Opinion
No. 1:02-cv-030
August 11, 2003
MEMORANDUM AND ORDER
Plaintiffs Jerry Dale Sosebee and his wife, Julie Sosebee, originally brought this breach of contract action in the Circuit Court of Hamilton County, Tennessee, to recover benefits under a homeowners insurance policy issued to them by defendant Allstate Insurance Company ("Allstate"). Plaintiffs presented claims to Allstate under the policy for three losses. Plaintiffs contend Allstate wrongfully denied their insurance claim and they are entitled to recover the "bad faith" penalty pursuant to TENN. CODE ANN. § 56-7-105(a), plus attorney's fees, costs, and prejudgment interest.
Allstate removed the case from state court invoking this federal district court's diversity jurisdiction pursuant to 28 U.S.C. § 1332. The matter presently before the Court is Allstate's motion for summary judgment to dismiss the plaintiffs' complaint under FED. R. CIV. P. 56. [Court File No. 7]. Allstate argues the insurance policy is void ab initio because Jerry Sosebee made a material misrepresentation in the application that increased Allstate's risk of loss.
After reviewing the record, the Court concludes the motion will be DENIED. There is a genuine issue of material fact in dispute whether Jerry Sosebee made a misrepresentation about the plaintiffs' loss history in the insurance application and the issue will have to be determined at trial by the jury. The Court reserves deciding whether the statement by Jerry Sosebee in the application increased Allstate's risk of loss.
I. Standard of Review
Summary judgment is appropriate where no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). In ruling on a summary judgment motion, the Court views the facts in the record and all reasonable inferences that can be drawn from those facts in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); National Satellite Sports, Inc. v. Eliadis Inc., 253 F.3d 900, 907 (6th Cir. 2001). The Court cannot weigh the evidence or determine the truth of any factual matter in dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
The moving party bears the initial burden of demonstrating that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To refute such a showing, the non-moving party must present some significant, probative evidence indicating the necessity of a trial for resolving a material fact in dispute. Celotex Corp., 477 U.S. at 322. A mere scintilla of evidence is not enough. Anderson, 477 U.S. at 252; McLean v. Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). The Court's role is limited to determining whether the record contains sufficient proof from which a rational jury could reasonably find for the non-moving party. Anderson, 477 U.S. at 248, 249; National Satellite Sports, 253 F.3d at 907.
II. Facts
The Court has reviewed the record in the light most favorable to the plaintiffs and makes the following findings of fact. Plaintiffs own a residence at 9115 Terrace Falls, Soddy Daisy, Tennessee. On July 21, 1999, Jerry Sosebee applied for a homeowners insurance policy with an Allstate agent, Michael Ashby ("Ashby"). As part of the application process, Ashby asked Jerry Sosebee whether he and his wife had any losses during the preceding five years.
The application contains a section with the following language: "5 YEAR LOSS HISTORY including losses at present and prior residences (List all losses by Theft, Fire, Wind, Hail, Water, Glass, C.P.L. including dog bites, Earthquake and Earth Movement)." Ashby read this language on the application to Jerry Sosebee, who answered that he and his wife had no losses. Ashby wrote the word "None" on the application. Jerry Sosebee signed the application and Allstate issued a homeowners policy to the plaintiffs.
Plaintiffs subsequently made claims to Allstate for insurance benefits under the policy regarding three alleged losses. The first loss was a small fire that occurred on July 9, 2001, in the crawl space under the house. The second loss was water damage resulting from the destruction of two toilets in an upstairs bathroom in the house on July 30, 2001. The third loss was fire damage in an upstairs bathroom that occurred on August 18, 2001.
During its investigation of the plaintiffs' insurance claims, Allstate discovered that the plaintiffs had suffered a theft of personal property at their residence at 9115 Terrace Falls Drive on May 19, 1999, two months prior to the plaintiffs making their application to Allstate for the homeowners policy. In May 1999, Jerry Sosebee was doing some construction or renovation work on the house at 9115 Terrace Falls Drive. He maintained a metal storage container or "job box" for his tools. On May 19, 1999, Jerry Sosebee made a complaint to the Sheriff's Department of Hamilton County, Tennessee, that an unknown person had broken into his storage container and stolen various tools. A deputy sheriff met with Jerry Sosebee and prepared an investigative report. Plaintiffs did not make an insurance claim for the May 19, 1999, theft loss.
There is no dispute that the plaintiffs suffered a theft of tools at their residence on May 19, 1999. Jerry Sosebee admits he did not disclose the theft to Allstate's agent, Ashby, when Jerry Sosebee applied to Allstate for the homeowners insurance policy on July 21, 1999. The key issue is whether Jerry Sosebee's failure to disclose the theft to Allstate in the application for insurance constitutes a misrepresentation that voids the insurance policy under TENN. CODE ANN. § 56-7-103. To resolve this issue, the Court must determine whether the terms "loss" and "loss history" in Allstate's application form are ambiguous and capable of more than one reasonable meaning.
