Opinion ID: 2596903
Heading Depth: 2
Heading Rank: 1

Heading: the insurance contract prevents appellant from rescinding the policy after first cancelling it

Text: ¶11 TDC argues that the district court erred in granting summary judgment because it failed to recognize TDC's statutory and contractual right of rescission in light of Drezga's alleged misrepresentations and failure to cooperate. We disagree and conclude that Appellant is barred from rescinding Drezga's insurance policy for two reasons. First, the contract uses clearly disjunctive language, indicating that TDC can either rescind or cancel the policy, but cannot do both. Because TDC's own pleadings indicate that it first cancelled the policy, we hold that it waived whatever right of rescission it may have possessed. Second, even when viewed in the light most favorable to TDC, the contract language regarding the consequences of misrepresentation is ambiguous. This court has long followed the rule that any such ambiguity must be resolved in favor of the insured party; thus, the district court did not err in granting summary judgment to Appellees. ¶12 As always, when presented with a contractual obligation we first look to the contract and construe its terms to give effect to the intentions of the parties. When possible, of course, these intentions should be gleaned from an examination of the text of the contract itself. LDS Hosp. v. Capitol Life Ins. Co., 765 P.2d 857, 858 (Utah 1988). We construe insurance contracts by considering their meaning to a person of ordinary intelligence and understanding, viewing the matter fairly and reasonably, in accordance with the usual and natural meaning of the words, and in the light of existing circumstances, including the purpose of the policy. Id. at 858-59 (quoting Auto Lease Co. v. Cent. Mut. Ins. Co., 325 P.2d 264, 266 (Utah 1958)). Furthermore, any ambiguity or uncertainty in the language of an insurance policy must be resolved in favor of coverage. Id. at 858. This rule of strict construction is justified by the need to afford the insured the protection he or she endeavored to secure by paying premiums. Id. Ambiguity exists if a provision of a contract is capable of more than one reasonable interpretation because of uncertain meanings of terms, missing terms, or other facial deficiencies. WebBank v. Am. Gen. Annuity Serv. Corp., 2002 UT 88, ¶ 20, 54 P.3d 1139 (internal quotation marks omitted). ¶13 The contract between Drezga and TDC sets forth the consequences of misrepresentation in two places. First, under Part 1 of the General Provisions section, the contract states that if an applicant misrepresents any material fact, then this policy will be void and the Exchange will rescind or cancel the policy. (Emphasis added). Second, under Part 11 of the same section, the contract indicates that TDC may cancel your policy at any time in case of fraud or material misrepresentation. The contract then explains that should cancellation occur TDC will notify the insured party using a written notice by certified mail to [the] latest address shown on the Exchange's records. Such action has prospective effect, since the date for cancellation will be 60 days from the date on the written notice. ¶14 The record shows that TDC took action to cancel the contract once Drezga's misrepresentations became known. In its amended complaint, TDC confirmed that it canceled the policy of insurance with Dr. Drezga by mailing a notification regarding the same to his last known address. [4] The use of the word canceled, and the fact that TDC followed the procedure outlined in the contract for cancellation, both indicate that TDC deliberately selected this course of action. ¶15 TDC argues that its cancellation of Drezga's policy did not waive its right of rescission; in other words, that the two actions are not mutually exclusive. The Utah Court of Appeals has held that, absent an express waiver by an insurance company, a contractual right to rescission is forfeited only if the insurer's course of conduct demonstrates that it intended to relinquish that right. Cont'l Ins. Co. v. Kingston, 2005 UT App 233, ¶ 9, 114 P.3d 1158. To determine whether a waiver has occurred, the court must consider the totality of the circumstances. Id. ¶ 11 (internal quotation marks omitted). A waiver may be implied by any substantial act that recognizes the contract as in force. Id. ¶ 14. Once the right of rescission has been relinquished, an insurer is thereafter prohibited from asserting that right. Id. ¶ 9. TDC contends that its actions demonstrate that it reserved, rather than relinquished, the right of rescission. ¶16 Given the clearly disjunctive language in this contract, we do not find this argument persuasive. We need not decide here whether cancellation and rescission are in all cases mutually exclusive. It may be permissible for an insurance company to include contractual language allowing it to cancel a policy, thus limiting its future risk, while its right to rescind the same policy is being litigated. In this case, however, the language of the contract does not so provide. The policy limits TDC's options: it may cancel, or it may rescind. TDC is essentially asking us to read the or as and; we decline to do so. When the language of a contract creates a choice between cancellation or rescission, pursuing the former is a course of conduct that demonstrates waiver of the latter. [5] ¶17 TDC also contends that the district court erred by failing to give effect to the contract language as a whole. TDC points specifically to Part 1 of the contract's General Provisions section, which contains not only the rescind or cancel language but states in its entirety, this policy will be void and the Exchange will rescind or cancel the policy in cases of material misrepresentation. (Emphasis added.) This, TDC argues, gives it a contractual right to seek rescission of the policy. But the void language does not help TDC's case, because its primary impact makes the consequence of misrepresentation unclear. The language will be void suggests that, in case of misrepresentation, the contract will be void ab initio, a result that would be contrary to Utah law. Baldwin v. Burton, 850 P.2d 1188, 1193 (Utah 1993) (explaining that insurance contracts induced by misrepresentation are not void but only voidable). On the other hand, the language immediately following states that TDC will take action to rescind or cancel the policy. Therefore, under the contract, a misrepresentation could plausibly produce any one of three distinct consequences: the policy could be void, such that legally speaking it never existed; it could be merely voidable, in which case the insurer could retroactively nullify it through the process of rescission; or the policy could be cancelled, meaning that a legally valid contract once existed but has since been severed. ¶18 We do not see in this language the clear right of rescission that TDC wishes us to find. At best, the contract is ambiguous as to the consequences of misrepresentation, and we resolve such ambiguity against the drafter of the contract and in favor of maintaining insurance coverage. LDS Hosp., 765 P.2d at 858. We therefore rely on the plain language of the cancel or rescind provision, which compels TDC to choose between cancellation or rescission rather than allowing it to do both. TDC chose to cancel the policy in 2000 and therefore waived its right to rescission. Because cancellation has only prospective effect, Drezga's policy was valid at the time of Athan's birth and TDC remains responsible for the malpractice judgment. Accordingly, we hold that the district court correctly granted summary judgment to the Appellees. [6]