The National Mutual Insurance Company v. Jo Ivory Polk

IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

May 6, 2002 On-Briefs

THE NATIONAL MUTUAL INSURANCE COMPANY v. JO IVORY POLK

A Direct Appeal from the Circuit Court for Shelby County

No. 91569 The Honorable Rita L. Stotts, Judge

No. W2001-01555-COA-R3-CV - Filed July 9, 2002

This is a declaratory judgment action brought by an insurer seeking to void a property

insurance policy for alleged misrepresentation in the application for the policy. The insured filed

a counter claim seeking recovery under the policy. The trial court granted the insurance company’s

motion for summary judgment and declared the policy void ab initio. We reverse and remand.

Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Circuit Court Reversed and

Remanded

W. FRANK CRAWFORD , P.J., W.S., delivered the opinion of the court, in which ALAN E. HIGHERS,

J. and DAVID R. FARMER , J., joined.

Jo Ivory Polk, Pro Se

James F. Kyle, Karen M. Campbell, Memphis, For Appellee, The National Mutual Insurance

Company

OPINION

The dispute in this case centers on an application for a renter’s insurance policy. On April

17, 1997, Defendant/Appellant Jo Ivory Polk (“Ms. Polk” or “Insured”) applied for insurance

through The Financial Trust Insurance Agency will its agent, Willie Artison (“Mr. Artison”).

Although Ms. Polk signed the application (“Application”), she left several sections unanswered,

including a section entitled “Loss history.” Mr. Artison, the agent who helped Ms. Polk complete

the application, testified at trial that he later wrote the word “None” in the box entitled “Description

of loss” in the “Loss history” section. Mr. Artison further testified that the underwriter, Coastal

Marketing (“Coastal”), later checked the “No” box after a question which read “any losses during

the last 3 years?”1

In response to Coastal’s request, Ms. Polk provided appraisals for $8,436.00 in jewelry and

$627.00 in fine art. Plaintiff/Appellee National Mutual Insurance Company (“National Mutual”)

then issued policy number 462021-0 (“Policy”), effective from April 23, 1997 to April 23, 1998.

National Mutual reviewed the Policy within the first sixty days. As part of this review, National

Mutual requested and received a credit report on Ms. Polk. Because the credit check yielded a low

score, National Mutual, acting within the terms of the policy, decided to cancel the policy. National

Mutual sent a cancellation letter to Ms. Polk on June 17, 1997, explaining that the Policy would be

cancelled effective July 2, 1997.

On June 30, 1997, two days before the cancellation date, Ms. Polk reported a theft loss of

$33,300.00 which she said occurred on June 29, 1997. Ms. Polk claimed that a number of items

were stolen from her home, including jewelry and eighteen oil paintings. At that time, National

Mutual designated any loss exceeding $25,000.00 as a “large loss,” and referred the claim to its

Special Investigations Unit. At trial, John E. Nall, Director of the Special Investigations Unit,

testified that he discovered a claim had been filed with Allstate Insurance Company (“Allstate”) on

Ms. Polk’s behalf in April of 1995.

According to Judith Beaman, a former claims adjuster for Allstate, Lonnie Brown, Ms.

Polk’s former husband, reported a loss on January 31, 1995 involving the disappearance of jewelry.2

National Mutual contends that Ms. Polk had a duty to report this loss on the Application. National

Mutual insists that this omission is a material misrepresentation which voids the insurance policy.

Ms. Polk, on the other hand, alleges that she had no knowledge of the Allstate claim. Rather,

she insists that she mentioned the disappearance of the jewelry to her husband during a telephone

conversation, and that the loss actually occurred in September or October of 1993, while she and her

husband were living apart. Although the record indicates that she was mailed replacement rings at

some point in 19953, Ms. Polk claims to have had no knowledge that her husband had filed an

insurance claim with Allstate on her behalf. Ms. Polk explains that she made no misrepresentation

because the insurance agent or underwriter completed the Application and the information contained

in the Application was truthful.

