Wilburt Sales, Jr., Janice T. Sales, Cross-Appellants v. State Farm Fire and Casualty Company, Cross-Appellee

case, diversity this we must Before FAY and CLARK Circuit Georgia law. Richards v. Hanover Insur- Judges, GONZALEZ*, District ance 299 S.E.2d 561 Judge. establishes the govern- law ing the doctrine of innocent co-insureds. FAY, Judge: Circuit Richards, Betty Mrs. Jo Richards sued State Farm Fire & Company proceeds to collect the from an insurance (“State Farm”) appeals jury verdict policy after her house burned down. Mrs. awarding proceeds insurance to Janice Richards held the with her husband. Sales, husband, Sales. Wilburt Janice’s company, Hanover Insur- cross-appeals jury’s failure to award ance, pay refused to since Mr. Richards him proceeds. Because we find setting had been arrested for the house on judge erroneously that the trial instructed judge fire. The trial jury instructed the jury regarding Georgia’s doctrine deny relief if either Mr. or Mrs. Richards co-insureds, we remand for a new intentionally burned the house. After the trial. jury returned a verdict for Hanover Insur-

ance, appealed. Mrs. Richards I. BACKGROUND court, In reversing the trial 16, 1983, On October totally fire de- among Court noted the division stroyed the home of Wilburt and Janice states whether the fraud of one Sales. State Farm insured the home. The co-insured barred by (“the named both Mr. and Richards, Mrs. Sales innocent co-insured. Sales”) fire, 563; as Annotation, insureds. After the Wil- at see Right Innocent burt proof Sales submitted a sworn of loss Insured to Recover Under Fire Policy statement which declared that he did not Covering Property Intentionally Burned Gonzalez, Jr., ting designation. *Honorable Jose A. U.S. District Judge Florida, for the Southern District of sit Insured, by Another A.L.R.4th 1228 We believe (1987). The court decided that the answer provision unambiguously declares that Mr. depend should rights and Mrs. obligations Sales’ are Richards, 299 S.E.2d at contract. jointly severally rather than By held. stab 563. The provided contract ing that the entire policy is void when Hanover Insurance would not be liable “in insured intentionally conceals a material ‘neglect insured the event of of the to use circumstance, fact or clearly the contract preserve all reasonable means to save and makes Mrs. recovery contingent Sales’ contract). property (emphasis in upon Mr. Sales’ conduct. Other courts that, agreed Georgia The have unlike the phrase deter- “the insured,” “neglect” provision mined that phrase “any was the insured” unam ambiguous. The court stated that Mrs. biguously expresses a contractual intent to language could Richards read the “the joint obligations create prohibit and to re imposing obligation sured” as an individual covery by an innocent co-insured. See preserve property to the which would void Spezialetti Co., Employers Ins. Pacific liability only to insured who failed to (3rd Cir.1985); 759 F.2d 1139 Bryant v. Id. at 563-64. comply provision. with the Co., Allstate Ins. F.Supp. 592 (E.D.Ky. provision ambiguous, Since the Geor- 1984); Snowden v. State Farm Fire and gia required interpret law the courts to it Co., Casualty Fire and in favor of the insured. Id. at 563. The (Tenn.Ct. App.) Cases of court, therefore, held that Mrs. Richards’ argue, however, The Sales obligations were severable from Mr. Rich- provision “fraud” does not in the obligations ards’ consequently, First, case arson. the Sales claim that Mrs. Richards could recover under the in- Richards requires analyze only us to participated surance contract if she had not “neglect” provision of the insurance con- in the arson. provision tract and not the “fraud” to de- From the Richards we discern two termine whether an innocent co-insured can important points First, law. Second, recover. emphasize the Sales whether or not courts will allow an provision word “has” in the “fraud” to depends co-insured to recover provision only conclude that the concerns upon the terms of the insurance contract. application in fraud for insurance and Second, any ambiguities if there are Third, filing not fraud in the of a claim. contract, the court will construe the lan- argue presence the Sales that the guage recovery by to allow the innocent “neglect” provision, which creates the sev- co-insured. obligation preserve property, erable ambiguity severability causes an over the The B. Sales’ Insurance Contract obligations under the “fraud” The insurance contract between the following reasons, reject For the we all of key State Farm contains two the Sales’ contentions. provisions. provision The first states that the absence of fraud of the insureds Analyze 1. We Can agreement. is a condition to the “Fraud” Provision 2. Concealment or Fraud. This entire policy shall be void if any insured has We do not believe that concealed or limits a court’s analysis, the case of any material fact or circumstance relat- arson, “neglect” provision ing (Plaintiff’s to this insurance. Exhibit expense pro contract at the of the “fraud” 15) # page (emphasis added). 1 at Richard, vision. the insurance attor provision neys brought provision The second terminates never liability Farm’s supreme for loss caused to the attention of the court. The neglect attorneys apparently insured.1 insurance believed provision practically "neglect" provision 1. The second identical to in Richards. evaluated (1969). provision that the “fraud” reasonably Richards— We must con- distinguishable from the struct which is “fraud” of the contract and not it provision beyond fairly this case—would allow an inno- extend “what is within its and, therefore, plain Fidelity Deposit cent co-insured to recover terms.” & Co. v. provision.2 decided not to mention the As a Ins. 174 Ga.App. Sun Life result, (1985). “neglect” failure to mention the S.E.2d The pro- Richards’ provision “fraud” does not exclude it from vision addresses each insured’s individual analysis. duty preserve property. provision, hand, “fraud” on the other ad- Applies

