Home / Fulltext Opinions / Supreme Court of Virginia / SMITH, et al. v. COLONIAL INS. CO.


SMITH, et al.



June 11, 1999

Record No. 982070






Thomas H. Wood, Judge

Present: All the Justices


This is a motor vehicle insurance case in which the insured
made material misrepresentations when applying for insurance. The
sole issue on appeal is whether the trial court correctly decided
that the parol evidence rule did not apply to testimony about
questions asked of the insured and the insured’s verbal answers
to those questions during the application process.

In March 1993, appellant Catherine Smith applied for
automobile liability insurance in Staunton with an agent of
appellee Colonial Insurance Company of California. Based on oral
and written statements made by Smith, the insurer issued a
"Family Automobile Policy" covering a 1979 Chevrolet
pick-up truck.

In December 1993, while the policy was in effect, appellant
Shunda Smith, Catherine Smith’s daughter, allegedly was injured
on Interstate 81 in Augusta County while in a motor vehicle that
was struck by another vehicle operated by an uninsured motorist.
As a result of the accident, the daughter made a demand upon
Colonial for uninsured motorist coverage under the policy issued
to her mother.

In October 1996, the insurer filed the present motion for
declaratory judgment naming the Smiths as defendants. The insurer
alleged that, following investigation of the accident, it learned
Catherine Smith had made material misrepresentations when
applying for the policy. The insurer asked for a judgment
declaring that the policy was void ab initio and that coverage
was not owed to Shunda Smith.

Following an April 1998 evidentiary hearing, the trial court,
sitting without a jury, ruled the insurer had proved by clear and
convincing evidence that Catherine Smith had made material
misrepresentations when applying for the policy. Thus, the court
entered the declaratory judgment the insurer sought. The Smiths

We shall summarize the evidence in the light most favorable to
the insurer, which prevailed below, according to settled
principles of appellate review. On March 8, 1993, Catherine Smith
met with an agent of the insurer and sought motor vehicle
liability coverage on the 1979 pick-up truck. At trial, over the
Smiths’ objection, the agent testified about the series of
questions asked of Catherine Smith posed to enable the insurer to
determine its "exposure" and whether to issue a policy
of insurance.

Among the subjects covered in the questions were the ownership
of the vehicle and whether there were others in Smith’s household
who were licensed motor vehicle operators. Responding to the
agent’s questions, Smith said the vehicle was titled in her name
and that there were no other licensed drivers in her household.
This information was "input" into the agent’s computer,
transmitted to the insurer’s underwriting department, and
reflected in an application form printed by the computer that was
signed by Smith. Based on the information Smith furnished the
agent, the policy was issued effective March 8.

The insurer later learned, however, that when Smith applied
for the insurance she was not the actual owner of the vehicle,
but that it was owned by an unlicensed driver who did not live
with her. If the insurer had learned this fact at any time after
issuance of the policy, it would have cancelled the policy. The
insurer also learned later that Shunda Smith, a licensed driver,
was living with her mother at the time she applied for the
policy. If the insurer had known this fact at the time, the
premium charged would have increased by about 50%.

Upon consideration of the evidence, the trial court found the
insurer had met the requirements of Code Sect. 38.2-309,
which provides that statements in an application for an insurance
policy shall bar recovery under the policy if it is "clearly
proved" that such statements were "material to the risk
when assumed" and were "untrue."

On appeal, the Smiths concede that the trial court had
"sufficient evidence to support its decision." The
Smiths argue, however, the insurer attempted to prove that the
application form signed by Catherine Smith was
"incomplete" because, they note, the form did not
contain all the questions asked of her or her answers.
Nonetheless, they point out, it contained above her signature the
language "on the basis of statements contained herein."
"Basically," the Smiths say, "Colonial contends
that Smith made oral misrepresentations to its agent and that
misrepresentation is indicated by the lack of certain information
on the application." This "missing information,"
according to the Smiths, "if ever requested, may have been
contained in the agent’s computer program but never printed on
the application or insurance contract Colonial entered into with

The Smiths also rely on a "merger" theory in which
they contend all misleading statements "Smith made prior to
her signing the application were merged" into the contract
of insurance. According to the Smiths: "Colonial relies on
alleged statements made to the insurance agent and not on
information found on the application in order to add to and alter
the contents of the insurance contract of the parties." The
Smiths contend, building on their "merger" theory, that
"[t]he trial court’s admission of parol evidence to add to
or reform the terms of the contract was legal error."

We do not agree with any of the Smiths’ contentions. Their
argument demonstrates a misconception of insurance law and
practice generally and the application process for motor vehicle
liability insurance in particular.

In the first place, there is no requirement that an
application for liability insurance be solely in writing; it may
be oral, it may be written, or, as in this case, partly oral and
partly written. See Franklin Fire Ins. Co. v. Bolling,
173 Va. 228, 233, 3 S.E.2d 182, 184 (1939); North River Ins.
Co. v. Lewis
, 137 Va. 322, 324-27, 119 S.E. 43, 44-45 (1923).

In the second place, an application for insurance is merely an
offer to enter into a contract. Hayes v. Durham Life Ins. Co.,
198 Va. 670, 672-73, 96 S.E.2d 109, 111 (1957). The insurance
policy is the contract between the parties. Hence, this
application for motor vehicle liability insurance did not
"merge" into the policy contract that ultimately was
issued by the insurer based upon representations in the

In the third place, the parol evidence rule applies to written
contracts. Amos v. Coffey, 228 Va. 88, 91-92, 320 S.E.2d
335, 337 (1984). Therefore, the rule has no relevance to an
application for liability insurance because, as we have said, the
application is a mere offer.

Although the written portion of the application in this case
is not a model of clarity and does not contain the actual
questions posed by the agent, it is nevertheless the embodiment
of the discussion between the applicant and the agent. Thus, the
written form, as well as the oral testimony explaining the
completion of the form, were properly considered by the trial
court as evidence that material misrepresentations had been made.

Accordingly, we hold the trial court did not err and we will
affirm the judgment below.