Cole v. Calaway

In these two actions, consolidated for trial and on appeal, plaintiffs and respondents Douglas Arthur Cole and John Meacoek, individually and as representatives of Underwriters at Lloyd’s London subscribing certificates LC-17341, LC-20852 and LC-22530 respectively, brought this action in declaratory relief against defendant and appellant A. A. Calaway, a medical doctor (hereinafter referred to as defendant) et al. to declare the rights and duties of the respective parties under said certificates and to declare them null and void under certain claimed breaches of warranty by defendant in misrepresenting or concealment of facts in his application to obtain insurance in reference to malpractice coverage through Pacific Marine Insurance Agency (hereinafter referred to as Pacific). A copy of the application or “proposal form” and certificates of coverage were attached to the amended complaint. It alleged generally that Pacific was a corporation duly organized and existing under the laws of California and authorized to carry on business as a “surplus line broker”; and authorized to enter into and execute the certificates of insurance described on behalf of plaintiffs. The proposal form for each of the three policies for three successive annual periods of coverage from December 15, 1950, to December 15, 1953, and signed by de

Defendant answered and claimed that the proposal form was filled out by the insurance agent for Pacific and that defendant signed it without reading it. He denied he wilfully made any false statements with the intent of inducing plaintiffs to issue said certificates. He admitted he then knew of the four malpractice suits which had previously been filed against him, as alleged, but denied generally the other allegations of the amended complaint. He admitted he was served on July 3, 1953, with notice of rescission and that plaintiffs tendered the premium paid but claims he returned it. By way of affirmative defense he alleged that on or about February 5,1953, plaintiffs became aware of and had full knowledge of these several claims and/or lawsuits filed against him and that notwithstanding such knowledge on their part, they gave no notice of rescission of said certificates to defendant until July 3, 1953. It is contended that plaintiffs waived said

The court found generally that plaintiffs were underwriters authorized to engage in the insurance business at Lloyd’s London; that Pacific was licensed in this state to carry on business as a surplus line broker and authorized to enter into and execute the certificates of insurance on behalf of plaintiffs, “subject to the rules and regulations of plaintiffs”; that defendant was a practicing physician and on December 13, 1950, signed the completed “proposal form and declaration for malpractice insurance,” and submitted it to the agent of Pacific, requesting the issuance of a policy; that it is untrue that the soliciting agent was an agent of plaintiffs, and untrue that Pacific was the agent of plaintiffs except to the extent specifically authorized. It then found that defendant, at the time of the application, knew that four lawsuits had been filed against him alleging acts of malpractice and did not disclose them, and that if disclosed plaintiffs would not have issued the insurance certificates; that Pacific had no authority to issue said certificates had such information been disclosed, without having first submitted the proposal to plaintiffs, and that plaintiffs relied solely upon the warranties of defendant ; that plaintiffs tendered the $169.28 premium paid on the policy to defendant, who refused it, and plaintiffs deposited said sum with the county clerk, subject to the order of the court; that there was a notice of rescission of the certificates of insurance given on July 3, 1953, and, due to the breach of warranty, no liability of plaintiffs attached to the risk and the certificates were, accordingly, void from their inception; that there was no unreasonable delay in giving the notice of rescission and that the affirmative defenses claimed by defendant were untrue. Judgment was entered accordingly.

The main complaint is that these findings are not supported by the evidence in this, that the finding as to the limitation of agency of Pacific had no evidentiary support and is an indefinite conclusion.

The original “proposal form” was attached to and made a part of the certificate of insurance issued. The vice president of Pacific testified that Lloyd’s London is a nonadmitted

¡Defendant claims that the terms of the policy and certificate give Pacific a greater authority because it recites that the

In defendant’s closing brief his counsel states that this appeal is not based on any finding that Pacific had no authority to issue a policy of malpractice insurance wherein previous malpractice claims against doctors have been disclosed, but on the fact that the plaintiffs did not rescind promptly after having knowledge of any prior malpractice claims. We will therefore not further labor the point but will consider it under that claim.

It is contended that plaintiffs, through Pacific and its agent, learned of three of the four previous lawsuits against defendant on February 6, 1953; that accordingly plaintiffs did not rescind promptly, were guilty of laches in giving notice of rescission, waived their right to, and were estopped from rescinding, and that the findings should be corrected accordingly, citing section 1691 of the Civil Code; Gedstad v. Ellichman, 124 Cal.App.2d 831 , 835 [ 269 P.2d 661 ]; and authorities cited therein to the effect that acting promptly is a condition of one’s right to rescind, and a delay of more than one month in serving notice of rescission requires explanation, citing J. Frank & Co. v. New Amsterdam Cas. Co., 175 Cal. 293 , 295 [ 165 P. 927 ].

