Opinion ID: 2354372
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Heading: Fraud or Misrepresentation on the Application

Text: There is no dispute that the application failed to list three prior fire losses suffered by Neill. The question presented is whether the act of signing the application binds Neill to its contents. Nationwide asserts that [i]f anyone has a duty to assure that the responses in the application were true, it is an applicant, such as Appellant, not Nationwide. It is, however, undisputed that Nationwide's agent generated the application and put Neill's responses to the questions on the application. It is also undisputed that Neill did not read the application before signing it. We begin our analysis by stating the basic principle that an insurance company may retroactively rescind a policy because of fraud or misrepresentation of the insured. Ferrell v. Columbia Mut. Cas. Ins. Co., 306 Ark. 533, 816 S.W.2d 593 (1991); Old Colony Life Ins. Co. v. Fetzer, 176 Ark. 361, 3 S.W.2d 46 (1928). In the case before us, Nationwide asserts Neill made misrepresentations on the application when he signed the application that failed to list prior losses suffered by Neill. Nationwide stated in its response to interrogatories that it was Nationwide's position that its agent inquired of Lamar Neill on November 18, 1993, whether he had any prior losses, and that Mr. Neill's answer was, `No. However, in its motion for summary judgment, Nationwide did not argue about whether the question was asked, but instead argued that since Neill signed the application, he is bound by its false contents. In his response to the motion for summary judgment, Neill argued that the question about losses had not been asked. As evidence in opposition to the motion for summary judgment, Neill offered a portion of his examination under oath taken by Nationwide after the fire where Nationwide asks Neill if the agent asked the question about prior losses in the application process and Neill responded that the question was not asked. Neill signed the false application. The general rule is that a if a person signs a document, he or she is bound under the law to know the contents of the document. Banks v. Evans, 347 Ark. 383, 64 S.W.3d 746 (2002); Carmichael v. Nationwide Life Ins. Co., 305 Ark. 549, 810 S.W.2d 39 (1991). Further, one who signs a contract, after an opportunity to examine it, cannot be heard to say that he or she did not know what it contained. Dodson v. Abercrombie, 212 Ark. 918, 208 S.W.2d 433 (1948); Pittsburgh Steel Co. v. Wood, 109 Ark. 537, 160 S.W. 519 (1913); Mitchell Mfg. Co. v. Kempner, 84 Ark. 349, 105 S.W. 880 (1907). That is the general rule, however; as found in Dodson, supra , there is an exception to the general rule where a signature is procured by fraudulent misrepresentations of what a document contains. See also Massachusetts Mut. Life Ins. Co. v. Brun, 187 Ark. 790, 62 S.W.2d 961 (1933). In Belew v. Griffis, 249 Ark. 589, 460 S.W.2d 80 (1970), we characterized this exception as follows: Although a person is ordinarily bound to know the contents of a contract which he signs, we have often recognized an exception to the principle when fraud or inequitable conduct is charged. Belew, 249 Ark. at 591, 460 S.W.2d 80. In Clark v. Trammell, 208 Ark. 450, 186 S.W.2d 668 (1945), we similarly stated: If there were no elements of fraud, concealment, misrepresentation, undue influence, violation of confidence reposed, or of other inequitable conduct in the transaction, the party who knows, or had an opportunity to know, the contents of an agreement or other instrument, cannot defeat its performance, or obtain its cancellation or reformation, because he mistook the legal meaning and effect of the whole, or of any of its provisions. Clark, 208 Ark. at 452, 186 S.W.2d 668. The exception with respect to contract law generally may therefore be summarized as one is bound by a document signed where there was an opportunity to examine it, unless there was undue influence, misrepresentation, violation of confidence, fraud, concealment or other inequitable conduct involved in procuring the signature. This exception in the context of insurance contracts is broader than in general contract law. This is because there is a judicial recognition that most insurance contracts rather than being the result of anything resembling equal bargaining between the parties are truly adhesion contracts in which many insureds face two options: (1) accept the standard insurance policy offered by the insurer, or (2) go without insurance. 