2. “Fraud” Provision joint duty dresses their fairly to deal Proceeds Claims honestly company. with the insurance for policy simply deals with fraud find that the We also word “has” differently neglect, than just as the does not limit the “fraud” differently deals with business fraud which occurred goods. than with household We do not insurance. has held that similar “neglect” provision believe that the creates provisions containing “fraud” the word any ambiguity language applicable “has” are to concealment or mis “fraud” representation proofs of loss and other Goldberg statements. See v. Provident provision We conclude that the “fraud” Co., 783, Washington 144 Ins. Ga. 87 S.E. triggered is Mr. Sales 1077, (1916); 1079-80 Farm Fire burned his house and then tried to claim Jenkins, Casualty Ga.App. and v.Co. 167 policy. Since the 4, 801, (1983). 305 S.E.2d 802-03 If Mr. provision pol- “fraud” states that the entire arson, unquestionably Sales committed he icy is void if insured conceals or misre- his concealed role the fire when he filed presents facts, material we conclude that proceeds. his claim for Since the sworn rights Mrs. Sales’ policy may under the be claim stated that he had not caused the by voided Mr. Sales’ fraudulent conduct. damage, accurately say State Farm can Georgia’s We believe that decision to let that Mr. Sales has material the insurance contract rights determine the Therefore, facts. may rely State Farm parties mandates this result. provision policy.3 void the

III. MR. SALES’ CROSS-APPEAL 3. “Fraud” Ambiguous Provision Not cross-appeals Mr. Sales the admis “Neglect” Became of sion into evidence of his fire losses.

Finally, although under Richards the He concedes that this evidence was rele phrase “neglect” pro- “the insured” in the vant to State Farm’s defense that he voided policy vision of the Sales’ creates policy severable when he failed to mention the rights obligations, and there is no application. ambi- fire losses in his insurance Mr. guity provision claims, however, as to the “fraud” before us. Sales that State Farm ambiguity We should not create “by lifting misrepresentation by waived its defense of provision a clause or sending of the contract premium out a bill for the renewal context.” policy Cherokee Credit Ins. Co. v. after the breach.4 Mr. Sales Life Baker, 579, 171, Ga.App. 119 cites State Farm Fire and Casualty Co. v. 2.According attorneys, Ins., to the State Farm who 3. Short v. Oklahoma Farmers Union 619 Cf. 588, represented (Okla.1980) (Arson also Hanover Insurance in the Rich- P.2d 590 itself is a act, therefore, provision ards the "fraud" fraudulent stated that the voids the "any provision.). was void to under the insured who” concealed "fraud” Reply material facts. Brief of State Farm at 10 (quoting contract). the Richards This analysis 4. Our of State Farm’s waiver of suggests that fraud Mr. Richards would defense mirrors the dis void Haynes the contract as to him. analysis. Accord v. trict court’s Sales v. State Farm Fire Co., 136, (8th Co., 435, (N.D. Hanover Insurance F.Supp. 783 F.2d 138 and Ga.1986). 632 436-37 Cir.1986).