Allstate contends Jerry Sosebee made a misrepresentation in the application when he answered that the plaintiffs had not suffered a loss within the preceding five years. Allstate argues that "loss" and "loss history" mean any and all losses, regardless of whether the plaintiffs made a claim to an insurance company for insurance coverage on the loss. In other words, Allstate asserts that the plaintiffs' theft loss on May 19, 1999, should have been disclosed by the plaintiffs in the application for insurance even though they did not make an insurance claim for the theft loss.
In response, the plaintiffs contend Jerry Sosebee did not make a misrepresentation to Allstate. Plaintiffs argue that when Jerry Sosebee applied to Allstate for the policy, he believed and assumed that the terms "loss" and "loss history" meant only claims made to an insurance company for a loss. When he answered Allstate's question whether the plaintiffs had suffered any losses during the preceding five years, Jerry Sosebee thought Allstate was only inquiring about losses where the plaintiffs had made claims for insurance coverage. [Court File No. 13, Affidavit of Jerry Sosebee]. Plaintiffs contend Jerry Sosebee truthfully answered on the application that they did not have any prior losses because the plaintiffs did not make an insurance claim for the theft of tools that occurred on May 19, 1999.
III. Analysis
The substantive law of Tennessee governs this case where the Court's diversity jurisdiction is invoked pursuant to 28 U.S.C. § 1332. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); Talley v. State Farm Fire and Cas. Co., 223 F.3d 323, 326 (6th Cir. 2000); Jandro v. Ohio Edison Co., 167 F.3d 309, 313 (6th Cir. 1999). This Court is required to follow and apply Tennessee law in accordance with the controlling decisions of the Supreme Court of Tennessee. Talley, 223 F.3d at 326; C H Entertainment, Inc. v. Jefferson County Fiscal Court, 169 F.3d 1023, 1025 (6th Cir. 1999); Northland Ins. Co. v. Guardsman Products, Inc., 141 F.3d 612, 617 (6th Cir. 1998); Monette v. Am-7-7 Baking Co., Inc., 929 F.2d 276, 280 (6th Cir. 1991). If the Supreme Court of Tennessee has not addressed a particular issue, then this Court must determine from all available data what the Supreme Court of Tennessee would decide if it was faced with the same issue. Zeigler v. IBP Hog Market, 249 F.3d 509, 517 (6th Cir. 2001); Talley, 223 F.3d at 327-28; Orchard Group, Inc. v. Konica Medical Corp., 135 F.3d 421, 427 (6th Cir. 1998); Monette, 929 F.2d 280-81.
TENN. CODE ANN. § 56-7-103 provides:
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.
Allstate bears the burden of establishing its affirmative defense of misrepresentation under TENN. CODE ANN. § 56-7-103. Tapco Underwriters, Inc. v. Bragg, 60 F.3d 829 (Table, text at 1995 WL 399065, at **2 (6th Cir. July 6, 1995)); Howell v. Colonial Penn. Ins. Co., 842 F.2d 821, 822 (6th Cir. 1987) (per curiam); McDaniel v. Physicians Mut. Ins. Co., 621 S.W.2d 391, 393 (Tenn. 1981); Womack v. Blue Cross and Shield, 593 S.W.2d 294, 295 (Tenn. 1980). To void the insurance policy based on the defense of misrepresentation, Allstate is required to prove two essential elements. First, Allstate must prove that Jerry Sosebee's answer to the question about loss history on the application was false. Second, Allstate must prove that the misrepresentation was material within the meaning of § 56-7-103. Certain Underwriters At Lloyd's Subscribing To Policy No. LTP000034 v. Sanders, 225 F.3d 658 (Table, text at 2000 WL 977354, at **3 (6th Cir. July 5, 2000)); Howell, 842 F.2d at 822; Gatlin v. World Service Life Ins., 616 S.W.2d 606, 608 (Tenn. 1981); Womack, 593 S.W.2d 294.
A. Misrepresentation
Whether the insured's answer on an insurance application is a misrepresentation is ordinarily an issue of fact to be determined by the jury. The issue can be decided by the Court if reasonable minds can only reach but one conclusion whether the answer is true or false. Tapco, 1995 WL 399065, at **2; Howell, 842 F.2d at 823; McDaniel, 621 S.W.2d at 393; Gatlin, 616 S.W.2d at 608; Womack, 593 S.W.2d at 295.
Allstate's motion for summary judgment will be denied because there is a genuine issue of material fact in dispute whether Jerry Sosebee made a misrepresentation about loss history. In determining whether a misrepresentation exists under TENN. CODE ANN. § 56-7-103, a factfinder must consider what the insurer asked, required, or expected the applicant to represent. Howell, 842 F.2d at 823; Gatlin, 616 S.W.2d at 608. If the language in the application is ambiguous, the misrepresentation issue must be submitted to the jury at trial. Certain Underwriters At Lloyd's, 2000 WL 977354; Tapco, 1995 WL 399065; Womack, 593 S.W.2d at 296-97. A contractual term is ambiguous under Tennessee law where it is "of uncertain meaning and may be fairly understood in more ways than one." Tapco, 1995 WL 399065, at **2 (quoting Farmers-Peoples Bank v. Clemmer, 519 S.W.2d 801, 805 (Tenn. 1975)); see also Certain Underwriters At Lloyd's, 2000 WL 977354, at **3.
