Nationwide Property and Casualty Insurance Company v. Faircloth et al

Filing 78

ORDER granting Nationwide's 42 Motion for Summary Judgment; denying as moot Faircloth's 58 Motion for Summary Judgment. Signed by Judge D. P. Marshall Jr. on 8/19/2015. (jak)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
JONESBORO DIVISION

NATIONWIDE PROPERTY & CASUALTY
INSURANCE COMPANY

v.

PLAINTIFF

No. 3:13-cv-236-DPM

DEFENDANT

DONALD R. FAIRCLOTH, JR.

ORDER

Donald Faircloth applied online for a car insurance policy from
Nationwide. The company's automated system approved the application and
issued Faircloth a policy. A month or so later, Faircloth had a bad accident on
a rainy night. He was driving home from a family trip to North Carolina. His
Scion hydroplaned on some water covering the highway; he lost control; and
the car flipped. Faircloth's girlfriend, Samantha Cohea, died. His niece, Lillian
Jones, was injured. After the wreck, Nationwide discovered what it believes
are four material misrepresentations in Faircloth's online application. The
company seeks a declaration that it may rescind the policy's non-compulsory
provisions. Faircloth resists. He argues that three of the supposed
misrepresentations flow from ambiguities in Nationwide's poorly worded

and confusing online application. He also argues that the company waived its
right to rescind based on the fourth alleged misrepresentation. Faircloth seeks
judgment as a matter of law too. The parties agree that Nationwide's
settlements with Jones and Cohea's estate have mooted Faircloth's request for
a declaration about the company's duty to defend. They disagree about
whether his claim that he was entitled to a lawyer of his choice in the state
case is moot too.

1. Alleged Misrepresentations. Nationwide argues that Faircloth made
four material misrepresentations on his application: (1) he would have
continuous insurance coverage for his Scion until the Nationwide policy took
effect; (2) no one resided with him; (3) he was the car's sole owner; and (4) he
didn't use his car primarily for business purposes. In response, Faircloth
invokes the" mend the hold" doctrine. He argues that Nationwide's original
basis for rescission- the alleged lack of continuous coverage- bars the
company from asserting the other alleged misrepresentations now.
This venerable doctrine, however, has no work to do on these facts. An
estoppel is the working principle- there must be some detrimental reliance,
and some lack of good faith, considering all the circumstances. 5 WILLISTON

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ON CONTRACTS§ 742 (3d 1961). None exists here. Unlike the mule buyer in
Harriman v. Meyer, 45 Ark. 37, 40 (1885), Faircloth didn't offer to cure one

alleged problem in performance only to be met with another in the lawsuit.
Unlike in Harbor Insurance Company v. Continental Bank Corporation, 922 F.2d
357,363 (7th Cir. 1990), there's no inconsistency between the various defenses
Nationwide asserts. The new grounds are compatible with the first one, not
contradictory. Finally, there's no prejudice. Mente v. De Witt Rice Mill
Company,251 F. 252,253-54 (8th Cir. 1918); see also Ryerson v. Federal Insurance
Company, 676 F.3d 610, 614 (7th Cir. 2012). Nationwide turned up the new

alleged misrepresentations in Faircloth's deposition; Faircloth didn't object to
the proposed amended complaint asserting them, NQ 34; and he knew the
most about whether all the facts he stated in his application were true. The
company may seek rescission based on all four points.
• Continuous Coverage?

Faircloth indicated on his insurance application that he would have
insurance coverage for his car until the Nationwide policy took effect. There's
some argument about whether Faircloth's former policy actually lapsed. Even

if it did, though, Nationwide has waived this ground for rescission because

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it didn't give Faircloth prompt notice it was going to rescind.
According to Nationwide's representative, Richard Yuill, the company
decided to rescind Faircloth's policy because of the alleged continuouscoverage misrepresentation on 18 July 2013. Sheilah Thomas, a claims adjuster
assigned to Faircloth's claim, was involved in the conversation where Yuill
decided to rescind the policy. On the phone a week later, Thomas told
Faircloth that his claim was still under investigation.
About a week after this phone call, Nationwide drafted Faircloth's bank
account for the August premium. That draft bounced because Faircloth didn't
have enough money in his account. Nationwide sent Faircloth a notice of
cancellation in early August, telling him to pay his premium or lose coverage.
The letter also said that Faircloth would keep his coverage if he made the
payment. Faircloth didn't. So Nationwide cancelled the policy on20 August
2013. Several days later, Nationwide mailed Faircloth a bill for the
outstanding premiums. Nationwide told Faircloth that it would turn his case
over to a collection agency if he failed to pay by mid-September. Nationwide
notified Faircloth about the rescission and tendered his premiums to him in
November 2013 after filing this lawsuit. Nationwide didn't return the

