Opinion
No. 6,725.
Submitted January 13, 1931.
Decided March 5, 1931. Rehearing denied March 27, 1931.
Automobile Insurance — "Warranties" — "Representations" — False Statement as to Age of Car — Loss by Fire — Breach of Warranty — Nonliability of Insurer. Insurance — Minds of Parties must Meet to Constitute Policy a Contract. 1. A policy of insurance constitutes a contract on the terms of which the minds of the parties must meet if it is to become effective. Same — Warranties — Breach Relieves Insurer from Liability. 2. Where statements made by one seeking insurance are made, or amount to, warranties, they become, as a general rule, conditions precedent and, regardless of materiality or the good faith of the insured, no liability attaches to the insurer unless they are literally true. Same — Representations — Conditions Under Which Policy Void. 3. If statements made by one in procuring a policy of insurance are merely representations, as distinguished from warranties, liability thereon can be avoided only by proof that they were not only untrue but were material to the acceptance of the risk, wilfully made with intent to deceive, and were relied upon by the insurer. Same — Statutory Provision That Breach of Immaterial Provision of Policy not Fatal Does not Refer to Warranties. 4. Held, that section 8129, Revised Codes 1921, providing that a policy of insurance "may declare that a violation of specified provisions shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy," refers to provisions other than warranties. Same — What Statements in Policy Made Express Warranties by Statute. 5. By section 8125, Revised Codes 1921, a statement in an insurance policy of a matter relating to the thing insured, or to the risk, as a fact, is made an express warranty, a breach of which in its inception prevents the policy from attaching to the risk. (Sec. 8130, Id.) Same — Automobile Insurance Against Loss by Fire — Statement as to Age of Car Material One. 6. A statement made in an application for insurance of an automobile as to its age or year of manufacture, is generally deemed a material one, which, if untrue, may avoid the policy, especially so where a higher premium rate would have attached if the statement had been true, the fact that it had been innocently made not changing the rule. Automobile Insurance Against Loss by Fire — Statement by Insured as to Age of Car Held Material Warranty — Falsity Voids Policy Though Statement Innocently Made. 7. An automobile dealer sold a second-hand car as a new 1927 model under a conditional sale contract; the purchaser assigned the contract to a finance corporation, which in its application for insurance correctly inserted the motor and serial numbers, and innocently but incorrectly, stated the "Year model" and age of the car which items were incorporated in the policy under the head "Warranted by the Assured." The policy provided that if the assured "has misrepresented material facts" it should be void. The car was destroyed by fire. Held, in an action to recover for the loss, that the statement as to the year model and age of the car was a material warranty, and that its breach in its inception voided the policy.
Appeal from District Court, Hill County; C.B. Elwell, Judge.
Messrs. Freeman, Thelen Freeman and Mr. Jess L. Angstman, for Appellant, submitted a brief; Mr. J.P. Freeman argued the cause orally.
Mr. A.F. Lamey, Mr. Sam B. Chase and Messrs. Cooper, Stephenson Hoover, for Respondents, submitted a brief; Mr. Lamey argued the cause orally.
The policy in suit was void from the beginning on account of the breach of warranties as to the age of the car and the date of purchase, even if these warranties had been wholly immaterial so far as the risk was concerned, under section 8129, Revised Codes 1921. ( Collins v. Metropolitan Life Ins. Co., 32 Mont. 329, 108 Am. St. Rep. 578, 80 P. 609, 1092; Mandoli v. National Council of Knights Ladies of Security, 58 Mont. 671, 194 P. 493.)
The distinction between the effect of the falsity of representations and warranties is very well expressed in Alabama Gold Life Ins. Co. v. Johnston, 80 Ala. 467, 59 Am. Rep. 816, 2 So. 125, quoted with approval by the court in Pelican v. Mutual Life Ins. Co., 44 Mont. 277, 119 P. 778; see, also, Bennett v. Northwestern Nat. Ins. Co., 84 Cal.App. 130, 257 P. 586.