1387 4, 801, (1) 167 305 Ga.App. S.E.2d that Mrs. Sales was entitled to recover (1983) Loeb Nationwide Mu 802-03 played if she no role in the destruction of Co., tual Fire Ins. 561, (2) property, the Sales’ the misrepresenta- 409, (1982) proposi S.E.2d for the tion applies only misrepresen- though tion even he never made the tations in for insur- payment, pay ance, State Farm’s demand (3) waived its misrepre ment constituted a waiver policy’s misrepresentation pro- Although sentation defense. these cases Accordingly, vision. I would reverse the claim, support judgment against Mr. Sales and remand his Appeals wrote high them. It is the state’s retrial,1 case for and affirm the judgment court, however, est expresses in favor of Mrs. Sales. Georgia law that controls us. Flintkote Corp., Co. Dravo (11th 678 F.2d I. Cir.1982). instance, appellate this with the district court that this directly court decisions contradict the Su case is controlled Richards v. Hanover

preme Georgia. In Sullivan v. Court Insurance 299 S.E.2d 561 Association, Indemnity Connecticut (1983). points At various opinion, its Ga. supreme S.E. Richards court stated: court stated: question whether, in an ac- If, event, fact that such a tion for proceeds, fire insurance demand was made could be treated as a fraud of a co-insured bars recov- waiver, certainly ought not to be ery by the spouse. innocent co-insured payment done when was refused. To 299 S.E.2d at 562-63. otherwise, us, hold it seems to would be adopt To a contrary rule would be tan- going contrary plainest principles the attributing tamount Mr. Richards’ most, justice. At it could wrongdoing to Mrs. solely Richards on fairly be said that the association the basis of their relationship, marital a had to waive the conditions ex- offered result which we have steadfastly rejected pressed in policy, the and that the in- offer, areas, in other ... and which we decline sured had accept declined to the to reach in present the case. We there- (emphasis added). Consequently, we can fore hold that Mrs. Richards is not auto- not find that State Farm waived its defense matically barred from under misrepresentation simply by sending a her policy by homeowners her husband’s bill for premiums. find, We alleged If, retrial, act of arson. on the therefore, that the evidence properly again insurance company asserts the admitted.5 “neglect provision” exclusion, it has the any We find no error in remaining of the initial proving burden of that one of the presented issues by parties. the co-insureds provision by breached that REVERSED and REMANDED for a new intentionally setting fire to the dwell- trial. ing.... shown, however, Once this is (as the burden shifts Mrs. CLARK, Judge, Circuit dissenting: claiming the coverage co-insured I respectfully majority dissent from the policy) prove the non-participation her opinion. view, my In law dictates in wrongful the conduct. 5. We also find that jury the district court did not against instructions whether the found Mr. finding abuse its discretion in that the relevance Sales because it that he set believed the fire or prior of the misrepresentation fire losses to the set, theory caused it to be on which State outweighed any prejudicial defense effect the rely, Farm was entitled to or because it believed may evidence have on Mr. had Sales’ claim of that he fire his- charge. innocence on the arson view, tory, which, theory my rely. is not entitled to necessary 1. A retrial would be because it is impossible to determine from the district court’s passages at 564. I read these as a the would be sufficient to for- policy. Goldberg feit the by v. Provident