2 Lee R. Russ, Couch on Insurance § 22.11 (3d ed.1997). An insured has no voice in the preparation of insurance forms. Old Equity Life Ins. Co. v. Crumby, 241 Ark. 982, 411 S.W.2d 292 (1967). So it is with the application in this case that was drafted by Nationwide and filled out by its agent. In light of the ascendant position occupied by the insurance company, this court has declared that 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. Interstate Fire Ins. Co. v. Ingram, 256 Ark. 986, 511 S.W.2d 471 (1974); Continental Cas. Co. v. Campbell, 242 Ark. 654, 414 S.W.2d 872 (1967); Aetna Life Ins. Co. v. Routon, 207 Ark. 132, 179 S.W.2d 862 (1944); Southern National Ins. Co. v. Heggie, 206 Ark. 196, 174 S.W.2d 931 (1943), quoting Union Life Ins. Co. v. Johnson, 199 Ark. 241, 133 S.W.2d 841 (1939); see also Burnett v. Philadelphia Life Ins. Co., 81 Ark.App. 300, 101 S.W.3d 843 (2003); Farm Bureau Mut. Ins. Co. v. Foote, 341 Ark. 105, 14 S.W.3d 512 (2000); General Agents Ins. Co. v. St. Paul Ins. Co., 22 Ark.App. 46, 732 S.W.2d 868 (1987); Time Ins. Co. v. Graves, 21 Ark.App. 273, 734 S.W.2d 213 (1987); Gilcreast v. Providential Life Ins. Co., 14 Ark.App. 11, 683 S.W.2d 942 (1985); American Nat'l Ins. Co. v. Hale, 172 Ark. 958, 291 S.W. 82 (1927). We note that Carmichael, supra , involved the omission of diabetes on an insurance application for life insurance. In that case, the insured was dead. The only evidence of what occurred in the interview when the application was filled out was provided by the agent. Because the agent testified that the question about health conditions was asked and answered negatively by the insured, there was no question of fact. Summary judgment was granted to Nationwide in Carmichael because Nationwide had presented a prima facie case by the affidavit of the agent stating he had asked Carmichael each question on the application and had recorded Carmichael's responses. The appellee in Carmichael did not meet proof with proof, but rather submitted an affidavit asserting that Carmichael would not have misrepresented his condition. In Carmichael , we held that only two people knew what went on in the application interview, and one, the Nationwide agent, had stated facts in an affidavit that Carmichael could not refute because he was dead. Therefore, we affirmed the summary judgment and stated: It is well established in Arkansas that one is bound under the law to know of the contents of a paper signed by him and he cannot excuse himself by saying he did not know what it contained. Pittsburgh Steel Co. v. Wood, 109 Ark. 537, 160 S.W. 519 (1913). Thus, the fact that the decedent signed the application certifying the information contained in it was correct to the best of his knowledge is at least probative evidence of his misrepresentation. Carmichael, 305 Ark. at 552, 810 S.W.2d 39. In Carmichael there was evidence probative of misrepresentation, and in response only an assertion by Carmichael's wife that he would not misrepresent his medical condition. Thus, Carmichael is inapplicable in this case where Neill asserts he was not asked the question and Nationwide asserts that he was. Because there is a dispute about what happened between Neill and Nationwide in the application interview, there is a genuine issue of material fact that precludes summary judgment. If the agent misstated Neill's response, or if the agent failed to ask all the questions, the conduct of the agent is imputed to the insurer, and the insurer is estopped from setting up the false answers in the application to avoid the policy. Campbell, supra ; Heggie, supra . The trial court erred because there is a question of fact regarding why the application contains a misstatement; and therefore, this case must be reversed and remanded. ARNOLD, C.J., BROWN and THORNTON, JJ., dissent.