Farr v. American National Property & Casualty Co.

Cite as 2015 Ark. App. 534

ARKANSAS COURT OF APPEALS
DIVISION IV
No. CV-14-1046

ERNEST WARREN FARR, JR., Opinion Delivered SEPTEMBER 30, 2015
DEBBIE HOLMES, AND JO ANN
FARR APPEAL FROM THE GARLAND
APPELLANTS COUNTY CIRCUIT COURT
[NO. 26-CV-13-234]
V.
HONORABLE MARCIA R.
HEARNSBERGER, JUDGE
AMERICAN NATIONAL PROPERTY
AND CASUALTY COMPANY AFFIRMED
APPELLEE

KENNETH S. HIXSON, Judge

Appellants Ernest Warren Farr, Jr. (Warren) and Debbie Holmes (Debbie) entered into

an insurance contract with appellee American National Property and Casualty Company

(ANPAC) to insure a pontoon boat and trailer. Appellants later submitted a claim for

insurance coverage after the boat and trailer were allegedly stolen. ANPAC denied coverage

for the loss and rescinded the policy after discovering that Warren and Debbie were not the

owners of the boat and had made misrepresentations on the insurance application. Warren

and Debbie, along with the boat’s owner, Jo Ann Farr, brought a complaint against ANPAC

for breach of the insurance contract, alleging that ANPAC had acted in bad faith and should

be ordered to cover the loss.1 The trial court subsequently granted summary judgment for

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Jo Ann Farr, who was not a party to the insurance contract, was dismissed from the
case for failure to state a cause of action.
Cite as 2015 Ark. App. 534

ANPAC. Warren and Debbie now appeal, arguing that the trial court erred in granting

summary judgment because material issues of fact remained to be litigated. We affirm.

Summary judgment may be granted only when there are no genuine issues of material

fact to be litigated, and the moving party is entitled to judgment as a matter of law. Kirkwood

v. Dial, 2013 Ark. App. 536. Once the moving party has established a prima facie entitlement

to summary judgment, the opposing party must meet proof with proof and demonstrate the

existence of a material issue of fact. Midliff v. Crain Ford Jacksonville, LLC, 2013 Ark. App.

373. On appellate review, we determine if summary judgment was appropriate based on

whether the evidentiary items presented by the moving part in support of the motion left a

material fact unanswered. Neal v. Sparks Reg’l Med. Ctr., 2012 Ark. 328, 422 S.W.3d 116.

We view the evidence in the light most favorable to the party against whom the motion was

filed, resolving all doubts and inferences against the moving party. Campbell v. Asbury Auto.,

Inc., 2011 Ark. 157, 381 S.W.3d 21. Our review focuses not only on the pleadings, but also

on the affidavits and documents filed by the parties. Kirkwood, supra.

Jo Ann Farr, who is Warren Farr’s mother, purchased the pontoon boat and trailer in

2007. In Debbie’s deposition, she explained that although Jo Ann was the named purchaser

and titled owner, the boat essentially belonged to her [Debbie] and Warren and that they

were making the payments. Debbie said that both she and Warren had bankruptcies on their

credit reports, and that Jo Ann, who had better credit, signed for the boat so they could get

a lower interest rate.

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Cite as 2015 Ark. App. 534

On July 23, 2010, Debbie submitted a watercraft insurance application with ANPAC,

seeking insurance coverage on the boat and trailer for herself and Warren. One of the

questions on the application asked, “Have you or any member of your household ever been

convicted of a felony or drug possession?” The application stated, “If yes, do not bind.” The

answer given on the application was “no,” when in fact Warren had a prior felony conviction

for attempted murder. The application further asked, “Is the applicant the original owner of

this watercraft?” The answer given to that question on the application was “yes.” The

application was signed by Debbie, and above the signature line the application stated:

I, the undersigned, agree that the statements herein are made for the express purpose
of inducing the company to issue an insurance policy and these statements are true,
correct, and complete and any policy issued as a result of any material
misrepresentation shall be declared void. I understand that any binder or insurance
policy issued as a result of this application will be based on the facts and answers stated
herein.

After the application was submitted, ANPAC issued a watercraft policy naming

Warren and Debbie as the insureds. The policy provided, “Unless otherwise shown in the

endorsements area on the Declarations page, your statements are as follows: . . . . You are the

only owner of your insured watercraft[.]” The policy also contained the following provision:

Concealment or Fraud. This entire policy is void if an insured person has
intentionally concealed or misrepresented any material fact or circumstances relating
to this insurance, or acted fraudulently or made false statements relating to this
insurance.

Warren and Debbie made a claim for coverage under the policy, claiming that the boat

and trailer were stolen on July 24, 2011. After ANPAC denied coverage, Warren and Debbie

filed a breach-of-contract action against ANPAC on March 20, 2013, alleging that ANPAC

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had breached the insurance contract and had also acted in bad faith. On June 16, 2014,

ANPAC filed a motion for summary judgment asserting that Debbie had made material

misrepresentations in the insurance application, and further asserting that, because Jo Ann Farr

was the titled owner of the boat, Warren and Debbie lacked an insurable interest in the

subject matter of the insurance. On July 28, 2014, the trial court entered an order granting

ANPAC’s motion for summary judgment and dismissing appellants’ complaint with prejudice.

The trial court subsequently denied appellants’ motion for reconsideration.

