Opinion ID: 1297320
Heading Depth: 1
Heading Rank: 9

Heading: misrepresentation issues

Text: In their answers to the complaint, Lloyd's and Central National each asserted that QCF made material misrepresentations in obtaining insurance coverage. QCF moved to dismiss the misrepresentation defenses on the basis that Lloyd's and Central National had waived the right to assert the defenses because they had not timely tendered back any premiums to QCF after learning of the alleged misrepresentations. The trial court denied the motion to dismiss and allowed the misrepresentation defenses to go to the jury. The jury was instructed that the insurers had the burden of proving by clear, cogent, and convincing evidence that misrepresentations which were material to the issuance of the insurance were made in connection with the policies with the intent to deceive the insurers. Instructions 7, 8; Clerk's Papers (Appellant) vol. 4, at 1119, 1120. The jury returned a verdict in favor of Lloyd's and Central National on the issue. The Court of Appeals reversed, holding that lack of timely tender precluded the misrepresentation defenses under Neat v. United States Fid. & Guar. Co., 170 Wash. 625, 17 P.2d 32 (1932) and Glandon v. Searle, 68 Wn.2d 199, 412 P.2d 116 (1966). The court expressed doubt as to the continued viability of the holdings in those cases, however. We reverse the Court of Appeals, but do not reach the tender issue because we hold, for other reasons, that the misrepresentation defenses fail. We first address a challenge to Central National's misrepresentation defense. QCF argues that its motion for a judgment n.o.v. on the issue of the misrepresentation defense of Central National should have been granted because there was insufficient evidence to support the jury's verdict against QCF on the issue. [22, 23] Since misrepresentation is an affirmative defense, the burden of proof is on defendant Central National. See Haslund v. Seattle, 86 Wn.2d 607, 620-21, 547 P.2d 1221 (1976); Olpinski v. Clement, 73 Wn.2d 944, 950, 442 P.2d 260 (1968). Misrepresentation in obtaining insurance must be proved by clear, cogent, and convincing evidence. See generally Beckendorf v. Beckendorf, 76 Wn.2d 457, 462, 457 P.2d 603 (1969). The standard of proof is a high one, requiring that the trier of fact be convinced that the fact in issue is `highly probable'. Colonial Imports, Inc. v. Carlton Northwest, Inc., 121 Wn.2d 726, 735, 853 P.2d 913 (1993). Jury instruction 8 instructed the jury that Central National/Highlands have asserted a defense that Queen City Farms and/or its brokers intentionally concealed material facts about the business conducted at Queen City Farms' property in applying for insurance. To prevail on this defense, Central National/Highlands must prove by clear, cogent and convincing evidence the following: First, that the insurance company requested the material fact be disclosed on the insurance application. Second, that Queen City Farms concealed the material fact when it applied for insurance. Third, that Queen City Farms knowingly concealed the material fact with the intent to deceive the Central National/Highlands. Fourth, that Central National/Highlands were unaware of the concealed fact when they issued its [ sic ] policies. Fifth, that the concealed facts were material to the issuance of the insurance. The facts concealed were material to the issuance of the insurance if knowledge of the true facts would have influenced the insurer's decision about the insurance contracts. Clerk's Papers (Appellant) vol. 4, at 1120. [24] The only objection to this instruction was by the insurers, who objected on the ground that the instruction required the jury to find an intent to deceive. Exceptions to Instructions (May 26, 1988), at 15. Thus, there is no objection to this jury instruction insofar as it requires that Central National prove a request for disclosure of the risk of the waste ponds. We do not address whether a request for disclosure is a proper element of Central National's misrepresentation defense. Instructions given by a trial court to a jury are treated as the properly applicable law if not objected to. See generally Lutheran Day Care v. Snohomish Cy., 119 Wn.2d 91, 113, 829 P.2d 746 (1992) (citing 15 Lewis H. Orland & Karl B. Tegland, Wash. Prac., Trial Practice  Civil § 380, at 56 (4th ed. 1986)), cert. denied, 122 L.Ed.2d 353 (1993); see, e.g., State