[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 08-17088 ELEVENTH CIRCUIT
Aug. 12, 2009
Non-Argument Calendar
THOMAS K. KAHN
________________________
CLERK
D.C. Docket No. 07-01329-CV-T-30-MAP
SCOTTSDALE INSURANCE COMPANY,
a foreign corporation,
Plaintiff-Counter-
Defendant-Appellee,
versus
WAVE TECHNOLOGIES COMMUNICATIONS, INC.,
a Florida corporation,
RITA A. TODD,
Defendants,
RUTH COCHRAN, individually and as the personal
representative of the Estate of Donald F. Cochran, deceased,
Defendant-Counter-
Claimant-Appellant,
VIASY’S NETWORK SERVICES, INC.,
a foreign corporation,
Defendant-Counter-
Claimant-Appellant.
________________________
Appeals from the United States District Court
for the Middle District of Florida
________________________
(August 12, 2009)
Before BLACK, BARKETT and COX, Circuit Judges.
PER CURIAM:
I. BACKGROUND
Scottsdale Insurance Company (“Scottsdale”) filed a complaint for declaratory
relief against Wave Technologies Communications, Inc. (“Wave”), Ruth Cochran,
individually and as the personal representative of the estate of her husband Donald
Cochran (“Cochran”), Rita A. Todd (“Todd”), and Viasys Network Services, Inc.
(“Viasys”). The lawsuit was initiated after claims were filed with Scottsdale by
Viasys for liability coverage covering damages caused by a Wave subcontractor’s
operation of heavy equipment in a manner that allegedly caused a motor vehicle
accident on April 21, 2007 (“the accident”). Todd was injured in the accident and
Donald Cochran was killed. Viasys was the prime contractor with which Wave had
contracted to perform work being done at the time of the accident.
Scottsdale’s lawsuit sought a declaration that it could rescind a general liability
insurance policy it had issued to Wave on the basis that Wave made material
2
misrepresentations in its application for the policy. Scottsdale alleged that Wave had
misrepresented its business operations as involving no digging or use of heavy
equipment and that Wave failed to disclose that it had a prior loss under another
insurance policy. Scottsdale also alleged that, had Scottsdale known of Wave’s actual
business, it would not have issued the insurance policy or would have charged a
substantially higher premium for the coverage.
Neither Wave nor Todd answered the complaint, and default judgments were
entered against them. Cochran and Viasys (collectively, “Defendants”) answered and
pleaded, among other defenses, that Scottsdale had waived its right to rescind the
policy by failing to rescind it when it knew, or should have known, of
misrepresentations in the application. Defendants also counter-claimed, seeking
liability coverage for their damages caused by the accident.
Scottsdale moved for summary judgment. Defendants opposed the motion, in
part based upon an argument that, in late December 2006, around the time Scottsdale
wrote the general liability insurance policy at issue in this case, Scottsdale’s agent
hired a contractor to conduct a liability survey and that survey uncovered facts that
should have caused Scottsdale to investigate the representations on Wave’s
application. (R.1-54 at 7-9.) In its opposition papers, Viasys identified the facts
discovered by the survey that were at odds with Wave’s application and should have
3
caused Scottsdale to conduct further inquiry as: (1) use of subcontractors for
$100,000 of work per year (not identified on the application); (2) a two-year business
history (as opposed to the “new venture” described on the application); and (3)
performance of some “minor construction work . . . using a shovel to dig and locate
utilities.” (as opposed to application statement that Wave did “no digging.”) (Id. at
7, 9, 10, 18.) And, Viasys presented evidence that Scottsdale’s general agent
Southern Cross received this information from the survey contractor and considered
the first of these issues significant enough that Southern Cross attempted to conduct
some follow-up investigation of that issue. (Id. at 9, 10, 18.) But, when Southern
Cross received no response to its clarifying inquiries, it failed to relay the information
to Scottsdale and took no further action. (Id. at 9.)
Defendants argued that, had Scottsdale properly conducted a further inquiry
into the discrepancies discovered by the survey, it would have discovered that: (1)
Scottsdale previously had written a general liability policy for Wave’s business
operations; (2) in the application for the earlier policy, Wave had been described
properly as a cable conduit contractor engaged in excavation, tunneling, underground
work, and earth moving who relied on significant work by sub-contractors; and (3)
Scottsdale had received a claim under that earlier policy. (R.1-54 at 11-14.)
Defendants further argued that Scottsdale’s failure to conduct an investigation in a
4
manner that discovered these facts resulted in Scottsdale’s waiver of its right to
rescind the policy.