In this appeal, Warren and Debbie argue that the trial court erred in granting

ANPAC’s summary-judgment motion. Appellants first claim that, contrary to ANPAC’s

contention, they had an insurable interest in the boat and trailer under these circumstances

notwithstanding the fact that Warren’s mother held the title. Appellants assert that they

established an insurable interest because they made the monthly payments, and also used and

housed the boat. Appellants rely on Beatty v. USAA Casualty Insurance Co., 330 Ark. 354, 954

S.W.2d 250 (1997), where the supreme court held that, although a person must have an

insurable interest in property to have an enforceable insurance contract, in order to have an

insurable interest, a party need not have legal title to the insured property, but must have

some legal basis for the assertion of interest. In Beatty, supra, the supreme court indicated that

a person has an insurable interest in property if he would profit by or gain some advantage by

its continued existence and suffer some loss or disadvantage by its destruction.

Appellants also claim that summary judgment was improper under ANPAC’s theory

that Debbie had made a material misrepresentation on the insurance application. Appellants

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rely on Neill v. Nationwide Mutual Fire Insurance Company, 355 Ark. 474, 139 S.W.3d 484

(2003), a case in which the supreme court reversed a summary judgment in favor of the

insurance company because, although there had been a misrepresentation made on the

insurance application, and the insured signed the application, a material fact remained as to

whether the insurance agent had misstated the insured’s response or failed to ask all the

questions on the application. The supreme court in that case stated that the insurer may not

set up false answers in the application to avoid the policy. Id. In the present case, appellants

assert that there is a material issue of fact based on Debbie’s deposition testimony that, during

the application process, the appellee’s agent never asked whether anyone in her household was

a convicted felon. Appellants further argue that, even had there been a misrepresentation on

the application, ANPAC failed to show that the misrepresentation was material or that it

would not have issued the policy had it known the true facts. Finally, citing National Old Line

Insurance Company v. People, 256 Ark. 137, 506 S.W.2d 128 (1974), appellants assert that it

was ANPAC’s burden to show a causal connection between the misrepresentation and the

eventual loss, and that in this case the fact that Warren was a convicted felon had no

relationship to the boat being stolen.

We hold that the trial court properly granted ANPAC’s summary-judgment motion

because a material misrepresentation made on the insurance application, relied on by the

insurance company, voided the policy. Therefore, we need not reach ANPAC’s alternative

defense that the appellants lacked an insurable interest.

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Cite as 2015 Ark. App. 534

In addressing the material misrepresentation, we initially note that National Old Line

Insurance Company, supra, cited by appellants, was later overruled by our supreme court in

Southern Farm Bureau Life Insurance Company v. Cowger, 295 Ark. 250, 748 S.W.2d 332 (1988).

In Southern Farm Bureau, the supreme court held that an insurer may defend on the ground

that a misrepresentation caused issuance of the policy, though the fact misrepresented was not

necessarily related to the loss sustained. Therefore, contrary to appellants’ argument herein,

ANPAC did not have to show a causal connection between the misrepresentation and the

eventual loss.

In the absence of a statutory provision to the contrary, Arkansas follows the general

common-law rule that a material misrepresentation made on an application for an insurance

policy and relied on by the insurance company will void the policy. Countryside Cas. Co. v.

Orr, 523 F.2d 870 (8th Cir. 1975). The materiality of the misrepresentation goes to whether

or not the insurer, with knowledge of the true facts, would have accepted the risk and issued

the policy. Id.

In this case the insurance application, signed by Debbie, falsely contained a “no”

answer to whether any member of her household had ever been convicted of a felony. Next

to that question the application contains the instruction, “If Yes, do not bind.” Above

Debbie’s signature she agreed “that the statements made herein are made for the express

purpose of inducing the company to issue an insurance policy and these statements are true,

correct, and complete and any policy issued as a result of any material misrepresentation shall

be declared void.” From the language in the application providing that coverage should not

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be bound if the answer was “yes,” we conclude that ANPAC established that it would not

have accepted the risk and issued the policy had it known about Warren’s prior felony.

With respect to appellants’ claim that the insurance agent never asked Debbie this

question during the application process, we conclude that Debbie’s deposition does not raise

a factual question on that issue or lend support to that claim. In Debbie’s deposition she was

asked if she remembered the agent asking the question about prior felony convictions, and she

responded, “I don’t recall.” She did not deny that she was asked the question. Debbie

proceeded to testify that, despite being given the opportunity to do so, she did not read the

application line by line before signing it, stating that “I don’t think anybody does that.”

In Neill, supra, the supreme court stated the general rule that, if a person signs a

document, she is bound under the law to know the contents of the document. One who

signs a contract, after an opportunity to examine it, cannot be heard to say that she did not

know what it contained. Neill, supra. However, an insurer will not be allowed to use

misstatements in the application to avoid liability where the misstatements are the result of

fraud, negligence, or mistake by the insurer’s agent. Id.

In the present case, Debbie signed the application containing the material

misrepresentation, and there is no proof in the record to support appellants’ claim that her

misstatement was the result of fraud, negligence, or mistake by ANPAC’s agent. The material

misrepresentation, relied upon by the insurance company in issuing the policy, voided the

policy and relieved ANPAC from coverage. Therefore, ANPAC was entitled to judgment

as a matter of law with respect to appellants’ breach-of-contract claim. Appellants do not

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Cite as 2015 Ark. App. 534

address their bad-faith claim in their brief, and we summarily affirm that aspect of the

summary judgment as well.2

Affirmed.

KINARD and GRUBER, JJ., agree.

T. Clay Janske, for appellants.

Munson, Rowlett, Moore & Boone, P.A., by: Mark Breeding and Ashleigh Phillips, for

appellee.

2
Although appellants’ notice of appeal also purports to appeal from the denial of their
posttrial motion for reconsideration, their arguments on appeal are limited to challenging the
order of summary judgment. To the extent appellants may also be directing their arguments
to the trial court’s denial of their posstrial motion, we reject those arguments for the same
reasons we affirm the summary judgment.

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