234 Conn. 182

Lyle Munroe et al. v. Great American Insurance Company et al.

(14969)

Peters, C. J., and Borden, Berdon, Norcott and Palmer, Js.

*183Argued March 14

decision released July 11, 1995

Jessica L. Papazian-Ross, for the appellants (defendants).

Michael T. Sullivan, with whom were Jacques J. Parenteau and, on the brief, Keith B. Kyle, for the appellees (plaintiffs).

Peters, C. J.

The sole issue in this certified case from the United States District Court for the District of Rhode Island is whether, under the circumstances of this case, an insurance company that has issued a binder for liability insurance coverage in reliance on intentional and material misrepresentations by the insurance applicant can rescind the insurance contract ab initio so as to avoid liability to innocent third parties. The plaintiffs, Lyle Munroe and Shirley Munroe, brought *184a diversity action in the District Court, pursuant to Rhode Island General Laws §§ 27-7-1 and 27-7-2,1 to recover damages for personal injuries that they had suffered in a collision between their car and that of Ronald R. Menard. They alleged that Menard, at the time of the accident, was insured under an insurance binder issued by the defendant, Great American Insurance Company. The defendant filed an answer and a counterclaim, in which it alleged that it had no liability to the plaintiffs because it had revoked and rescinded Menard’s insurance upon discovering intentional and material misrepresentations in Menard’s insurance application. Concluding that Connecticut law governed the validity of the defendant’s counterclaim, the Dis*185trict Court certified the following question to us,2 which we agreed to answer: “Whether intentional material misrepresentations on an application for insurance give the insurance company the right to rescind the insurance contract with the effect that it is void ab initio?” We are persuaded that the answer to the question is: No, under the circumstances of this case.

The record provided by the District Court establishes the following facts. Menard purchased his car in Connecticut on February 8,1990. In order to register the car, he needed proof of liability insurance. He knew that his motor vehicle operator license had been suspended because of his failure to pay fines arising out of his convictions, in 1988 and 1989, of reckless driving and speeding.

In order to obtain liability insurance, Menard contacted an agent at Guardian Group-Gerardi Associates, Inc. (Guardian), an authorized Connecticut agency for the defendant, to whom he intentionally made representations that were false and that were material to his eligibility for insurance coverage. Over the telephone, Menard advised the agent that he was married, that he was living at a designated address in Putnam and *186that he had not been convicted of a moving violation within the last five years. None of these statements was true. A woman representing herself to be Menard’s wife then went to the Guardian office, where she signed Menard’s name and her own to the insurance application and made a deposit payment of $120. The application contained incorrect driver’s license numbers for Menard and for his alleged wife. Guardian issued an insurance binder effective February 8, 1990, providing, in part, single limit liability coverage in the amount of $300,000. The binder would not have issued but for the misrepresentations made by Menard.

Guardian immediately forwarded the insurance application and the deposit to the defendant. On February 23,1990, Guardian was notified by the defendant that it had been unable to obtain a motor vehicle report concerning Menard or his alleged wife from the state of Connecticut. The defendant asked Guardian to confirm the license numbers that had been provided to it. On March 3,1990, a Guardian agent telephoned the number given on the insurance application, which was the telephone number of Menard’s mother, and left a message for Menard. On March 8, 1990, having reached Menard at his work place, a Guardian agent asked Menard to verify his license number. Menard replied that he did not have his license with him and would have to call back. He failed to do so.

On March 15, 1990, the plaintiffs were injured in a two car accident that was caused by Menard, who was driving the car listed on the binder issued by Guardian. Menard died as the result of the accident.

On March 20, 1990, five days after the accident in which the plaintiffs were injured and Menard was killed, the defendant obtained the correct driver’s license numbers for Menard and his alleged wife. The defendant then obtained accurate information about Menard’s *187driving record from the Connecticut department of motor vehicles. On April 5,1990, twenty-one days after the accident and fifty-six days after the binder had become effective, the defendant sent a letter to Menard’s alleged wife in which it gave her notice that Menard’s application for insurance had been “rejected” and that coverage was “rescinded.”