1

The parties do not appear to dispute the fact that any information provided on the application regarding loss

history was filled in b y either M r. Artiso n or Coastal.

2

At the time the Allstate claim was filed, Ms. Polk was married to Lonnie Brown. Both she and her husband

were insureds under an Allstate homeowner’s policy.

3

The parties dispute w hen M s. Polk receiv ed the rep lacem ent rings.

-2-

National Mutual filed a complaint for declaratory judgment on November 11, 1997. Ms.

Polk filed an amended answer and counterclaim on March 17, 1998. Although a jury heard

testimony in the case, the trial court later dismissed the jury prior to completion of the trial.4 After

dismissing the jury, the trial court ultimately granted summary judgment in favor of National Mutual

on March 30, 2001.

Ms. Polk, acting pro se, appeals, and presents the following issues for review: (1) Whether

the required case or controversy existed between the parties at the time Insurer filed its Complaint

for Declaratory Judgment; (2) Whether the Insurer is chargeable with, or legally responsible for, the

responses upon which it relies as misrepresentations in the application for the subject insurance to

avoid its obligations under the subject policy; (3) Whether Insurer can rely upon alleged

misrepresentations in the application to avoid its obligations under the subject policy; (4) Whether

the Insurer has breached the subject contract of insurance; (5) Whether Insurer’s failure to pay

Insured’s claim constitutes bad faith; (6) Whether the trial court erred in excluding some of Insured’s

Requests for Admissions; (7) Whether the trial court erred in denying Insured’s Motion in Limine;

(8) Whether the trial court erred in granting summary judgment in favor of Insurer; (9) Whether

Insurer’s conduct in this case constitutes unfair and deceptive trade practices under applicable

Tennessee statutes; and (10) Whether the issue of unfair and deceptive trade practices was tried by

express or implied consent of the parties and should be treated in all respects as if it had been raised

in the pleadings. For the following reasons, we hold that the trial court improperly granted National

Mutual summary judgment in this case.

Because we hold that summary judgment was improper in this case, we will only address the

issues of whether the required case or controversy existed between the parties, and whether the trial

court properly granted summary judgment in favor of National Mutual.

We begin by addressing the threshold issue of whether the trial court had jurisdiction over

Insurer’s Complaint for Declaratory Judgment. The Tennessee Declaratory Judgment Act, T.C.A.

§ 29-14-101, et seq. provides, in relevant part:

§ 29-14-103. Construction of law; instruments

Any person interested under a deed, will, written contract, or

other writings constituting a contract, or whose rights, status, or other

legal relations are affected by a statute, municipal ordinance, contract,

or franchise, may have determined any question of construction or

validity arising under the instrument, statute, ordinance, contract, or

franchise and obtain a declaration of rights, status or other legal

relations thereunder.

4

This case presents a rather bizarre procedural posture which we feel has no particular bearing o n this appe al.

-3-

T.C.A. § 29-14-103 (2000). An insurance policy is a contract, and the scope of a policy’s coverage

is an issue of law. See, e.g., Merrimack Mut. Fire Ins. Co. v. Batts, 59 S.W.3d 142, 147 (Tenn. Ct.

App. 2001). Therefore, the validity of an insurance contract is the proper subject matter of a

declaratory judgment action. See id.

Although the validity of the contract in question was properly before the trial court, we

believe this case was not appropriate for summary judgment. A motion for summary judgment

should be only be granted when the movant demonstrates that there are no genuine issues of material

fact and that the moving party is entitled to a judgment as a matter of law. Tenn. R. Civ. P. 56.04.

The party moving for summary judgment bears the burden of demonstrating that no genuine issue

of material fact exists. See Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997). On a motion for

summary judgment, the court must take the strongest legitimate view of the evidence in favor of the

nonmoving party, allow all reasonable inferences in favor of that party, and discard all

countervailing evidence. See id.