In 3 Cooley's Briefs on Insurance, second edition, 1900, it is stated: "From the very nature of warranties, it is evident that a breach of warranty is fatal to the policy, though the falsity constituting the breach is unknown to the applicant and there is no intent to deceive the insurer. In support of this principle, reference to the following cases is deemed sufficient: Fireman's Fund Ins. Co. v. Barker, 6 Colo. App. 535, 41 P. 513; Morris v. Imperial Ins. Co., 106 Ga. 461, 32 S.E. 595; Zinck v. Phoenix Ins. Co., 60 Iowa, 266, 14 N.W. 792; Shelden v. Michigan Millers' Mut. Fire Ins. Co., 124 Mich. 303, 82 N.W. 1068; Davis v. Aetna Fire Ins. Co., 67 N.H. 335, 39 A. 902; Merwin v. Star Fire Ins. Co., 7 Hun (N.Y.), 659, affirmed without opinion in 72 N.Y. 603; Bryce v. Lorillard Fire Ins. Co., 35 N.Y. Super. Ct. 394; Rohrbach v. Germania Fire Ins. Co., 62 N.Y. 47, 20 Am. Rep. 451; Commonwealth Mut. Fire Ins. Co. v. Huntzinger, 98 Pa. 41."
Even after being apprised of the falsity of the warranties contained in the policy of insurance, the plaintiffs seek to enforce it by means of this action, and mainly rely on an alleged ignorance of the terms of the policy to overcome the effect of the false warranties. The mere fact that the plaintiff Pete L. Weyh did not inform himself as to the terms of the policy when it was executed was such negligence on his part as to bar him from any relief. ( Hennessy v. Holmes, 46 Mont. 89, 125 P. 132; Affleck v. Potomac Ins. Co., 49 R.I. 112, 140 A. 469; Kahn v. Royal Indemnity Co., 39 Cal.App. 180, 178 P. 331; Madsen v. Maryland Casualty Co., 168 Cal. 204, 142 P. 51; Gormley v. Westchester Fire Ins. Co., 256 Mass. 221, 152 N.E. 320.)
It is the general rule that even if the false representations were made by an agent of the insured without the knowledge of the insured, if he accepts the policy he thereby ratifies the act of the agent so as to make the responsibility his own. (3 Cooley's Briefs on Insurance, 2d ed., 1902; 2. C.J., secs. 116, 117; sec. 7941, Rev. Codes 1921.)
Appellant is apparently content to rely on the use of the word "warranted" as constituting each answer in paragraph "D" of the policy, a warranty. The authorities uniformly hold to the contrary. In 14 R.C.L., at page 1029, is the statement: "A mere reference in the policy to the statements contained in the application as warranties is not sufficient to create a warranty. In fact, it has been said that the term `warranted' adds nothing to the force of a stipulation in an insurance contract. The expression of the word `warranty' does not necessarily constitute a warranty; there may be warranties without the use of the word, and there may not be warranties when the word is used." (See, also, 32 C.J., p. 1282; Port Blakely Mill Co. v. Springfield F. M. Ins. Co., 59 Wn. 501, 140 Am. St. Rep. 863, 110 P. 36; Williams v. Pacific States Fire Ins. Co., 120 Or. 1, 251 P. 258; Teeple v. Fraternal Bankers' Reserve Soc., 179 Iowa, 65, L.R.A. 1917C, 858, 161 N.W. 102; Wheaton v. North British Merc. Ins. Co., 76 Cal. 415, 9 Am. St. Rep. 216, 18 P. 758; National Bank v. Union Ins. Co., 88 Cal. 497, 22 Am. St. Rep. 324, 26 P. 509.)
If the description and statement regarding the car are warranties, then why provide "that the entire policy shall be void if the assured has concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof"? In Aetna Ins. Co. v. Simmons, 49 Neb. 811, 69 N.W. 125, it is said: "If it had been the intention of the parties that every statement made by the insured in his application should be a warranty, then it was wholly unnecessary to provide in the policy that it should be void if the assured made any false representations as to a fact material to the insurance." (See, also, North British Merc. Ins. Co. v. San Francisco etc. Corp., 30 Ariz. 599, 249 P. 761; 14 R.C.L. 1032; 32 C.J. 1280, 1281.)
