Title: HARKRIDER v. POSEY

State: oklahoma

Issuer: Oklahoma Supreme Court

Document:

HARKRIDER v. POSEY  HARKRIDER v. POSEY 2000 OK 94 24 P.3d 821 71 OBJ 3219 Case Number: 92911 Decided: 12/05/2000 Mandate Issued: 06/14/2001 Supreme Court of Oklahoma DUSTIN HARKRIDER, Plaintiff-Garnishor-Appellee v. RAYMOND POSEY, Defendant v. OKLAHOMA PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant-Garnishee-Appellant ON CERTIORARI TO THE COURT OF CIVIL APPEALS, DIV. III ¶0 Dustin Harkrider brought an action for bodily injuries and property damage in the District Court, McCurtain County, John A. Benson, trial judge, against Raymond Edward Posey, the driver of a truck which struck Harkrider's vehicle. The truck was owned by Posey's friend, Robin Denise Pond, who had given Posey (implied) permission to drive it. Harkrider also sued Oklahoma Property and Casualty Insurance Company, Pond's liability insurer, alleging bad faith and fraud in connection with the insurer's conduct in adjusting the claim. The parties agreed on a judgment for Harkrider in the amount of $31,000 to be satisfied solely from the proceeds of Pond's liability policy, with coverage to be adjudicated in a separate proceeding. Harkrider, who also agreed to dismiss his action against the insurer, then brought a garnishment proceeding against the insurance company, which denied coverage. Summary judgment was entered for Harkrider, and the insurer appealed. The Court of Civil Appeals, Div. III, reversed. On certiorari granted on Harkrider's petition, COURT OF CIVIL APPEALS' OPINION IS VACATED; JUDGMENT OF TRIAL COURT IS AFFIRMED Jon Ed Brown, LeForce & McCombs, P.C., Idabel, Oklahoma, for Appellee. Micky Walsh and Tom M. Moore, Oklahoma City, Oklahoma, for Appellant. Rex K. Travis, Oklahoma City, Oklahoma, for amicus curiae, Oklahoma Trial Lawyers Association. OPALA, J. [24 P.3d 823] ¶1 The dispositive issue on certiorari is whether the trial court's summary judgment for plaintiff-garnishor is correct. We answer in the affirmative. I ANATOMY OF LITIGATION ¶2 On the night of 28 June 1996 Dustin Harkrider ("Harkrider") was crossing an intersection in his automobile when it was struck by a 1979 Ford pickup driven by Raymond Edward Posey ("Posey"). The pickup belonged to Robin Denise Pond ("Pond"), with whom Posey was then living. Pond had given Posey (implied) permission to drive her truck. Harkrider suffered bodily injuries and property damage in the collision. ¶3 Approximately one year earlier, Pond had purchased from Oklahoma Property and Casualty Insurance Company ("Oklahoma Property") a liability insurance policy covering the pickup with the minimum amount of liability insurance required under Oklahoma's Compulsory Insurance Law. ¶4 Shortly after the accident, Oklahoma Property notified Pond it was denying coverage for the collision because she had failed to disclose (in her insurance application) that Posey was living with her. Had it known of an unlicenced driver's presence in her [24 P.3d 824] household, Oklahoma Property stated, it would have issued a named-driver exclusion for Posey. After reminding Pond of a provision in the insurance application that any misrepresentation would render the policy void, Oklahoma Property informed her that it was canceling the policy and refunding her remaining premium. Shortly thereafter, Oklahoma Property sent Harkrider a claim denial letter as well. ¶5 Harkrider then brought an action against Posey for bodily injuries and property damage. Also named as a defendant was Oklahoma Property, from whom Harkrider sought damages for bad faith and fraud in connection with the insurer's conduct in adjusting the claim. The parties agreed on a judgment against Posey for $31,000 to be satisfied out of any applicable proceeds of Pond's liability policy with Oklahoma Property. ¶6 Harkrider, as Posey's judgment creditor, then brought a garnishment proceeding against Oklahoma Property. The insurer denied coverage. Harkrider moved for summary judgment, arguing that an insurer may not avoid liability to an innocent third party under a policy of compulsory automobile liability insurance based upon a misrepresentation by the insured in his (or her) insurance application. To permit the insurer such a defense, Harkrider contended, would violate the public policy underlying compulsory automobile liability insurance. Oklahoma Property countered that its right to retrospectively avoid coverage under the policy due to a misrepresentation by the insured in the application process is conferred by the provisions of ¶7 The Court of Civil Appeals reversed based upon this court's holding in Pierce v. Oklahoma Property and Casualty Insurance Company, II STANDARD OF REVIEW ¶8 Summary process is a procedural pretrial device for the prompt and efficient disposition of an action sans forensic combat where there is no dispute as to the material [24 P.3d 825] facts or as to the inferences to be drawn from undisputed facts, and the law favors the movant's claim or liability-defeating defense.8 It is not the purpose of summary process to substitute a trial by affidavit for one by jury, but rather to afford a method of summarily terminating a case (or eliminating from trial some of its issues) when only questions of law remain.9 The material facts in the cause here under review are not in dispute, and the sole issue is whether the trial court correctly applied the law when it ruled that Oklahoma Property could not interpose misrepresentation as a defense in Harkrider's garnishment proceeding. Summary relief issues stand before us for de novo review, in which this court's scrutiny is exercised independently and without deference to the trial court's resolution of the law.10 III THE MISREPRESENTATION MADE BY POND IN HER INSURANCE APPLICATION DOES NOT RENDER THE POLICY