                 IN THE COURT OF APPEALS OF TENNESSEE
                              AT JACKSON
                                   January 23, 2004 Session

MARION P. GURKIN, III v. ROY WOOD, INDIVIDUALLY, ASSOCIATES
GENERAL INSURANCE, INC., TENNESSEE INSURANCE COMPANY, A
   MEMBER OF THE INGRAM INDUSTRIES INSURANCE GROUP,
PERMANENT GENERAL ASSURANCE CORPORATION, PERMANENT
  GENERAL COMPANIES AND INGRAM INDUSTRIES INSURANCE
                            GROUP

                       Appeal from the Circuit Court for Shelby County
                         No. 305743-8 TD     D'Army Bailey, Judge



                    No. W2003-00793-COA-R3-CV - Filed August 2, 2004


This case involves an automobile insurance claim. The insured’s family owned a chain of
convenience stores. The insured applied for a personal automobile insurance policy. The insurance
agent completed the application, indicating that the vehicle was for personal use, and the insured
approved it. Later, the insured suffered personal injuries from a traffic accident and submitted a
claim to the insurance company. The insurance company asserted that the vehicle was owned by the
family convenience store chain and was used for business purposes. On this basis, the insurance
company refused to pay the claim and rescinded coverage, alleging there were material
misrepresentations in the insured’s application. The insured filed this lawsuit against the insurance
company and its agent, and the insurance company filed a cross-claim against the agent. After a
bench trial, the trial court found that the vehicle was not owned by the family business and was not
used for business purposes, and that consequently there was insurance coverage and the agent was
not liable. The insurance company appeals. We affirm, finding that the evidence supports the trial
court’s findings that the insured owned the vehicle individually, that the insured did not use the
vehicle for business purposes, and that the agent was not negligent.

     Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court is Affirmed

HOLLY M. KIRBY , J., delivered the opinion of the Court, in which ALAN E. HIGHERS, J., and DAVID
R. FARMER , J., joined.

Gary R. Wilkinson and John P. Wade, Memphis, for the appellants Permanent General Insurance
Companies, Permanent General Assurance Corp., Tennessee Insurance Company, and Ingram
Industries Insurance Group.
Richard S. Taube, Louis P. Chiozza, and Steven Rand Walker, Memphis, for the appellee Marion
P. Gurkin, III.

J. Kimbrough Johnson, Memphis, for the appellee Roy Wood.

                                                    OPINION

        Plaintiff/Appellee Marion P. Gurkin (“Gurkin”) and his brothers are partners in Gurkin &
Son, a Tennessee partnership. Gurkin & Son owns and operates five convenience stores known as
“Gurkin’s Grocery, Gas and Bait.” All but one of the convenience stores, commonly known as
“Gurkin’s,” are located on Highway 57 in West Tennessee, ranging east to west from Grand Junction
to Collierville. Gurkin was responsible for managing the Grand Junction store.

        In 1997, Gurkin sought personal insurance coverage on his Ford F-250 pickup truck (the
“Vehicle”). He contacted Cross-Defendant/Appellee Roy Wood (“Wood”), a casualty and property
insurance agent who had done extensive business with Gurkin and his family in the past. Wood had
written insurance policies for Gurkin & Son for five to seven years, car insurance for Gurkin’s family
members, life insurance for Gurkin and his brothers, and homeowners insurance for Gurkin’s
parents. Based on his personal knowledge of Gurkin and his family’s business, Wood filled out the
application form and, after Gurkin’s approval, submitted the application to Defendants/Appellants
Tennessee Insurance Company, a member of the Ingram Industries Insurance Group, Permanent
General Assurance Corporation, Permanent General Companies, and Ingram Industries Group
(collectively “Tennessee Insurance”).1

        The automobile insurance application filled out by Wood included sections to indicate
ownership of the Vehicle and whether the Vehicle would be used for business purposes. Tennessee
Insurance’s underwriting guidelines provided that vehicles owned in a company name could not be
insured. In addition, the underwriting guidelines outlined whether and to what extent vehicles used
in the course of business could be covered. The guidelines separated business uses into acceptable
and unacceptable uses. Acceptable business uses could be covered, so long as a twenty-five percent
surcharge was applied, but unacceptable uses were uninsurable. Under the guidelines, an acceptable
business use of a vehicle would be the “transportation of tools and/or materials incidental to the
insured’s business to a job site where the vehicle will remain parked for most of the work day.”
Unacceptable business uses were defined as:

        1.         Any wholesale or retail delivery such as food (e.g. Pizza, etc.,) newspapers,
                   magazines, mail, packages, retail merchandise, etc.




