SEVERSON, Justice.
[¶ 1.] De Smet Farm Mutual Insurance Company of South Dakota (De Smet) initiated this action, claiming that it lawfully rescinded an insurance contract with David Busskohl because Busskohl made a material misrepresentation on his application for homeowner's insurance. De Smet also sought recovery of all monies it paid to Busskohl. De Smet moved for summary judgment. The circuit court granted De Smet's motion, determining, as a matter of law, that Busskohl made a misrepresentation on his homeowner's insurance application and that the misrepresentation was material. Busskohl appeals. We affirm.
[¶ 2.] On December 21, 2004, Busskohl applied for homeowner's insurance through De Smet. On the front page of the homeowner's insurance application appears the question: "Has any insurer cancelled, refused, restricted, or declined to renew similar insurance?" Busskohl answered "No."
[¶ 3.] In 2007, Busskohl initiated a suit against Dixie Kirk and the Niederwerder Agency, Inc., the agent and agency through which Busskohl obtained the De Smet homeowner's insurance policy. Busskohl claimed that the coverage limits provided by the policy were inadequate and that Kirk and the Niederwerder Agency, Inc. were negligent in writing the policy. During the course of litigation, De Smet discovered that, contrary to Busskohl's representation in the insurance application, Busskohl had previously been refused homeowner's insurance by American Family Insurance Company (American Family).
[¶ 4.] Busskohl's alleged misrepresentation emerged through deposition testimony of Grace Busskohl, Busskohl's former wife,
[¶ 5.] After discovering the misrepresentation in the application, De Smet rescinded the homeowner's insurance policy issued to Busskohl. De Smet also sent a letter, dated October 14, 2009, to Mr. John Nooney, the attorney representing Busskohl, reciting the basis for rescission. Enclosed in the October 14, 2009 letter was a check from De Smet made payable to Busskohl in the amount of $1,066.40, which represented the premium paid by Busskohl in connection with the issuance of the policy. The letter demanded that Busskohl repay all monies paid to Busskohl under the insurance contract ($476,350), along with interest at the statutory rate. In response, Busskohl claimed that several facts set forth and conclusions reached by De Smet were inaccurate. He also returned the $1,066.40 check from De Smet (representing the premium paid by Busskohl), which had been marked "void."
[¶ 6.] In the October 14, 2009 letter addressed to Busskohl's counsel, De Smet advised Busskohl that it would not have issued a homeowner's insurance policy had he disclosed that American Family previously refused him homeowner's insurance. De Smet asserted: "Had such disclosure been made, the application further required that it be accompanied by an explanation. We have learned that the explanation for American Family's refusal of homeowners insurance was the January 31, 1990, house fire."
[¶ 7.] Delano Gross, the underwriting supervisor at De Smet who approved Busskohl's application, submitted an affidavit stating, in relevant part, that:
[¶ 8.] Further, William Poppen, the general manager of De Smet, testified that "had the company been provided with the true facts as our application requires[,] ... we would just never, never have issued that policy." Poppen further explained that:
According to Poppen, if the question whether "any insurer cancelled, refused, restricted, or declined to renew similar insurance?" is answered truthfully, "it [gives] [De Smet] an opportunity then to look into the matter, and then make a determination."
[¶ 9.] On February 13, 2012, De Smet initiated this action against Busskohl, alleging that it lawfully rescinded the insurance contract with Busskohl. De Smet also sought recovery of all monies paid to Busskohl under the insurance contract. On May 11, 2012, De Smet filed a motion for summary judgment, contending that it was entitled to judgment as a matter of law and recovery of all sums paid to Busskohl under the policy plus interest at the statutory rate.
[¶ 10.] The circuit court issued a memorandum decision on July 10, 2012, ruling that De Smet was entitled to rescind the insurance contract with Busskohl and to recover all monies paid to Busskohl, plus interest. The court determined, as a matter of law, that Busskohl made a misrepresentation in his homeowner's insurance application and that the misrepresentation was material. On August 3, 2012, the court authored a second memorandum decision concerning the amount of monies owed to De Smet by Busskohl. The court then filed an order granting summary judgment to De Smet and entered judgment in favor of De Smet in the amount of $786,621.18, plus interest. Busskohl appeals, arguing that the court erred in granting summary judgment in favor of De
[¶ 11.] This Court's standard of review of a circuit court's grant or denial of a motion for summary judgment is well-settled:
Brandt v. Cnty. of Pennington, 2013 S.D. 22, ¶ 7, 827 N.W.2d 871, 874 (quoting Jacobson v. Leisinger, 2008 S.D. 19, ¶ 24, 746 N.W.2d 739, 745).