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insufficient-funds fee it charged Faircloth for the bounced August draft.
Faircloth argues that Nationwide waited an unreasonably long time to
rescind the policy based on the alleged lapse-in-coverage misrepresentation.
It's undisputed that Nationwide decided to rescind on this ground in July
2013, but didn't give Faircloth notice until November 2013. Whether a delay
is unreasonable is usually a fact question for the jury. New York Life Insurance
Company v. Adams, 151 Ark. 123, 128, 235 S.W. 412, 415 (Ark. 1921). On this

record, however, Nationwide's delay was unreasonable as a matter of law.
Consider the precedent. Mr. Adams falsely represented that he was in
good health when he applied for a life insurance policy. On behalf of her
husband, Mrs. Adams later reapplied for the policy. She answered the same
health-related questions truthfully. By mid-December 1919, the insurance
company knew about, and had verified, Mr. Adams's misrepresentations. He
died in January 1920.

The company, which had been idle about the

misrepresentations, then sought to rescind the policy. Where the company
"had full and complete information in detail concerning the falsity of the
statements," waiting a month to rescind the contract was unreasonable as a
matter of law. Adams,151 Ark. at 129, 235 S.W. at 415.

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Here, as in Adams, Nationwide knew the facts. Yuill had made a firm
and unequivocal decision (correctly or incorrectly) to rescind Faircloth's
policy based on a lapse in coverage. Just as the insurer's delay of one month
in Adams was unreasonable as a matter of law, Nationwide's delay here of
several months, all the while pressing to collect premiums, was unreasonable.
There's no jury question. This argument for recision was waived.

• Undisclosed Household Member?
Nationwide next claims that Faircloth misrepresented that there were
no other members of his household. About two months before Faircloth
applied for the policy, he and Cohea leased an apartment together. Cohea's
name appears alongside Faircloth's in the lease. Cohea paid half the rent and
utilities, had her own key, got some mail, helped clean, and spent three or
four nights a week at the apartment. She didn't, however, keep a toothbrush
or hairbrush there.
When Cohea didn't sleep at the apartment, except for the occasional
night with her sister, she stayed at her father's house. She had her own room.
She kept clothes there. And she got most of her mail delivered there,
including her car-insurance statements, tax papers, and credit-card bills.

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Cohea's driver's license had her father's address.
On the application, Faircloth didn't disclose Cohea as a member of his
household. He says he didn't because, to his mind, Cohea still lived with her
father. Faircloth argues that Cohea could have only one residence in law,
which was still her father's house. Nationwide argues that Faircloth confuses
domicile and residence. As Nationwide puts it, Cohea can have multiple
residences, but only one domicile.
The Court must give" reside" its plain and ordinary meanings. Unigard
Security Insurance Company v. Murphy Oil USA, Inc., 331 Ark. 211, 221, 962

S.W.2d 735,739-40 (1998). Reside ordinarily means "have one's permanent
home in a particular place." Concise Oxford English Dictionary 1217 (Revised
lOth Ed. 2002); accord Webster's New International Dictionary 2119 (2d Ed.
Unabridged 1939). The term is not ambiguous. On this record, a reasonable
juror could find that Cohea resided with Faircloth. Another reasonable juror
could find that Cohea still resided with her father. The fighting issue is the
permanence of Faircloth's and Cohea's cohabitation. Cohea's residence is a
disputed material fact that a jury would have to decide.

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• Co-Owner?

Faircloth's friend Sidney Gately co-owned the Scion. Although Faircloth
and Gately both consider Faircloth the car's owner, it's undisputed that
Gately's name is on the car's title too. Nowhere on the application did
Faircloth disclose Gately as a co-owner. That omission, argues Nationwide,
is grounds for rescission because Faircloth represented that the car was ~~not
owned ... (fully or partially) by any other individuals ... except as disclosed
on this application." NQ 44-4 at 4. What Faircloth could disclose on
Nationwide's online application, however, undermines the company's
argument.
Faircloth affirmed on his application summary that several statements
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were true and accurate as indicated on the application." Ibid (emphasis added).
The Court must look to the application itself to see what Faircloth indicated.
IntegonLifelnsurance Companyv. Vandergrift, 11 Ark. App. 270,276,669S.W.2d

492, 495 (1984).
Using Faircloth's application summary, Nationwide recreated
screenshots of the application as Faircloth would have seen it. In one of those,
Nationwide asked Faircloth whether there was a loan or lease on the Scion.

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Ng 71-4 at 14-15. Faircloth answered that he had taken out a loan, and he

provided details. Ng 71-4 at 14. That was true; no one says otherwise. That's
the only question in the application that asked Faircloth whether anyone else
had a legal interest in the car. If Nationwide posed a question about coowners, it is not in the evidence submitted. So, "as indicated on the
application[,]" Faircloth correctly affirmed that there was a loan on the car.
Faircloth didn't misrepresent being the car's sole owner. Nationwide didn't
ask about co-owners. The company loses as a matter of law on this point.
• Primary Use?

