13 Fla. L. Weekly Supp. 273a

Insurance — Personal injury protection — Rescission of policy — Misrepresentations on application — Omission of name of teenage son who was resident of household — Insurer could not assert, as defense to coverage, that it had rescinded policy based on material misrepresentation in insured’s application without returning premiums to insured — Insurer did not effectively rescind policy where it returned premiums to premium finance company — Moreover, insurer’s common law right to unilaterally rescind PIP coverage is preempted by Florida’s compulsory motor vehicle insurance statutes — Insurer’s notice of cancellation was not compliant with applicable statutes because date of cancellation on notice was the effective date of the policy — Section 627.409, which permits a defense for material misrepresentation if the misrepresentation alters the premium, is a remedial statute in derogation of common law enacted to remedy unconscionable practice of insurers at common law of rescinding policies for immaterial technicalities — Pursuant to this statute, material misrepresentation renders a policy voidable, not void — Assuming for the sake of argument that section 627.409 is a rescission statute, it is unenforceable in this case because it conflicts with subsequently enacted statutes which permit only a prospective abrogation of PIP coverage — Court’s interpretation of statute does not lead to absurd result — Insurer, by its own admissions would have insured the risk, albeit at higher premium, even if it knew about the unlisted household member; loss suffered by insured was the risk insurer agreed to assume in the first place; and insurer could have discovered the unlisted household member by routine investigation when policy was underwritten rather than relying upon its practice of post-claims underwriting — Moreover, insured in this case did not procure policy by fraud

MIAMI CHIROPRACTIC ASSOCIATES, as assignee of Yvrose Perpignan, Plaintiffs, v. UNITED AUTOMOBILE INSURANCE COMPANY, Defendant. County Court, 11th Judicial Circuit in and for Miami-Dade County, Civil Division. Case No. 03-3042 CC 25 (2). January 25, 2006. Lawrence D. King, Judge. Counsel: Christian Carrazana, Panter, Panter & Sampedro, P.A., Miami, for Plaintiff. Darien Doe, Office of General Counsel, for Defendant.

[Affirmed in part: 14 Fla. L. Weekly Supp. 1022a]

ORDER GRANTING PLAINTIFF’S MOTION FOR FINAL SUMMARY JUDGMENT

THISCAUSE having come before the Court on Plaintiff’s motion for final summary judgment on December 2nd, 2005 and upon hearing the arguments of counsel, reviewing the record evidence, and being otherwise fully advised in the premises, the Court makes the following findings of fact and law:

UNDISPUTED FACTS

1. This is a breach of contract action for personal injury protection benefits governed by § 627.736, Florida Statutes, (2003).

2. At all times material, Yvrose Perpignan and Defendant, UNITED AUTOMOBILE INSURANCE COMPANY (hereafter “UNITED”) entered into a contract of insurance where UNITED agreed to insure Ms. Perpignan (hereafter “insured”) for personal injury protection benefits required by §§ 627.730-7405, Florida Statutes, (2003).

3. The effective dates of the subject policy is March 13th, 2002 through March 13th, 2003.

4. The insured suffered injuries due to a motor vehicle accident that took place on September 2nd, 2002.

5. Following said accident, the insured received chiropractic care with the Plaintiff, MIAMI CHIROPRACTIC ASSOCIATES.

6. Plaintiff submitted a total of $10,620.00 in chiropractic expenses for said services to Defendant.

7. UNITED discovered that the insured failed to list her son, Sony Perpignan, as a resident member of her household on the application of insurance during the insured’s examination under oath (hereafter “EUO”) on February 11th, 2003.

8. Plaintiff filed a breach of contract action to recover personal injury protection benefits from UNITED on March 3rd, 2003.

9. UNITED sent a notice of cancellation to the insured on May 15th, 2003 advising that the policy has been cancelled for material misrepresentation; however, the effective date of cancellation on the notice is the policy inception date, i.e., March 13th, 2002.

10. UNITED returned the insured’s premium to the premium finance company on May 31st, 2003; but the premium, however, was not returned to the insured. According to the deposition testimony of the insured, she did not receive the premium she paid for the policy.

11. In the answer to the complaint, UNITED alleged as an affirmative defense that it is not liable because of a material misrepresentation in the inducement to wit: the insured failed to list her son, Sonny Perpignan, as a resident member on the application of insurance.

12. UNITED, however, still would have insured the risk even if they knew the insured’s son was a resident member of the household; but the risk, however, would have been insured at a higher rate.

13. Plaintiff moved for final summary judgment on material misrepresentation; which is the only remaining issue in this cause.

14. Plaintiff moves for summary judgment on two separate grounds to wit: (1) UNITED failed to properly unilaterally rescind the policy by not returning the benefits of the contract to the insured; (2) Even if UNITED properly rescinded the policy, UNITED may not raise rescission as a defense because the Florida statutes are in derogation of UNITED’s common law right to rescind PIP coverage; the legislature has mandated statutory cancellation or non renewal is the exclusive mechanism to terminate PIP coverage.

ANALYSIS AND CONCLUSIONS OF LAW THE LAW OF RESCISSION

Traditionally, rescission of a contract for fraudulent inducement is a remedy at law and equity.¹ Rescission at law, however, differs from equity rescission; for example, restitution to the non rescinding party is not a condition precedent to a rescission action in equity. Professor McClintock explains that

“different theories of law and equity regarding rescission make it unnecessary for equity to adopt the requirement of law that the consideration received by the defrauded party must be returned or tendered before the action can be begun. In equity, the contract is not terminated by the act of the party but by the decree of court or by acts under the decree, so that it is only necessary that the decree secure to the defendant the return of the consideration received by the plaintiff.”

McClintock, Equity, § 86 p. 231 (2nd Ed. 1948) (emphasis added); See also Dobbs, The Law of Remedies, §§ 4.3(6), 4.8 (2nd Ed. 1993); Black, Rescission of Contracts & Cancellation of Written Instruments, § 625 p. 1441 (1916). Rescission of a contract at law requires tender as a condition precedent to an action at law for restitution in quasi contract or a defense at law for fraudulent inducement. Black’s treatise on the law of rescission states:

“[I]f the rescinding party brings an action at law to recover his money or property on the theory that the rescission of the contract has already been effected by his act and demand, or if, on the same ground, he defends an action at law brought against him on the contract — then his previous tender or restoration of whatever he received under the contract is a condition precedent to the institution of his suit or the availability of such defense.”

H. Black, § 625 p. 1443 (1916) (emphasis added). Also instructive on this point is the Washington Supreme Court’s decision in Glandon, et al., v. Searle, et al., 412 P.2d 116, 118 (Wash. 1966) where the Court states that “where an insurer claims the policy was never effected due to the insured’s fraud or misrepresentation, then as a condition precedent to this defense, the insurer must tender back the premium.”(emphasis added). Rescission in equity, however, differed from rescission at law because in the former,

“[t]he chancellor had the power to cancel or rescind a contract. A person could, therefore, bring an action seeking cancellation of a contract or release, as distinguished from an action claiming that the contract or release had been rescinded . . . .

The chancellor could guard against unjust enrichment of the rescinding party by conditioning a decree of rescission on the rescinding party’s return of consideration received . . . .

An action at law, by contrast, proceeded on the theory that the rescinding party had, himself, rescinded the contract. Courts of law were thought to lack the power to render conditional judgments. Consequently, tender was considered a precondition to the institution of an action at law — a formality perfecting the rescinding party’s rescission.”

Fischer, Understanding Remedies, § 191, pp. 527-529 (1999). The Supreme Court of Alabama in Lacey v. Edmunds Motor Company, Inc., et al., 113 So.2d 507, 510-11, (Ala. 1959) explains the substantial difference between rescission at law from equity rescission:

“There is a substantial difference between rescission in a court of equity and rescission in a court of law. In a court of law the action proceeds on the theory that a rescission had previously been made but in equity the suit seeks a decree of the court rescinding the contract and advising the parties as to what their further acts must be. . . . The substantial difference is that a court of equity decrees rescission or cancellation upon certain terms which require the party seeking relief to do equity, and which it can do, whether the party has restored or offered to restore the consideration or not, and which has been held not to be a condition precedent for relief; whereas, in a court of law the court only has the power to enforce or annul the contract and cannot compel restoration of the consideration as a condition to relief, and a complaining party must therefore voluntarily put the other in the status quo as a condition precedent to relief.”

Id. citing Royal v. Goss et al., 45 So. 231, 232 (Ala. 1907) (emphasis added).

