Mirich v. Underwriter's at Lloyd's London

Plaintiff recovered a judgment against William E. Balsinger for malpractice in the sum of $3,850, of which amount she was able to collect only $313. Dr. Balsinger was insured by defendant herein under a policy which ran in favor of any person who might obtain judgment against him within its indemnity provisions. Plaintiff brought the present suit on the policy to collect the unpaid amount of her judgment. The company in its defense alleged that Dr. Balsinger had obtained the policy by means of false statements in his application and that it had been rescinded by the company for fraud, concealment and misrepresentation. Upon the trial the court made conflicting findings upon this defense but rendered judgment for plaintiff for the balance of her judgment against Dr. Balsinger. Defendant made a motion under section 663 of the Code of Civil Procedure for the entry of another and different judgment on the findings. In ruling upon this motion the court ordered stricken from the findings all conclusions of law, and amended the conclusions of law to call for a judgment in favor of

The first question in order is whether the judgment is sustained by the findings. The case hinged upon the defense that the policy had been rescinded for fraud, concealment, and misrepresentation. For brevity we shall refer to it as the defense of fraud and as embracing unintentional as well as intentional concealment. There is an irreconcilable conflict between general findings on the issue of fraud and the findings as to specific facts bearing upon the alleged fraud. The court found specifically that Dr. Balsinger signed an application for the policy, reading in part as follows: “12. I have not been sued or paid any sums for claims made against me for malpractice, error or mistake except as follows : 1 claim—7 yrs ago—U. S. F. & G. . . . 15. Remarks: The Doctor remodeled a woman’s nose—and told her to return for treatment, she did not and was dissatisfied with the work. She then sued—and case was settled out of court for $200.00.” It was found that before the application was signed, Dr. Balsinger had been sued for malpractice three times in Illinois, three times in the Superior Court of Los Angeles County, and once by cross-complaint in the Municipal Court of the City of Los Angeles, that two of the superior court actions had been decided in favor of Dr. Balsinger, that the third had been settled by his insurer, and that the municipal court suit had been settled by offsetting Dr. Balsinger’s claim for services rendered against the patient’s claim for damages. It was found that Dr. Balsinger knew of all "of these suits and had filed answers in them, but mentioned none of them in his application. It was further found that defendant had no knowledge or information as to any of these suits at the time the policy was issued; that it learned of them during the trial of plaintiff’s action against Dr. Balsinger and that it then gave notice of rescission of the policy and tendered return of the premium that had been paid. Notwithstanding these findings the court also found that it was not true that the statement in the application respecting claims and suits “was false and untrue and was known by said "William E. Balsinger to be false and untrue;” that it was not true that the answer was made knowingly and with the intent that the defendant herein would be deceived thereby; that it was not true that the defendant was deceived

The foregoing summary includes all of the material findings upon the defense of fraud, except those relating to the notice of rescission, which are not in question. There is only one point of disagreement between the parties as to the material facts on the issue of fraud. Plaintiff contends that the statement which we have quoted from the application was not a representation of fact. She relies upon the rule, sometimes recognized, that where a question in an application for insurance has not been answered at all or where it manifestly appears to have been incompletely answered and the policy has been issued without further inquiry, the insurer cannot later treat the omission to give an answer or a complete answer as a false representation. Appellant would have us construe the statement “I have not been sued or paid any sums for claims made against me for malpractice” as calling for two answers, one as to suits and the other as to the payment of claims without suit, and it is contended that under this construction it would appear that the inquiry as to suits had not been answered, while the inquiry as to the payment of claims had been. We do not regard this as a reasonable interpretation of the statement. We think the statement of the insured would be understood as meaning that only one suit had been filed against him and that no claim had been paid except the one he specified and explained. The statement should be construed as it naturally would have been understood and as it was intended to be understood by the company. It would seem apparent that the applicant was called upon and was expected to list suits that had been filed

The finding that defendant was not deceived by the statement would be sustained if the representation had been true or if it had been false but defendant did not rely and act upon it. The falsity of the representation having been established and found to be a fact, the remaining question is as to defendant’s reliance upon it. There was a specific finding that defendant had no knowledge or information as to the other suits against the insured until long after the policy had been issued. The application read in part, ‘ ‘ Signing this form does not bind the Applicant to complete the Insurance, but it is agreed that this form shall be the basis of the Contract should policy be issued.” The direct and undisputed testimony of defendant’s agent was that he received and relied solely upon the application in issuing the policy, that defendant made no inquiry except by means of the application, and that the policy would not have been issued if defendant had known of the other suits against the insured. There was no other testimony upon that issue and there was no circumstantial evidence from which it could have been inferred that defendant was not deceived by the false statement.

The question then is what should be done with an appeal presented upon such a record. Where a finding establishes the existence of a fact from which the plaintiff’s right to recover follows as a matter of law, and another finding is to the effect that the fact does not exist, and there is substantial evidence in the record to support both findings, a reviewing court would be obliged to reverse a judgment in

The trial court’s specific findings as to the falsity of the statement and defendant’s ignorance of the true facts and our finding that defendant relied upon the statement in issuing the policy furnish support for the judgment in favor of defendant. There are other findings to the effect that Dr. Balsinger did not engage in intentional concealment and did not intend that the company would be deceived by any statement or omission in the application. It is unnecessary to take particular notice of these findings, although we think they have no support in the evidence. It is immaterial whether the omission to state the true facts was intentional

Appellant makes the further contention that even though the policy were procured through fraud, the company is estopped to question liability by reason of the fact that it defended Dr. Balsinger in the action in which plaintiff recovered judgment. Cases have been cited by appellant which support the general proposition that an insurer waives the right to claim invalidity of the policy where it undertakes and carries through a defense of the insured against a claim covered by the policy. This general statement of the rule is sufficient for the purposes of our opinion. It rests upon the doctrine of estoppel. No case has been cited by appellant in which it has been held that the defense by an insurer of an action against the assured, without knowledge that the policy was procured by the assured by means of fraud or misrepresentation, precludes the insurer from rescinding the policy upon discovering the truth. One of the essential elements of estoppel and waiver is knowledge of the facts. There can be no waiver of the right to charge fraud, misrepresentation, or breach of warranty except by acts and conduct subsequent to the discovery of the facts, and by conduct evidencing an actual intention to relinquish a right. (McDanels v. General Ins. Co. (1934), 1 Cal.App.2d 454 [ 35 P.2d 394 , 36 P.2d 829 ]; California-West. States etc. Co. v. Feinsten (1940), 15 Cal.2d 413 [ 101 P.2d 696 , 131 A.L.R. 608 ].) One who by his misrepresentation induces another to take action, to the latter’s prejudice, cannot rely upon the action taken to relieve him of the consequences of his deceit. The evidence in the instant case is that defendant learned of prior suits against Dr. Balsinger while its attorney was engaged in the defense of plaintiff’s suit against him. The attorney who had assumed the obligation of defending the suit for Dr. Balsinger would have had no right to abandon it in the midst of the trial (McDanels v. General Ins. Co., supra), and the fact that he continued

The further argument is made that defendant must be deemed to have had knowledge of the suits against Dr. Balsinger because they would have been discovered by an examination of the court records. The argument is without merit. One who is induced to enter into a contract by positive representations of fact is under no duty to inquire as to the truth of the representations unless he is made aware of facts which bring them under suspicion and which would induce a prudent man to make inquiry. This is an elementary principle of law and of business.

The judgment is affirmed.

Desmond, P. J., and Wood (Parker), J., concurred.

Appellant’s petition for a hearing by the Supreme-Court was denied July 20,1944. Carter, J., voted for a hearing.