        1
            According to Gurkin’s brief, Tennessee Insurance is a member of the Ingram Industries Insurance Group
and the successor to Permanent General Assurance Corporation. Therefore, to ensure all of the proper parties were
before the trial court, Gurkin included those parties in his complaint.

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       2.      Any business involving frequent stops, whether on a regular route or not,
               such as courier or messenger services, exterminators, debit life insurance,
               sales.
       3.      Vehicles displaying advertising or transporting passengers.
       4.      Autos with permanently installed mobile equipment such as hoists, air
               compressors, pumps, generators, spraying, welding, building cleaning,
               lighting, and well servicing equipment.
       5.      Employer use of a vehicle.

Gurkin’s application indicated that he and his wife owned the Vehicle and that the Vehicle did not
have a business use.

        During Tennessee Insurance’s review of the application, its underwriter sent both Gurkin and
Wood a diary letter inquiring whether the Vehicle displayed any signs or logos and whether the
Vehicle was used for business. The insurance agent responded on Gurkin’s behalf by writing “no”
next to both inquiries. Tennessee Insurance accepted Gurkin’s application and issued a personal
vehicle insurance policy with no additional premium for business use, effective August 18, 1997.

        Once insured, Gurkin used the Vehicle for 100% of his transportation needs. This included
recreational activities such as hunting, fishing, and golfing. It also included driving from his home
in Collierville to the Grand Junction Gurkin’s Grocery, Gas and Bait, regularly driving to the bank
to conduct transactions for the Grand Junction store, and occasionally bringing merchandise from
one Gurkin’s store to another when a store ran low on merchandise. Gurkin infrequently made bank
deposits for the other stores if one of his brothers was unable to do so. Gurkin also drove from the
Grand Junction store to the Moscow Gurkin’s Grocery, Gas and Bait two to four times per week for
business meetings with his brothers, to drop off store receipts and bills, and to distribute cash. In
addition, Gurkin owned a farm that produced revenue, and he drove his truck to the farm, though he
did not use it while working on the farm. When applicable, Gurkin claimed mileage for business
uses on his income tax return.

        On November 30, 1998, Gurkin was involved in a vehicular accident with an uninsured
motorist. Gurkin suffered personal injuries and property damage in the accident, and because the
uninsured motorist was at fault, Gurkin filed a claim with Tennessee Insurance. After investigating
the claim, Tennessee Insurance sent Gurkin a letter indicating that it had learned that the Vehicle had
commercial license plates and was used for business purposes. The letter essentially told Gurkin that
Tennessee Insurance might rescind his insurance on grounds of material misrepresentations in his
application. Later, after further investigation, Tennessee Insurance rescinded Gurkin’s insurance
coverage, back to the effective date of the policy.




                                                 -3-
        Gurkin filed suit against Roy Wood, Associates General Insurance, Inc.,2 and Tennessee
Insurance, seeking a declaratory judgment mandating payment of the insurance proceeds as well as
compensatory and punitive damages. Tennessee Insurance filed a counter-claim against Gurkin,
seeking rescission of the insurance contract based on material misrepresentations and omissions in
the insurance application. Tennessee Insurance also filed a cross claim against Wood, seeking
indemnification under Wood’s contract with Tennessee Insurance, which required Wood to
indemnify the company for losses resulting from his negligence or other tortious conduct. By
agreement of the parties, the trial court first heard only the issue of coverage.