Florida law is in accord with the foregoing authorities. Restitution to the non rescinding party is not a condition precedent to a rescission action in equity; instead, the moving party must allege a willingness to do equity or restore the other party to the status quo. See Steakhouse v. Barnett, 65 So.2d 736 (Fla. 1953) (Supreme Court held complaint stated cause of action for rescission in equity where complainant alleged a willingness to restore defendant to the status quo); Taylor et al., v. Rawlins et ux., 86 So. 714 (Fla. 1923); See also Bankers Ins. Co., v. General No Fault Ins. Inc., et al., 814 So.2d 1119 (Fla. 4th DCA 2002) (Insurer’s counterclaim for rescission in equity ineffective because insurer sought equity without having to do equity; the insurer “has failed to make — and in fact disclaims any obligation to do so — a tender of all premiums paid by the insureds.”) (emphasis added). In Florida, a court can guard against unjust enrichment by ordering the moving party to return the benefits of the contract as a condition to an equitable decree of rescission. See e.g., Arcamonte v. Springfield Life Insurance Co., 353 So.2d 872 (Fla. 3rd DCA 1978) (Prevailing insurer in action for rescission of disability policy in equity ordered to return premiums to insured as a condition to decree); cf. Taylor, supra (Trial court erred in granting rescission decree without ordering the complainant to restore or return the benefits of contract to the other party). Florida law, on the other hand, requires restitution to the non rescinding party as a condition precedent to unilateral rescission or rescission at law. See Mazzoni Farms, Inc., et al., v. E.I., Dupont De Nemours, 761 So.2d 306, 312, (Fla. 2000) citing Lang v. Horne, 23 So.2d 848, 852 (Fla. 1945) (“[A] party who rescinds an agreement must place the opposite party in the status quo.”) (emphasis added); See also Pino v. Union Bankers Ins. Co., 627 So.2d 535, 536 (Fla. 3rd DCA 1994) (Explaining that an insurer must give prompt notice and tender the benefits of the contract as a condition precedent to effective unilateral rescission.²)

In the present case, UNITED did not counterclaim for rescission of the policy in equity. An equitable decree of rescission in any event is inappropriate because UNITED has an adequate remedy at law to wit: UNITED may defend the present action on the grounds that it unilaterally rescinded the policy for material misrepresentation. Relief in equity is only available in the absence of an adequate remedy at law. Willis v. Fowler, 136 So. 358, 368 (Fla. 1931). As explained by Pomeroy, “the rule is generally adopted that a suit [in equity] will not be sustained.

to cancel an executory, non-negotiable, personal contract — for example, a policy of insurance, when the fraud might be set up as a defense to an action at law on the contract, and there are no special circumstances which would prevent the defense being available, adequate and complete. On the other hand, jurisdiction has been exercised to cancel instruments, although not negotiable, where delay and other circumstances might hinder a defense in an action at law. For instance, a right to maintain a suit in equity often arises from the fact that a defense at law in an action on an insurance policy may be lost to the insurer because of uncertainty as to the time when loss may occur, the danger that a witness may disappear or because the policy may become incontestable after a limited period unless such a suit is begun by the insurer.”

5 Pomeroy, Equity Jurisprudence, § 914, pp. 590-92 (1948) (emphasis added); See also in accord Couch on Insurance, § 31:88 (3rd Ed.) and Winer v. New York Life Insurance, 130 Fla. 155 (Fla. 1937) rehearing granted 138 Fla. 534 (Fla. 1939). The rule which requires the absence of an adequate remedy at law as a prerequisite to equitable relief survives today notwithstanding the merger of law and equity. Weinstein, et al., v. Aisenberg, 758 So.2d. 705 (Fla. 4th DCA 2000); See also Billian, et al., v. Mobile Corp., et al., 710 So.2d 984, 991 (Fla. 2nd DCA 1998).

UNITED asserts that it need not tender the benefits of the contract unless the trier of fact determines there is a material misrepresentation and is ordered by the Court to tender the premium. UNITED’s argument is misplaced; an insurer may not simultaneously retain the benefits of the policy and assert as a defense at law, that the policy is rescinded because of a material misrepresentation;“[n]othing could be more inconsistent with the forfeiture of an insurance policy than the acceptance and retention of the premiums paid by the insured for the full protection afforded by the policy . . . .” Hardy v. American Southern Life Ins. Co., 211 So.2d 559, 560 (Fla. 1968) quoting Bankers Life & Loan Ass’n of Dallas v. Ashford, 139 S.W.2d 858, 860 (Tex. Civ. App. l 940) (emphasis added). UNITED’s argument on this point treats a rescission defense at law as a rescission claim in equity; UNITED, however, is not seeking rescission of the contract in equity — which proceeds on the theory that the policy has not been rescinded; instead, UNITED is proceeding on the theory that it unilaterally rescinded the policy and was justified in doing so because of a material misrepresentation in the inducement — which is a rescission defense at law that requires restitution as a condition precedent thereto. See e.g., Mazzoni Farms, Inc., et al., 761 So.2d at 312 (“[T]he necessary precondition for rescission is tender of the benefits received under the contract.”) (emphasis added); See also H. Black, § 625 p. 1443. As explained by the Court in Douglass v. Nationwide Mutual Ins. Co., 913 S.W.2d 277, 282 (Ark. 1996),“a rescission of a contract at law is accomplished by the rescinding party’s tendering the benefits received to the contracting party and the courts have nothing to do with the repudiated contract.”(emphasis added). The Douglass Court then quotes the following passage from Couch, which is also instructive on this point:

“There tends to be some confusion in the cases because of the use of the term “rescission” without distinguishing between a judicially sought rescission and a unilateral rescission or repudiation. When the insurer asserts that is not liable on the contract because it rescinds the contract because of insured’s fraud, the insurer is repudiating the contract, and unless justified in so doing is guilty of a breach of contract.”

Id. quoting 17 Couch on Insurance 2d § 67:314, p. 743 (1983)(emphasis added).

UNITED relies on the Third District’s decision in Diaz v. Florida Ins. Guaranty Association Inc., 650 So.2d 675 (Fla. 3rd DCA 1995) where the Court affirmed summary judgment in favor of the insurer where the insured misrepresented the nature of the insured structure and ordered the premiums to be returned on remand. Third District’s order requiring the premiums to be returned on remand is not stare decises for the proposition that one may unilaterally rescind a contract and make restitution when ordered by a court; an appellate court’s finding without reciting facts and analyzing the law is res judicata or law of the case, but is not stare decises. Cruz v. State, 437 So.2d 692, 697 (Fla. 1st DCA 1983) disapproved on other grounds 548 So.2d 656. Diaz did not address the legal question whether a party must make restitution to the non rescinding party as a predicate to unilateral rescission. See Cruz, supra, (“[E]ven if an opinion is written, the decision may not be considered as precedent for a point not mentioned therein.”) (emphasis added). Diaz, moreover, is also factually distinguishable because there, the homeowner’s policy was not voidable or subject to unilateral rescission; but instead, void ab initio for lack of insurable interest where the insured structure was not a dwelling or a residence. Public policy renders an insurance contract invalid where the insured lacks an insurable interest on the grounds that same constitutes a wagering contract. Aetna Ins. Co. v. King, 265 So.2d 716 (Fla. 2nd DCA 1972); Jerry, Understanding Insurance Law, § 104B p. 829 (2003) (“Lack of insurable interest makes the contract not merely voidable at the insurer’s option but void — in effect, utterly invalid and non existent.”); See also § 627.405, Florida Statutes, (2003). The general rule is that where a contract is illegal, there is no duty of restitution. Dobbs, §13.6 at p. 877.

UNITED relies on United Auto. Ins. Co. v. Quiroga, 12 Fla. L. Weekly Supp. 919b (Fla. 11th Jud. Cir. App. 2005) for the proposition that restitution to the non rescinding party is not a condition precedent to a material misrepresentation defense at law. The Court disagrees with UNITED. The Eleventh Circuit in Quiroga reversed summary judgment because there was a question of fact whether rescission is waived where the premium was returned to the insured two months after the insurer discovered the grounds for rescission of the policy³; whether two months is a reasonable amount of time to tender the premium after learning the grounds for rescission is a question for the trier of fact. Assuming arguendo that UNITED’s interpretation of Quiroga is correct, then Quiroga conflicts with decisions from the Supreme Court and District Courts that hold tender is a predicate to a rescission action or defense at law. See Mazzoni Farms, Inc., et al., supra.; Pino, supra; Hauser v. Van Zile, 269 So.2d 396 (Fla. 4th DCA 1972). This Court is bound to follow binding decisions of the Florida Supreme Court as well as the intermediate District Courts of Appeal, even where such opinions appear to be in conflict with a decision of the circuit court acting in its appellate capacity. Cicero Ortho Med. Ctr., as assignee of Maria Pineda, v. United Auto. Ins. Co., 12 Fla. L. Weekly Supp. 485a (Fla. 11th Jud. Cir. Cty Ct. 2005) citing Pardo v. State, 596 So.2d 665, 666 (Fla. 1992) (“[I]n the absence of interdistrict conflict, district court decisions bind all Florida trial courts.”). Further, UNITED’s interpretation of Quiroga is illogical and begs the following question:

How can the Quiroga Court, on the one hand, reverse summary judgment because there is a question of fact whether rescission is waived for tendering the premium untimely, but on the other, hold that tender is not a condition precedent to unilateral rescission?

UNITED argues that it need not tender the benefits of the contract because the legislature created a statutory cause of action to recover the “unearned” premium. Recently, the Third District in U.S. Security Ins. Co. v. Figueroa, 30 Fla. L. Weekly D2447 (Fla. 3rd DCA 2005) held that tender of the “unearned” premium is not a condition precedent to effective statutory cancellation. Common law rescission, however, is not statutory cancellation; therefore, the line of cases discussing whether tender is a predicate to statutory cancellation is not controlling. Further, cancellation in the common law (i.e., rescission) and statutory cancellation are distinguishable:

“[A] rescission avoids the contract ab initio whereas cancellation merely terminates the policy as of the time when the cancellation becomes effective. In other words, cancellation of a policy operates prospectively, while rescission, in effect, operates retroactively to the very time that the policy came into existence; the distinction is similar to that between divorce and annulment.”