"Where the application correctly gives the make, horsepower, and manufacturer's number of the machine, but innocently misstated the year of manufacture, and it appeared that the insurer's agents had information at hand to determine the age of the car from the number, it was charged with notice of the age and estopped to assert the misstatement as a defense." (Huddy on Automobiles, 15th ed., p. 806; Berry v. Equitable Fire M. Ins. Co., (Mo.App.) 263 S.W. 884; Id., 317 Mo. 1119, 298 S.W. 63.) In the application here is given the serial and motor number of the car. Had appellant made use of the facilities of its office, it would have learned the date the car was manufactured. (See Kleiber Motor Truck Co. v. International Indemnity Co., 106 Cal.App. 709, 289 P. 865.)
The defendant, California Insurance Company, of San Francisco, has appealed from a judgment against it and in favor of Pete L. Weyh and Commercial Credit Company, of Great Falls.
The facts established on the trial are substantially as follows: On July 5, 1927, Weyh purchased from the Thurston Motor Company, at Great Falls, an automobile, represented to him as a new 1927 model, on which he made a down payment and for which he entered into a conditional sales contract calling for twelve monthly payments of $74.49 each. This contract was immediately assigned by the Thurston Company to the Commercial Credit Company; the latter secured, in the name of Weyh, a policy of insurance in the defendant company through an insurance brokerage firm in Great Falls. The description of the automobile, as entered in the policy under the head "Warranted by the Assured," was taken from the contract and contains the following statements: "Year Model 1927 * * * Motor Number and Serial Number MC113664 — S WE900 E * * * Date Purchased: Month 9 Year 27 New or 2d Hand — New." The policy was written in San Francisco and sent to the Commercial Credit Company; it was never in the possession of Weyh nor read by him.
While the "Motor Number and Serial Number" were correctly given, the statement as to date of purchase, the "Year Model" and age of the car were false. The car was sold by the Thurston Company to one of its salesmen in July, 1926; it was driven approximately 3,000 miles when, in July, 1927, it was given a coat of "duco," two new tires installed, and the speedometer set back to 250 miles and sold to Weyh as a new car. Weyh drove the car anywhere from 1,000 to 4,000 miles between the date of the purchase and date when it was insured, but knew nothing of the misstatements until the date of the trial. The car was destroyed by fire in June, 1928; thereafter the defendant discovered the falsity of the statements above pointed out and "cancelled" the policy, returning the premium paid to the Commercial Company by check, which check was cashed by the company.
The policy provides that it is made and accepted subject to all conditions and warranties therein contained and shall be void if any of them are violated by the assured; but further provides that, "if the assured has concealed or misrepresented material facts or substance concerning the insurance or the subject thereof," the policy shall be void.
It was shown that the rate on a 1926 car would be higher than that on the same make of a car manufactured in 1927. This testimony was given by Ray C. Culver, a fire insurance agent residing in Helena, who, on cross-examination, further testified that "from the model and serial number we usually determine the year of rating; * * * the companies determine their rates through the automobile companies." "In the automobile department of the company they have some charts or information of some kind that can be referred to readily to ascertain * * * when the car was manufactured." "We have them in our company." "From the information contained * * * [in the policy] I would be able to determine the rate on that car." The witness was merely "acquainted" with the defendant company.
There can be no question but that a policy of insurance [1-3] constitutes a contract on the terms of which the minds of the parties must meet if it is to become effective. The general rule is that, where statements made by the insured are made, or amount to, warranties, they become conditions precedent, and, regardless of materiality or the good faith of the insured, no liability attaches to the insurer unless they are literally true. ( Collins v. Metropolitan Life Ins. Co., 32 Mont. 329, 108 Am. St. Rep. 578, 80 P. 609, 1092; Mandoli v. National Council, 58 Mont. 671, 194 P. 493.) On the other hand, if such statements are merely "representations," liability on the policy can be avoided only by proof that they were not only untrue, but were material to the acceptance of the risk, wilfully made with the intent to deceive, and were relied upon by the insurer. ( Pelican v. Mutual Life Ins. Co., 44 Mont. 277, 119 P. 778; Montana Auto Finance Corp. v. Federal Surety Co., 85 Mont. 149, 278 P. 116.)
