Opinion
NO. 2014-CA-002063-MR
02-19-2016
CHARLES MICHAEL BROADDUS APPELLANT v. KENTUCKY NATIONAL INSURANCE COMPANY APPELLEE
BRIEF FOR APPELLANT: Sam Aguiar Robyn Smith Louisville, Kentucky ORAL ARGUMENT FOR APPELLANT: Sam Aguiar Louisville, Kentucky BRIEF FOR APPELLEE: Christopher P. O'Bryan Whitney R. Kramer Louisville, Kentucky ORAL ARGUMENT FOR APPELLEE: Christopher P. O'Bryan Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM NELSON CIRCUIT COURT
HONORABLE CHARLES C. SIMMS, III, JUDGE
ACTION NO. 13-CI-00637 OPINION
AFFIRMING BEFORE: DIXON, NICKELL, AND TAYLOR, JUDGES. TAYLOR, JUDGE: Charles Michael Broaddus brings this appeal from a December 8, 2014, summary judgment of the Nelson Circuit Court concluding that Kentucky National Insurance Company properly rescinded a motor vehicle insurance policy issued to Gary Aldridge and dismissing Broaddus' petitions for declaratory relief. We affirm.
On June 28, 2013, Broaddus was a passenger in a 2003 Kia Optima owned and operated by Brittany Jackson. On that date, Jackson negligently operated the Kia causing an accident in which Broaddus suffered physical injury. At the time of the accident, the Kia was insured with Kentucky National Insurance Company (National Insurance) through an automobile insurance policy issued to Jackson's father, Gary Aldridge. Jackson was an adult child who did not reside at her father's residence.
Shortly after the accident, National Insurance rescinded the insurance policy based upon a misrepresentation contained in the application for insurance coverage. According to National Insurance, Aldridge failed to disclose that he did not own the Kia and, in fact, answered in the negative a question on the insurance application specifically asking whether any third party owned any of the vehicles to be covered under Aldridge's policy. National Insurance viewed Aldridge's nonownership of the Kia as a material misrepresentation in the insurance application and rescinded the motor vehicle insurance policy. As National Insurance rescinded the insurance policy covering the Kia, it refused to provide any benefits to Broaddus.
In 2013, Broaddus filed a petition for declaratory relief against National Insurance and Aldridge in the Nelson Circuit Court. Broaddus claimed that National Insurance improperly rescinded the motor vehicle insurance policy covering the Kia. National Insurance answered and asserted that the company legally rescinded the insurance policy.
Broaddus subsequently filed a motion for summary judgment. Therein, Broaddus claimed that Aldridge made no material misrepresentation in the application of insurance, and, alternatively, if he had done so, Broaddus would, nonetheless, be entitled to benefits under the Kia's insurance policy as an innocent third party in accordance with the holding in Progressive Northern Insurance Company v. Corder, 15 S.W.3d 381 (Ky. 2000). Additionally, Broaddus asserted that National Insurance failed to give Aldridge twenty days notice before rescinding insurance coverage on the Kia, which was mandated by the language contained in the insurance policy. In its response to Broaddus' motion for summary judgment, National Insurance maintained that ownership of the Kia was a material misrepresentation made by Aldridge in the insurance application, thus authorizing the company to rescind the insurance policy in accordance with applicable law. National Insurance also argued that Progressive Northern, 15 S.W.3d 381, was inapplicable to the present controversy and relied upon York v. Kentucky Farm Bureau Mutual Insurance Company, 156 S.W.3d 291 (Ky. 2015) as dispositive. Under York, 156 S.W.3d 291, National Insurance asserted the Motor Vehicle Reparations Act (MVRA) did not mandate motor vehicle insurance coverage be extended to an innocent third party, like Broaddus, under the circumstances of this case.
National Insurance also filed a motion for summary judgment. It argued that rescission of the Kia's motor vehicle insurance policy was valid per Kentucky Revised Statutes (KRS) 304.14-110 based upon Aldridge's material misrepresentation as to ownership of the Kia in his application for insurance coverage. In his response, Broaddus argued that viewing the evidence in a light most favorable to him, the record demonstrated that the insurance agent, Sabe Oliver, in fact filled out the application for insurance coverage. Four days after filing his response, Broaddus also filed Aldridge's affidavit in the record below. In the affidavit, Aldridge affirmed that prior to securing motor vehicle insurance with National Insurance, he informed Oliver that the Kia was owned by his daughter, Jackson. Aldridge also averred that Oliver completed the insurance application on a computer while Aldridge was present. In particular, Aldridge stated in the Affidavit:
3. Sabe Oliver filled out the affiant's insurance application. The Affiant neither filled it out nor received an explanation from Sabe Oliver regarding the contents of the application.
