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Robinson v. State Farm Mutual Automobile Insurnace Co.12/28/2000
ions in any application for an insurance policy or annuity contract, or in negotiations therefore, by or in behalf of the insured or annuitant, shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless either:
(a) Fraudulent; or
(b) Material either to the acceptance of the risk, or to the hazard assumed by the insurer; or
(c) The insurer in good faith would either not have issued the policy or contract, or would not have issued it at the same premium rate, or would not have issued a policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise. I.C. § 41-1811.
I.C. § 41-1811 was adopted in 1961. Prior to that time, the common law controlled material misrepresentations in a contract for insurance. At common law, if a party's manifestation of assent to contract was induced by either a fraudulent or a material misrepresentation by the other party, upon which the recipient is justified in relying, the contract is voidable by the recipient. See RESTATEMENT (SECOND) OF CONTRACTS § 164(a) (1981). A voidable contact exists where one or more parties have the power to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance. See Id. at § 7. Material misrepresentations permit the defrauded party to elect from three possible remedies: damages, rescission, or enforcement of the bargain against the fraudulent party according to the fraudulent party's representation of the bargain. See 12 Samuel Williston, Contracts § 1523, at 606-07 (3 rd ed. 1970); Queen City Farms v. Central Nat. Ins., 891 P.2d 718 (Wash. 1995).
Rescission of a contract is intended to place the parties in the positions they occupied prior to the contract and is available only when one of the parties has committed a material breach, which destroys the entire purpose for entering into the contract. See Crowley v. Lafayette Life Ins. Co., 106 Idaho 818, 821, 683 P.2d 854, 857 (1984). The party desiring to rescind a contract must, prior to rescinding, tender back to the other party any consideration or benefit received under the contract by the rescinding party. See id.; Gossett v. Farmers Ins. Co. of Washington, 948 P.2d 1264, 1274 (Wash. 1997); 17 Am. Jur.2d Contracts § 512 (1964); 17A C.J.S. Contracts § 439 (1963). These rules of the common law are in effect in Idaho unless modified by other legislative enactments. See I.C. § 73-116; Evans v. Twin Falls County, 118 Idaho 210, 215, 796 P.2d 87, 92 (1990).
I.C. § 41-1811 has codified the common law defense of fraud and misrepresentation in the insurance contract context and has limited its application. I.C. § 41-1811 describes the only circumstances in which a contract for insurance is voidable. However, nothing in I.C. § 41-1811 abrogates the common law requirement that the party seeking rescission must tender back any consideration or benefit received under the contract. The district court correctly construed the statute as one codifying common law rescission and therefore committed no error.
State Farm asserts that even if I.C. § 41-1811 is a rescission statute, Robinson received payments under the policy in excess of what she paid in premiums, making a tender of premiums back to her unnecessary. This argument is unpersuasive in light of the fact that State Farm's eventual payments on the policy occurred subsequent to conduc
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