The facts giving rise ■ to the contentions here raised are that Pacific received notice of the claim by defendants Perez et al. on December 9, 1952, respecting some contemplated action against defendant for alleged malpractice, and on January 30,1953, notice of suit was received. An independent adjuster in Fresno was appointed to investigate the claim. When called as a witness he testified he called defendant on the telephone about the Perez claim and after relating the facts about it defendant said something in reference to other claims. Apparently the adjuster had defendant sign a statement dated January 5, 1953, about the Perez claim, in which he also stated:

“Prior to the hereinafter described occurrence a claim was made against me during 1950 or 1951 because of a broken leg suffered by the colored baby born by Caesarian Section. I do not remember the exact details, but my recollection is that the insurance company covering me for malpractice made a contribution of some $500.00, the company covering the hospital having paid the remainder of the settlement. On another occasion, about ten years ago, Ray Carter, a local attorney, filed a suit for $50,000.00 on a case involving a boy with a ruptured appendix. This case was tried and a verdict rendered in my favor.” (This still leaves one lawsuit which defendant never did disclose.)

It appears that thereafter considerable investigation was conducted in reference to witnesses and the possible liability of the defendant on said claim. On April 10, 1953, the adjuster forwarded his report to Pacific and Pacific forwarded it to its adjuster in San Francisco who informed the Fresno adjuster that they were obliged to report the matter to Lloyd’s Underwriters to be reviewed by Messrs. Mendes and Mount, in New York. This letter read in part: “. . . the record above indicates a breach of warranty, however, we are sure that no fraud was intended either by the insured or by . . . the agent in this case.- In view of the amount of our exposure, however, we recommend that a declaratory judgment action be filed.” On April 30, 1953, Pacific received advice from Lloyd’s London informing Pacific it had received transmittal slip dated April 1, 1953, and adjuster’s report advising that the claim had been referred to Mendes and Mount. On June 16th, Mendes and Mount wired the Fresno adjuster that “in view of possible misrepresentations make no commitment to assured or client Perez.” On July 1st, 1953, after considerable correspondence and investigation, Mendes and Mount wired Pacific that Underwriters authorized rescission action and premium refund. Thereafter, on July 31, 1953, this action was filed. The point is that defendant claims plaintiffs were notified through their duly authorized agent, the adjuster, of at least three prior malpractice claims and/or suits by virtue of the letter or statement signed by defendant on February 5, 1953, and by the original proposal form, and therefore plaintiffs were, as a matter of law, charged with such knowledge as of that day; that accordingly they failed to thereafter promptly rescind, citing such authority as Federal Life Ins. Co. v. Cary, 20 Cal.App.2d 257 , 259 [ 67 P.2d 129 ].

‘ ‘ The question of laches is one for the determination of the trial court and its conclusion thereon will not be set aside by an appellate court, if such conclusion finds substantial support in the evidence. . . .

“It is not possible to designate a definite period of time within which a party must give notice of rescission of a contract because of misrepresentation, fraud, etc., but the facts peculiar to each case are determinative thereof.” (See also Hunt v. L. M. Field, Inc., 202 Cal. 701 , 705 [ 262 P. 730 ].)

Section 330 of the Insurance Code defines “concealment” as “Neglect to communicate that which a party knows, and ought to communicate ...” And this is true whether the concealment is intentional or unintentional. (Ins. Code, § 331; Telford v. New York Life Ins. Co., 9 Cal.2d 103 [ 69 P.2d 835 ]; Mirich v. Underwriters at Lloyd's London, 64 Cal.App.2d 522 [ 149 P.2d 19 ].) Under section 449 of the Insurance Code a breach of warranty without fraud merely exonerates an insurer from the time it occurs, or where the warranty is broken in its inception, prevents the policy from attaching to the risk. Section 650 of the Insurance Code provides that “Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this part such right may be exercised at any time previous to the commencement of an action on the contract.”

It does not appear that there is any inconsistency

It is true that an insurance company, like any other contracting party, may waive provisions placed in a policy solely for its own benefit and may, by its conduct, be estopped from asserting defenses which might otherwise be available. (J. Frank & Co. v. New Amsterdam Cas. Co., 175 Cal. 293 , 295 [ 165 P. 927 ].) The findings of the trial court that plaintiffs were not estopped from asserting the defense of concealment, that there was no waiver of the provisions of the policy, and no unreasonable delay in effecting the rescission are supported by the evidence. The question was a matter for the determination of the trial court and not one of law. (Fabian v. Alphonzo E. Bell Corp., 55 Cal.App.2d 413 , 415 [ 130 P.2d 779 ]; Gedstad v. Ellichman, 124 Cal.App.2d 831 , 835 [ 269 P.2d 661 ].)

Judgment affirmed.

Barnard, P. J., and Mussell, J., concurred.