an insurance card
maintained in the motor vehicle as proof of liability insurance that is in
compliance with the liability limits required by Section 63-15-3(j). The insured
parties shall be responsible for maintaining the insurance card in each motor
vehicle.
Miss. Code Ann. § 63-15-4(2)(a) (Rev. 2013) (emphasis added). Furthermore, the relevant
minimum liability insurance limits under Mississippi law are:
. . . . in the amount of Twenty-five Thousand Dollars ($25,000.00) because of
bodily injury to or death of one (1) person in any one (1) accident, and subject
to said limit for one (1) person, in the amount of Fifty Thousand Dollars
($50,000.00) because of bodily injury to or death of two (2) or more persons
in any one (1) accident, and in the amount of Twenty-five Thousand Dollars
($25,000.00) because of injury to or destruction of property of others in any
one (1) accident.
Miss. Code Ann. § 63-15-3(j) (Rev. 2013).
¶24. This Court recently interpreted these statutes with regard to named-driver exclusions
in Lyons. In that case, Machon Lyons suffered severe injuries in a single-car automobile
accident when a Chevrolet Lumina automobile driven by Roderick Holliday, in which Lyons
was a passenger, collided with a tree. Lyons v. Direct Gen. Ins. Co., 138 So. 3d 887, 888
11
(Miss. 2014). Holliday’s mother, Daisy Lang, had insured the Chevrolet Lumina through
Direct General Insurance Company of Mississippi. Id. Lang’s liability insurance policy
included a provision that specifically excluded her son, Roderick, from coverage under the
policy. Id. Accordingly, Direct denied coverage for Lyons’s injuries. Id.
¶25. The circuit court granted summary judgment in favor of Direct, finding that the policy
clearly and specifically excluded coverage of Holliday. Id. Lyons appealed, arguing that
Lang’s policy covered the damages incurred by Holliday because Mississippi law requires
minimum limits of liability insurance coverage for all permissive drivers. Id.
¶26. The Mississippi Court of Appeals reversed, holding that an insured’s policy must
cover all permissive drivers, rendering the named-driver exclusion void up to the amount of
the policy’s minimum-coverage limits. Although the Court of Appeals reached the right
result, it cited an incorrect statute in arriving at that result. Lyons, 138 So. 3d at 932-33. This
Court granted certiorari. Lyons, 138 So. 3d at 887.
¶27. We looked to Section 63-15-4(2)(b), which provides that an “insurance company
issuing a policy of motor vehicle liability insurance as required by this section shall furnish
to the insured an insurance card for each motor vehicle. . . .” Miss. Code Ann. § 63-15-
4(2)(a) (Rev. 2013) (emphasis added). Moreover, Section 63-15-4(2)(a) requires that
“[e]very motor vehicle operated in this state shall have an insurance card maintained in the
motor vehicle as proof of liability insurance . . . .” Miss. Code Ann. § 63-15-4(2)(a) (Rev.
2013) (emphasis added). Given this express statutory language, the Court held that the
12
“mandatory liability insurance requirement pertains to vehicles, not owners or operators.”
Lyons, 138 So. 3d at 890. Every operating motor vehicle in Mississippi therefore must meet
the statutorily required minimum-coverage requirements of $25,000 for injury to one person,
$50,000 for injury to two or more people, and $25,000 for property damage. Id., accord
Miss. Code Ann. § 63-15-3(j) (Rev. 2013). Thus, a liability policy which purports to
exclude the statutorily required minimum coverage for certain drivers “fails to comply with
the statutory mandate.” Id.
¶28. To resolve this case, this Court should determine whether the Busby vehicle was
insured, not whether the driver, William Hunter Busby, was insured. It is uncontested that
Michelle Busby had purchased from Safeway an automobile liability insurance policy
covering the 2003 Chevrolet Silverado truck. The minimum-coverage requirements were in
compliance with the statute. That vehicle, therefore, was covered by the policy in accordance
with Mississippi law.
¶29. Safeway argues that Lyons and Section 63-15-4(2) do not abrogate an insurance
company’s common law right to void an insurance policy due to material misrepresentations.
It also argues that no Mississippi law prohibits an insurance company’s rescission of an
insurance contract for material misrepresentations. But the duty to provide minimum-limits
liability insurance coverage for a covered vehicle is absolute. Id.
¶30. A common rule of statutory construction is expressio unius est exclusio alterius, or
“expression of the one is exclusion of the other.” See McCoy v. McRae, 204 Miss. 309, 317
13
(Miss. 1948). This Court has explained this familiar principle: “where a statute enumerates
and specifies the subject or things upon which it is to operate, it is to be construed as
excluding from its effect all those not expressly mentioned or under a general clause.”
Southwest Drug Co. v. Howard Bros. Pharmacy of Jackson, Inc., 320 So. 2d 776, 779
(Miss. 1975) (citing Akers v. Estate of Johnson, 236 So. 2d 437 (Miss. 1970)). With regard
to the statute at issue, this Court held in Lyons that “the Legislature passed a lawful statute
that unequivocally requires automobiles to maintain minimum-liability coverage in the
amount of $25,000.” Lyons, 138 So. 3d at 890. Moreover, the Court held that the statute at
issue did not contain or authorize any exclusions. Id. The Legislature therefore “possesses
the sole power to authorize such exclusions, and automobile insurers are not free to escape
the statutorily required minimum-liability coverage simply by inserting an exclusion of their
choice—no matter how well-reasoned—into their policies.” Id. This Court further reasoned
that “[r]equirements are just that—requirements—and nothing in the statute suggests that
exceptions exist, or that insurance companies are authorized to include them in their
policies.” Id. at 891. In light of the Legislature’s refusal to grant an exception to mandatory
minimum coverage for vehicles and this Court’s holding in Lyons, it is clear that Safeway
is not at liberty to rescind coverage purchased from it for a vehicle, even if the reason for the
rescission may otherwise be justified under traditional contract law. If the Legislature had
intended to allow automobile insurance companies an exception to their obligation to pay the
mandatory minimum-liability limits for a party’s material misrepresentation, it could have
14
included such an exception in the statutory language. It did not, which renders Safeway’s
claimed exception an invalid exclusion.