[¶ 12.] De Smet claims it was entitled to rescind the homeowner's insurance contract with Busskohl under the provisions of SDCL 58-11-44, which provide, in relevant part:
"It is settled law in this jurisdiction that a [misrepresentation] as to a material matter in an application for insurance, even absent a showing of an intent to deceive, renders the policy voidable, because an insurer is entitled to rely on the truthfulness of the answers given." Braaten v. Minn. Mut. Life Ins. Co., 302 N.W.2d 48, 50 (S.D.1981) (citations omitted).
[¶ 13.] Our first task on appeal is to determine whether Busskohl's application response was false or misleading so as to qualify as a misrepresentation under SDCL 58-11-44. "Generally, the question of whether an applicant's statements were false or misleading is a jury question[,] [b]ut when the facts are not in dispute ... courts can decide this question as a matter of law." Bennett v. Hedglin, 995 P.2d 668, 671 (Alaska 2000) (citing Spellmeyer v. Tenn. Farmers Mut. Ins. Co., 879 S.W.2d 843, 846 (Tenn.Ct.App.1993)). The circuit court held, as a matter of law, that Busskohl misrepresented he was never refused
[¶ 14.] In Strong, the insurance application contained the following question: "Has any insurer cancelled or refused to renew any kind of automobile insurance for any driver?" Id. at 368, 78 N.W.2d at 829. The insured answered in the negative even though he had received a letter from a prior insurer notifying him that the insurer would not renew his insurance. Id. This Court determined the insured made a misrepresentation in the application for insurance, explaining that "[a] refusal to renew a policy of insurance need not be in any particular form. Nor do the reasons for the refusal have to be stated. It is sufficient when the insurer clearly and unequivocally indicates to the insured its unwillingness to continue upon the risk." Id. at 370, 78 N.W.2d at 829-30.
[¶ 15.] Although Strong dealt with a refusal to renew, rather than a refusal to issue a policy, as in this case, the circuit court reasoned that Strong's holding was still applicable. The court stated, "like with a refusal to renew, insurers are not required to issue their rejections in any particular form." The court also concluded that a written application was not necessary because "the De Smet application did not inquire as to whether Busskohl's prior written application had been rejected, only whether he had been denied similar coverage in the past." Moreover, "American Family was not required to memorialize [its] rejection in any particular form."
[¶ 16.] Busskohl argues that the circuit court erred in finding, as a matter of law, that he made a misrepresentation on his application for homeowner's insurance. Busskohl maintains he was truthful and accurate when he represented that he had not been denied similar insurance coverage. Further, Busskohl contends that he withdrew his offer to purchase insurance from American Family prior to submitting an application because he and Grace decided to inquire elsewhere for insurance. Busskohl also argues that Strong is distinguishable because there was no previous relationship between American Family and Busskohl like there was between the parties in Strong.
[¶ 17.] The circuit court correctly determined that the evidence of American Family's verbal denial was undisputed. Busskohl did not present evidence to contradict the deposition testimony of Grace Busskohl and Mark Koch, which indicated Busskohls were denied a verbal application by American Family. And, contrary to Busskohl's assertion, Busskohls did not voluntarily withdraw their application. Instead, Busskohls were required to seek homeowner's insurance elsewhere because of American Family's verbal denial. Further, American Family's verbal refusal was sufficient because Strong does not require the refusal to be in any particular form nor does De Smet's application for insurance ask whether a written application had been denied. It is immaterial whether a previous relationship existed between the parties because the clear import of Strong is that the insurer's refusal be clear and unequivocal. Here, like in Strong where the insured, upon receiving the refusal letter, immediately applied for insurance in the defendant company, Busskohls evidently understood the significance of American Family's denial because they subsequently applied for insurance from another insurance company.
