1

FILED

February 24, 1999

Cecil Crowson, Jr.

Appellate C ourt

Clerk

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

STATE FARM GENERAL INSURANCE ) C/A NO 03A01-9807-CH-00227

COMPANY, )

 )

Plaintiff-Appellee, )

 )

 ) APPEAL AS OF RIGHT FROM THE

v. ) HAMILTON COUNTY CHANCERY COURT

 )

 )

 )

 )

LEILA JUNE WOOD, )

 ) HONORABLE HOWELL N. PEOPLES,

Defendant-Appellant. ) CHANCELLOR

For Appellant For Appellee

STUART F. JAMES JOHN D. BARRY

Manuel & James, PLLC Milligan, Barry, Hensley &

Chattanooga, Tennessee Evans

Chattanooga, Tennessee

O P I N I O N

AFFIRMED AND REMANDED Susano, J.
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T.C.A. § 56-7-103 provides as follows:

No written or oral misrepresentation or warranty

therein made in the negotiations of a contract or

policy of insurance, or in the application therefor,

by the insured or in the insured’s behalf, shall be

deemed material or defeat or void the policy or

prevent its attaching, unless such misrepresentation

or warranty is made with actual intent to deceive, or

unless the matter represented increases the risk of

loss.

2

Mr. Wood passed away in 1990, prior to the fire that led to the filing

of the subject claim.

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This declaratory judgment action was filed by State

Farm General Insurance Company (“State Farm”) against its

insured, the defendant Leila June Wood (“Wood”). It was prompted

by Wood’s filing of a claim for a fire loss to her mobile home. 

The trial court found that a misrepresentation regarding the

insured’s prior loss history, made by Wood in her application for

insurance, had increased State Farm’s risk of loss pursuant to

T.C.A. § 56-7-1031; accordingly, the trial court declared the

subject policy void ab initio and held that Wood was not entitled

to a recovery. Wood appeals, contending that the trial court

erred in failing to grant her motion for a directed verdict, and

in finding that State Farm had suffered an increased risk of loss

as a consequence of the misrepresentation. We affirm.

I. Facts

On November 24, 1986, Wood and her husband2 met with

State Farm agent Ed Sorrick (“Sorrick”) and filled out an

application for insurance on their mobile home. The application

contains the following question: “Has the applicant had any

losses, insured or not, in [the] past three years?” On the

Woods’ application, the box “No” was checked next to this
3

Wood suggests in her brief that the application may have been signed in

blank. However, she fails to point to any evidence in the record to support

this contention; nor do we find any. The only evidence relevant to this point

is found in the testimony of Sorrick, who specifically stated, “[w]e had

completed all the questions on the application before they signed it.” Wood’s

argument on this issue is without merit.

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Apparently, the Woods had had another fire in 1979. However, the

question on the application asked only about losses within the past three

years. The 1979 fire was outside the temporal scope of the question.

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question. Sorrick testified that he had specifically asked the

Woods whether they had suffered any losses within the last three

years, and that they had responded that they had not. Wood, on

the other hand, testified that Sorrick had not asked that

particular question, but that she voluntarily had told him about

the earlier fire. In any event, the question is clearly answered

in the negative on the application. The parties stipulated that

either Mr. or Mrs. Wood signed the application.3

Contrary to the representation in the application, the

Woods had suffered a loss approximately five weeks earlier, on

October 19, 1986, when their home was destroyed by fire. Sorrick

testified that he was unaware of any earlier fire losses by the

Woods.4 State Farm approved the application and issued a policy

of insurance on the subject property.

On April 23, 1993, Wood’s home burned. Wood

subsequently filed a claim with State Farm for approximately

$82,000. In the course of State Farm’s adjusting of the claim,

which included a routine investigation into Wood’s loss history,

Wood informed State Farm of the October, 1986 fire loss.

II. Procedural History
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State Farm denied Wood’s claim and filed this action to

have the policy declared void ab initio. Wood filed a

counterclaim seeking, among other things, full payment under the

policy and recovery for State Farm’s alleged bad faith in denying

the claim. Following the resolution of various pre-trial

matters, the case proceeded to trial before a jury. As indicated

earlier, Sorrick testified that the Woods had signed the

completed application after stating that they had not sustained

any fire losses within the prior three-year period. Pat Hughes,

a supervisor in underwriting and operations for State Farm, also

testified on behalf of the insurance company. He maintained that

the most important question on the application is the one

regarding prior losses. Hughes testified that a policyholder who

has suffered prior fire losses is more likely to have additional

fire losses in the future. He stated that State Farm needs all

relevant information to make its decision as to whether to issue

a particular policy; thus, if the agent is unaware of prior

losses, he or she does not have all of the material facts and

cannot make an informed decision. Therefore, according to

Hughes, a lack of information regarding prior losses would

materially affect the decision whether to issue the policy.