IN QUESTION VOID, BUT MERELY VOIDABLE ¶9 Oklahoma Property argues that the provisions of 36 O.S. 1991 §360911 provide it with a statutory defense to Harkrider's garnishment claim based upon Pond's failure to reveal in her insurance application that Posey, an additional and unlicenced driver, was residing in her household. Upon learning of Pond's misrepresentation, Oklahoma Property moved affirmatively to rescind her policy, treating it as void ab initio by refusing to provide coverage for an accident which occurred before rescission was attempted. While we accept Oklahoma Property's contention that §3609 is applicable to the insurance contract before us,12 we cannot accede to Oklahoma Property's argument that the misrepresentation made in this case by Pond renders the policy ipso jure13 void ab initio. Rather, a policy issued in reliance on a misrepresentation of the kind here under review is merely voidable. ¶10 We note at the outset that §3609 does not use either term, void or voidable. Rather §3609 provides that a misrepresentation in an application for an insurance policy "does not prevent recovery under the policy unless" the misrepresentation is either fraudulent, material to the risk [24 P.3d 826] to be insured, or causes the insurer to issue the policy or include terms in the policy when the insurer would not have done so had the true facts been known. Nothing in the statutory text suggests that in enacting §3609 the legislature intended to abrogate the common-law distinction between void and voidable contracts.14 The common law supplements our statutes.15 It remains in full force unless it is clearly and expressly modified or abrogated by our constitution or by statute.16 This court has never before been called upon to consider in the context of §3609 the distinction between void and voidable contracts. The word void has occasionally been used by this court in our §3609 jurisprudence, but it is clear from the context that we were not in those decisions using the term as a word of art to distinguish it from voidable.17 Nothing in the statutory text of §3609 nor in our extant jurisprudence prevents us from interpreting §3609 in conformity with the general common law of contracts which recognizes the distinction between contracts that are void and those that are merely voidable. ¶11 At common law a contract procured through misrepresentation can be either void or voidable, depending on the nature of the misrepresentation.18 Where a [24 P.3d 827] contract is entered into on the basis of a misrepresentation which deceives one of the parties as to the true nature of the proposed agreement, the purported contract is rendered void.19 Known as fraud in esse contractus, fraud in the execution, or fraud in factum, a misrepresentation of this sort results in a contract which is a nullity.20 No legal rights are created and either (or any) party may ignore the purported contract at his pleasure, to the extent it remains executory.21 On the other hand, where a contract is entered into on the basis of a misrepresentation which goes to the contract's inducement, as a notion distinct from its nature, the tainted agreement is rendered merely voidable.22 Fraud in the inducement is defined as a "misrepresentation as to the terms, quality or other aspects of a contractual relation, venture or other transaction that leads a person to agree to enter into the transaction with a false impression or understanding of the risks, duties or obligations she has undertaken."23 A contract voidable for fraud in the inducement creates a valid contractual relationship, which subsists in contemplation of law until the parties are relieved of their obligation by a decree of rescission.24 ¶12 Applying this distinction to the facts of this case, we hold that the misrepresentation made by Pond in her insurance application falls within the category of fraud in the inducement. There is no allegation or proof that Oklahoma Property was deceived as to the true nature of the insurance contract so as to render the contract void. Rather, Pond misled Oklahoma Property as to the risk it was insuring and the obligations and duties it was undertaking. Accordingly, the fraud operated to render the policy merely voidable. We next address the impact of this distinction on the outcome of Harkrider's claim. [24 P.3d 828] IV PUBLIC POLICY PREVENTS THE APPLICATION OF §3609 TO DEFEAT THE CLAIM OF AN INNOCENT THIRD-PARTY ACCIDENT VICTIM UNDER A VOIDABLE COMPULSORY AUTOMOBILE LIABILITY INSURANCE POLICY ¶13 The distinction between a void contract and one that is merely voidable is important where, as in the case here under review, the rights of an innocent third party are at stake. An innocent third party can acquire no rights in a contract which is void, whereas the interests of an innocent third party are often protected where a contract is voidable. ¶14 The regulation of motor vehicles on the public highways is a legitimate exercise of the police powers of the state, pursuant to which the state may make all reasonable laws, rules, and regulations for the safety and protection of the public. ¶15 The principal purpose of the Act is to protect the public from the financial hardship which may result from the use of automobiles by financially irresponsible persons. ¶16 One exclusionary provision which this court has sanctioned is the named-driver exclusion, in which an insurer refuses to assume the risk associated with the driving of a specified individual. In Pierce v. Oklahoma Property and Casualty Insurance Company, ¶17 The intermediate court accorded our holding in Pierce too sweeping an effect. There we relied on the express language of 47 O. S 1991 §7-600 (1) (c) and 7-601(B) to conclude that the legislature "chose to allow the contracting parties to exclude specifically