PRESENT: All the Justices
MONTGOMERY MUTUAL INSURANCE COMPANY
OPINION BY
v. Record No. 021271 JUSTICE DONALD W. LEMONS
October 31, 2003
JEFFREY RIDDLE, ET AL.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Marcus D. Williams, Judge
In this appeal, we consider whether Va. Code § 38.2-309
requires proof of actual reliance by an insurance company on
material misrepresentations made in an application for
insurance before a policy of insurance can be declared void.
I. Facts and Proceedings
Jeffrey S. Riddle (“Riddle”) was a subcontractor with
Pennington Construction. Pennington Construction required him
to obtain general liability insurance and workers’
compensation insurance. Riddle contacted Chesapeake Bay
Insurance Agency, Inc. (“Chesapeake”) to obtain insurance.
Chesapeake sought the assistance of Southern Maryland
Insurance, Inc. (“Southern Maryland”) in obtaining a policy
for Riddle.
Southern Maryland was owned and operated by Ken Wyvill.
Wyvill was a limited agent of Montgomery Mutual Insurance
Company (“Montgomery Mutual”). At trial, Wyvill testified
that he had authority to bind Montgomery Mutual to extend
insurance coverage to applicants although he was contradicted
by another employee of Montgomery Mutual. When Wyvill
received a request from Chesapeake to obtain an insurance
policy for Riddle, he arranged for Riddle to apply to Rockwood
Insurance (“Rockwood”). Riddle completed a Rockwood
application which Wyvill reviewed and submitted to Rockwood.
After Rockwood rejected Riddle’s application, Wyvill suggested
to Chesapeake that Riddle submit an application to Montgomery
Mutual.
Chesapeake responded by requesting that Wyvill proceed
with obtaining a policy for Riddle from Montgomery Mutual.
Chesapeake asked that the policy with Montgomery Mutual be
bound effective April 20, 2000. Riddle completed Montgomery
Mutual’s application form and submitted payment for the
insurance premium. Wyvill sent the application to Montgomery
Mutual with a notation that insurance coverage was “bound”
effective “4/20/00.”
When asked whether he reviewed the two applications with
the intent to bind coverage, Wyvill testified that he neither
acted nor intended to bind coverage for Riddle at any time and
that he “was just reviewing them to make sure all the boxes
were checked that were supposed to be checked and the
information that was supposed to be in there was in there.”
According to Wyvill, he merely checked Riddle’s applications
for completeness and proper format.
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On April 29, 2000, an employee of Riddle was electrocuted
on the job. On May 2, 2000, Riddle submitted a claim to
Montgomery Mutual through Wyvill. Montgomery Mutual received
Riddle’s application for insurance the following day. On May
4, 2000, the employee died and, six days later, Montgomery
Mutual denied insurance coverage.
Montgomery Mutual filed an action for declaratory
judgment to determine coverage. The trial court found that
Wyvill, through his apparent authority as an agent of
Montgomery Mutual, orally bound coverage to Riddle beginning
April 20th and that Wyvill had not “relied on” alleged
misrepresentations found in Riddle’s application in making the
decision to bind coverage. On appeal, Montgomery Mutual
argues that the trial court erred in holding that it must
prove that it or its agent relied on the alleged material
misrepresentations made by Riddle in order to void the policy.
Alternatively, it argues that, even if a showing of reliance
is necessary, the trial court’s finding that Wyvill did not
rely on the veracity of Riddle’s application was erroneous.
Montgomery Mutual does not appeal the holding of the trial
court that the policy was bound by the apparent authority of
Wyvill.
II. Analysis
Code § 38.2-309 provides:
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All statements, declarations and descriptions
in any application for an insurance policy or
for the reinstatement of an insurance policy
shall be deemed representations and not
warranties. No statement in an application or
in any affidavit made before or after loss
under the policy shall bar a recovery upon a
policy of insurance unless it is clearly proved
that such answer or statement was material to
the risk when assumed and was untrue.
We had occasion to interpret this statute in Commercial
Underwriters Insurance Co. v. Hunt & Calderone, P.C., 261 Va.
38, 42 540 S.E.2d 491, 493 (2001) (citations omitted), when we
held that:
We have construed Code § 38.2-309 and its
predecessors to require an insurance company
contesting a claim on the basis of an insured’s
alleged misrepresentation to show, by clear
proof, two facts: (1) that the statement on the
application was untrue; and (2) that the
insurance company’s reliance on the false
statement was material to the company’s
decision to undertake the risk and issue the
policy. To prove the falsity is not
sufficient; the company must prove clearly that
truthful answers would have reasonably
influenced the company’s decision to issue the
policy.
Montgomery Mutual maintains that our statements about reliance
are dicta because they were unnecessary to the resolution of
the case and, further, that we were wrong in our
interpretation of the statute. While Montgomery Mutual may be
right about whether reliance was an issue in Commercial
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Underwriters, we reaffirm the correctness of our
interpretation of the statute’s requirements.
As a threshold matter, we recognize the intimate
conceptual relationship between reliance and materiality. It
is clear that the General Assembly only wanted matters
“material to the risk” to be at issue in the voiding of a
policy of insurance. “Material” is defined as “[o]f such a
nature that knowledge of the item would affect a person’s
decision-making process.” Black’s Law Dictionary 991 (7th ed.
1999). Obviously, if there is no reliance upon a statement or
omission, it could not have affected the decision-making
process; consequently, it could not be material. Accordingly,
we reiterate that when an insurance carrier seeks to void a
policy for alleged material omissions or misrepresentations
pursuant to Code § 38.2-309, the insurer must show, by clear
proof, two facts: (1) that the statement or omission on the
application was untrue; and (2) that the insurance company’s
reliance on the false statement or omission was material to
the company’s decision to undertake the risk and issue the
policy. To prove the falsity is not sufficient; the insurer
must prove clearly that truthful answers would have reasonably
influenced the company’s decision to issue the policy.
The trial court held that Wyvill had the apparent
authority to bind the policy in question and Montgomery Mutual
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is bound by that holding because no error was assigned to it.
At trial, Wyvill testified on behalf of Montgomery Mutual that
he did not intend to bind the policy and made it quite clear
that he did not review the applications for substance.
Instead, he reviewed the applications to assure that the
applications were complete and in proper form.
Montgomery Mutual is now circumscribed by the posture of
the case on appeal. It seeks to examine the substance of the
answers to questions on the applications. But the trial court
held that the policy was bound through the apparent authority
of Wyvill, who reviewed the applications for their form and
not their substance. Therefore, Montgomery Mutual has not
proved the necessary reliance to prevail in its attempt to
void the policy. Upon review of the record we cannot say that
the trial court was plainly wrong or without evidence to
support its judgment that Wyvill did not rely on the
statements or omissions in the policy applications.
Accordingly, we will affirm the judgment of the trial
court.
Affirmed.
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