         At the trial, Allison Garretson (“Garretson”) vice-president of underwriting and premium
finance for Permanent General Companies, testified on behalf of Tennessee Insurance. Garretson
testified that Gurkin’s insurance coverage was rescinded based on two material misrepresentations
in his insurance application. First, Garretson testified, the insurance company’s investigation
indicated that the Vehicle was not owned by Gurkin personally, as was stated on his insurance
application, but rather by a commercial entity. Second, she testified, Tennessee Insurance had
learned that Gurkin used the Vehicle for business purposes. Garretson said that, under the
underwriting guidelines, had Tennessee Insurance known that the Vehicle was commercially owned,
it would not have been insured. Even assuming the vehicle was personally owned by Gurkin, she
testified, had Tennessee Insurance known about the business use of the vehicle, it would have
charged the additional premium required by the underwriting guidelines for all acceptable business
uses.

       At the outset of the trial, the parties had stipulated that the Vehicle was registered under the
name “Gurkins.” In her testimony, Garretson cited this fact as support for Tennessee Insurance’s
contention that the Vehicle was commercially owned, rather than by Gurkin individually, based on
her understanding that “Gurkins . . . is a company.”

         Garretson testified that Tennessee Insurance concluded that the Vehicle had business uses
based on a number of factors uncovered during its investigation. She noted several of Gurkin’s uses
for the vehicle:

        Mr. Gurkin used his vehicle to drive and make multiple stops. There was quite a bit
        of frequency in the travel to go to Moscow and Grand Junction and the bank and the
        farms and so forth, and so there was a substantial amount of use that . . . met the
        definition of business use . . . .

Garretson also noted that Gurkin had “a trader occupation that was undertaken for a profit, for a
wage or a salary, and that’s how the vehicle was being used was in the course of business.” She
testified that even though Gurkin occasionally transported merchandise from one store to the other,
an unacceptable business use under the underwriting guidelines, such use would not have precluded


        2
        Associates General Insurance, Inc. was W ood’s insurance agency, which wrote insurance for several
companies, including Tennessee Insurance. Gurkin’s claim against Associates General was voluntarily non-suited.

                                                      -4-
coverage. Garretson also testified that there were errors on the insurance application completed by
Wood and that, had the application and the subsequent diary letters returned by Wood indicated the
name of the registered owner and all of Gurkin’s uses for the Vehicle, Tennessee Insurance would
have had an opportunity to investigate further and make a more informed decision on insuring
Gurkin.

        Garretson talked about how Tennessee Insurance analyzed business use. She testified that,
if a client used the vehicle for business purposes at all, the client was to indicate this on the
application, and the client, agent and underwriter would subsequently discuss the nature of the
business use. The underwriter would then make the decision of whether and at what rate to insure
the applicant based on the underwriting guidelines. Garretson testified that “the way the vehicle is
being used in the course of business may” lead to exclusion of coverage. If the use is not covered
in the underwriting guidelines, “[i]t comes to the judgment of the underwriter to evaluate each
scenario and each risk and understand the characteristics of each risk and make a determination” on
whether to refuse coverage or provide coverage with an additional premium.

        Gurkin testified on his own behalf. Gurkin said that, until shortly before the trial, he believed
that the Vehicle was titled in his name. Immediately before the trial, he learned that the Vehicle was
titled under the name “Gurkins.” Gurkin testified that he personally paid for the Vehicle and its
insurance premiums. Gurkin also entered into evidence the divorce decree between him and his wife
in which he was awarded the Vehicle in the division of marital property.

        Wood testified as well. Wood stated that he had known Gurkin since 1995 and that they
were friends. He testified that he had written the insurance for Gurkin and Son for five to seven
years, car insurance for all of Gurkin’s family members, life insurance for him and his brothers, and
homeowner’s insurance for his parents. Wood said that, through past dealings, he had become
highly familiar with the operation of the Gurkin family business and the family members’ uses for
their vehicles at the time he wrote the insurance at issue.

        Wood explained that he wrote the insurance for Gurkin’s vehicle based on a prior policy he
had written for Gurkin and his personal knowledge of Gurkin’s intended uses for the Vehicle. At
the time he wrote the application, Wood testified, he understood Gurkin drove from his Collierville
home to work at Grand Junction, stopping at the Moscow Gurkin’s store two or three times a week
along the way to leave receipts and bills. He testified that he understood Gurkin to stop at the bank
in Grand Junction regularly for transactions related to the Grand Junction store. Wood said that he
followed the underwriting guidelines, that these uses did not constitute business use under the
guidelines, and that he therefore wrote the application for personal use.