4. Sabe Oliver had put a bunch of things into the computer, printed it out and said, "sign here," without further explanation.
. . . .
6. Affiant had informed Sabe Oliver, prior to insuring the KIA with his agency that he wanted to drive the KIA, which was his daughter's, back and forth to work and that the car needed insurance on it for him to do so. Oliver insured the vehicle for him with this knowledge.
. . . .
8. Affiant took out the Vision and [National Insurance] policies out [sic] on the Kia Optima because
he drove the vehicle quite a bit to work. He advised Sabe Oliver of the same.
. . . .
10. Brittany Jackson, at the time of the subject collision, was driving the KIA and affiant did not have any objections or problems with her driving it. Both she and affiant thought she was insured under the affiant's policy and both thought that the people injured by the collision would be covered.
11. On June 28, after Brittany and affiant spoke with Sabe Oliver, affiant asked Sabe if Brittany was insured while driving the KIA. He responded that she was and the car was, so long as Brittany had affiant's permission to drive it.
On December 8, 2014, the circuit court granted National Insurance's motion for summary judgment and dismissed Broaddus' petitions for declaratory relief on December 8, 2014. In its summary judgment, the circuit court initially determined that ownership of the Kia was "material either to acceptance of the risk, or to the hazard assumed by the insured" per KRS 304.14-110. Thus, the circuit court concluded that the insurance policy was subject to rescission because of the material misrepresentation in the application as to ownership of the Kia. Then, the circuit court held that Broaddus was not entitled to coverage as an innocent third party. The circuit court viewed York, 156 S.W.3d 291 as dispositive because the motor vehicle insurance policy covering the Kia was issued to a nonowner (Aldridge). This appeal follows.
Broaddus maintains that the circuit court improperly rendered summary judgment in favor of National Insurance. Summary judgment is proper where there exists no material issue of fact and movant is entitled to judgment as a matter of law. Kentucky Rules of Civil Procedure 56.03; Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476 (Ky. 1991). In relation to a summary judgment, all facts and inferences therefrom are to be viewed in a light most favorable to the nonmoving party. Id. Our review proceeds accordingly.
Broaddus specifically contends that the circuit court committed error by determining: (1) a material misrepresentation on the insurance application permitted rescission of the Kia's insurance policy by National Insurance, (2) Broaddus was not entitled to benefits pursuant to the Kia's insurance policy as an innocent third party under Progressive Northern, 15 S.W.3d 381, and (3) National Insurance did not violate the insurance policy by failing to give twenty days notice prior to rescinding same. We will address each contention seriatim.
MATERIAL MISREPRESENTATION ON
THE INSURANCE APPLICATION
In the insurance application, Kentucky National specifically included the following question:
With the exception of any encumbrances, are any vehicles not solely owned by and registered to the applicant?This question was answered "no." At that time, Aldridge did not own the Kia, but his adult daughter, Jackson, was the owner. Based upon these uncontroverted facts, we agree with the circuit court that Aldridge's nonownership of the Kia was "material either to acceptance of the risk, or the hazard assumed" by National Insurance under KRS 304.14-110. Thus, we conclude that there existed a material misrepresentation in the application pursuant to KRS 304.14-110.
Kentucky Revised Statutes 304.14-110 reads in relevant part:
All statements and descriptions in any application for an insurance policy or annuity contract, by or on behalf of the insured or annuitant, shall be deemed to be representations and not warranties. Misrepresentations, omissions, and incorrect statements shall not prevent a recovery under the policy or contract unless either:
. . . .
(2) Material either to the acceptance of the risk, or to the hazard assumed by the insurer[.]
Broaddus, nonetheless, argues that National Insurance improperly rescinded the insurance policy under KRS 304.14-110, because the insured (Aldridge) did not make a material misrepresentation in the insurance application; rather, the insurance agent, Oliver, made the material misrepresentation in the application. In his affidavit, Aldridge stated that he told Oliver the Kia was owned by Jackson and that he only needed motor vehicle insurance to drive the automobile. Aldridge also averred that he did not personally complete the insurance application but that Oliver had done so on a computer. Aldridge also admitted that he did not read the insurance application but did sign the application. Broaddus maintains that the material misrepresentation in the insurance application was not made by Aldridge but was, in fact, made by Oliver. Viewing the facts most favorable to Broaddus, he asserts that Oliver actually inserted false information in the application as to Aldridge's ownership of the Kia.