policy philosophical statement the or Washington Insurance Georgia Supreme Court that where an (1916), policy 87 S.E. 1077 the read: company surance has evidence that one policy This entire shall be void if the spouse intentionally jointly set fire to insured misrepresented, has concealed or property, company has the owned bur- otherwise, writing or material fact proving den of that fact. The co-insured concerning or circumstance this insur- spouse has who asserts innocence then thereof; subject ance or the or if the proving burden of that he or she did not interest of the insured be participate alleged wrongful conduct. herein; truly stated or in case of policy This is a sound one. For there will swearing fraud or false the insured certainly an be cases where innocent touching any relating matter to this in- spouse greatly pur- has contributed subject thereof, or whether property, yet chase of the the other or a loss. before after money desires the arson in commits added). (emphasis Id. at 87 S.E. 1077 payment order to receive one-half of the Similarly, in State Farm Fire & purpose after the fire. The Co. opinion pro- Court’s is to strike a policy read: “This entire compromise: allowing tective policy shall be void if whether or before spouses provided they prove to recover can a loss the willfully insured has con- after they participate did not in the miscon- cealed misrepresented any or material fact duct. concerning or circumstance this insurance subject or the thereof.” 305 S.E.2d at 802 II. added). (emphasis contrast, policy assuming Even that State Farm was enti- here includes no direct references to make tled to on the concealment or fraud misrepresentations the reader think after policy, cannot with policy goes into effect are covered majority’s construction language. misrepresentation provision In view of policy’s unambiguous lan- reads: “This entire shall be void if guage, I majority’s cannot with the insured has concealed or reliance on misrepresentation provision misrepresented any material fact or cir- to the extent it holds that both Mr. and relating cumstance to this insurance.” Mrs. Sales must be denied be- added.) (Emphasis present The use of the jury’s cause the finding verdict reflects its perfect part tense makes it clear that this that Mr. Sales lied when he swore that he is misrepresenta- directed at responsible was not for the fire.2 If there tions in application. the insured's any subject is upon insur- 11(2) opinion, Part of its majority great experience, ers have reality it is the asserts that the courts have held that arson occurs. If State Farm intended misrepresentation provisions that similar to include concealment of arson within the including applicable the word “has” misrepresentation provision, are to it should have misrepresentations concealment or in used similar to that used Goldberg and proofs of loss and Jenkins cases. post-application other However, statements. both of the cases on III. majority which the policies relies involved additional, express language with indicat- argue The Sales that State Farm waived ing misrepresentations subsequent right that misrepresentation to its to on the misrepre- 2. Due to its broad construction of the proof conduct when he filed the of loss. provision, majority sentation does not dis- would draw this distinction —and would be will- tinguish allegation ing State Farm’s misrepresentation provision that Mr. Sales misrepresented history allegation fire dur- the former there were not reason —if ing application process from the insurer’s to conclude that State Farm waived reliance on allegation misrepresentation that Mr. provision altogether. otherwise, going it sent a bill for the renewal hold ... defense when would be “[t]o allegedly contrary committed premium plainest principles after Sales misrepresentation. They cite State justice.” 29 S.E. at 42. Jenkins, Farm Fire Co. & indicate, As these summaries the factual 4, 801, (1983), 802-03 Ga.App. 305 S.E.2d Jenkins, scenario in one of the Court of Fire In and Loeb v. Nationwide Mutual cases, Appeals virtually identical to that 561, Sullivan, hand, here. on the other (1982), support this theo presents very a different situation. The ry. majority concludes that those arguing insured in Sullivan was that a binding, they only as are cases are not payment demand for was a waiver of a cases, Appeals and an payment easy It is thus to un- case, Georgia Supreme Court Sulli why unwilling derstand the court was Indemnity van v. Associa Connecticut find a waiver: it would be anomalous to tion, 29 S.E. say by expressing that its concern over opposite dictates result. getting paid, waiving the insurer was its Jenkins, included right get paid. If the court had found a misrepresentation provision similar to the waiver, coverage would have extended one here. The insurer that definitely premiums’ without the ever be- represented proof insured had in his of loss Hence, ing paid. Jenkins and are Sullivan that certain items were house when conflict, really because though they it burned even had been re- direct, on-point it is authority, should be moved. 305 S.E.2d at 802. Court applied. Appeals found that the insurer had waived its defense when it sent premium

the insured a bill for a renewal proof

after the of loss had been filed. See

id. at 41. The court stated S.E.

specifically that it did not matter if the bill paid: consequence “it is of no ... actually pay

the insured did not the renew- premiums, payment al as a demand for CO., INC., FELDSPAR TRUCKING premiums full for due acted as a waiver.” Plaintiff-Appellee, Loeb, Appeals the other Court of effect,

is to the same but the insured there based his claim not waiver ATLANTA GREATER SHIPPERS demand, but on the fact that the insurer ASSOCIATION, INC., actually premiums, had received Defendant-Appellant. compelling claim somewhat more than this No. 87-8824. one. Sullivan, the life insurance Appeals, United States Court of (1) provisions cluded that Eleventh Circuit. pay- would not take effect until the first July during ment was made the insured’s life- time, (2) given pay- notes paid maturity, their ment were not at insured, lapse. during would lifetime, gave premi- notes for his first um, pay he did not the notes at their but maturity. The insurer then made a de- notes, mand on the which the insured did satisfy. Court held that alone, payment, the demand without maturity provision: not a waiver of the

Case Details

Case Name: Wilburt Sales, Jr., Janice T. Sales, Cross-Appellants v. State Farm Fire and Casualty Company, Cross-Appellee

Court Name: Court of Appeals for the Eleventh Circuit

Date Published: Jul 20, 1988

Citation: 849 F.2d 1383

Docket Number: 87-8467

Court Abbreviation: 11th Cir.