        Responding to a set of hypotheticals on cross examination, Wood essentially admitted that
he was unaware that Gurkin would make an occasional trip to another store location to transfer
merchandise, that Gurkin would drive to the Grand Junction store and then double back to Moscow
for business meetings with his brothers, and that Gurkin regularly drove to work on his revenue
producing farm. Wood testified that these would be considered business uses. However, Wood only


                                                  -5-
considered it necessary to indicate business use on the application if it constituted over fifty percent
of the use of the Vehicle. Wood asserted that, considering everything, he would still write Gurkin’s
insurance application as not including business use.

        After hearing the evidence, the trial court found that Gurkin had made no misrepresentations
to Tennessee Insurance concerning either the ownership or the use of the Vehicle. Regarding the
ownership of the Vehicle, the trial court said: “I don’t find that under the facts of this case that this
was truly a commercially owned vehicle, notwithstanding the registration stipulation, and there is
no evidence of a business known as Gurkin’s anywhere.” The trial court said that, even though
Gurkin’s divorce decree was issued after this controversy arose, the evidence nevertheless suggested
that the Vehicle was owned by Gurkin individually, pointing to Gurkin’s regular and exclusive use
of the Vehicle, and his payment for and financing of the Vehicle. Further, the trial court found that
Wood was not negligent in failing to discover the name on the registration, and therefore not liable
to Tennessee Insurance under their indemnification agreement, because “there was no testimony
about the agent having some responsibility to go and check the Motor Vehicle Department’s
registrations as to the names of registration in terms of any claim of a breach of duty by the agent.”
Addressing the Vehicle’s use, the trial court held:

        I just don’t see any proof in the record as to what the misrepresentation as to business
        use is. . . . [T]he agent who wrote this policy, Mr. Wood, not only does not claim that
        there was a misrepresentation by the insured but actually disavows and disputes that
        there was a misrepresentation and tells the Court by his testimony that he was aware
        of the manner, occasions and types of uses to which this vehicle was made by Mr.
        Gurkin, and he said that he knew what Mr. Gurkin was doing with this truck . . . .
        [He] looked at the policy and used his best judgment that there wasn’t anything in the
        excluded categories that his awareness as a matter of fact of the uses of this vehicle
        would cause him to put it into anything but the category which he put it, which was
        a personal vehicle.

Thus, the trial court found no misrepresentations on the Vehicle’s use because Wood had overall
knowledge of Gurkin’s uses for the Vehicle and determined they were not business uses pursuant
to the underwriting guidelines. The trial court held that there was no evidence that Wood’s
assessment was negligent:

        I haven’t heard testimony from the defense that relates to the types of matters and
        manners of use with respect to, quote, business, unquote, in as matters of fact that
        would have materially influenced the assessment by the agent or . . . would
        contraindicate a reasonable and appropriate allocation of designation as personal with
        respect to this vehicle in terms of the information known to the agent, and I don’t see
        any negligent assessment by the agent with regard to the appropriate considerations
        representing the interest of his principle that would constitute negligence on his part
        with respect to his judgment and determination that this was a personal coverage
        vehicle.


                                                  -6-
Therefore, the trial court determined that Wood had considered the proper factors in determining
whether Gurkin had a business use for the Vehicle and that Wood’s assessment that the Vehicle did
not have a business use was reasonable.

        On appeal, Tennessee Insurance argues that the trial court erred in finding that Gurkin made
no misrepresentations in his application, and argues that these misrepresentations were material, thus
justifying its rescission of the insurance policy. In regards to the ownership issue, Tennessee
Insurance argues that, in view of the undisputed facts that the registered owner of the Vehicle was
“Gurkins” and that Gurkin’s Grocery, Gas and Bait is commonly known as “Gurkin’s,” the evidence
preponderates against a finding that Gurkin personally owned the Vehicle. As to the Vehicle’s use,
Tennessee Insurance argues that the weight of the evidence shows that Gurkin’s use of the Vehicle
amounted to business use. Tennessee Insurance also argues that the preponderance of the evidence
shows that Wood was negligent in failing to report what he knew about Gurkin’s alleged business
use of the Vehicle and in not investigating the ownership of the Vehicle.