* * *

“[A]n insurer cannot, by canceling the policy or contract of insurance, avoid liability which has already vested thereunder. Since cancellation takes effect only from the time of cancellation and does not operate retroactively,it follows that if the insured’s rights have become vested by the occurrence of a loss, a subsequent cancellation or attempted cancellation does not relieve the insurer from liability.”

Couch on Insurance, §§ 30:3; 30.25. (3rd Ed.) (emphasis added). Because UNITED seeks to avoid liability by way of rescission, UNITED must adhere to the common law duty of restitution to the non rescinding party as a predicate to a rescission defense at law. UNITED, on the other hand, argues that § 627.409, Florida Statutes, (2003) does not require tender as a prerequisite to a material misrepresentation defense. For reasons that will be discussed hereafter, § 627.409 is a remedial statute in derogation of the common law; therefore, the statute must be liberally construed to suppress the evil identified by the legislature and advance the remedy intended. See Amos v. Conklin, 126 So. 83 (Fla. 1930). The statute, on the other hand, must also be strictly construed in favor of the common law. See Ellis v. Brown, 77 So.2d 845 (Fla. 1955) overruled in part by 251 So.2d 252 (“It is axiomatic rule of statutory construction that statutes are to be construed in reference to the principles of common law, for it is not presumed that the Legislature intended to make any innovation in the common law other than that which is specified.”). In light of the legislature’s silence, the Court must presume that the legislature did not intend to abrogate the common law duty of restitution to the non rescinding party when it enacted § 627.409. If the legislature intended to abrogate the common law in that regard, the legislature would know how to express itself because the legislature “is presumed to know the common law of tort and contract and the limitations on such remedies created by judges.” Comptech Int’l, Inc., v. Miliam Commerce Park, Ltd., 753 So.2d 1219, 1222 n.5 (Fla. 2000).

In the present case, UNITED tendered the premium to the premium finance company instead of the insured after the policy expired. UNITED asserts it was required to tender the premium to the premium finance company and not the insured because the insured assigned the “unearned” premium to the premium finance company. The premium finance agreement with Safeway Premium Finance Co., states in relevant part:

“The insured hereby assigns to the finance company as security for the total amount payable hereunder, any and all unearned return premiums and dividends which may become payable under the policies listed in the schedule and loss payments under said policies which reduce the unearned premiums.” (emphasis added).

The assignment, however, was extinguished because the premium finance agreement was satisfied before UNITED tendered the premium⁴; thus, there is no unearned premium (i.e., unpaid balance) to return to the premium finance company. The premium finance company, moreover, is unjustly enriched because UNITED elected to return the premium to the premium finance company; i.e., the company keeps the insured’s funds and recovers the sum it paid to UNITED to finance the agreement. Even if UNITED attempted to rescind the policy during the policy period, it must return the premium with a draft payable to both the insured and premium finance company for the reason that the earned premium (i.e, the balance paid by the insured) belongs to the insured and the unpaid balance (i.e., unearned premium) belongs to the premium finance company by assignment.

The Court, based on the facts of this case and weight of authority, must conclude that as a matter of law, UNITED did not effectively rescind the policy as a prerequisite to a defense of material misrepresentation; therefore, UNITED’s material misrepresentation defense cannot be sustained. Assuming arguendo that UNITED did in fact properly rescind the policy, Plaintiff is still entitled to summary judgment on an alternate basis; which will be discussed thoroughly hereafter.

THE FLORIDA AUTOMOBILE REPARATIONS ACT,§§ 627.730-7405, IS IN DEROGATION OF UNITED’S RIGHT TO UNILATERALLY RESCIND PIP COVERAGE

Plaintiff’s motion for final summary judgment must be sustained on the grounds that UNITED’s right to unilaterally rescind PIP coverage is preempted by the Florida Statutes. First, the Court notes that the Districts Courts have uniformly held that the Florida Cancellation Statute, § 627.728, Florida Statutes, (2003), is not in derogation of an insurer’s right in the common law to rescind motor vehicle coverage for material misrepresentation. See e.g., Motors Ins. Co. v. Woodcock, 394 So.2d 485 (Fla. 3rd DCA 1981) and Motors Ins. Co. v. Marino, 623 So.2d 814 (Fla. 3rd DCA 1993) accord Sauvageot v. Hanover, 308 So.2d 583, 585 (Fla. 2nd DCA 1975). The decisions reached by the District Courts in Sauvageot and its progeny are distinguishable because it did not involve rescission of compulsory security required by §§ 627.730-7405 or the Financial Responsibility Law, § 324.011, et seq., Florida Statutes, (2003).

Sauvageot and its progeny, nonetheless, reached the correct result based on its facts and substantive law for the reason that § 627.728, when read in isolation, is not in derogation of an insurer’s right in the common law to unilaterally rescind a motor vehicle policy; the statute does not have all embracing language which provides that the cancellation requirements under § 627.728 for material misrepresentation is mandatory or the sole exclusive mechanism to terminate a motor vehicle policy on such grounds. Automobile insurance, however, was not compulsory for all Floridians when § 627.728 was enacted in 1967, see c. 67-148, § 1, Laws of Florida (1967); therefore, the need to preempt common law rescission did not ripen until auto insurance became compulsory for all Floridians regardless of one’s accident record in 1972; which is the year when the Florida Automobile Reparations Act, i.e., §§ 627.730-7405, first became effective. See ch. 61-175, Laws of Florida (1971).

A legislative intent to preempt an insurer’s right to exercise common law rescission in the context of PIP is crystallized when § 627.728 is read in pari materia with §§ 627.730-7405; therefore, that intent must prevail, for that in fact is the will of the legislature. See Forsythe v. Longboat Key Beach Erosion Control Dist., 604 So.2d 452, 455 (Fla. 1992) (“[I]f from a view of the whole law or from other laws in pari materia the evident intent is different from the literal import of the terms employed to express it in a particular part of the law, that intent should prevail, for that, in fact is the will of the Legislature. ”) (citation omitted). “Legislative intent, as always, is the polestar that guides a court’s inquiry under the Florida No-fault Law.” United Auto. Ins. Co., v. Rodriguez, 808 So.2d 82, 85 (Fla. 2002). “Where the wording of the Law is clear and amendable to a logical and reasonable interpretation, a court is without power to diverge from the intent of the Legislature as expressed in the plain language of the Law.” Id. Section 627.731 states that “[t]he purpose of §§ 627.730-627.7405 is to provide for medical, surgical, funeral, and disability insurance benefits without

regard to fault, and to require motor vehicle insurance securing such benefits, for motor vehicles required to be registered in this state and, with respect to motor vehicle accidents, a limitation on the right to claim damages for pain, suffering, mental anguish, and inconvenience.” (emphasis added).

Subsection 9(a) of the PIP statute serves the legislative purpose of requiring motor vehicles to carry the required security mandated by law. Section 627.736(9)(a) provides that “[e]ach insurer which has issued a policy providing personal injury protection benefits

shall report the renewal, cancellation, or nonrenewal thereof to the Department of Highway Safety and Motor Vehicles within 45 days from the effective date of the renewal, cancellation, or nonrenewal. Upon the issuance of a policy providing personal injury protection benefits to a named insured not previously insured by the insurer thereof during that calendar year, the insurer shall report the issuance of the new policy to the Department of Highway Safety and Motor Vehicles within 30 days.” (emphasis added). . . . Failure by an insurer to file proper reports with the Department of Highway Safety and Motor Vehicles as required by this subsection or rules adopted with respect to the requirements of this subsection constitutes a violation of the Florida Insurance Code.

The plain meaning of “cancellation” is undefined by the PIP statute; therefore the Court may rely on the canons of statutory construction to ascertain its plain meaning. The ordinary meaning of cancellation is defined by dictionary as “[t]o destroy the force, effectiveness, or validity of; [t]o annul, abrogate, or terminate.”⁵ Black’s Law Dictionary 206 (6th Ed. 1990). The dictionary meaning of “cancellation,” however, does not reflect whether “cancellation,” means to “annul, abrogate or terminate,” from the inception or prospectively; the PIP statute, on the other hand, clarifies that “cancellation” must be prospective because cancellation must be reported to Department of Highway Safety and Motor Vehicles“within 45 days from the effective date of the renewal, cancellation or nonrenewal.” § 627.736(9)(a) (emphasis added). Section 627.728 clarifies that the term “cancellation” under subsection 9(a) of the PIP statute must be prospective. Section 627.728, moreover, must be read in pari materia with § 627.736(9)(a) because the former illuminates the plain meaning of “cancellation, renewal and non renewal” under subsection 9(a) of the PIP statute. See Brown v. State, 848 So.2d 361, 363 (Fla. 4th DCA 2003) (The in pari materia rule of statutory construction applies where “two different statutory provisions deal with the same specific subject or with subjects so connected that the meaning of the one informs the other.”) (emphasis added). The importance of § 627.736(9)(a) is that it renders the requirements § 627.728 absolute or mandatory; therefore, UNITED’s right in the common law to rescind PIP coverage must yield to the superior force of the statutes.