At the close of State Farm’s proof, Wood moved for a

directed verdict. The trial court denied her motion. Wood then

took the stand to testify on her own behalf; shortly thereafter,

however, she violated a pretrial order by stating, in the

presence of the jury, that she had cancer. As a result, the

trial court declared a mistrial. The parties nevertheless agreed

to proceed with the issue of whether the representation in the
5

Whether a misrepresentation increased the risk of loss pursuant to

T.C.A. § 56-7-103 is a question of law for the court. Sine v. Tennessee

Farmers Mut. Ins. Co., 861 S.W.2d 838, 839 (Tenn.App. 1993); Loyd v. Farmers

Mut. Fire Ins. Co., 838 S.W.2d 542, 545 (Tenn.App. 1992). Conversely, whether

a misrepresentation was made with the intent to deceive is a question of fact. 

Womack v. Blue Cross and Blue Shield of Tennessee, 593 S.W.2d 294, 295 (Tenn.

1980); Spellmeyer v. Tennessee Farmers Mut. Ins. Co., 879 S.W.2d 843, 848

(Tenn.App. 1993). 

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application had increased State Farm’s risk of loss.5 The

following discussion took place among the trial judge and counsel

for both sides:

THE COURT: We’re going to take a ten-minute

recess and then is there any reason why we

can’t go ahead and proceed with the issue for

the court only, and that is, the issue

concerning the increased risk?

MR. JAMES [attorney for Wood]: I don’t see

why not, Your Honor.

MR. BARRY [attorney for State Farm]: No. I

think we can go ahead and do that.

THE COURT: All right.

Following this colloquy, Wood offered her own testimony, as well

as that of Phillip Braswell, the State Farm claims representative

who had spoken with Wood after the April, 1993 fire.

As indicated earlier, the trial court determined that

“the misrepresentation of past loss history did cause an increase

in the insurer’s risk of loss in this case.” It held that the

subject policy was void from its inception and that Wood thus was

precluded from recovery. The trial court also dismissed Wood’s

counterclaim, and Wood appealed.

III. Applicable Law
6

T.C.A. § 56-7-103 provides that

[n]o written or oral misrepresentation or

warranty therein made in the negotiations of

a contract or policy of insurance, or in the

application therefor, by the insured or in

the insured’s behalf, shall be deemed

material or defeat or void the policy or

prevent its attaching, unless such

misrepresentation or warranty is made with

actual intent to deceive, or unless the

matter represented increases the risk of

loss.

(Emphasis added.) It is clear that the language of the statute

is disjunctive, i.e., the insurer may show either 1) that the

misrepresentation was made with the intent to deceive, or 2) that

the matter represented increased the risk of loss. Id.; see

Clingan v. Vulcan Life Ins. Co., 694 S.W.2d 327, 331 (Tenn.App.

1985). In this case, it is not disputed that the representation

in the application regarding prior losses was false; thus, the

question for the court was whether, as a matter of law, the

misrepresentation increased State Farm’s risk of loss.

A misrepresentation made in an application for

insurance increases the risk of loss “when it is of such

importance that it ‘naturally and reasonably influences the

judgment of the insuror in making the contract.’” Sine v.

Tennessee Farmers Mut. Ins. Co., 861 S.W.2d 838, 839 (Tenn.App.

1993)(quoting Seaton v. National Grange Mut. Ins. Co., 732 S.W.2d

288, 288-89 (Tenn.App. 1987)); Loyd v. Farmers Mut. Fire Ins.

Co., 838 S.W.2d 542, 545 (Tenn.App. 1992). As stated in Loyd,

[i]t is not necessary to find that the policy
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would not have been issued if the truth had

been disclosed. It is sufficient that the

insurer was denied information which it

sought in good faith and which was deemed

necessary to an honest appraisal of

insurability.

Id. In Loyd, this Court held that the insurer was justified in

denying coverage on a fire insurance claim, based upon a material

misrepresentation regarding prior losses that was made by the

insured in the application for insurance. Id. at 545-46. We

quoted with approval the following statement from 45 C.J.S.,

Insurance § 534: “...untrue statements as to prior losses by fire

are material, and will preclude recovery....” Loyd, 838 S.W.2d

at 545.