Defendant contends that all statements found under the head "Warranted by the Assured" fall within the general rule stated, while plaintiffs insist that merely calling the statements "warranties" does not make them such, and that the clause of the policy above quoted, rendering it void for misrepresentation of material facts, together with the fact that the policy does not specifically designate the provisions which will render it invalid, brings the policy within the rule respecting "representations," citing section 8129, Revised Codes 1921. The section cited reads: "A policy may declare that a [4] violation of specified provisions shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy." Read in connection with the companion sections quoted below, this section clearly refers to provisions in a policy other than warranties.
Under the authorities cited, plaintiffs' position would be sound, were it not for the fact that our legislature has seen fit [5] to declare that "a statement in a policy, of a matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty" (sec. 8125, Rev. Codes 1921), and, in harmony with the general rule, "a breach of warranty * * * in its inception prevents the policy from attaching to the risk" (sec. 8130, Id.).
As to how far the general rule respecting warranties and the above-quoted statutory rule, based on the general rule, are modified by the following provisions: "An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind" (sec. 8091, Id.); "the violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind" (sec. 8128, Id.), we need not now determine, as here there was no omission to communicate information, i.e., the motor and serial numbers of the car, proving the falsity of the warranty as to the year in which the car was built, and, as will appear later, the warranties were material to the risk.
"A representation as to the age or year of manufacture of a [6] motor vehicle is generally deemed a material one, and an assured who has falsely stated such matters in his application, may be unable to collect insurance in case of damage by fire. Indeed, it has been held that the fact that the erroneous statement was made innocently will not aid the assured." (Huddy on Automobiles, 8th ed., 1139; Berry on Automobiles, 1570.) This is especially true when, as here, it is shown that a higher rate would have attached had the truth been known. ( Bennett v. Northwestern National Ins. Co., 84 Cal.App. 130, 257 P. 586.)
There is a respectable line of authorities, cited and commented upon in the above text-books, holding that, where the correct motor and serial numbers are given, but the insured innocently misstates the year of manufacture, and the insurer's agents had at hand means of readily ascertaining the year model from the correct information given, the insurer is charged with notice of the age of the car and is estopped to assert the misstatement as a defense. An examination of these decisions, however, discloses that the statements considered were usually construed as representations and not as warranties; thus in North British Mercantile Ins. Co. v. San Francisco Securities Corp., 30 Ariz. 599, 249 P. 761, on which plaintiffs' chief reliance is placed, the court declares the general rule as to warranties, but evades it by holding that, under the terms of the policy, although the statements are declared warranties, on construction of the entire policy, the statements made amounted only to representations. Arizona has no statutory provision such as ours, making statements respecting the person or thing insured express warranties; indeed, the only provision we have been able to find in that state on the subject is to the effect that the statements made in an application for a life insurance policy shall be deemed representations and not warranties.
Further, in the record before us, there is no showing that either the defendant company or its agent, if the company securing the application was agent for the defendant, had at hand or accessible such a chart as was described by the witness Culver. The manager of the automobile department of defendant company by deposition testified: "We had absolutely no other information than that contained in the application."
Under our statutes quoted and the facts disclosed at the [7] trial, the statement as to the year model of the automobile in question was a "material warranty" and its breach in its inception prevented the policy from attaching to the risk, in spite of the innocence of the insured and his agent, the Commercial Credit Company; their only recourse, if any, is against the Thurston Company, whose fraud on the sale of the car prevented them from collecting the insurance on proof of loss.
The judgment is reversed and the cause remanded to the district court of Hill county, with directions to dismiss the action.
MR. CHIEF JUSTICE CALLAWAY and ASSOCIATE JUSTICES GALEN, FORD and ANGSTMAN concur.