Opinion ID: 377033
Heading Depth: 1
Heading Rank: 2

Heading: the fraudulent concealment defense.

Text: 30 Continental also appeals from an order of the district court striking the defense that Cora Pub fraudulently concealed the criminal record of John Barbero, president and chief stockholder. We hold that the defense was properly stricken. 31 Continental concedes that it never inquired as to the criminal records of the officers and stockholders of Cora Pub when it accepted Cora Pub's application for insurance. This being the case, Continental could avoid the policy only by proving that the concealment was intentional, fraudulent, and material to the risk assumed. Roess v. St. Paul Fire & Marine Ins. Co., 383 F.Supp. 1231 (M.D.Fla.1974); Massachusetts Bonding & Ins. Co. v. Hoxie, 129 Fla. 332, 176 So. 480 (1937). To prove fraud, it is not enough to show that the concealed information was of a fact which made the covered risk marginally more likely to occur. The insured is entitled to presume that the insurance application asks all questions relevant to the insurer's decision to issue a policy. 9 Couch, Insurance (2d ed. 1968) § 38:72. 32 In the exceptional Florida cases cited by Continental that allowed the defense of fraudulent concealment despite the insurer's failure to inquire, the concealed fact was that the risk had already occurred, or that forces reasonably certain to cause the risk to occur were underway. See, e. g., Roess, supra (lawsuit pending when insured applied for coverage against malicious prosecution liability); National Life Insurance Co. v. Harriott, 268 So.2d 397 (Fla.App.1972) (husband knew of wife's cancer when he applied for insurance on her life). Where, as here, the nondisclosure is of a fact only logically relevant to an insurer's decision to issue a policy, and the insured has not employed any subterfuge to avoid inquiry, the nondisclosure is not a concealment and cannot have been fraudulent.III. PROOF OF BUSINESS INTERRUPTION LOSS. 33 To support its insurance claim for interruption of business losses, Cora Pub relied primarily on the testimony of accountant Phillip Paul, who testified that Cora Pub had suffered a business interruption loss of approximately $20,000 a month. Continental's objection that Paul had used an erroneous formula was overruled by the district court. 34 The Continental policy provided that the insurer would pay: 35 Loss of earnings sustained, less operating expenses which do not necessarily continue, during necessary interruption of business. . . . Earnings are defined as net profit plus payroll expenses, taxes, interest, rent and all other operating expenses earned by the business. 36 It is important to note that noncontinuing business expenses are to be subtracted from the sum of operating expenses plus net profit not from gross earnings. The purpose of the formula is to place the insured in the same financial posture it would have had if not for the casualty. See Great Northern Oil Co. v. St. Paul Fire & Marine Ins. Co., 303 Minn. 267, 227 N.W.2d 789, 793 (1975). 37 Nevertheless, the district court allowed the witness to offer an opinion founded on projected gross earnings minus non-continuing expenses. Had Cora Pub been unquestionably profitable, this variation from the terms of the policy would have been of no consequence, but in fact Cora Pub had never shown a profit. Paul's opinion was developed from a clearly erroneous interpretation of the policy and should have been stricken from the record. 38 Continental also protests that much of Paul's opinion rests on assumptions never established by evidence. While many of Continental's criticisms of Paul's reasoning would ordinarily present simple questions of fact for the jury, in this case they underline the importance of another error of the district court the limitation of Continental's right of cross-examination. 39 The foundation of Paul's opinion was a financial statement prepared by Jack Dobish. When the Cora Pub called Dobish as a witness to lay the predicate for admitting the statement into evidence, the court barred Continental from any cross-examination as to the method of preparation. The court further ruled that Continental could question Dobish about the preparation of the statement only if it called Dobish as its own witness, and that Continental would be bound by Dobish's testimony. 40 Dobish's financial statement was a summary of unspecified financial records of Cora Pub. As such, it was admissible only if opposing counsel was offered the right to cross-examine the person who prepared the summary. Wright v. Southwestern Bank, 554 F.2d 661 (5th Cir. 1977); McDaniel v. United States, 343 F.2d 785 (5th Cir. 1965). To deny Continental this right was reversible error. 41