The district court granted Scottsdale’s motion for summary judgment. In doing
so, the court relied on the rule that “an insurer is entitled to rely on the representations
of the insured even without checking its own files unless some circumstance arises
that would call attention to the false statements.” (R.1-60 at 7 (citing Schrader v.
Prudential Ins. Co. of Am., 280 F.2d 355, 362 (5th Cir. 1960).) However, the court
did not address Defendants’ argument that the facts raised in the liability survey
should have spurred Scottsdale to investigate further. The court entered judgment for
Scottsdale.
Defendants brought timely motions to alter or amend the judgment pursuant to
Federal Rule of Civil Procedure 59(e), arguing that the court had erred so as to
commit a manifest injustice. In these motions, Defendants again presented the
argument that a jury question existed as to whether, when Scottsdale’s contractor
discovered that Wave had been in business for two years, performed construction
work, and used sub-contractors to perform significant work, Scottsdale was on notice
that Wave may have made misrepresentations in its application and that further
investigation was due. (R.1-62 at 3 ¶5, and 6 ¶¶15 and 17.) Defendants argued that
summary judgment for Scottsdale was inappropriate because these facts raised a jury
5
question as to whether “circumstances . . . which called attention to the false
statements” existed. (Id. at 6 ¶17.) The court denied the motion, addressing only the
discrepancy in the amount of subcontractor work and finding that discrepancy did not
call Scottsdale’s attention to the fact that Wave may have made misrepresentations
on its application. (R.1-66 at 6.)
Defendants appeal the judgment, making the arguments (as they did in their
summary judgment opposition and Rule 59 papers) that the facts discovered by
Scottsdale’s survey contractor raise jury questions as to whether Scottsdale was on
notice that it should further investigate whether Wave made misrepresentations and
as to whether the investigation that was done by Scottsdale’s general agent Southern
Cross was reasonable.
II. STANDARD OF REVIEW
This court reviews a grant of summary judgment by applying the same legal
standards used by the district court. See, e.g., Hilburn v. Murata Elecs. N. Am., Inc.,
181 F.3d 1220, 1225 (11th Cir. 1999) (citation omitted). Summary judgment is
appropriate where “‘there is no genuine issue as to any material fact and the moving
party is entitled to a judgment as a matter of law.’” Wooden v. Bd. of Regents of the
Univ. Sys. of Ga., 247 F.3d 1262, 1271 (11th Cir. 2001) (quoting Fed. R. Civ. P.
56(c)).
6
III. DISCUSSION
The parties do not disagree over the applicable law. There is no dispute that
an intentional misrepresentation by an applicant of a material fact, relied on by the
insurer, allows the insurer to void a policy. See New York Life Ins. Co. v. Strudel, 243
F.2d 90, 93 (5th Cir. 1957). However, if the insurer either did not rely on the
misrepresentation or should not have relied on the misrepresentation, then it cannot
void the policy. Id. Thus, if the insurer “has sufficient indications that would have
put a prudent man on notice and would have caused him to start an inquiry which, if
carried out with reasonable thoroughness, would reveal the truth, he cannot blind
himself to the true facts and choose to ‘rely’ on the misrepresentation.” Id. (citation
omitted.) And, “if the insurer chooses to make an independent inquiry and the subject
matter and the circumstances are such that he is in a position to ascertain the facts by
a reasonable search, then he cannot plead reliance even if his investigation is as a
matter of fact cursory and did not reveal the true facts . . . .” Id.
Applying this law, we conclude that summary judgment was inappropriate.
Defendants’ briefs and the evidence submitted at the summary judgment stage
demonstrate that there is a question of fact as to whether the three discrepancies
discovered during the liability survey should have caused Scottsdale to inquire further
into the true facts of Wave’s business. While a reasonable jury could conclude that
7
these discrepancies were not significant enough to warrant further investigation by
Scottsdale and thus cause Scottsdale to realize that it had, in its possession,
documents that demonstrated the misrepresentations on Wave’s second application
for insurance, a reasonable jury also could find otherwise. And, a reasonable jury
could conclude that the investigation Scottsdale undertook (through its general agent
Southern Cross) was performed in such a manner as to waive reliance on the
misrepresentations that Scottsdale would have discovered if it had performed the
investigation in a more diligent manner.
IV. CONCLUSION
For the foregoing reasons, the summary judgment for Scottsdale is vacated and
the case is remanded for further proceedings.
JUDGMENT VACATED AND CASE REMANDED.
8