[¶ 19.] For example, in Adams, the insured sought to recover on a policy of marine insurance issued by the insurer. 62 So.2d at 592. The insurer denied liability on the basis that the insured misrepresented he had never been refused insurance by any other underwriter. Id. at 592-93. Two witnesses, both insurance agents, were allowed to testify that they had previously refused insurance to the insured. Id. at 593. Because neither of the witnesses were underwriters, the court found that the witnesses' testimony did not establish that the insured made a misrepresentation in his application for insurance. Id. at 594-95. The court concluded that their testimony should have been stricken. Id. at 594. The court also concluded that an instruction given by the court based on the witnesses' testimony was prejudicial error. Id. Here, unlike in Adams, the question in the De Smet insurance application did not ask whether an "underwriter" refused similar insurance. Even if it had, Koch's undisputed testimony established that he called an underwriter in Eden Prairie who indicated American Family would not issue a policy to Busskohl based on Busskohl's claims history.
[¶ 20.] In S.E.A., the court held that summary judgment was improper because a material issue of fact remained regarding the meaning of certain terms in the insurance application. 2000 WL 1863392, at *9. The court found that "if a term within a policy of insurance is not defined by the contract and the term has a special meaning within the particular trade or industry concerned, the court may resort to extrinsic evidence to establish that meaning." Id. at *7. The court stated, "prior to establishing the meaning of [the terms at issue], summary judgment in favor of the insurer constitutes error inasmuch as a question of fact exists as to the meaning of the material contract term." Id. In that case, both parties submitted conflicting evidence as to the meaning of the terms at issue, which raised a material issue of fact for the jury to determine. Id at *9. Here, unlike in S.E.A., there was no issue of interpretation. Further, no genuine issue of material fact existed because Busskohl did not submit evidence to contradict De Smet's evidence establishing that Busskohls were refused insurance by American Family.
[¶ 21.] In Getsinger, local agents submitted "trial applications" to the home office before securing the prospect and before the prospect submitted an application. 247 N.W. at 263. This practice allowed agents to submit their doubts about the prospect to the company before trying to secure the prospect. Id. Unlike the prospects in Getsinger, Busskohl sought insurance from American Family. Therefore, Getsinger is distinguishable.
[¶ 22.] Finally, Busskohl contends that even if American Family refused him similar insurance, he did not make a misrepresentation because he had no intent to deceive. To support his position, Busskohl asserts that American Family's denial was not clearly and unequivocally indicated to Busskohl as required by Strong, 76 S.D. at 370, 78 N.W.2d at 829-30. De Smet claims Busskohl's argument is incorrect under our prior case law and that Busskohl's
[¶ 23.] To rescind the insurance contract under SDCL 58-11-44, De Smet argued that Busskohl's misrepresentation was material to its acceptance of the risk, and that it, in good faith, would not have issued the policy had the true facts been disclosed.
[¶ 24.] Busskohl argues that the circuit court erred in determining, as a matter of law, that Busskohl's misrepresentation was material to De Smet's acceptance of the risk. Busskohl contends his misrepresentation would not have reasonably influenced De Smet's decision to issue a policy. According to Busskohl, De Smet issued policies to 90% of applicants answering "Yes" to the question: "Has any insurer cancelled, refused, restricted or declined to renew similar insurance?" Thus, based on De Smet's past practices, Busskohl contends no evidence exists to suggest that De Smet would not have issued a policy to Busskohl had he answered "Yes." De Smet, on the other hand, contends Busskohl's misrepresentation was material because it failed to apprise De Smet of critical information that would have prompted an investigation and revealed facts relating to Busskohl's prior loss history.
[¶ 25.] Materiality is a question of law for the court:
Herdman v. Nat'l Life Ins. Co., 87 S.D. 389, 397-98, 209 N.W.2d 364, 368 (1973). A misrepresentation "in an application for insurance is material to the risk if it is such as would reasonably influence the
[¶ 26.] We found no South Dakota authority holding that a refusal of similar insurance is material to the insurer's acceptance of the risk. However, it is generally recognized that in an application for insurance, a representation that an applicant has not been refused similar insurance by any other insurer is material to the risk because the insurer may rely upon it when acting on the application. See 6A Couch on Insurance 3d § 89:9 (2012) ("A statement that the applicant has not been rejected for insurance by any other insurer is material to the risk in that any action taken by the insurer may depend upon it."). See S. Farm Bureau Cas. Ins. Co. v. Ausborn, 249 S.C. 627, 155 S.E.2d 902, 910 (1967); Inter-Ocean Ins. Co. v. Harkrader, 193 Va. 96, 67 S.E.2d 894, 897-98 (1951); Ky. Home Mut. Life Ins. Co. v. Suttles, 288 Ky. 551, 156 S.W.2d 862, 864-65 (1941); Greber v. Equitable Life Assur. Soc. of U.S., 43 Ariz. 1, 28 P.2d 817, 818-19 (1934); Applebaum v. Empire State Life Assur. Soc., 311 Pa. 221, 166 A. 768, 769 (1933); Wilson v. State Farm Fire & Cas. Co., 761 So.2d 913, 920 (Miss.Ct.App.2000); Pruitt v. Allstate Ins. Co., 92 Ill.App.2d 236, 234 N.E.2d 576, 577 (1968). This rule:
Greber, 28 P.2d at 818-19 (citations omitted).
