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It is a well-settled proposition that where the facts have been truthfully stated by an insured to the soliciting agent, but by fraud, negligence, or mistake, the facts are misstated in the application to the insurer, the insurer cannot rely on the misstatements in avoidance of liability, if the agent was acting within his real or apparent authority, and there is no fraud or collusion on the part of the insured. However, a person is bound under the law to know the contents of the papers he signs and he cannot excuse himself by saying that he did not know what the papers contained.
Appellee insurance company issued a policy protecting the appellant insured's home against loss. The agent who sold the policy said he had asked the insured various questions in preparing the application for the policy, including whether the insured had had any previous fire losses. The agent indicated on the application that there were no such losses. The insured then signed the application without reading it. When the insured's home was damaged in a fire, the company refused to honor the insured's claim on the grounds that the insured failed to disclose that he had had three previous fire losses. The insured stated in a deposition that the agent either had not asked about such losses or, if he had, the insured had misunderstood the question, and denied having intentionally failed to disclose the required information. The company brought an action in the Circuit Court of Logan County, Arkansas, seeking to void the insurance policy issued to appellant insured. The insured counterclaimed for breach of contract and bad faith. The trial court granted summary judgment for the company. The insured appealed.
Did the trial court err in granting summary judgment to the insurance company and in voiding the policy?
The judgment was reversed and the case was remanded for further proceedings. According to the appellate court, summary judgment was inappropriate because there was a genuine issue of material fact as to whether the failure to disclose the information was fraudulent. Although the insured had signed the form and would normally be held to knowledge of its contents, the evidence was sufficient to raise the issue of whether the omission was inadvertent.