In this case, National Mutual relies upon T.C.A. § 56-7-103 (2000) for the proposition that

its contract with Ms. Polk was void ab initio because she misrepresented her prior loss history in her

insurance application. That statute provides:

§ 56-7-103. Misrepresentations

No written or oral misrepresentation or warranty therein made

in the negotiations of a contract or policy of insurance, or in the

application therefor, by the insured or in the insured's behalf, shall be

deemed material or defeat or void the policy or prevent its attaching,

unless such misrepresentation or warranty is made with actual

intent to deceive, or unless the matter represented increases the risk

of loss.

Id. (emphasis added). Under this statute, an insurer may void a contract for insurance only where

a misrepresentation is made: (1) with actual intent to deceive, or (2) where the misrepresentation

increases the insurer’s risk of loss. Under this “increase of risk of loss” situation, no actual intent

to deceive is required, and determination of such an increase is a matter of law for the court to

decide. See, e.g., Lane v. Travelers Indem. Co., 499 S.W.2d 643, 647 (Tenn. Ct. App. 1973).

This Court has noted that, in order to avoid coverage based upon T.C.A. § 56-7-103, “the

insurer must first prove a misrepresentation.” Reeves v. Granite State Ins. Co., No. 01A01-9807-

CH-00379, 1999 WL 772637, at *9 (Tenn. Ct. App. 1999). An insurer must first prove that the

insured had knowledge of the misrepresentation, or was under a duty to disclose information, but

failed to do so. See id. As such, the determination of whether the insured made a misrepresentation

is an issue of fact. See id.

-4-

[F]or a question of fact to exist, reasonable minds must be able to

differ over whether some alleged occurrence or event did or did not

happen. Conatser v. Clarksville Coca-Cola Bottling Co., 920

S.W.2d 646, 647 (Tenn.1995); Harrison v. Southern Ry. Co., 31

Tenn.App. 377, 387, 215 S.W.2d 31, 35 (1948). If reasonable minds

could justifiably reach different conclusions based on the evidence at

hand, then a genuine question of fact exists. Louis Dreyfus Corp. v.

Austin Co., 868 S.W.2d 649, 655-56 (Tenn.Ct.App.1993).

Davis v. Campbell, 48 S.W.3d 741, 747 (Tenn. Ct. App. 2001).

The determination of whether Ms. Polk made a misrepresentation on the Application is,

arguably, a close question. However, taking all inferences in favor of Ms. Polk, we believe that

reasonable minds could differ over whether she had a “loss” within three years of applying for

renter’s insurance with National Mutual.

Although the agent for Allstate testified that Ms. Polk had spoken with her regarding the

filing of the claim, Ms. Polk testified that her husband filed the claim without her knowledge. The

record also contains conflicting evidence regarding when the actual disappearance of the jewelry,

or “loss,” occurred. Ms. Polk claims the jewelry was lost prior to the three-year period, and yet the

record indicates that Allstate paid a claim for the loss in 1995.5 The check which Allstate issued to

cover the loss in question does indicates that Ms. Polk was one of the insureds under the Allstate

policy, but the check is payable to the jewelry store which replaced the lost items and not to

Allstate’s insureds. The resolution of these material issues of disputed fact is for a jury to decide.

For the foregoing reasons, we reverse the order of the trial court granting summary judgment

in favor of Plaintiff/Appellee National Mutual. This case is remanded to the trial court for further

proceedings consistent with this opinion. Costs of this appeal are assessed to the Plaintiff/Appellee,

National Mutual Insurance Company.

__________________________________________

W. FRANK CRAWFORD, PRESIDING JUDGE, W.S.

5

In this regard, we note that the parties appear to treat the term s “claim ” and “loss” differently, and that this

confusion adds to the factual dispute surrounding any alleged misrepresentations Ms. Polk made on the Application.

-5-