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CONTINENTAL WESTERN INS. CO. v. CLAY5/24/1991
The opinion of the court was delivered by
This is a declaratory judgment action wherein Continental Western Insurance Company (Continental) seeks to rescind, ab initio, a temporary automobile liability insurance binder issued to Mark Clay. The district court held that: (1) Clay made fraudulent misrepresentations in his application for coverage; (2) Continental had the right of rescission ab initio as to
Clay's claim; and (3) Continental's right of rescission does not extend to claims made by Michael D. Johnson, a passenger in the Clay vehicle who was injured in the accident giving rise to this litigation. Continental appeals from the district court's judgment denying rescission as to Johnson's claim.
The facts are not in dispute. On September 1, 1988, Clay applied to Kent O. Carpenter, a Continental agent, for a binder and policy of automobile liability insurance on his 1972 AMC Gremlin. The insurance application form was completed by Carpenter in response to questions asked of Clay. Clay asserted he: (1) had a valid Kansas driver's license; (2) had been involved in no accidents within the last three years; and (3) had not received any tickets in the same period of time. Clay signed the application under a printed statement which provided:
"I have read the above application and I declare that to the best of my knowledge and belief all of the foregoing statements are true, and that all of these statements are offered as an inducement to the Company to issue the policy for which I am applying."
In fact, (1) Clay's driver's license had been suspended since June 21, 1987; (2) Clay had been in an accident on December 15, 1986; and (3) Clay had been ticketed for two moving violations within the three-year period.
Carpenter could have declined to issue the binder and just forwarded the application to Continental. However, based upon the information supplied by Clay, he saw no reason to delay and issued the binder. Had Clay answered the questions previously mentioned truthfully, no binder would have been issued. In fact, Clay would not have been accepted for insurance under Continental's guidelines.
Clay was driving the Gremlin on September 3, 1988, when he was involved in an accident in Wilson County. Michael D. Johnson was a passenger in the vehicle at the time and was injured. Johnson has uninsured motorist coverage with Mid-Century Insurance Company.
On September 7, 1988, Continental ordered a copy of Clay's driving record. The true information on Clay's driving record was received on September 9 or the next workday. On September 15, 1988, Continental mailed a notice of cancellation to Clay (and Carpenter), effective October 18, 1988. Continental then filed
this action to rescind the binder. Mid-Century was permitted to intervene in the action because of its uninsured motorist coverage on Johnson. At the time of the judgment herein, Johnson had incurred medical expenses of $5,733.24 and had received $4,500 in personal injury protection benefits from Mid-Century.
There is really no issue before us as to the propriety of the district court's determinations (1) that Clay's misrepresentation was material and fraudulent, and (2) that Continental's common-law right of rescission as to Clay had not been abrogated by enactment of our "no-fault" insurance law. However, it is impossible to discuss the issue of whether the rescission applies to Johnson, an innocent third party, without some discussion of these matters.
Although not particularly helpful herein, American States Ins. Co. v. Ehrlich, 237 Kan. 449, 701 P.2d 676 (1985), deserves some mention as it appears t
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