Our Court has held that an applicant who signs an insurance application is put on notice of its contents and is responsible for the information contained therein. Hornback v. Bankers Life Ins. Co., 176 S.W.3d 699 (Ky. App. 2005). In particular, the Court of Appeals recognized:
The court faced a similar situation in Commonwealth Life Ins . Co. v. Bruner, 299 Ky. 335, 185 S.W.2d 408 (1945). . . . While it was clear that the answers given by the applicant in the application were false, the applicant claimed that she did not read it before signing it. Nevertheless, the court held that the statements written in the application by the local agent were actually or constructively known to the applicant and that "she may not thereafter repudiate the answers in the application and recover on the policy." Id . at 410. See also Reserve Life Ins . Co. v. Thomas, 310 S.W.2d 267, 269-70 (Ky.1958). In short, whether they read the application or not, the Hornbacks are held to have actual or constructive knowledge of its contents. Further, by signing the application, the Hornbacks adopted the answers as their own. Thus, we conclude that the circuit court properly determined that the Hornbacks had made misrepresentations that were material to the insurer's acceptance of the risk and that there was no fact issue in this regard.Hornback, 176 S.W.3d at 704.
Under the law in this Commonwealth, Aldridge is charged with having constructive knowledge of the contents of the application and cannot now attempt to "repudiate the answers in the application and recover on the policy." See Hornback, 176 S.W.3d at 704 (quoting Com. Life Ins. Co. v. Bruner, 299 Ky. 335, 185 S.W.2d 408, 410 (1945)). Accordingly, we are of the opinion that the circuit court properly rendered summary judgment determining that Aldridge made a material misrepresentation as to ownership of the Kia in the insurance application, thus justifying National Insurance's rescission of the insurance policy.
INNOCENT THIRD PARTY
Broaddus also argues that National Insurance must provide him insurance benefits as an innocent third party under the MVRA in accordance with Progressive Northern, 15 S.W.3d 381. The circuit court viewed Progressive Northern, 15 S.W.3d 381, as inapplicable and believed York, 156 S.W.3d 291, to be controlling. Based upon York, 156 S.W.3d 291, the circuit court concluded that the MVRA did not mandate National Insurance to provide benefits to Broaddus. We shall undertake an analysis of both Progressive Northern, 15 S.W.3d 381 and York, 156 S.W.3d 291.
In Progressive Northern, 15 S.W.3d 381, Roy Stinnett, Jr., insured a motorcycle with Progressive Northern Insurance Company that he owned. On the insurance application, Roy was listed as the only driver. Later, Roy's son, Jason, was operating the motorcycle with Corder as a passenger. Both Jason and Corder were injured as a result of a single vehicle accident. Progressive learned that Jason was the only licensed motorcycle operator in the Stinnett family and sought to rescind the insurance policy based upon the material misrepresentation made on the application by Roy. Progressive cited to KRS 304.14-110 as authority. The Supreme Court held that Progressive could not rescind the insurance policy after the accident. The Court specifically concluded that "[r]escission of an insurance contract after an accident would strike at the heart of compulsory liability insurance . . . [under the MVRA]." Id. at 384. The Court noted that KRS 304.39-080(5) mandates that "every owner of a motor vehicle registered or operated in Kentucky [is] to provide continuously an insurance contract or other security for payment for basic reparations benefits and tort liabilities arising from the use of the vehicle." Id. at 383 (emphasis added). Hence, the Court held that Corder as an innocent third party could recover damages under the Stinnett insurance policy up to the maximum amount of liability coverage mandated by the MVRA.
In York, 156 S.W.3d 291, James Neeley was driving a 1994 Camero, and Angela Prewitt was a passenger. Neeley parked the Camero in a parking lot at a restaurant to socialize with friends. Adrian York was present and asked to drive the Camero. Neeley refused to give York permission to drive the Camero. Nevertheless, York entered the driver seat and drove away with Prewitt as a passenger. York wrecked the Camero, and Prewitt suffered injuries as a result. The Camero was insured by Kentucky Farm Bureau, and Kentucky Farm Bureau also provided an insurance policy to York's father, wherein York was listed as a named insured. Both insurance policies contained the same nonpermissive user exclusion. Under the nonpermissive user exclusion, liability coverage would not be provided if a person used a "vehicle without a reasonable belief that . . . [such person] was entitled to do so." Id. at 293 (citation omitted). Kentucky Farm Bureau contended that coverage to Prewitt was properly excluded as York was a nonpermissive user. Prewitt argued that as an innocent third party the MVRA mandated she be afforded minimal liability coverage and cited to Progressive Northern, 15 S.W.3d 381. The Supreme Court disagreed with Prewitt and upheld the nonpermissive user exclusion. The Court explained that Progressive Northern involved an insurance policy of an individual who:
[O]wned the motor vehicle involved in the accident. The MVRA mandates owners of motor vehicles to provide liability insurance with respect to that vehicle. KRS 304.39-080(5). In the instance case, Adrian York was not the owner of the vehicle involved in the accident, and did not even have permission to operate the vehicle. As such, we agree with the Court of Appeals in its holding that the language of KRS 304.39-080(5) regarding liability insurance on non-owned [sic] vehicles is merely permissive, as it reads any other person may provide liability insurance.York, 156 S.W.3d at 294 (citations omitted).