named individuals." ¶18 Under Oklahoma's mandatory automobile liability insurance scheme, liability insurance is not issued simply to protect the assets of the insured in the event liability for an accident is incurred, but also, if not primarily, to protect members of the public [24 P.3d 830] from the potentially disastrous financial consequences of using the roadways in our automobile-dependent society. To effectuate this policy, the legislature has required the purchase and maintenance of insurance as a precondition for vehicle registration and has prohibited the operation of uninsured vehicles on Oklahoma's roads. The enactment of mandatory liability insurance has, in effect, transformed what was a private insurance arrangement into a quasi-public obligation. ¶19 While we do not wish to be understood as condoning the concealment of information, we do not believe that the insurer is without resources to investigate the information tendered by an insured. Indeed, even without specific information, an insurer is not without means to confine its risk to unobjectionable drivers by the inclusion in its policy of appropriate restrictive provisions. ¶20 Oklahoma Property urges that acceptance of Harkrider's argument that the public policy underlying the compulsory insurance law overrides §3609 amounts to a repeal of the latter by implication. Oklahoma Property contends that this is unnecessary because the two are not irreconcilably in conflict and both can be given effect without either violating the purpose of the other. We agree and submit that we have done precisely that, albeit with a different result than that proposed by Oklahoma Property. Our pronouncement recognizes that §3609 and the compulsory insurance law can be construed harmoniously, giving due effect to each, by interpreting §3609 within the context of generally applicable principles of contract law relating to void [24 P.3d 831] and voidable contracts. The application of those principles requires an analysis of the rights of an innocent third party accident victim in a voidable insurance contract. That those rights are deemed worthy of protection based upon the public policy of the compulsory insurance law is consistent with §3609, properly understood. Our conclusion does not amount to an implied repeal of that section nor otherwise treat that enactment as ineffectual. ¶21 Nor does our pronouncement give precedence to the public policy that underlies compulsory automobile insurance at the expense of the public policy behind §3609. Oklahoma Property suggests that the public policy underlying §3609 is to prevent an insured who has misrepresented a fact in his/her insurance application from benefiting from the misrepresentation. This court has never enunciated any notion of public policy in regard to §3609. Assuming arguendo that Oklahoma Property has correctly stated that policy, we submit that today's pronouncement does not violate it. Compulsory liability insurance is mandated for the benefit of the public, not for the benefit of the insured driver. ¶22 Today's pronouncement is consistent with the approach taken by many other state courts, which have held their various statutory provisions relating to compulsory automobile liability insurance prevent post-loss rescission to defeat the insurer's liability to an innocent third party. V THE NISI PRIUS COUNSEL-FEE AND COSTS AWARD IS AFFIRMED ¶23 Oklahoma Property also sought appellate review of the trial court's order which granted Harkrider an attorney's fee and costs under the provisions of 12 O.S. 1991 §1190(B)(1). That statute authorizes the taxation of costs, including a reasonable attorney's fee, in favor of the prevailing party in a garnishment proceeding where the judgment creditor recovers more than the garnishee admits in its answer.48 Although the issue was properly preserved and raised on appeal, COCA failed to dispose of it. While neither party addressed the counsel-fee and taxation of costs issue on certiorari, we do so under the authority of Hough v. Leonard.49 ¶24 In accordance with the court's rules that bar briefs in appeals under the accelerated-process rubric, the insurer did - and could do - no more than raise the costs-and-fee issue in its petition in error.50 We construe Oklahoma Property's quest for reversal [24 P.3d 833] of the counsel-fee and-costs award as resting on its claim that it was reversible error for the trial court to give Harkrider prevailing party status.51 ¶25 Ancillary orders that are dependent upon the viability of an underlying judgment (and are not otherwise challenged on their own merits) are nullified or affirmed on appeal by the disposition of the judgment on which they rest. SUMMARY ¶26 The interest of the state in the maintenance of continuous liability coverage on all registered vehicles transforms what would otherwise be a purely private contract between the insured and the insurer into a quasi-public obligation under which the rights of the parties are restricted by the public interest embodied in the statutory provisions requiring automobile liability insurance. On the basis of this public policy, we hold that a compulsory automobile liability insurance policy may not be avoided or disaffirmed after the occurrence of an accident giving rise to liability under the policy so as to adversely affect the ability of an innocent third party to obtain the proceeds of the policy. The trial court's summary judgment in favor of Harkrider is hence affirmed as is its award to the victor of an attorney's fee and costs. ¶27 COURT OF CIVIL APPEALS' OPINION IS VACATED; JUDGMENT OF TRIAL COURT IS AFFIRMED ¶28 SUMMERS, C.J., and HARGRAVE, V.C.J., and OPALA, KAUGER, WATT, and BOUDREAU, JJ., concur; ¶29 HODGES and LAVENDER, JJ., concur in result; ¶30 WINCHESTER, J., dissents. FOOT