v. Ng, 110 Wn.2d 32, 39, 750 P.2d 632 (1988). [25] We agree with QCF that Central National has failed in its burden of proving misrepresentation. Central National did not prove it requested information about the risk, nor did it prove that any misrepresentation was material to its decision about the insurance contracts. Having in mind the clear, cogent, and convincing standard of proof, we review the trial court's denial of the motion for a judgment n.o.v. In ruling on a motion for judgment notwithstanding the verdict, a trial court exercises no discretion. The court must accept the truth of the nonmoving party's evidence and draw all favorable inferences that may reasonably be evinced. The evidence must be viewed in the light most favorable to the nonmoving party; the court may grant the motion only where there is no competent evidence or reasonable inference that would sustain a verdict for the nonmoving party. `If there is any justifiable evidence upon which reasonable minds might reach conclusions that sustain the verdict, the question is for the jury.' (Footnotes omitted.) Douglas v. Freeman, 117 Wn.2d 242, 247, 814 P.2d 1160 (1991) (quoting Lockwood v. AC&S, Inc., 109 Wn.2d 235, 243, 744 P.2d 605 (1987) (quoting Levy v. North Am. Co. for Life & Health Ins., 90 Wn.2d 846, 851, 586 P.2d 845 (1978))). Viewing the evidence most favorably to Central National, and drawing all reasonable inferences in its favor, there is insufficient evidence under the clear, cogent, and convincing standard to sustain a verdict for Central National. First, as to any request for information about any risk associated with the waste ponds, Central National relies upon the testimony of Ed Lea, the underwriter who authorized the issuance of Central National's 1977 policy. Lea testified that in 1977 the questions on the applications used on behalf of Central National asked what the insured did and what its experience had been, type of losses, generally everything we could learn about the risk itself. Testimony of Lea (May 25, 1988), at 10. However, he also testified he had no present memory of any of the Central National policies at issue, and did not recall the specific application for Central National insurance. He did not recall if the insurance application asked about pollution-related risks. He testified that he would not have thought about asking about activities on the farm 7 years earlier. The latter testimony is particularly important, since the waste pits had been largely inactive for those 7 years. See Br. of Appellant Queen City Farms, at 6 ([d]isposal activity ... effectively ceased in 1969 or 1970) (citing Testimony of Banchero (May 12, 1988), at 98-99). [26] This evidence and the reasonable inferences therefrom are not sufficient proof under the clear, cogent, and convincing standard that there was any request by Central National for disclosure of the waste ponds and the associated risk. The most favorable view of the evidence is that QCF was asked what its activities were when the application was made, and what its insurance experience and losses had been. Neither of these inquiries would have elicited information about activity involving the waste pits years earlier, nor the existence of the pits. Lea's statement that QCF would have been asked for generally everything [that Central National] could learn about the risk itself is too vague and general from which to draw the inference that QCF was requested to disclose risks associated with the waste ponds. A verdict cannot be founded on mere speculation. Hojem v. Kelly, 93 Wn.2d 143, 145, 606 P.2d 275 (1980). Any inference drawn from Mr. Lea's statement about everything that Central National could learn would be speculative at best, and clearly was not sufficient under the clear, cogent, and convincing standard. More importantly, aside from failing to prove a request as required by instruction 8, Central National completely failed to prove materiality, i.e., whether disclosure of the waste ponds on the property would have influenced its decision about the insurance contracts. Although Lea testified he would not have underwritten a risk which described a liquid waste disposal site on a piece of property, he also testified that he would not have made the decision, and he did not know if they would have written it. Testimony of Lea (May 25, 1988), at 13. Whether this witness thought he would have or would not have written