Opinion ID: 2085597
Heading Depth: 3
Heading Rank: 1

Heading: Effect of compulsory financial responsibility statutes

Text: As a preliminary matter, we address whether an insurer's common law right to void insurance coverage due to material misrepresentations (discussed in Part II.B infra ) survived the enactment of laws requiring all Indiana drivers to carry liability insurance or other proof of financial responsibility. Before 1983, the Financial Responsibility Act required liability insurance only after the first accident. IND.CODE § 9-2-1-4 (Supp. 1977). As a result of amendments in 1982 and 1984, see 1982 Ind.Acts. P.L. 83, § 1; 1984 Ind. Acts, P.L. 71, § 1, all drivers in this state are now required to carry minimum levels of liability insurance irrespective of their driving record. IND.CODE §§ 9-25-4-1 to -11 (1993 & Supp.1994). [5] Court of Appeals decisions have differed as to the effect of this change on the right to rescind coverage. American Underwriters Group, Inc. v. Williamson, 496 N.E.2d 807 (Ind.Ct. App.1986) expressly overruled one of the principal cases establishing this right in Indiana, Automobile Underwriters, Inc. v. Stover, 148 Ind.App. 555, 268 N.E.2d 114 (1971). Williamson reasoned that allowing the liability insurer to void coverage due to material misrepresentations conflicted with the revamped statute's policy that persons who suffer loss due to the tragedy of automobile accidents shall have a source and means of recovery. Williamson, 496 N.E.2d at 810. Nine years later, Motorists Mut. Ins. Co. v. Morris, 654 N.E.2d 861 (Ind.Ct.App.1995) revived the right to rescind in part, concluding that the liability insurer could rescind the policy in that case because the accident victims had been compensated through their own uninsured motorist coverage. Distinguishing Williamson, Morris reasoned that because the policy underlying the Financial Responsibility Act was satisfied where uninsured motorist coverage was in place, total rescission was permissible. The Court of Appeals recently reiterated the Morris view in Federal Kemper Ins. Co. v. Brown, 674 N.E.2d 1030 (Ind.Ct.App.1997), trans. denied. A federal court applying Indiana law in a diversity case observed that the holdings of Williamson and Morris appeared to conflict. Pekin Ins. Co. v. Super, 912 F.Supp. 409 (S.D.Ind.1995). Concluding that this Court would not follow either Williamson or Morris, Super held that the third party's uninsured motorist coverage was irrelevant to determining the scope of the liability insurer's right to avoid coverage, but that the liability insurer could rescind only above the minimum levels prescribed by the Financial Responsibility Act. The Super court reasoned that shifting liability to the uninsured motorist carrier would disregard Indiana's public policy ... that auto accident victims' primary means of recovery be from liability insurance. Id. at 412 (citation omitted). Super thus parted company with Morris on allocation of the loss up to the statutory minimums when the third party victim has uninsured motorist coverage. In sum, Stover permitted rescission based on material misrepresentations, Williamson held that voiding coverage is never permissible in light of changes in the Act, Morris held that the insurer could void coverage so long as the third party victim had uninsured motorist protection, and Super attempted a compromise by allowing the insurer to deny coverage only above the minimum liability amounts specified by the Act. Even if we agree with Morris that the purpose underlying the Financial Responsibility Act is to provide a source of minimum compensation for accident victims, that goal is satisfied here because the third parties in this case had uninsured motorist coverage. To this extent, but only to this extent, we agree with the analysis of this issue in Morris and Brown. Conversely, Williamson is disapproved to the extent it holds that the liability insurer can never rescind due to material misrepresentations. We leave for another day whether a liability insurer can deny coverage when the third party does not have protection against uninsured motorists. This issue is not settled under current precedent but is neither presented under these facts nor argued by the parties. Finally, we disagree with Super `s conclusion that the defrauded liability insurer should bear the loss even where the third party victim has uninsured motorist coverage. Although the Financial Responsibility Act reflects a strong preference for recovery through liability insurance, this is not the only means of compensation for accident victims. Automobile insurers in this state are required to offer uninsured motorist coverage in recognition of the fact that some people will drive without liability insurance in disregard of the law. IND.CODE § 27-7-5-2 (1993 & Supp.1994). Thus, a third party's right to recover through liability insurance is not absolute. Cf. Transamerica Ins. Co. v. Henry, 563 N.E.2d 1265, 1268 (Ind.1990) (concluding that the Financial Responsibility Act does not constitute a social policy to guarantee compensation to all victims of motor vehicle accidents). There is no injustice in placing the loss with the third party's insurer (here Illinois Farmers), who has presumably been compensated through its premiums for accepting the risk of an uninsured tortfeasor. The accident victims (Pocius and Van Winkle) gain no unfair benefit because they paid for the very coverage at issue. The sum of this is that Colonial Penn's right to deny coverage due to material misrepresentations, discussed below, is not affected under these facts by the Financial Responsibility Act or the Uninsured Motorists Coverage Act.