In the present case, UNITED’s notice of cancellation, which was submitted on May 15th, 2003, is non compliant with §§ 627.736(9)(a) and 627.728 because the effective date of cancellation on the notice is the effective date of the policy; i.e., March 13th, 2002. The Court notes that UNITED discovered the material omission on February 11th, 2003 during the insured’s EUO; therefore, it would be impracticable for UNITED to send a 45 day cancellation notice to the insured because the policy non renewal or lapse date is March 13th, 2003; nonetheless, UNITED’s alternate remedy to terminate PIP coverage is to advise the insured of its intent to not renew the policy; a non renewal of PIP coverage, moreover, must be reported to the Department within 45 days from the effective date of non renewal — which is March 13th, 2003 in the present case. See § 627.736(9)(a). A unilateral rescission, on the other hand, permits UNITED to mislead the Department by reporting that PIP coverage was continuous during the registration period, but ceased on March 13th, 2003 by way of non renewal; when in fact, the required security was not in effect during the registration period because UNITED rescinded the policy. UNITED’s ability to exercise its common law right to unilaterally rescind PIP coverage renders § 627.736(9)(a) meaningless; the courts, however, must“avoid readings that render part of a statute meaningless.” Forsythe, 604 So.2d at 456 (emphasis added) (citation omitted); See also § 626.9541(1)(o)(11), Florida Statutes (2003) (“No insurer shall cancel or issue a nonrenewal notice on any insurance policy or contract without complying with any applicable cancellation or nonrenewal provision required under the Florida Insurance Code. ”) (emphasis added).

There are other statutory provisions that show the statutory scheme is in derogation of UNITED’s common law right to rescind PIP coverage. For example, rescission is irreconcilable with the plain meaning of § 627.733(1) which provides that “every owner or registrant of a motor vehicle . . . required to be registered and licensed in this state shall maintain security as required by subsection (3) in effect continuously throughout the registration period or licensing period.”(emphasis added). Section 627.733(3) provides that the security requirements of §§ 627.730-7405 or equivalent security under § 324.031 of the Florida Financial Responsibility Law without consideration of one’s accident record is compulsory.⁶ Andriakos, et al., v. Cavanaugh, 350 So.2d 561, 563 (Fla. 2nd DCA 1977). Rescission, however, defeats the plain meaning of § 627.733(1) because it creates a situation where the insured is guilty of unlawfully operating a motor vehicle without the required security mandated by law. Rescission also frustrates the purpose of subsection (9)(a) of the PIP statute. The purpose of § 627.736(9)(a) is to assist the Department in enforcing the required security “continuously through the registration period or licensing period.”⁷ § 627.733(1) (emphasis added). Section 627.733(6) provides that the “Department of Highway Safety and Motor Vehicles, after due notice and an opportunity to be heard, shall suspend the registration and driver’s license of any owner or registrant’s motor vehicle with respect to which security is required by under this section and s. 324.022:

(a) Upon its records showing that the owner or registrant of such motor vehicle did not have in full force and effect when required security complying with the terms of this section; or (b) Upon notification by the insurer to the Department of Highway Safety and Motor Vehicles, in a form approved by the department, of cancellation or termination of the required security.” (emphasis added).

Section 627.733(7) imposes sanctions to reinstate one’s operating licensing and registration where it has been suspended by the Department for failure to maintain the required security. See also Hepler v. Atlas Mutual Ins. Co., 501 So.2d 681, 683 (Fla. 1st DCA 1987) (“The penalties for failure to maintain the minimum security required by statute evidence a strong public interest in having car owners maintain motor vehicle insurance coverage.”) (emphasis added). Rescission throws a monkey wrench into the legislative scheme if the insurer is permitted, because of hidden infirmity, to void the policy retroactively during the registration period where the public and Department is led to believe coverage was in effect. The legislative scheme is intended to give the insured a reasonable opportunity to procure the required security before the effective date of, cancellation or non renewal without suffering penalty; but rescission thwarts that purpose because it would be impossible for the insured to do what the law requires if rescission is permitted; i.e., procure new insurance before the effective date of cancellation or nonrenewal;the insured, moreover, may be subject to sanctions, see § 627.733(6)(7), even though the insured’s conduct was lawful at the time when he engaged in it; such a result, without question, could not have been intended by the legislature. Rescission, moreover, defeats the express purpose of the No Fault law which is intended to require that motor vehicle owners maintain the required security in exchange for tort immunity. See § 627.731.

MOST JURISDICTIONS SUPPORT THE VIEW THAT COMMON LAW RESCISSION IS ABROGATED IN THE CONTEXT OF COMPULSORY INSURANCE LAWS

There is no binding precedent from the Florida Supreme Court or District Courts on this issue. There is, however, a plethora of authority in other jurisdictions with compulsory motor vehicle insurance laws which reinforce the Plaintiff’s argument on this point. The reasoning underlying Plaintiff’s argument was set forth more than 40 years ago in Teeter v. Allstate Ins. Co., 192 N.Y.S.2d 610 (1959), aff’d 212 N.Y.2d 655 (1961) and has been adhered to by courts in other jurisdictions. See Van Horn v. Atlantic Mut. Ins. Co., 641 A.2d 195 (Md. Ct. App. 1994); Pierce, infra. In Teeter, supra, the Court stated the question before the Court as follows:

“The defendant [insurer] maintains that it had not cancelled the policy but had rescinded the policy ab initio in the exercise of its common law right to rescind the policy because of fraud. This contention presents sharply the question . . . whether the common law right of recission ab initio for fraud survived the adoption of the [compulsory insurance] statute or whether the statutory method of terminating coverage on notice . . . is the sole and exclusive method by which insurance coverage . . . can be terminated. We think that the latter is the correct one.”

The Court then held that rescission ab initio violated the statutory cancellation provisions where the Court states:

“The provision of the section for a 10 day notice of termination makes it impossible to have ab initio rescission. While the provision does not take away the right to rescind for fraud, it restricts its operative effect. The rescission cannot be made effective retroactively as it could be at common law; it can be made effective only prospectively, as of a date not less than 10 days after the service of the prescribed notice.”

Turning to the compulsory insurance requirement, the Teeter Court continued:

“It is impossible to reconcile the existence of a right to rescind ab initio with the general scheme of compulsory insurance law. The purpose of the statute is to assure, so far as possible, that there will be no certificate of registration outstanding without concurrent and continuous liability insurance coverage . . . .”

* * *

“But it would be obviously impossible for an insured to comply with his statutory obligation if a common law right to rescind ab initio were allowed to exist alongside the statutory provision for termination by notice. If a rescission were allowed to be effective retroactively as of the date of the issuance of the policy, it would be impossible for the insured to do what the statute requires him to do; i.e., either procure new insurance or surrender his plates, prior to the date upon which the termination of the coverage became effective. Furthermore, he would be retroactively rendered guilty of a misdemeanor for having operated from the date of the issuance of the policy to the date of the rescission, even though his conduct was lawful at the time he engaged in it. Such as result could not have been intended by the Legislature.” (emphasis added).* * *

“The common law right to rescind ab initio for fraud must . . .yield to the superior force of the statute. Whether the action taken by the insurance company upon discovery of the fraud is called a rescission or a cancellation, it cannot be effective to terminate the policy until a date specified in the notice not less than 10 days after its mailing.”

The Teeter Court rejected the lower court’s reasoning that rescission of compulsory coverage is unrestricted against the insured but not against innocent third parties:

“The court below stressed the fact the primary purpose of the statute was the protection of the public and it drew a distinction between rescission affecting the public and rescission affecting only the parties to the contract. The court intimated that, if an accident had occurred between the date of the purported notice of rescission, it might have held the insurance company liable to injured third party but it held that since no third party was involved and the controversy was one only between the insurance company and the insured, the common law right of ab initio rescission was still available and the company had the right to nullify the policy from its inception. The court accordingly dismissed the complaint.

The line of reasoning adopted by the trial court at first blush appears to be persuasive but there are three answers to it: First of all, the language of the statute with respect to the method of terminating coverage is all-embracing. Secondly the statutory scheme relies, to a large extent, upon penal sanctions which are wholly incompatible with the recognition of a right of rescission ab initio as between the insurer and the insured. The Legislature plainly intended to give the insured a reasonable opportunity to obtain other insurance or to surrender his plates, without suffering penalty, in the event of a termination of coverage for any reason. Penalties were to be imposed only if the insured failed to act with reasonable promptness after he received notice of termination. This is incompatible with the right to rescind the policy retroactively even as to the insured himself. Finally, while a statute could be drawn which would adequately protect the public by suspending the right of rescission ab initio only insofar as it affected third parties and allowing it to remain available as between the insurer and the insured (omitting the penal sanctions in that case), there are no such provisions in the present statute. The courts have no power to rewrite the statute as to protect the public by a method different from that chosen by the Legislature.”(emphasis added).

The Georgia Supreme Court’s decision in Pearce v. Southern Guaranty Ins. Co., 268 S.E.2d 623 (G.A. 1980), by analogy, also reinforces the view that the Florida Automobile Reparations Act is in derogation of UNITED’s common law right to rescission; the analysis in Pierce, supra, demonstrates that the Georgia scheme is analogous to Florida:

“Southern Guaranty issued Smith a policy under our Motor Vehicle Accident Reparations Act providing third party liability insurance and no fault benefits. Section 11 of that act provided for a mandatory reduction of rates for bodily injury coverage. Section 12 of that act . . . at that time provided that “(a) From and after January 1, 1975, no motor vehicle shall be licensed in the State of Georgia until the owner has furnished satisfactory proof to the licensing authorities in accordance with rules and regulations promulgated by the Commissioner of Public Safety that there is in effect the minimum insurance coverage required by this Act, or an approved self insurance plan. The insurer within five (5) days after the effective date of cancellation of such coverage, shall notify the Department of Public Safety in writing of the cancellation. (b) In cases in which the minimum insurance is required by this Act is cancelled by the insurer upon receipt of notification of such cancellation, the Department of Public Safety shall send a form to the owner of such motor vehicle that the Department has been informed of the fact of such cancellation. Upon receipt of such form from the Department of Public Safety, it shall be the duty of the owner of such motor vehicle, to notify the Department as to whether he has obtained the minimum insurance coverage required by this Act, indicating the insurance company with which any coverage has been obtained and the policy number or binder number. As can be seen, the cancellation provisions of Section 12 are applicable to both the third party liability and no fault coverage required by Code Ann. S.56-3403b, quoted above (which refers to the “minimum coverage” as being both third party liability insurance and no fault.).