In the application, Nationwide asked Faircloth what the "primary use"
for the car would be. Faircloth answered "work/ school"; Nationwide says the
correct answer was "business." By putting his electronic signature on the
application summary, Faircloth affirmed that he didn't put his car to any
"commercial use, the pickup and delivery of goods .... " Ng 44-4 at 4. Faircloth
argues that "primary use" is ambiguous.
When Faircloth applied for the insurance, he was living in West
Memphis, Arkansas. He was working as a delivery driver for National
Delivery Services, delivering car parts between West Memphis and

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Greenville, Mississippi. NQ 44-7 at 45 (deposition pagination). Faircloth
testified that he was putting at least 1,200 miles a week on his Scion as a
delivery driver. NQ 44-7 at 82-83 (deposition pagination). He was also using
his car to commute to his second job at Sonic in Marion, to take non-work
trips to Jonesboro and Memphis, and to run errands. It's unclear exactly how
many miles a week were involved in these personal uses. But there's no
contention that the total was anywhere close to his delivery-related mileage.
In the application, Nationwide asked Faircloth about his Scion's

primary use. The application gave Faircloth three choices:
Work/School (commute to/from, errands)
Pleasure (recreational driving)
Business (deliveries, sales calls, taxi).
NQ 71-4 at 2. If Faircloth needed more information about these choices, the

application's help feature offered it. If he had clicked on the u ?" icon, Faircloth
would have seen these explanations:

Primary use: Describes the most typical use for this vehicle.
Work/School: Refers to a vehicle driven to and from work/ school
and also includes pleasure driving.
Pleasure(notWork/School):Referstoavehicleprimarilyusedfor
personal purposes, such as driving on shopping trips or errands.
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Business: Refers to a vehicle used for business purposes, such as
making deliveries or sales calls.
NQ 71-4 at 17.

Nationwide says that it has reproduced the application as
Faircloth would have seen it. Faircloth kind-of disputes whether the
online application he filled out included the parentheticals. This issue
wasn't covered on deposition. In a post-deposition affidavit, Faircloth
said that he saw "work/ school, pleasure, and business."NQ 60-2 at 7.
Faircloth didn't say in his affidavit that the parentheticals weren't
there; but he argues in his brief that they weren't. NQ 59 at 39. The law
presumes that Faircloth read and understood the application and the
resulting summary, which he signed. McCaleb v. National Bank of
Commerce of Pine Bluff, 25 Ark. App. 53, 57, 752 S.W.2d 54, 59 (1988).

Faircloth hasn't created a genuine issue of material fact about how the
screen appeared. Matsushita Electric Industrial Company, LTD., v. Zenith
Radio Corporation, 475 U.S. 574, 586 (1986). A reasonable fact finder

could come to only one conclusion: the parentheticals were there.
Faircloth argues that, even with the parentheticals, primary use
is ambiguous; reasonable people could interpret it differently. The
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Court disagrees. A reasonable person in Faircloth's position- a person
putting 1,200 miles a week on his car delivering things- would have
chosen business as the primary use. If there was any cloudiness, the
help feature adequately eliminated it. Finally, Faircloth affirmed on the
application summary with his signature that he was not using the
Scion for "the pickup and delivery of goods .... " NQ 44-4 at 4. After
considering the application and the summary, Integon, supra, the Court
sees no ambiguity in these circumstances. Faircloth misrepresented his
Scion's primary use. Nationwide is therefore entitled to rescind the
policy on this basis.
2. Faircloth's Counterclaims. Faircloth seeks a declaration that

Nationwide owes him a duty under the policy to defend against thirdparty claims. He also seeks a declaration that Nationwide is on the
hook for any part of a judgment that exceeds the policy limits. All these
claims are moot because Nationwide has settled with Jones and
Cohea's estate. By doing so, Faircloth now argues, Nationwide has
waived all grounds for rescinding the policy. He is mistaken. Those
settlements are inadmissible for that purpose. FED. R. EVID. 408.

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Faircloth also seeks a declaration that he should've been able to
choose his own lawyer to defend the Cohea estate's claims. He argues
this claim isn't moot because it's capable of being repeated yet evading
review. This mootness exception is available only in "exceptional
situations." Spencer v. Kemna, 523 U.S. 1, 17 (1998).
The circumstances aren't exceptional. First, denying an insured
his choice of lawyer isn't such an evanescent occurrence that it cannot
be litigated. Faircloth in fact has cited cases where the issue was fully
litigated. E.g., Union Insurance Company v. The Knife Company, Inc., 902
F. Supp. 877 (W.D. Ark. 1995). Second, Faircloth hasn't shown that he
reasonably expects to be in these circumstances again. The company
has cancelled this policy. And nothing of record suggests that Faircloth
will buy more insurance from Nationwide. His choice-of-lawyer claim
is moot.

*

*

*

Nationwide's motion, NQ 42, is granted. Faircloth's motion, NQ 58,
is denied as moot.

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So Ordered.

D.P. Marshall Jr.
United States District Judge

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