the contracts is irrelevant. By his own admission he did not make the decision and did not know what the decision would have been had the risk been disclosed. [4] Central National also relies upon testimony by Lee Lindeen, an underwriter for a different insurance company, that the risk would have been declined. However, Mr. Lindeen was not a Central National underwriter, and was speculating about what another insurance company might have done. Mr. Lindeen's purely speculative testimony is not sufficient under the clear, cogent, and convincing standard of proof to establish that Central National would have made a different decision about the insurance contracts if it had known of the waste ponds. Because as a matter of law Central National failed in its burden of proof, the trial court erred in denying QCF's motion for a judgment notwithstanding the jury's verdict on misrepresentation. We turn to QCF's challenge to the Lloyd's misrepresentation defense. SDC/QCF's owners hired insurance brokers to obtain comprehensive insurance for SDC and its related companies, including a commercial garbage hauling business and QCF. In an 8-page letter written in 1965 to the prospective insurers, QCF's broker described the various activities and risks associated with the companies. He described QCF by stating that the owners of SDC also have buildings which they rent and some vacant land plus a 160-acre farm (Queen City Farms) which formerly was a hog ranch but which now is vacant. Clerk's Papers (Respondent) vol. 17, at 3224. In fact, the site was 320 acres with at least two houses, other buildings, and the hazardous waste dump site. After receiving this letter, the Lloyd's broker telexed back asking WHERE RUBBISH DISPOSED AND SURROUNDING NUISANCE EXPOSURE. Exhibit A-62 (Dec. 21, 1965 cable). QCF's broker responded ASSURED [INSURED] ONLY DELIVERS GARBAGE RUBBISH AND NO RESPONSIBILITY DUMPSITE THEREFORE NO EXPOSURES THIS ASPECT AND CONSIDER GOOD RISK UMBRELLA STOP. Exhibit A-62 (Dec. 23, 1965 cable). At the time this cable was sent, QCF's owners and its broker knew about the waste pits at Queen City Farms. Lloyd's maintains that QCF materially misrepresented the risk associated with insuring the farm. To show the materiality of the misrepresentation, Lloyd's presented the testimony of a Lloyd's underwriter, Andrew Drysdale, which was admitted over QCF's objection. Drysdale, who testified as an expert witness, opined that the fact that the QCF site was a large-scale industrial waste dump site would have been important to a London underwriter in 1966, and that if the underwriters had been told the truth, they most likely would have done something other than what they did, agree to insure the QCF site with no conditions and for a de minimis premium. Testimony of Drysdale (May 20, 1988), at 4042. QCF argues that the trial court abused its discretion when it overruled QCF's foundational objection to the expert testimony of Drysdale concerning underwriting practices of Lloyd's syndicates regarding waste disposal sites and operations. QCF argues that Drysdale lacked the factual knowledge, skill, experience, training, or education required by ER 702, strayed from the area of his expertise, and gave an opinion without sufficient foundational facts upon which to base the opinion. ER 702 provides that [i]f scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise. [27] The admissibility of expert testimony under Rule 702 will depend upon whether the witness qualifies as an expert and upon whether an expert opinion would be helpful to the trier of fact. 5A Karl B. Tegland, Wash. Prac., Evidence § 288, at 380 (3d ed. 1989); see In re Young, 122 Wn.2d 1, 57, 857 P.2d 989 (1993). Trial courts retain broad discretion in determining whether an expert is qualified and will be reversed only for manifest abuse. Harris v. Groth, 99 Wn.2d 438, 450, 663 P.2d 113 (1983). [28] An expert must stay within the area of his expertise. See McBroom v. Orner, 64 Wn.2d 887, 889, 395 P.2d 95, 11 A.L.R.3d 914 (1964); Sehlin v. Chicago, M., St. P. & Pac. R.R., 38 Wn. App. 125, 132-33, 686 P.2d 492 (trial court did not err by refusing to allow railroad worker to testify as expert where no effort was made to lay sufficient foundation to qualify the witness as to proper methods of rerailing railroad cars), review denied, 102 Wn.2d 1022 (1984); cf. Boeing Co. v. Sierracin Corp., 108 Wn.2d 38, 50-51, 738 P.2d 665 (1987) (court did not err in excluding testimony of engineer who had almost no experience with reverse engineering of the type needed). [29] In addition, while ER 703 is intended to broaden the acceptable bases for expert opinion, there is no value in an opinion that is wholly lacking some factual basis. 