Section 12(a) quoted above, does not allow cancellation to be retrospective. It requires the insurer to notify the Department of Public Safety of the cancellation “within five days after the effective date of cancellation.” (Emphasis supplied). In the case before us, the notice of cancellation to the insured was dated December 31st, 1975. If cancellation were retrospective to the date of issuance of the policy, October 21st, 1975, then in order for the insurer to comply with section 12, notice of cancellation would have to been given by the insurer to the Department no later than October 26th, 1975.

* * *

The provisions of our law . . . compel us to the conclusion that an automobile insurance policy providing the basic third party liability insurance and basic personal injury protection benefits (no fault) issued pursuant to Georgia law cannot be voided retrospectively . . . .”

Id. at627-28 (emphasis added).

Several jurisdictions with compulsory third party liability insurance have uniformly held that an insurer’s common law right of rescission is barred on grounds of public policy because to rule otherwise, will defeat the purpose of the financial responsibility law.⁸ A number of jurisdictions, moreover, sever motor vehicle policies to permit rescission of non compulsory coverage, but not compulsory coverage⁹; which is consistent with Plaintiff’s argument that in Florida, only non compulsory features of a motor vehicle policy may be severed and voided ab initio for material misrepresentation, but not the required security mandated by §§ 627.730-7405, Florida Statutes, (2003). Florida law, moreover, recognizes that insurance coverage is severable. See e.g., Flores v. Allstate Indemnity Co., 819 So.2d 740 (Fla. 2002) and citations therein. Some jurisdictions follow a unique rule where the insurer’s common law right to rescind liability coverage is lost by laches where the insurer fails to reasonably investigate the verity of an application within a reasonable time after issuance of the policy.¹⁰ See e.g., State Farm Mut. Auto. Ins. Co. v. Wood, 483 P.2d 982 (Ut. 1971) accord Barrera v. State Farm Mut. Auto. Ins. Co., 456 P.2d 674 (CA. 1969). The well reasoned analysis by the California Supreme Court in Barrera, supra, is premised on the theory that post claims underwriting defeats the financial responsibility law because it permits an insurer to accept premiums and accept no risk on the policy:

“With respect to an insurance policy voidable under the Insurance Code, if an automobile liability insurer can perpetually postpone the investigation of insurability and concurrently retain its right to rescind until the injured person secures a judgment against the insured and sues the carrier, then the insurer can accept compensation without running any risk whatsoever. Such a rule would permit an automobile liability insurer to continue to pocket premiums and take no steps at all to probe the verity of the application for the issued policy unless and until the financial interest of the insurer is so dictated. Furthermore, under such a rule, the carrier would be permitted to deal with the insured as though he were insured, and thus, lead him to believe that he was in fact insured.”

“A rule which would permit an automobile liability insurer indefinitely to postpone determination of the validity of a liability policy and to retain its right to rescind the policy in the absence of the filing of a suit against it by a judgment creditor of the insured, defeats not only the public service obligations of the insurer but also the basic policy of the Financial Responsibility Law. That law aims to ‘make owners of motor vehicles financially responsible to those injured by them in the operation of motor vehicles.”

* * *

“State Farm’s alleged practice of postponing its investigation of insurability until after the assertion of a ‘significant’ claim produces the dangerous condition that owners of cars will be driving on the streets and highways in the erroneous belief that they are insured and that the general public will utilize these streets and highways with the frustrated expectation that insurance companies would conduct their business in such a way as to fulfill, not thwart, the basic purposes of the Financial Responsibility Law. This latter expectation can only be fulfilled, however, by recognition of the duty of the automobile liability insurer to undertake within a reasonable time from issuance of the policy a reasonable investigation of insurability and by penalizing the breach of duty by loss of the right of rescission.”* * *

“The requirement that the carrier act promptly to determine insurability after issuance of an automobile liability insurance policy inures primarily to the benefit of those members of the public who suffer injury from negligent motorists and seek recovery against responsible tortfeasors. The duty arises from the public policy that protects the innocent victim of the careless use of automobiles from an inability to sue a financially responsible defendant. This duty, which the insurer incurs with the issuance of an automobile policy liability policy, therefore runs directly to the class of potential victims of the insured. Consequently, when the insurer breaches that duty, it may not defeat recovery by the injured person, who has recovered a judgment against the insured, by relying on an untimely attempt to rescind.”* * *

“[T]he basic reason for the imposition of a duty upon the insurer to conduct a reasonable investigation of insurability is the known hazard that innocent members of the public will suffer serious injury and death as a result of automobile accidents. . . . The purpose of the imposition of the duty cannot be the avoidance of death or injury to a third person; rather, it is to avoid the possibility that the third person will be unable to obtain compensation for the loss.”

Barrera, 456 P.2d at 670-72, 679-80, 684-86; cf. Allstate Indemnity Co. v. Wise, et al., 818 So.2d 524, 526 (Fla. 2nd DCA 2001) (“The financial responsibility laws are designed to protect the public from losses resulting from ownership and operation of motor vehicles . . . .”) (emphasis added); See also § 324.011, Florida Statutes, (2003). The California Supreme Court’s finding that a liability insurer owes a duty to innocent members of the public to investigate the verity of an application is supported by the law of tort. For example,

“[b]y entering into a contract with A, the defendant may place himself in such a relation that the law will impose upon him an obligation, sounding in tort and not in contract that B will not be injured. The incidental fact of the existence of the contract with A does not negate the responsibility of the actor when he enters upon a course of affirmative conduct which may be expected to affect the interests of another person.”

Prosser & Keeton on Torts, § 93, pp. 667-68 (5th Ed); See also Dobbs, The Law of Torts, § 321 (2000). The Court in Peters v. Johnson, 41 S.E. 190, 191 (W. Va. 1902) explains it more succinctly:“The question is: Has the defendant broken a duty apart from the contract? If he has merely broken his contract, none can sue him but a party to it, but if he has violated a duty to others, he is liable to them.”(emphasis added).

THE ABSURDITY CANON IS UNAVAILING TO PERMITA DEPARTURE FROM THE STATUTES TO ALLOW RESCISSION OF THE POLICY

It is well settled that the Courts “are without power to construe unambiguous statutes in a way which would extend, modify or limit its express terms of its reasonable and obvious implications. To do so would be an abrogation of legislative power.” Holly v. Auld, 450 So.2d 217, 218 (Fla. 1984). But on the other hand, the absurdity canon of statutory construction provides that a literal interpretation of the language of a statute need not be given when to do so would lead to an unreasonable or ridiculous conclusion. Id. This Court recognizes that “it would be an absurdity in law to hold that if a man draws another into a snare, the party suffering should have no remedy . . . .” Tapp v. Lee, 3 Bos. & Pull. 371 (1803) (Heath, J.). “It has never been the object of the law to allow someone to benefit from their illegal conduct.” Erie Ins. Exchange, et al., v. Lake, 671 A.2d 681, 686 (Pa. 1996).

The Pennsylvania Supreme Court in Erie Ins. Exchange, supra, dealt with the potential inequity of permitting a wrongdoer to financially benefit from procuring a policy by fraud where the legislature preempted the insurer’s common law right to rescind statutorily mandated coverage; there, the Court invoked the absurdity canon to permit a departure from the statutes to permit rescission only as to the perpetrator of the fraud, but not against innocent third parties; the Court determined that a departure from the statutes is warranted where (1) the policy is procured by fraud; (2) the insurer could not have discovered the fraud by a routine investigation when the policy was issued; (3) the fraud must be of a type that had the insurer known the truth, it would not have assumed the risk.

To invoke the absurdity canon in this case, however, is unwarranted on three separate grounds; each of which will be addressed hereafter. First, UNITED, by its own admission, would have insured the risk even if it knew about the unlisted household member — but at a higher premium rate.¹¹ The loss suffered by the insured, moreover, is the risk UNITED agreed to assume in the first place; whereas in Erie Ins. Exchange, supra, the insurer never would have insured the risk had it known the truth nor could the insurer have discovered the truth through a routine investigation before the loss. UNITED, however, could have discovered the unlisted household member by a routine investigation when the policy was underwritten by running a state line report¹²; but instead, UNITED decided to “rely” on the application only to follow up on the application after the loss. The insured in this case did not procure the policy by fraud¹³; the insured testified during her EUO that the agent filled out the application on a computer and she signed a generated copy; but she did not review the application before signing. The insured, however, also testified that she recalled reviewing the household member clause of the application. The insured’s subsequent deposition testimony during discovery shed more light on what transpired with the insurance agent:

Q. When you applied for the insurance with the insurance agent, did you advise the insurance agent that you have a son that was living with you who was above the age of 15 and also had a driver’s license?

A. Yes.

Q. So for the record, the insurance agent knew that you had a son above the age of 15?

A. Yes. They knew and I was not supposed to let him drive. They said if I let him drive the car and he got into an accident, it’s on me.