IV. Analysis

Upon review of the record in this case, we are of the

opinion that the trial court correctly determined that the

misrepresentation in the application for insurance increased

State Farm’s risk of loss within the meaning of T.C.A. § 56-7-

103. This conclusion is supported by the testimony of Pat

Hughes, who maintained that State Farm cannot make an informed

decision whether to issue a policy without information regarding

a potential insured’s prior loss history. Hughes testified that

the inquiry regarding prior losses is the most important question

on the application. He also testified that a homeowner with a

history of fire losses is more likely to suffer additional fire

losses in the future. This testimony was uncontradicted.

Wood contends that some of Hughes’ testimony was
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improperly predicated on a hypothetical question that was not

based upon the correct set of facts. Specifically, she takes

issue with the question in which counsel for State Farm asked

Hughes what would have happened if he had learned that the

potential insured had suffered a $50,000 fire loss approximately

six weeks earlier, as well as two other fire losses between 1979

and 1986. Hughes responded that he would have recommended

against issuing the policy. Wood insists that because the

application only requested information on losses that had

occurred within the last three years, she would not have been

required to disclose any information regarding losses prior to

1983; thus, so the argument goes, Hughes’ testimony does not

establish that State Farm was harmed by Wood’s failure to reveal

the earlier 1986 loss.

We cannot agree with this contention. In our opinion,

regardless of whether the hypothetical was based on a correct set

of facts, Hughes’ overall testimony establishes that Wood’s

failure to disclose the October 19, 1986, fire loss, standing

alone, increased State Farm’s risk of loss. This is true even

without considering Hughes’ response to the hypothetical question

at issue.

Under the circumstances of this case, it is clear that

the information -- or lack thereof -- regarding Wood’s prior fire

loss on October 19, 1986, was of such importance as to “naturally

and reasonably” influence the judgment of State Farm in issuing

the subject policy. See Sine, 861 S.W.2d at 839; Loyd, 838

S.W.2d at 545. Thus, Wood’s failure to disclose the prior loss
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had the effect of increasing State Farm’s risk of loss, in

accordance with T.C.A. § 56-7-103. We therefore hold that the

trial court correctly determined, based upon the increase in

State Farm’s risk of loss, that Wood was not entitled to recover

and that the subject policy was void from its inception. See

T.C.A. § 56-7-103.

Wood also takes issue with the trial court’s denial of

her motion for a directed verdict. In this connection, she

argues that the record does not contain competent testimony that

the misrepresentation was intentional, or that there was an

increase in the risk of loss.

Our standard of review of a trial court’s decision on a

motion for directed verdict is well-settled. A directed verdict

is appropriate only when the evidence is susceptible to but one

conclusion. Eaton v. McLain, 891 S.W.2d 587, 590 (Tenn. 1994);

Long v. Mattingly, 797 S.W.2d 889, 892 (Tenn.App. 1990). We must

“take the strongest legitimate view of the evidence favoring the

opponent of the motion.” Id. In addition, all reasonable

inferences in favor of the opponent of the motion must be

allowed, and all evidence contrary to the opponent’s position

must be disregarded. Eaton, 891 S.W.2d at 590; Long, 797 S.W.2d

at 892.

Our review of the record persuades us that the trial

court correctly denied Wood’s motion for a directed verdict. We

have already found that the record, as of the time when the

motion was made, supports a finding that the misrepresentation
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State Farm’s motion to consider post-judgment facts is denied. The

facts which the motion seeks to raise are not directly relevant to the

appellant’s issue on appeal.

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did in fact increase State Farm’s risk of loss. Clearly,

therefore, a directed verdict in Wood’s favor on this issue was

not warranted. As to the question of Wood’s intent, we cannot

say -- allowing all reasonable inferences in State Farm’s favor -

- that the evidence supports only the conclusion that her

misrepresentation was unintentional. Eaton, 891 S.W.2d at 590;

Long, 797 S.W.2d at 892. On the contrary, the evidence is

susceptible to several reasonable conclusions, one of which is

that Wood intentionally concealed the existence of a fire loss

that had occurred only five weeks earlier. Under such

circumstances, a directed verdict in Wood’s favor would have been

inappropriate. In any event, the trial court found in favor of

State Farm based upon the second prong of T.C.A. § 56-7-103 -- an

increase in the risk of loss -- without making any findings as to

whether the misrepresentation was intentional. We find and hold

that this basis is sufficient to sustain the judgment of the

trial court, and that a directed verdict was not warranted in

this case.

V. Conclusion

The judgment of the trial court is affirmed in all

respects.6 Costs on appeal are taxed to the appellant. This

case is remanded to the trial court for enforcement of the

judgment and the collection of costs assessed there, all pursuant

to applicable law.
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__________________________

Charles D. Susano, Jr., J.
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CONCUR:

________________________

Houston M. Goddard, P.J.

________________________

Herschel P. Franks, J.