¶31. Safeway also argues that, under the terms of the insurance policy between itself and
Michelle Busby, it is allowed to void the contract if it discovers material misrepresentations
on the part of Busby.29 First, it is clear that Mississippi statutes supersede rules of traditional
contract law and interpretation: “[i]t is well settled in Mississippi that in the event of a
conflict between the language of an automobile liability insurance policy and the statutory
requirement, the statutory provisions are incorporated into and become part of the policy.”
State Farm Mut. Auto. Ins. Co. v. Universal Underwriters Ins. Co., 601 F. Supp. 286, 289
(S.D. Miss.1984) (internal citations omitted). Furthermore, parties are not at liberty to
enforce contract provisions which contradict Mississippi law and public policy. Smith v.
Simon, 224 So. 2d 565 (Miss. 1969) (“There is no doubt that the courts have the duty and
29
The policy issued to Busby states:
The statements made by you in the application are deemed to be warranties.
Any false or misleading information provided by you on the application to us
which materially affects the acceptance or rating of the risk by us, by either
direct misrepresentation, omission, concealment of facts or inconsistent
statements, will result in your policy being null and void from its effective
date. This paragraph shall also apply to misstatement of use and omission of
fact. We do not provide coverage for any insured who has made fraudulent
statements engaged in fraudulent conduct in connection with any accident or
loss for which coverage is sought under this policy.
(Emphasis in original.)
15
the power to declare void and unenforceable contracts made in violation of law or in
contravention of the public policy of the state.”). Finally, Safeway’s argument ignores this
Court’s holding in Lyons. In Lyons, the party who incurred the damages was specifically
excluded from the terms of the contract, and the Court held that the insurance company still
was required to provide minimum-limits liability insurance coverage. Lyons, 138 So. 3d at
891. Therefore it is clear that, insofar as Safeway’s Fraud and Misrepresentation policy
clause contradicts Mississippi’s law requiring minimum-liability coverage, Mississippi law
takes precedence over the contrary provisions of the insurance contract and renders them
invalid.
¶32. Moreover, it is not established in the record that the alleged misrepresentation, that
William Busby was a member of Michelle Busby’s household, was material. We have held
that a “ a representation, if substantially true and not material to the risk, will not invalidate
the policy in the absence of fraud.” National Cas. Co. v. Johnson, 219 Miss. 1, 67 So. 2d
865, 867 (1953). Here, Safeway has not proven that the omission of William Busby was
material to the risk assumed by the company nor has it proven that Michelle Busby engaged
in fraud in her execution of the policy application. Although Safeway insurance introduced
evidence after it sought to void Michelle Busby’s policy that showed her rate would have
been 209% higher if she had listed William Busby on her policy application, there is no
evidence in the record that Michelle Busby knew, at the time she executed her insurance
application, that the omission of William Busby had any effect on the terms or cost of her
16
policy. Without proof in the record that the parties mutually knew that this was a material
term in the policy application or that it materially affected the risk assumed by the insurance
company, it cannot be deemed material post-hoc, merely because the insurance company says
it would have acted in a different way as a result.
¶33. Safeway is not divested of its ability to control, within the bounds of applicable laws
and regulations, the language of its insurance contracts. This Court has held that “[t]he
parties indeed may negotiate—and automobile insurers may include—exclusions from
coverage, so long as those exclusions do not emasculate the statutorily required minimum
coverage.” Lyons, 138 So. 3d at 891. Insurance companies are even allowed to void their
policies for parties’ material misrepresentations. Furthermore, they are entitled to deny
coverage in excess of the statutory minimum after the discovery of a material
misrepresentation. See id. But they are prohibited from doing so when it prevents an
aggrieved party from recovering damages from the minimum-liability insurance limits. See
id.
¶34. It is clear that Mississippi law, without exception, requires minimum-liability
insurance limits for all over-the-road motor vehicles.30 Moreover, inasmuch as an insurance
30
In a very narrow exception to the State’s mandatory liability insurance statutes,
certain parties are allowed to self-insure:
(1) Any person in whose name more than 25 motor vehicles are licensed may
qualify as a self-insurer by obtaining a certificate of self-insurance issued by
the department as provided in subsection (2) of this section.
17
company was not permitted to void coverage for a specifically excluded driver in Lyons, it
follows that a carrier cannot void coverage based on a misrepresentation, material or
otherwise, or omission in the identification of the drivers in the household over the age of
fourteen years. I therefore respectfully dissent.
KING, J., JOINS THIS OPINION.
(2) The department may, in its discretion, upon the application of a person,
issue a certificate of self-insurance when it is satisfied that such person is
possessed and will continue to be possessed of ability to pay judgments
obtained against such person.
(3) Upon not less than five days notice and a hearing pursuant to such notice,
the department may upon reasonable grounds cancel a certificate of
self-insurance. Failure to pay any judgment within thirty days after such
judgment shall have become final shall constitute a reasonable ground for the
cancellation of a certificate of self-insurance.
Miss. Code Ann. § 63-15-53 (Rev. 2013).
18