Q. Who said that?

A. The agent said that.

Q. You told the insurance agent that you did not want your son on the policy?

A. Yes.

Q. The insurance agent told you if your son is using the automobile and got into an accident that you would be responsible?

A. Yes.

Q. The insurance agent knew that your son was living with you at the time that you signed the application of insurance?

A. Yes.

Depo. T. of Yvrose Perpignan, pp. 44-45; LL, 4-25; 1. Needless to say, the agent’s knowledge concerning the insured’s son is imputed to UNITED. See Hardy, 211 So.2d at 560-61.

Second, the absurdity canon is unavailing because UNITED’s reliance on the application is unjustified because any alleged misrepresentation in the application was not discovered before the loss or issuance of the policy because of UNITED’s own bad faith reliance upon the practice of post claims underwriting. See Restatement (Second) of Contracts, § 172. The record evidence before this Court reflects that UNITED first began to probe the verity of the application after the loss during the insured’s EUO in a colloquy of questions and answers regarding who is living in the household; that line of questioning, however, is unrelated to material facts concerning coverage for the loss and only goes to validity or underwriting. In Florida, an insurer has the right to rely on an applicant’s representations in the application and is under no duty to inquire further unless it has actual or constructive knowledge that such representations are incorrect or untrue.¹⁴ North Miami General Hospital v. Central Nat’l Life Ins. Co., 419 So.2d 800, 802 (Fla. 3rd DCA 1982) (citations omitted). Notwithstanding, the Districts Courts did not condone post claims underwriting nor did they sanction the practice by adopting that rule. “[T]he law should not discourage a diligent investigation by insurers. By the same token, neither should the law provide an escape hatch for an insurer . . . whose underwriting procedures are so ill conceived, that the decision to insure actually rests on its own negligent (or greedy) shoulders rather than on any representation made by the applicant.” Vega, etc., v. Independent Fire Ins. Co., 651 So.2d 743, 746 (Fla. 5th DCA 1995) (Farmer, J.) (concurring). Because of the‘quasi-public‘nature of insurance business, the law and public policy dictates that the “right to rely rule” cannot be fashioned so as to permit the insurer to “rely” on the application, but not investigate the verity of the application unless and until its financial interest is so dictated¹⁵; otherwise, “reliance” is nothing more than a facade.¹⁶ Post claims underwriting is a process “that is a complete

inversion of the established sequence of underwriting. When an insurer engages in post claim underwriting, it waits until a claim has been filed to obtain information and make underwriting decisions which should have been made when the application for insurance was made, not after the policy was issued. In other words, the insurer does not assess the risk he presents, until after the insurance has been purchased and a claim has been made. Although the insurer may ask an applicant for some underwriting information before it issues the policy, it will not follow up on that information until after a significant claim arises. Only after a claim has arisen will the insurer examine the application and request additional information to see whether the applicant could have been excluded from coverage. An insurer relying upon post claim underwriting, instead of looking to pay the claim [for the loss incurred by the insured as promised under the terms of the contract] looks for all the things in the application that it might dig up . . . to rescind the policy.”

Cady & Gates, Post Claims Underwriting, 102 W. Va. L. Rev. 809, 813 (2000). The fundamental function of contract law is to deter people from behaving opportunistically toward their contracting parties. Posner, Economic Analysis of the Law, § 4.1 (5th Ed. 1998). Post claims underwriting, on the other hand, permits an insurer to undermine that purpose and “fix” the odds thereby destroying the aleatory nature of insurance contracts.¹⁷ In other words,

“an insurer engaged in post claim underwriting seeks to limit its liability for a loss by proclaiming, “Heads I win, tails you lose.” This manipulation of the odds is possible only because of the postponement in performance occasioned by the sequential character of the insurance contract. Thus, by fixing the odds of the aleatory contract it has agreed to enter, the insurer takes advantage of the insured’s vulnerabilities during the delay between its promise to insure and its contractually obligated performance. . . . The insurer, thus, by fixing the odds has opportunistically placed itself in a win-win situation in which the insured is always the loser.”

Cady & Gates, 102 W. Va. L. Rev. atpp. 818-19 (emphasis added). This practice, moreover, defeats “[t]he reasonable expectation of both the public and insured that the insurer will duly perform its basic commitment: i.e., provide insurance.” Barrera, 456 P.2d at 682.“Insurance companies are engaged in the business of running risks for pay; bluntly stated, they gamble with fate for an agreed remuneration; when they issue a policy they import and intend to import to the insured a sense of security as to the risk insured against and when they accept premiums they mean thereby to convey to the insured continued assurance of the security afforded by the protective provisions of the policy.” Guardian Life Ins. Co. v. Weiser, et al., 51 N.Y.S. 771, 773 (N.Y. S.Ct., Spec. Term 1941) (emphasis added). But if an insurer can postpone the investigation of insurability and concurrently retain its right to rescind until after a claim is made, then an insurer can accept premiums, deal with the insured as if there is coverage, lead the insured to believe that he is covered, and never take on the risk that is inherent to the business of insurance. See Barrera, supra. Realizing this, the Mississippi Supreme Court in Lewis v. Equity Nat’l Life Ins. Co., 637 So.2d 183, 188-89 (Miss. 1994) condemned the practice of post claims underwriting and stated:“An insurer has an obligation to its insureds to do its underwriting at

the time a policy application is made, not after a claim is filed. It is patently unfair for a claimant to obtain a policy, pay his premiums and operate under the assumption that he is insured against a specific risk, only to learn after he submits a claim that he is not insured, and therefore, cannot obtain any other policy to cover the loss. The insurer controls when the underwriting occurs. It therefore should be estopped from determining whether to accept an insured six months or more after a policy is issued. If the insured is not an acceptable risk, the application should be denied up front, not after a policy is issued. This allows the proposed insured to seek other coverage with another company since no company will insure an individual who has suffered serious illness or injury.” (emphasis added).

The Second Restatement of Contracts § 172 governs whether a recipient’s reliance on a misrepresentation in the inducement is unjustified. Section 172 provides that “[a] recipient’s fault in not knowing or discovering the facts before making the contract does not make his reliance unjustified unless it amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.”(emphasis added). In other words, the recipient’s reliance is unjustified where he has failed to act in good faith and in accordance with reasonable standards of fair dealing. An insurer’s duty to deal fairly and in good faith with its insured is independent of any contractual duty.¹⁸ See Opperman et al., v. Nationwide Mut. Fire Ins. Co., 515 So.2d 263, 266 (Fla. 5th DCA 1987). A breach of that duty is an independent tort that may arise in either first or third party insurance claims. Id.; See also § 624.155(1)(b)(1), Florida Statutes, (2003). Florida, however, has yet to address whether post claims underwriting is a breach of an insurer’s duty of good faith and fair dealing; but other jurisdictions have held that such practices are unacceptable and is evidence of bad faith.¹⁹

Third, the invocation of the absurdity canon is unavailing because UNITED is not without a remedy; UNITED may terminate PIP coverage for material misrepresentation by way of statutory cancellation — which is the sole remedy in this case for a material misrepresentation in the application regardless of whether there is a claimed loss. Although cancellation is not a defense against a loss before the effective date of cancellation, see Couch, § 30:25 (3rd Ed.), UNITED may assert coverage or policy defenses, which it did in this case, to bar recovery on the policy. Material misrepresentation, however, is neither a policy or coverage defense; rather, material misrepresentation goes to validity of the policy whereas policy or coverage defenses presume its validity; Florida case law and commentators draw this distinction to determine whether an incontestability clause bars a particular defense or claim. See e.g., Home Life Ins. Co. v. Regueira, 313 So.2d 438 (Fla. 2nd DCA 1975); Paul Revere Life Ins. Co. v. Damus, et al., 864 So.2d 442 (Fla. 3rd DCA 2003); See also Jerry, § 104b pp. 828-29 (3rd Ed. 2002); Couch, § 240:46 at 254-57.THE APPLICATION OF § 627.409,FLORIDA STATUTES (2003)

Section 627.409 permits a defense for material misrepresentation if the misrepresentation alters the premium; the statute, however, provides that a policy is voidable, not void, for material misrepresentation. Continental Assurance Co. v. Carroll, 485 So.2d 406, 408 (Fla. 1986); See also Mazzoni, Farms, Inc., et al., 761 So.2d 312 (“It is axiomatic that fraudulent inducement renders a contract voidable, not void.”) (citation omitted) (emphasis added). More succinctly, a voidable policy is not rendered void by operation of the statute; thus, the insurer must unilaterally rescind the policy as a predicate to a material misrepresentation defense under § 627.409; but UNITED cannot invoke the statute because it cannot unilaterally rescind the policy in light of the legislative mandate under §§ 627.730-7405.²⁰ UNITED, nonetheless, asserts it is entitled to a material misrepresentation defense because § 627.409 is a rescission statute that applies to a personal injury protection policy required by §§ 627.730-7405. Plaintiff argues that UNITED’s reliance on § 627.409 is misplaced because § 627.409 is not a rescission statute; the legislature had no need to enact a rescission statute to protect insurers because rescission is, and always has been, a remedy in the common law exercised by insurers for hundreds of years dating back to old England; instead, § 627.409 is a remedial statute in derogation of the common law enacted to remedy the unconscionable practice of insurers at common law of rescinding policies for immaterial technicalities. The Court finds that the plain meaning of the statute and history of the common law supports Plaintiff’s argument on this point.

