Present: All the Justices
SHUNDA N. SMITH, ET AL.
OPINION BY JUSTICE A. CHRISTIAN COMPTON
v. Record No. 982070 June 11, 1999
COLONIAL INSURANCE COMPANY
OF CALIFORNIA
FROM THE CIRCUIT COURT OF AUGUSTA COUNTY
Thomas H. Wood, Judge
This is a motor vehicle insurance case in which the insured
made material misrepresentations when applying for insurance.
The sole issue on appeal is whether the trial court correctly
decided that the parol evidence rule did not apply to testimony
about questions asked of the insured and the insured's verbal
answers to those questions during the application process.
In March 1993, appellant Catherine Smith applied for
automobile liability insurance in Staunton with an agent of
appellee Colonial Insurance Company of California. Based on
oral and written statements made by Smith, the insurer issued a
"Family Automobile Policy" covering a 1979 Chevrolet pick-up
truck.
In December 1993, while the policy was in effect, appellant
Shunda Smith, Catherine Smith's daughter, allegedly was injured
on Interstate 81 in Augusta County while in a motor vehicle that
was struck by another vehicle operated by an uninsured motorist.
As a result of the accident, the daughter made a demand upon
Colonial for uninsured motorist coverage under the policy issued
to her mother.
In October 1996, the insurer filed the present motion for
declaratory judgment naming the Smiths as defendants. The
insurer alleged that, following investigation of the accident,
it learned Catherine Smith had made material misrepresentations
when applying for the policy. The insurer asked for a judgment
declaring that the policy was void ab initio and that coverage
was not owed to Shunda Smith.
Following an April 1998 evidentiary hearing, the trial
court, sitting without a jury, ruled the insurer had proved by
clear and convincing evidence that Catherine Smith had made
material misrepresentations when applying for the policy. Thus,
the court entered the declaratory judgment the insurer sought.
The Smiths appeal.
We shall summarize the evidence in the light most favorable
to the insurer, which prevailed below, according to settled
principles of appellate review. On March 8, 1993, Catherine
Smith met with an agent of the insurer and sought motor vehicle
liability coverage on the 1979 pick-up truck. At trial, over
the Smiths' objection, the agent testified about the series of
questions asked of Catherine Smith posed to enable the insurer
to determine its "exposure" and whether to issue a policy of
insurance.
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Among the subjects covered in the questions were the
ownership of the vehicle and whether there were others in
Smith's household who were licensed motor vehicle operators.
Responding to the agent's questions, Smith said the vehicle was
titled in her name and that there were no other licensed drivers
in her household. This information was "input" into the agent's
computer, transmitted to the insurer's underwriting department,
and reflected in an application form printed by the computer
that was signed by Smith. Based on the information Smith
furnished the agent, the policy was issued effective March 8.
The insurer later learned, however, that when Smith applied
for the insurance she was not the actual owner of the vehicle,
but that it was owned by an unlicensed driver who did not live
with her. If the insurer had learned this fact at any time
after issuance of the policy, it would have cancelled the
policy. The insurer also learned later that Shunda Smith, a
licensed driver, was living with her mother at the time she
applied for the policy. If the insurer had known this fact at
the time, the premium charged would have increased by about 50%.
Upon consideration of the evidence, the trial court found
the insurer had met the requirements of Code § 38.2-309, which
provides that statements in an application for an insurance
policy shall bar recovery under the policy if it is "clearly
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proved" that such statements were "material to the risk when
assumed" and were "untrue."
On appeal, the Smiths concede that the trial court had
"sufficient evidence to support its decision." The Smiths
argue, however, the insurer attempted to prove that the
application form signed by Catherine Smith was "incomplete"
because, they note, the form did not contain all the questions
asked of her or her answers. Nonetheless, they point out, it
contained above her signature the language "on the basis of
statements contained herein." "Basically," the Smiths say,
"Colonial contends that Smith made oral misrepresentations to
its agent and that misrepresentation is indicated by the lack of
certain information on the application." This "missing
information," according to the Smiths, "if ever requested, may
have been contained in the agent's computer program but never
printed on the application or insurance contract Colonial
entered into with Smith."
The Smiths also rely on a "merger" theory in which they
contend all misleading statements "Smith made prior to her
signing the application were merged" into the contract of
insurance. According to the Smiths: "Colonial relies on
alleged statements made to the insurance agent and not on
information found on the application in order to add to and
alter the contents of the insurance contract of the parties."
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The Smiths contend, building on their "merger" theory, that
"[t]he trial court's admission of parol evidence to add to or
reform the terms of the contract was legal error."
We do not agree with any of the Smiths' contentions. Their
argument demonstrates a misconception of insurance law and
practice generally and the application process for motor vehicle
liability insurance in particular.
In the first place, there is no requirement that an
application for liability insurance be solely in writing; it may
be oral, it may be written, or, as in this case, partly oral and
partly written. See Franklin Fire Ins. Co. v. Bolling, 173 Va.
228, 233, 3 S.E.2d 182, 184 (1939); North River Ins. Co. v.
Lewis, 137 Va. 322, 324-27, 119 S.E. 43, 44-45 (1923).
In the second place, an application for insurance is merely
an offer to enter into a contract. Hayes v. Durham Life Ins.
Co., 198 Va. 670, 672-73, 96 S.E.2d 109, 111 (1957). The
insurance policy is the contract between the parties. Hence,
this application for motor vehicle liability insurance did not
"merge" into the policy contract that ultimately was issued by
the insurer based upon representations in the application.
In the third place, the parol evidence rule applies to
written contracts. Amos v. Coffey, 228 Va. 88, 91-92, 320
S.E.2d 335, 337 (1984). Therefore, the rule has no relevance to
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an application for liability insurance because, as we have said,
the application is a mere offer.
Although the written portion of the application in this
case is not a model of clarity and does not contain the actual
questions posed by the agent, it is nevertheless the embodiment
of the discussion between the applicant and the agent. Thus,
the written form, as well as the oral testimony explaining the
completion of the form, were properly considered by the trial
court as evidence that material misrepresentations had been
made.
Accordingly, we hold the trial court did not err and we
will affirm the judgment below.
Affirmed.
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