5A Tegland § 304, at 451; see Davidson v. Municipality of Metro. Seattle, 43 Wn. App. 569, 575, 719 P.2d 569, review denied, 106 Wn.2d 1009 (1986). Also, while under ER 705 the expert need not disclose the facts and data underlying his or her opinion unless the judge requires otherwise, the expert may in any event be required to disclose the underlying facts or data on cross examination. ER 705. Rule 705 allows the cross-examiner to probe the knowledge of the witness and the facts and elements relating to the witness's opinion. (Footnote omitted.) 5A Tegland § 313, at 489. Where there is no basis for the expert opinion other than theoretical speculation, the expert testimony should be excluded. Drysdale testified that the Lloyd's insurance market was a society consisting of some 30,000 members grouped into about 150 syndicates. Testimony of Drysdale (May 20, 1988), at 7-8, 31. The syndicates, in turn, were managed by corporations that acted as the underwriting manager for the syndicate. Each syndicate specialized in certain risks. Drysdale testified that his syndicate did not underwrite any of the QCF insurance, and that he had never underwritten insurance covering a waste disposal site or operation and had no personal knowledge of any of the other 149 syndicates' underwriting practices for such risks. He testified that he couldn't say what other underwriters were up to with regard to that type of insurance, and he was not aware of the underwriting practices of other Lloyd's underwriters with respect to dump sites. He admitted he had no knowledge one way or the other that another underwriter was issuing insurance to cover dump sites. Drysdale never talked to the actual underwriters. Testimony of Drysdale (May 20, 1988), at 31-35, 51-53, 62-63. We agree with QCF that Drysdale's opinion testimony should have been excluded and the trial court abused its discretion by admitting the testimony. Although Drysdale may have been an expert as to certain practices of Lloyd's underwriters, and an expert as to the underwriting practices of his own syndicate, he was not qualified to testify as to the Lloyd's policies at issue and whether misrepresentations by QCF were material, i.e., whether knowledge of the true facts would have influenced the insurer's decisions about the insurance contracts. Instruction 7; Clerk's Papers (Appellant) vol. 4, at 1119. His testimony strayed beyond his field of expertise, i.e., he lacked the factual knowledge, skill, experience, training, or education required by ER 702, in that he had no knowledge whatever of the underwriting practices of the syndicates which insured QCF, and could not state a generally accepted standard practice for all of the Lloyd's syndicates. His testimony also should have been excluded because it lacked sufficient foundational facts to support his opinion that the actual underwriters would have reached a different decision about issuing the insurance had they known of the waste ponds. His testimony that they would not have done so is conjecture and speculation. Lastly on this issue, Lloyd's maintains that if the trial court erred in allowing the testimony, any error was harmless. Lloyd's reasons that the deposition testimony of Malcolm Beard, who was an underwriter on one of the Lloyd's policies, was sufficient evidence as to the materiality of the misrepresentations. Beard's deposition is found in the Clerk's Papers. The verbatim transcript indicates that part of the testimony was read to the jury. Verbatim Report of Proceedings (May 25, 1988), at 9-10. However, that testimony was not transcribed, and it is not possible to determine which part of the deposition the jury heard. [5] Thus, it is not possible to determine whether Beard's deposition testimony which the jury heard supports a determination of materiality. For this reason, we do not consider the Beard deposition. In light of our conclusion that Lloyd's expert witness's testimony should have been excluded, and our conclusion that there remains no proof on this record of materiality of any misrepresentations by QCF, Lloyd's materiality defense must be rejected. [6]