Section 627.409(1) states in relevant part that “[a]ny statement or description made by or on behalf of an insured or annuitant in an application for an insurance policy or annuity contract, or in negotiations for a policy or contract, is a representation and is not a warranty.”(emphasis added). A warranty in insurance law is

“a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or nonfulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or nonfulfillment, renders the policy voidable by the insurer, wholly irrespective of the materiality of such statement or promise.”

Keeton & Widiss, Insurance Law, § 6.6(a) p. 663 (1988) citing Vance, The Law of Insurance, p. 408 (3rd Ed 1951) (emphasis added); See also Jerry, Understanding Insurance Law, § 101, pp. 778, 782, 801 (2002); Dobbyn, Insurance Law in a Nutshell, 299 (4th Ed. 2003).

Before modern legislation, the common law of warranty in insurance was extraordinarily rigorous dating back to England during the reign of King George III. Lord Mansfield’s decision in DeHahn v. Hartley, 99 Eng. Rep. 1130 (K.B. 1786) marked the beginning of forfeitures for “immaterial” technicalities. DeHahn was a maritime insurance case where the insurer brought a rescission action at law in quasi contract to recover payment for a loss where judgment was awarded in favor of the insurer for breach of warranty. The following passage appears in Lord Mansfield’s opinion delivered from the King’s bench:

“A warranty in a policy of insurance is a condition or a contingency, and unless that be performed, there is no contract. It is perfectly immaterial for what purpose a warranty is introduced; but, being inserted, the contract does not exist unless it be literally complied with.” Id. at 1131. (emphasis added).

Professor William R. Vance described the state of law established by Lord Mansfield in the following way:

“The practical result reached by the Courts before Mansfield retired from the bench may be stated as thus: The description of the risk upon which the underwriter relied in determining whether he would assume the risk or not, or what premium he would assume it, might be found within the policy or without it. So far as the descriptive terms chanced to be within the policy [warranties], they must be literally true, irrespective of their materiality, but if they chanced to be without the policy [representations] the insurance remained valid unless the misdescription was of such character to injure the underwriter; that is, unless the misdescription was substantial and material.”

Keeton & Widiss, Insurance Law, § 6.6(a) p. 564 (1988) citing Vance, The History of the Development of the Warranty in Insurance Law, 20 Yale L. J., 523, 531 (1911). Following DeHahn, insurers began drafting policies that became “overgrown with a wilderness of warranties, many of the most trivial character, in which the rights of the policy holder, however honest and careful, were in grave danger of being lost.”²¹ Keeton, Insurance Law, § 5.6 p. 321 (1971). Therefore, it was necessary for the courts to go to the rescue of the public; but it was too late to do what Lord Mansfield should have done; i.e., declare that an immaterial warranty should have no more effect upon the rights of the insured than an immaterial representation. Id. “A struggled ensued

between the unwise insurers who sought to frame their policies as to compel the courts to allow them the dishonest benefit of forfeitures unsuspected by the insured, and the courts who sought by liberal construction, and sometimes distortion of the language of the policies, to do justice in spite of the warranties, resulted in a mass of litigation and confused precedent, the like of which cannot be found in any other field of our law.”

Id. at § 5.6 at 322 citing Vance, 20 Yale L.J. at 534. The harsh rule of warranty carved by Lord Mansfield in DeHahn, supra, caused a domino effect where the rule was transposed to life insurance and fire insurance and the English warranty rules were then eventually adopted in the United States. Jerry, § 101 at 780. In the twentieth century, however, political climate grew warmer toward public control of the insurance industry and a need was recognized for restrictions against “technical” defenses based on warranties that were “immaterial.” Keeton, § 6.5(b) at 373. In reaction to the draconian practice of voiding policies for immaterial technicalities, Dobbyn and other commentators explain that statutes were enacted for the purpose of protecting insureds against such practices. One of the most common statutes, as explained by Dobbyn, is as follows:

“One type of statute provides that no misrepresentation or breach of warranty or condition will constitute a defense against payment of proceeds unless it resulted in a material increase of the risk. (Occasionally such statutes use the words, “materially affect the risk.”) The purpose of this type of statute is to put warranties on par with misrepresentations, permitting a defense for breach only if materiality is actually proven.”

Dobbyn, Insurance Law in a Nutshell, at 303 (4th Ed. 2003) (emphasis added). Today, most states have enacted legislation which requires that statements in applications for certain types of insurance must be treated as representations — the purpose of which is to preclude insurers “from treating statements or information submitted in an insurance application as warranties.” Keeton & Widiss, § 5.7p. 568.

The purpose of § 627.409, without question, is to bar insurers from treating an insured’s statements in an application for insurance as a warranty; the statute only permits an insurer to defend an action on the policy on the grounds of material misrepresentation if the insurer can prove the alleged misrepresentation is “material” to justify the insurer’s unilateral rescission of the policy; the statute, therefore, is in derogation of the common law because a representation by the insured incorporated in the policy at common law is a warranty and the materiality of which was presumed; as such, the insurer was not required to prove “materiality” to justify rescission of the policy. Section 627.409, moreover, is silent whether the operative effect of a material misrepresentation terminates the policy to the inception and nor does the statute provide a procedure to perfect rescission; therefore, the manner in which a unilateral rescission is perfected and its retroactive effect lies not in the statute, but in the common law.

Assuming arguendo that § 627.409 is a rescission statute, the statute is unenforceable in this case. The rules of statutory construction is necessary assuming § 627.409 is a rescission statute because it conflicts with §§ 627.736(9)(a), 627.733 and 627.728; the former terminates PIP coverage ab initio whereas the latter statutes only permits a prospective abrogation of PIP coverage — i.e., an irreconcilable conflict. It is well settled that the last expression of the legislative will prevails where there are two conflicting statutes of a general compilation or code of statute laws. Hillsborough County Com’rs v. Jackson, 58 Fla. 210, 213 (Fla. 1909). Section 627.409, which formerly read as § 627.01081, was enacted in 1959. See ch. 59-203, Florida Laws, § 458, at 645-646. Sections 627.730-7405 which made the requirements of § 627.728 compulsory, was enacted subsequent to § 627.409. Section 627.728 was also enacted subsequent to § 627.409. Further, §§ 627.728 and 627.730-7405 is under part XI of Chapter 627 which governs motor vehicle coverage whereas § 627.409 is under part II of Chapter 627 which generally applies to all insurance contracts; however, because the provisions of § 627.728 is mandatory for the required security under §§ 627.730-7405, and is more specific, it controls over § 627.409. See McKendry v. State, 641 So.2d 45, 46 (Fla. 1994) (“[A] specific statute covering a particular subject area always controls over a statute covering the same and other subjects in more general terms.”)

Therefore, based on the foregoing conclusions of fact and law, it is hereby ORDERED & ADJUDGED that Plaintiff’s motion for final summary judgment is GRANTED; Plaintiff, MIAMI CHIROPRACTIC ASSOCIATES, as assignee of Yvrose Perpignan, shall recover from Defendant, UNITED AUTOMOBILE INSURANCE COMPANY, the sum of $5,929.87 on principle, the sum of $1,776.52 in late interest penalties under § 627.736(4)(c), Florida Statutes, (2003) at the rate of 9%, making a total of $7,706.39 that shall bear interest at the rate of 9% that shall bear interest for which let execution issue. The Court shall reserve jurisdiction to award Plaintiff attorney’s fees and taxable costs.

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¹The American legal system is based upon English common law. At common law, there were two distinct systems of courts; the courts of law which had the power to award monetary damages and the courts of equity or chancery which were presided over by a chancellor and had the power to grant equitable remedies.

²The Pino Court also explained that a rescission is accomplished without court action by: “(1) Mutual agreement of rescission. (2) Rescission by one party as a matter of right for fraud or misrepresentation. Where a party is induced to enter into a contract by fraudulent misrepresentations, the defrauded party may elect to rescind, or avoid the contract. (citations omitted). Under this alternative, the defrauded party has the right to rescind; no consent by the opposing party is needed. ” (emphasis added); See also in accord Dobbs, The Law of Remedies, § 4.3 (2nd Ed. 1993) (Explaining there are three methods of rescission: (1) mutual agreement; (2) Unilateral rescission; i.e., rescission at law; (3) Judicial rescission; i.e., rescission in equity.)

³Plaintiff’s counsel filed the briefs and appendix in Quiroga in support of Plaintiff’s motion for summary judgment; which clarifies that the premium was tendered and cashed by the insured two months after the insurer discovered the grounds for rescission.

⁴If the insured did not satisfy the premium finance agreement, then the premium finance company would move to cancel the policy for non payment of premium.

⁵“A court may refer to a dictionary to ascertain the plain and ordinary meaning which the legislature intended to ascribe to [a] term.” L.B. v. State, 700 So.2d at 320, 372 (Fla. 1997) (alteration in original).

⁶UM and property damage liability coverage is likewise compulsory. See §§ 627.727 and 627.7275(1), Florida Statutes, (2003). UM and PD became compulsory when the Florida Automobile Reparations Act became effective; UM and PD cannot be offered without PIP.