The question in this case is whether the legislature abrogated the insurer’s common law right of rescission when it enacted the automobile insurance statutes, General Statutes § 38a-334 et seq. While the legislature’s authority to abrogate the common law is undeniable, we will not lightly impute such an intent to the legislature. “[Cjourts must discharge their responsibility, in case-by-case adjudication, to assure that the body of the law—both common and statutory—remains coherent and consistent.” Fahy v. Fahy, 227 Conn. 505, 513-14, 630 A.2d 1328 (1993). “Although the legislature may eliminate a common law right by statute, the presumption that the legislature does not have such a purpose can be overcome only if the legislative intent is clearly and plainly expressed.” Lynn v. Haybuster Mfg., Inc., 226 Conn. 282, 290, 627 A.2d 1288 (1993); State v. Sanchez, 204 Conn. 472, 479, 528 A.2d 373 (1987). We conclude that the compulsory automobile insurance statutes, read as a whole, abrogate the right of an insurer to rescind automobile insurance ab initio so as to deny recovery to an innocent third party victim.3

In Middlesex Mutual Assurance Co. v. Walsh, 218 Conn. 681, 692, 590 A.2d 957 (1991), we explained that at common law, an insurer has a right to rescind for material misrepresentation in an insurance application *188if that misrepresentation is “known by the insured to be false when made.” Our common law of automobile insurance contracts is therefore more restrictive than our common law of contracts generally.4 Automobile insurance, however, may be rescinded at common law on the basis of intentional material misrepresentation.

General Statutes § 38a-340, formerly § 38-175e, authorizes an automobile liability insurer to issue a temporary policy, known as a binder, pending its undertaking of permanent insurance coverage. Under § 38a-340, a binder may not be issued for a period exceeding sixty days, and its provisions must comply with the legislative mandates of General Statutes §§ 38a-334 to 38a-336, inclusive, § 38a-338, and §§ 38a-340 to 38a-345, inclusive. General Statutes § 38a-343, formerly § 38-175h, in turn, provides in relevant part: “No notice of cancellation of a policy which has been in effect for less than sixty days may be effective unless mailed or delivered by the insurer at least forty-five days before the effective date of cancellation, provided that at least ten days’ notice shall be given where cancellation is for nonpayment of premium or material misrepresentation.” (Emphasis added.)

*189The defendant argues that the reference in § 38a-343 to cancellation for material misrepresentation does not abrogate an insurer’s common law right of rescission for intentional material misrepresentation. In the defendant’s view, an insurer who exercises due diligence in verifying the information provided by an applicant retains the right to avoid the contract ab initio for intentional material misrepresentation. The plaintiffs, on the other hand, argue that the inclusion of a cancellation provision specifically addressing material misrepresentation indicates that the legislature intended § 38a-343 to be an insurer’s exclusive remedy for misrepresentations, whether made intentionally or not. On this construction, because the notice of cancellation was not sent until after the accident, the defendant could not avoid liability to the plaintiffs, because under the statute the cancellation necessarily became effective only after the accident had occurred. In the context of an action brought by an injured third party, we agree with the plaintiffs’ reading of the applicable statutes.

The defendant is correct that, in statutes other than § 38a-343, the legislature has undertaken, in so many words, to distinguish between cancellation on the one hand and annulment or rescission on the other. See, e.g., General Statutes §§ 38a-321 (referring in disjunctive to “cancellation” or “rescission”) and 38a-567 (1) (C) (small employer health insurance plans can be “rescinded for . . . material misrepresentation” [emphasis added]). These textual clues, though not occurring in the automobile insurance subchapter itself,5 could suggest a legislative intent to limit the applicability of the provisions in § 38a-343 to instances *190of prospective termination of insurance binders. See generally Dart & Bogue Co. v. Slosberg, 202 Conn. 566, 573, 522 A.2d 763 (1987) (meaning of term in statute determined in part by looking to related statutes in same chapter).

Such an interpretation also could find support in cases arising under § 38a-3216 and its predecessors dating back to the 1930s, in which we have authorized automobile insurers to exercise their right to annul an insurance contract even when intervening third party interests may be adversely affected. We repeatedly have interpreted that statute to provide that “[a] party subrogated to the rights of an assured . . . obtains no different or greater rights against the insurer than the insured possesses and is equally subject to any defense the insurer may have against the assured under the policy. Arton v. Liberty Mutual Ins. Co., 163 Conn. 127, 139-40, 302 A.2d 284 (1972); Commercial Contractors Corporation v. American Ins. Co., 152 Conn. 31, 40, 202 A.2d 498 (1964); Connecticut Savings Bank v. First National Bank & Trust Co., 138 Conn. 298, 305, 84 A.2d 267 (1951); Goergen v. Manufacturers Casualty Ins. Co., 117 Conn. 89, 93, 166 A. 757 (1933); Rochon v. Preferred Accident Ins. Co., 114 Conn. 313, 315-16, 158 A. 815 (1932).” Brown v. Employer’s Reinsurance Corp., 206 Conn. 668, 673, 539 A.2d 138 (1988). *191While those cases focused on the insured’s alleged failure to cooperate, nothing in their holdings suggests that they would not have applied to an insured’s material intentional misrepresentations to the insurer.