[¶ 27.] Busskohl's misrepresentation was material to De Smet's acceptance of the risk. Gross's affidavit indicated that De Smet asks applicants whether any insurer refused similar insurance to obtain risk information, which is used to determine whether the risk represented in the application is acceptable to De Smet. Gross also stated that a prior refusal directly affects De Smet's underwriting process because it is far more likely than not that De Smet would make the same decision as the prior insurer. Moreover, Poppen testified that De Smet relies on the truthfulness of the representations in the application to determine whether there are "issues or items that would materially affect the acceptance or rejection of the risk."
[¶ 28.] Busskohl failed to present evidence demonstrating that his application response was not material to the risk of insuring his home. Instead, Busskohl contends no evidence exists to suggest that De Smet would not have issued a policy to Busskohl had he answered "Yes." This argument overlooks the fact that Busskohl's misrepresentation failed to put De Smet on notice and prevented De Smet from conducting an investigation that would have revealed facts material to De Smet's acceptance of the risk. Based upon the record before us, we cannot conclude that reasonable minds would differ on the question as to whether Busskohl's misrepresentation increased the risk of loss. Accordingly, the circuit court properly found, as a matter of law, that Busskohl's misrepresentation in his application for homeowner's insurance was material to De
[¶ 29.] Because no material question of fact exists regarding whether Busskohl made a material misrepresentation on his application for homeowner's insurance, the circuit court did not err in granting summary judgment in favor of De Smet.
[¶ 30.] Affirmed.
[¶ 31.] GILBERTSON, Chief Justice, and ZINTER and WILBUR, Justices, concur.
[¶ 32.] STOLTENBURG, Circuit Court Judge, dissents.
[¶ 33.] STOLTENBURG, Circuit Court Judge, sitting for KONENKAMP, Justice, disqualified.
ZINTER, Justice (concurring specially).
[¶ 34.] I join the opinion of the Court. I write to point out that the dissent is based on an incorrect description of American Family's prior refusal to insure the Busskohls. The only evidence on this issue came from the deposition testimony of American Family Insurance Agent Mark Koch and Grace Busskohl, David's wife at the time they were refused homeowner's insurance by American Family. This testimony was not disputed by David. And it clearly reflects that the prior refusal to insure was not, as the dissent describes it, an ancient casual conversation regarding an unremarkable attempt to obtain insurance. See Dissenting Opinion, infra ¶¶ 39, 45.
[¶ 35.] On the contrary, the record reflects that after the 1990 fire that destroyed Busskohls' prior home, David and Grace rebuilt and were calling insurance agencies, attempting to insure their new home. David and Grace went to Agent Koch's office seeking homeowner's insurance. They discussed the construction plans for the new home. They even visited the home itself "to see if we could insure it." Deposition of Agent Koch, 7. Agent Koch expressed his doubts to the Busskohls because their prior home had been recently destroyed by fire. Nevertheless, Agent Koch "contacted an underwriter from the company and [the underwriter] said absolutely we couldn't [insure the new home] because of the loss history." Id. Shortly thereafter, Agent Koch notified Busskohls: "American [F]amily had refused to write insurance [on their new house.]" Id. at 9. Agent Koch specifically told them that the refusal was because of their claims history.
[¶ 36.] Grace confirmed that American Family's refusal to insure was a significant event. In her deposition, Grace acknowledged that the South Dakota Division of Criminal Investigation investigated the 1990 fire and David was arrested for arson.
[¶ 37.] These facts were undisputed. They clearly indicate that American Family's refusal to insure the Busskohls was a remarkable event. It certainly was not some remote casual conversation. Cf. Dissenting Opinion, infra ¶¶ 39, 45. Therefore,
STOLTENBURG, Circuit Court Judge (dissenting).
[¶ 38.] I respectfully dissent.