Based on Tapco, 1995 WL 399065, which involved Tennessee law, this Court concludes that the terms "loss history" and "losses," as used in Allstate's application form, are ambiguous and reasonably capable of two different meanings and interpretations. These terms can reasonably be interpreted to mean either: (1) only losses where claims are filed with an insurer; or (2) all losses, regardless of whether claims for the losses are made to an insurer. Consequently, Allstate is not entitled to summary judgment and the issue of misrepresentation must be decided by the jury at trial. Id.
As the drafter of the language, Allstate could have more precisely tailored the application to elicit the specific information it needs. Allstate assumed the risk of receiving various different responses when it used the general terms "loss history" and "losses" without clarifying and adequately explaining the specific information it desired. Certain Underwriters At Lloyd's, 2000 WL 977354, at **3; Tapco, 1995 WL 399065, at **3. Since Allstate did not clearly specify the loss history information it wanted, Jerry Sosebee's subjective view and answer to the loss history portion of the application is not necessarily a false representation. Cf. Certain Underwriters At Lloyd's, 2000 WL 977354, at **4; McDaniel, 621 S.W.2d 391.
In sum, Allstate is not entitled to summary judgment on the issue of misrepresentation because the language used by Allstate in its application is ambiguous and reasonable minds can differ on the veracity of Jerry Sosebee's statement about loss history.
B. Materiality of Misrepresentation
Allstate can show a misrepresentation is material in two different ways under § 56-7-103. A misrepresentation is material either if it is made with actual intent to deceive or if the matter represented increases the risk of loss to the insurer. Certain Underwriters At Lloyd's, 2000 WL 977354. at **3; Howell, 842 F.2d at 822; State Farm General Ins. Co. v. Wood, 1 S.W.3d 658, 661 (Tenn.Ct.App. 1999); Gatlin v. World Serv. Life Ins. Co., 616 S.W.2d 606, 608 (Tenn. 1981); Womack, 593 S.W.2d at 295. If a misrepresentation increases the risk of loss to the insurer, the policy is voidable under § 56-7-103 even if the misrepresentation was innocently made. Certain Underwriters At Lloyd's, 2000 WL 977354, at **3; Howell, 842 F.2d at 822-23.
The issue of whether the misrepresentation is made with intent to deceive is one for the jury. Howell, 842 F.2d at 823; Womack, 593 S.W.2d at 297.
Allstate contends that the alleged misrepresentation by Jerry Sosebee on the application increased Allstate's risk of loss. Once it has been determined that a misrepresentation exists, it is a question of law for the Court to decide whether a misrepresentation increases the risk of loss to the insurer. Howell, 842 F.2d at 823-24; Spellmeyer v. Tennessee Farmers Mut. Ins. Co., 879 S.W.2d 843, 846 (Tenn.Ct.App. 1993); Sine v. Tennessee Farmers Mut. Ins. Co., 861 S.W.2d 838, 839 (Tenn.Ct.App. 1993); Broyles v. Ford Life Insurance Co., 594 S.W.2d 691, 693 (Tenn. 1980); Womack, 593 S.W.2d at 295. A misrepresentation increases the risk of loss when it is of such importance that it naturally and reasonably influences the insurer's judgment in making the insurance contract. Howell, 842 F.2d at 824; Bagwell v. Canal Ins. Co., 663 F.2d 710, 712 (6th Cir. 1981); Wood, 1 S.W.3d at 662; Broyles, 594 S.W.2d at 693.
It is unnecessary to find that the policy would not have been issued had the truth been disclosed. For a misrepresentation to increase the risk of loss, it is sufficient if the insurer was denied information which it sought in good faith and which was deemed necessary to an honest appraisal of insurability. Howell, 842 F.2d at 824; Wood, 1 S.W.3d at 662; Loyd v. Farmers Mut. Fire Ins. Co., 838 S.W.2d 542, 545 (Tenn.Ct.App. 1992); Johnson v. State Farm Life Ins. Co., 633 S.W.2d 484, 488 (Tenn.App. 1981).
At this time, the Court does not reach the question whether the answer given by Jerry Sosebee on the application concerning loss history increased Allstate's risk of loss. Before the Court can address the increased risk of loss question, Allstate must first establish there was a misrepresentation on the application. Gatlin, 616 S.W.2d at 608. The Court reserves ruling whether there was an increased risk of loss to Allstate until it has heard the evidence at trial.
Accordingly, Allstate's summary judgment motion [Court File No. 7] is DENIED.
SO ORDERED.