We believe that York, 156 S.W.3d 291 significantly narrowed the application of Progressive Northern, 15 S.W.3d 381. The Supreme Court in York, 156 S.W.3d 291, plainly held that minimal coverage will only be afforded to an innocent third party in cases where an insurance policy of an individual who owned the motor vehicle is involved. In this case, the insurance policy involved was issued to Aldridge, who was not the owner of the Kia. The ownership issue clearly distinguishes the application of Progressive Northern, 15 S.W.3d 381, to the facts now before this Court. This interpretation is also consistent with the policy and purpose of the MVRA as set out in KRS 304.39-010. Had Aldridge owned the Kia involved in the accident that was driven by his daughter, the outcome of this case would be different. However, we must agree with the circuit court that Broaddus was not entitled to insurance benefits as an innocent third party under Progressive Northern, 15 S.W.3d 381.
NOTICE
Broaddus next maintains that the policy language in the insurance policy restricted National Insurance's ability to rescind the policy for a material misrepresentation on the application and that National Insurance could only prospectively cancel the policy for a material misrepresentation in the application. Alternatively, Broaddus believes that National Insurance violated the terms of the insurance policy by failing to give Aldridge twenty days prior notice of its rescission of the insurance policy.
In the Kia insurance policy, the relevant policy language reads:
A. Cancellation
This policy may be cancelled during the policy period as follows:
1. The named insured shown in the Declarations may cancel by:
a. Returning this policy to us; or
b. Giving us advance written notice of the date cancellation is to take effect.
2. We may cancel by mailing to the named insured shown in the Declarations at the address shown in this policy:
a. At least 14 days notice:
(1) If cancellation is for nonpayment of premium; or
(2) If notice is mailed during the first 60 days this policy is in effect and this is not a renewal or continuation policy; or
b. At least 20 days of notice in all other cases.
3. After this policy is in effect for 60 days, or if this is a renewal or continuation policy, we will cancel only:
a. For nonpayment of premium; or
b. If your driver's license or that of:
(1) Any driver who lives with you; or
(2) Any driver who customarily uses "your covered auto";
has been suspended or revoked.
This must have occurred:
(1) During the policy period; or
(2) Since the last anniversary of the original effective date if the policy period is other than 1 year; or
The interpretation of an insurance policy presents an issue of law for the Court, and our review proceeds de novo. See Kemper Nat'l Ins. Cos. v. Heaven Hill Distilleries, Inc., 82 S.W.3d 869 (Ky. 2002).c. If the policy was obtain through material misrepresentation.
To begin, the terms "cancel" and "rescind" when used in conjunction with insurance policies have acquired recognized and particular meanings. Generally, it is said:
A rescission avoids the contract ab initio whereas a cancellation merely terminates the policy as of the time when the cancellation becomes effective. In other words, cancellation of a policy operates prospectively while rescission, in effect, operates retroactively to the very time that the policy came into existence.Progressive Northern, 15 S.W.3d at 383 (quoting 2 Couch on Insurance § 30:3 (3rd ed. 1996)).
Under the above quoted policy language, National Insurance was permitted to cancel the policy prospectively based upon a material misrepresentation by giving twenty days notice to Aldridge. However, we do not interpret the policy language as limiting National Insurance's ability to rescind the insurance policy without prior notice. The insurance policy is simply silent upon rescission. Rescission of an automobile policy is permitted in this Commonwealth when the insured makes a material misrepresentation in the application per KRS 304.14-110. State Farm Mut. Auto. Ins. Co. v. Crouch, 706 S.W.2d 203 (Ky. App. 1986). Therefore, we conclude that National Insurance was not required to give twenty days notice prior to its rescission of the Kia's insurance policy and that the insurance policy did not limit National Insurance's ability to rescind based upon a material misrepresentation in application.
For the foregoing reasons, the summary judgment of the Nelson Circuit Court is affirmed.
ALL CONCUR. BRIEF FOR APPELLANT: Sam Aguiar
Robyn Smith
Louisville, Kentucky ORAL ARGUMENT FOR
APPELLANT: Sam Aguiar
Louisville, Kentucky BRIEF FOR APPELLEE: Christopher P. O'Bryan
Whitney R. Kramer
Louisville, Kentucky ORAL ARGUMENT FOR
APPELLEE: Christopher P. O'Bryan
Louisville, Kentucky