Indeed, some courts have recognized a distinction between cancellation and rescission for purposes of insurance contracts. In Klopp v. Keystone Ins. Co., 528 Pa. 1, 7-8 n.6, 595 A.2d 1 (1991), for example, the Pennsylvania Supreme Court held that cancellation refers to prospective termination only, while rescission “is an abrogation of all rights and responsibilities of the parties towards each other from the inception of the contract. It is a form of retroactive relief.” See also United Security Ins. Co. v. Commissioner of Ins., 133 Mich. App. 38, 42, 348 N.W.2d 34 (1984) (“[rescission is insufficiently similar to cancellation to support the conclusion that the Legislature’s enactment of a statute controlling cancellation of an automobile insurance policy without mentioning rescission demonstrates the Legislature’s intent to preclude rescission”);7 8 J. Appleman, Insurance Law and Practice (1973) § 5011, p. 441; R. Keeton & A. Widiss, Insurance Law (1988) § 6.10 (e), p. 739 (discussing different ramifications of cancellation and rescission).

Despite these sources of support for the defendant’s argument, however, reading the automobile insurance statutes as a whole persuades us that the defendant’s proffered interpretation is untenable. We presume that the term “cancellation” retains the same meaning throughout the automobile insurance statutes; see Weinberg v. ARA Vending Co., 223 Conn. 336, 343, 612 A.2d 1203 (1992); and neither party has suggested *192otherwise. In General Statutes § 38a-343a,8 the legislature provided that insurance companies, on a monthly basis, must notify the commissioner of motor vehicles of the “cancellation” of all previously issued automobile insurance policies which occurred during the preceding month. The commissioner is then required to use that information to determine whether the can-celled insured has maintained the legally required insurance coverage. The evident purpose of this statute is to facilitate the suspension of motor vehicle registrations for failure to maintain insurance.

If we were to follow the defendant’s reasoning, the notification procedures established in § 38a-343a would not apply when the insurer seeks to rescind an insurance binder ab initio, because the statute refers solely to “cancellation.” We have found no legislative history to support such a statutory distinction. Rather, the legislature appears to have intended, as a means of controlling insurance costs, to establish a comprehensive program that would facilitate the license revocation of all drivers who do not have proper insurance. See 36 S. Proc., Pt. 12, 1993 Sess., pp. 4468-71. The limited applicability of § 38a-343a that would follow from the defendant’s interpretation of the term “cancellation” cannot be reconciled with this manifest legislative intent.

Similar problems emerge from the application of the defendant’s interpretation to General Statutes §§ 38a-344 (valid form of notice of cancellation), 38a-345 (notification from insurer to former insured of potential eligibility for assigned risk pool), and 38a-346 (immunity from civil liability arising out of notice of *193cancellation). The policy arguments that might support a distinction between cancellation and rescission in the limited ambit of § 38a-343 dissipate when that distinction is tested against the statutory landscape as a whole. We conclude, accordingly, that the legislature did not intend the insurer’s common law right of rescission as against an innocent third party for intentional material misrepresentation by the insured to survive the enactment of § 38a-343.

We note that our result today is consistent with the conclusion reached by other courts that have addressed the effect of a legislative scheme of compulsory automobile insurance on the common law right of rescission. See annot., 83 A.L.R.2d 1104 (1962) and supplemental sections. Although many of these cases arise out of different statutory enactments, they reflect the common policy of providing financial protection for those injured in automobile accidents.

The certified question that we agreed to answer for the District Court asked “[wjhether intentional material misrepresentations on an application for insurance give the insurance company the right to rescind the insurance contract with the effect that it is void ab initio?” The answer to the certified question is: No, under the circumstances of this case.

No costs shall be taxed in this court to either party.

In this opinion the other justices concurred.

Munroe v. Great American Insurance
234 Conn. 182

Case Details

Name
Munroe v. Great American Insurance
Decision Date
Jul 11, 1995
Citations

234 Conn. 182

Jurisdiction
Connecticut

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