⁷Sections 627.733 and 627.736 must be read in pari materia since they are part of the same enactment. See Singleton v. Larson, 46 So.2d 186, 189 (Fla. 1950) (Statutes that are part of the same general scheme are regarded as in pari materia.); Miami Dolphins v. Metropolitan Dade Cty., 394 So.2d 981, 988 (Fla. 1981) (“[L]aws should be construed with reference to the constitution and the purpose designed to be accomplished, and in connection with other laws in pari materia, though they contain no reference to each other. (citation omitted). While the legislature may direct that statutes be read in pari materia, the absence of such a directive does not bar construing two statutes in that manner.”) (emphasis added)

⁸See e.g., Fisher v. New Jersey Auto. Full Ins., 540 A.2d 1344 (NJ. Ct. App. 1988); Van Horn v. Atlantic Mut. Ins. Co., 641 A.2d 195 (Md. Ct. App. 1994); American Underwriters Group, Inc. v. Williamson, 496 N.E.2d 807 (Ind. Ct. App. 1986); Erie Ins. Exchange v. Lake, et al., 671 A.2d 681 (P.A. 1996); Frankenmuth Mut. Ins. Co. v. Latham, 302 N.W.2d 329 (Mich. App. 1981); Nat’l Ins. Co. v. Peach, 926 S.W.2d 859 (Ky. Ct. App. 1996); Sentry Indem. Co. v. Sharif, 282 SE.2d 768 (Ga. Ct. App. 1981); Munroe v. Great American Ins. Co., 661 A.2d 581 (Conn. 1995); Harkrider v. Posey, 24 P.3d 821 (Ok. 2000); Odum, et al., v. Nationwide Mut. Ins. Co., 401 S.E.2d 87 (N.C. 1991); Ferrell v. Columbia Mutual Cas. Ins. Co., 816 S.W.2d 593 (Ark. 1991); Canavan v. Hanover Ins. Co., 248 N.E.2d 271 (Mass. 1969); Rauch v. American Family Ins. Co., 340 N.W.2d 478 (Wis. 1983); Nimeth v. Felling, 165 N.W.2d 237 (Minn. 1969); Richard v. Fliflet, 370 N.W.2d 528 (N.D. 1985); American Mut. Ins. Co., v. Commercial U. Ins. Co., 357 A.2d 873 (N.H. 1976); Ferguson v. Employers Mut. Cas. Co., 174 S.E.2d 768 (S.C. 1970).

⁹See e.g., Ferrell v. Columbia Mutual Cas. Ins. Co., 816 S.W.2d 593, 596 (Ark. 1991) (“Courts may sever compulsory provisions of an insurance policy from non compulsory provisions and permit rescission only as to non compulsoryprovisions.”) (emphasis added) accord Douglass v. Nationwide Mut. Ins. Co., 913 S.W.2d 277 (Ark. 1996) (Insurer’s right of rescission against insured as to non compulsory auto coverage, i.e., renters insurance, upheld); Burger v. Nationwide Mut. Ins. Co., 632 P.2d 1381 (Or. App. 1981) (Trial Court erred in granting summary judgment where rescission as to non compulsory auto insurance is permissible); Glockel v. State Farm Mut. Auto. Ins. Co., 400 N.W.2d 250 (Neb. 1987) (Rescission of auto liability insurance upheld where policy was non compulsory nor issued under financial responsibility law.) Continential Western Ins. Co. v. Clay, 811 P.2d 1202, 1207 (Kan. 1991) (“An insurance company has the right, upon proper proof, to rescind a policy or binder ab initio for fraud or misrepresentation where the controversy involves only the insurer and its insured over nonliability, noncompulsory features of the insurance policy.”) (emphasis added) accord Dunn v. Safeco Ins. Co., of America, 798 P.2d 955 (Kan. 1990); Prudential v. The Estate of Leandro Rojo-Pacheco, et al., 962 P.2d 213 (Ariz. App. 1998) (Insurer may only rescind auto liability policy’s coverage in excess of statutory minimum on the grounds of insured’s material misrepresentation in the inducement) accord Federal Kemper Ins. Co. v. Brown, 674 N.E.2d 1030 (Ind. App. 1997); Odum, et al., v. Nationwide Mut. Ins. Co., 401 S.E.2d 87 (NC 1991)

¹⁰Laches is an ancient equitable doctrine premised on the maxim“vilgilantibus et non dormientibus jura subeniunt”; i.e., the law aids those who are vigilant, not those who sleep on their rights. Black’s Law Dictionary, 875, 1569 (6th Ed. 1990); See also Maitland, Equity, pp. 2-9 (2nd Ed. 1936).

¹¹UNITED could have counterclaimed for restitution to recover the excess premium owed under the policy.

¹²State line reports are routinely run by insurers during post claims investigation; thus, it begs the question why such a routine, cursory report is not obtained when the policy is underwritten to determine who is living in the household.

¹³The facts here, without question, is a far cry from what transpired in Erie Ins. Exchange, supra, where the perpetrator engaged in an elaborate scheme to procure the policy by deceiving the insurer; moreover, it was a scheme that carried on for years before the insurer discovered it nor could the insurer discovered it by a routine cursory investigation when the policy was issued.

¹⁴The law of tort imposes a duty upon UNITED to innocent third persons to investigate the verity of the application because of the nature and purpose of compulsory insurance laws; that duty, however, does not inure to a fraud-feasor for a fraud-feasor is not permitted to assert that his victim was negligent in relying on his misrepresentation and instead, should have inquired further. It has been said that “[t]he law is not designed to protect the vigilant alone, although it rather favors them, but is intended as a protection to even the foolishly credulous, as against the machinations of the designedly wicked. It has also been frequently declared that as between the original parties, one who has intentionally deceived the other to his prejudice is not to be heard to say, in defense of the charge of fraud, that the innocent party ought not to have trusted him or was guilty of negligence in so doing.” Johnson et ux., v. Cofer, 281 P.2d 981, 985 (Or. 1955) (citation omitted); See also Negyessy v. Strong, 388 A.2d 383 (Va. 1978) (“[W]here a contract has been induced on the basis of misrepresentations, it does not lie in the mouth of the procurer to say that the plaintiff might, but for his own neglect, have discovered the wrong and avoided the loss.”)

¹⁵It is generally recognized that“the business of insurance is quasi public in character . . . .” Bekken v. Equitable Life Assur. Soc., 293 N.W. 200, 210 (N.D. 1940) (emphasis added). “The subject [of insurance] is sui generis, and the rules of a legal system devised to govern the formation of ordinary contracts between man and man cannot be mechanically applied to it.” Pfiester v. Missouri State Life Ins. Co., 116 P. 245, 247 (Kan. 1911) (alteration in original); See also Gray v. Zurich Ins. Co., 419 P.2d 168, 172 (CA. 1966) quoting Pound, The Spirit of the Common Law, 29 (1921) (Explaining that insurance companies are the equivalent of public service companies whose duties are not contractual, but instead relational; their duties do not necessarily flow from agreements which they may make as they choose, but instead, from the calling in which it has engaged and its consequent relation to the public.)

¹⁶Facade is defined as “a showy misrepresentation intended to conceal something unpleasant.”http://dict.die/facade/ (emphasis added).

¹⁷An insurance contract is an aleatory contract. See Couch on Insurance, § 1:6 (3rd Ed. 1997); See also Restatement (Second) of Contracts, § 76 (“A contract is aleatory when a party’s duty to perform is conditional on the occurrence of an event that neither party to the contract is certain will occur.”) The term aleatory is derived from the latin word for gambler: i.e., aleatorius. See American Heritage Dictionary, p. 31 (1976).

¹⁸The duty of good faith and fair dealing is a two way street running from the insurer to the insured and vice versa. North American Van Lines, Inc. v. Lexington Ins. Co., et al., 678 So.2d 1325 (Fla. 4th DCA 1996).

¹⁹See e.g., Lewis v. Equity Nat’l Life Ins. Co., 637 So.2d 183 (Miss. 1994) (Evidence of post claims underwriting creates jury question on issue of punitive damages for bad faith); White v. Continental Gen. Ins. Co., 831 F. Supp. 1545, 1155-6 (D. Wyo. 1993) (Stating insured made out claim of bad faith in tort by presenting evidence of post claims underwriting by insurer); Provident Indem. Life Ins. Co., et al., v. James, et al., 506 S.E.2d 892 (Ga. Ct. App. 1998) (Post claims underwriting as basis for tort claim of fraud); Nassan v. Nat’l States Ins. Co., 494 N.W.2d 231, 234-36 (Iowa 1992) (Expert testimony that nursing home insurer was engaged in post claim underwriting admissible to show fraudulent underwriting technique); Gardner v. League Life Ins. Co., 210 N.W.2d 897, 898 (Mich. Ct. App. 1973) (Applying doctrine of estoppel to preclude rescission of credit life and disability policy by post claim underwriting); Meyer v. Blue Cross & Blue Shield of Minn., et al., 500 N.W.2d 150, 154 (Minn. Ct. App. 1993) (Finding that question of whether insurer was engaging in post claims underwriting to avoid paying claims is one for jury.); Ingalls v. Paul Revere Life Ins. Grp., 561 N.W.2d 273, 284-84 (N.D. 1997) (Evidence of post claims underwriting used as pretext to rescind policy supported punitive damages for bad faith settlement practices); U.S. Credit Life Ins. Co., et al., v. McAfee et al., 630 P.2d 450, 455 (Wash. Ct. App. 1981) (“[A]n insurer must require evidence of insurability before the insured’s death, not after.”) (citation omitted).

²⁰The legislative scheme under §§ 627.730-7405 is analogous to an incontestability clause in a life insurance policy.

²¹The reason for the development of the common law rule that warranties must be literally satisfied — otherwise the policy is voidable — can be found in the economics of the marine industry in England during the eighteenth century. See Jerry, § 101 at 779-80.

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