[¶ 39.] The majority opinion holds that an insured's conversation with an insurance agent 14 years prior to submitting an application for insurance creates a duty to disclose the content of that conversation. According to the Court, this duty to disclose, although done with no intent to deceive, creates a legal basis for voidance of the insurance policy.
[¶ 40.] Here, David Busskohl suffered a fire loss approximately one year after De Smet Farm Mutual insured his property. De Smet paid the loss in the sum of $476,350. When Busskohl contended that his agent had underinsured the property, De Smet reviewed the application for insurance and determined that Busskohl was refused similar insurance 14 years prior to applying for insurance with De Smet, and thus, made a misrepresentation entitling De Smet to void the policy.
[¶ 41.] The question at issue on the De Smet insurance application is as follows:
[¶ 42.] Furthermore, although the majority deems Busskohl's answer to be a misrepresentation as a matter of law, no intent to deceive or defraud is present in this case. Consequently, without any intent to deceive requirement for a misrepresentation, Busskohl is held to a mere negligence standard.
[¶ 43.] SDCL 58-11-44 states in pertinent part:
[¶ 44.] Although De Smet contends that it would not have issued the policy to Busskohl because he was refused similar insurance in the past, it is clear from the
[¶ 45.] The circuit court and now this Court incongruously permits De Smet to circumvent its own underwriting process to the detriment of Mr. Busskohl. The effect of the majority opinion seemingly opens the door for insurers to backward underwrite its issued policies and deny otherwise valid claims based upon subsequent investigations to answers on its application forms going back untold years. Is any casual conversation with an insurance agent, however long ago, now going to be the basis for possible denial of otherwise insured losses? More should be required.
[¶ 46.] Busskohl's "no" answer on the application should not be considered a misrepresentation. The well-established principle is that "a contract of insurance is to be construed liberally in favor of the insured and strictly against the insurer." Strong, 76 S.D. at 369, 78 N.W.2d at 829 (citing Ehrke v. N. Am. Life & Cas. Co., 71 S.D. 376, 24 N.W.2d 640 (1946)).
Id. at 369, 78 N.W.2d at 829 (quoting 44 C.J.S. Insurance, § 297(2)). "Construction which distorts the plainly revealed sense in which parties have understood words cannot be justified in the name of liberal interpretation." Id. (quoting Life Benefit, Inc., v. Elfring, 69 S.D. 85, 90, 7 N.W.2d 133, 135 (1942)).
[¶ 48.] The words used by De Smet in its application are terms of art in the insurance industry and under our state statutes. See SDCL 58-11-46,-47,-49,-50 ("cancelled"); SDCL 58-15-11,-69 ("restricted"); SDCL 58-11-51,-52,-53 ("nonrenewal"). "Refusal" is a term of art used in the insurance context and has a very specific meaning. Specifically, as it relates to the facts of this case, SDCL 58-11-45.3 requires an insurer to provide notice to the applicant on its "refusal" to insure, but this "refusal" only occurs if the applicant has tendered a premium with the application.
[¶ 49.] Here, the evidence is undisputed that when the Busskohls had a conversation with an American Family agent in 1990, no premium was tendered, nor was any formal application submitted to the insurer. How was Busskohl "refused similar insurance" under our state statutes? As a matter of law, Busskohl was not refused similar insurance and there was no misrepresentation made by him to De Smet. Our laws requires very specific actions by insurers to "cancel," "restrict," "nonrenew," and "refuse to insure" individuals to whom they deal with and subjects insurers to criminal penalties if the rules are not complied with. The circuit court and the majority are in error in leaping to the legal conclusion that a misrepresentation was made by Busskohl on the insurance application.
[¶ 50.] Furthermore, public policy dictates a different result under the circumstances of this case. Good faith and fair dealing are at the heart of the relationship between an insurer and its insured. Good faith is required by SDCL 58-11-44. This Court has approved language reflecting the realities of this relationship:
Trouten v. Heritage Mutual Ins. Co., 2001 S.D. 106, ¶ 31, 632 N.W.2d 856, 863 (quoting Egan v. Mut. of Omaha Ins. Co., 24 Cal.3d 809, 169 Cal.Rptr. 691, 620 P.2d 141, 146 (1979)) (internal citation omitted) (alterations in original). Simply stated, insurer questions posed on an application for insurance should not become a landmine field for an insured to traverse.
[¶ 51.] For these reasons, I respectfully dissent.