        Because this case was tried by the trial court sitting without a jury, we review the trial court’s
factual findings de novo accompanied by a presumption of correctness unless the preponderance of
the evidence is otherwise. Tenn. R. App. P. 13(d); Campbell v. Fla. Steel Corp., 919 S.W.2d 26,
35 (Tenn. 1996). The trial court’s legal conclusions are reviewed de novo with no presumption of
correctness. Campbell, 919 S.W.2d at 35.

       Tennessee Insurance rescinded Gurkin’s insurance policy on the basis of Gurkin’s alleged
misrepresentations pursuant to Tennessee Code Annotated section 56-7-103. The statute provides:

        No written or oral misrepresentation or warranty therein made in the negotiations of
        a contract or policy of insurance, or in the application therefor, by the insured or in
        the insured’s behalf, shall be deemed material or defeat or void the policy or prevent
        its attaching, unless such misrepresentation or warranty is made with the actual intent
        to deceive, or unless the matter represented increases the risk of loss.

Tenn. Code Ann. § 56-7-103 (2000). Thus, Tennessee Insurance was justified in rescinding the
policy if Gurkin (1) made an unintentional misrepresentation that increased the risk of loss for the
insurance company, or (2) made any misrepresentation with intent to deceive. See Vt. Mut. Ins. Co.
v. Chiu, 21 S.W.3d 232, 235 (Tenn. Ct. App. 2000). The determination of whether a
misrepresentation, intentional or unintentional, has been made at all is a question of fact. See Bland
v. Allstate Ins. Co., 944 S.W.2d 372, 375 (Tenn. Ct. App. 1986). If it is determined that a
misrepresentation occurred, and that misrepresentation was unintentional, the issue becomes whether
the misrepresentation materially increased the insurer’s risk of loss as a matter of law. See Sine v.
Tenn. Farmers Mut. Ins. Co., 861 S.W.2d 838, 839 (Tenn. Ct. App. 1993). In the context of an
insurance application, a misrepresentation “increases the risk of loss when it is of such importance
that it naturally and reasonably influences the judgment of the insuror in making the contract.” Chiu,
21 S.W.3d at 235 (internal quotation marks omitted).



                                                   -7-
        We first address the contention that Gurkin misrepresented ownership of the Vehicle by
stating in his application that he and his wife were the owners rather than Gurkin and Son. The trial
court found that this was not a misrepresentation because Gurkin in fact owned the vehicle.
Tennessee Insurance argues that the evidence preponderates against such a finding, pointing to the
registration of the Vehicle to “Gurkins” as conclusive proof that Gurkin’s family business owned
the truck. However, as the trial court noted, there is no evidence on the record of any legal entity
named “Gurkins” that could have owned the Vehicle. Further, it is undisputed that Gurkin
personally arranged the financing for the Vehicle, made payments on the loan, and was responsible
for payment of the insurance premium. Even discounting the Vehicle’s inclusion in the division of
marital property during Gurkin’s divorce proceedings, the evidence taken as a whole simply does
not preponderate against the trial court’s finding that Gurkin personally owned the truck. Therefore,
the trial court’s finding that Gurkin made no misrepresentation regarding the ownership of the
Vehicle is affirmed.

        Next, we address the assertion that Gurkin misrepresented his use of the Vehicle. Because
an agent’s knowledge is imparted to his principal, Interstate Life & Acc. Co. v. Potter, 68 S.W.2d
119, 126 (Tenn. Ct. App. 1933), Tennessee Insurance is deemed to know of the uses of the Vehicle
of which Wood was aware, and it cannot be said that Gurkin made a misrepresentation regarding
those uses. Wood was aware Gurkin would drive to the Moscow store to leave receipts and bills two
to three times per week. Wood also knew that Gurkin made regular stops to the bank in Grand
Junction for purposes related to the operation of the Grand Junction store. Therefore, we focus on
the limited uses of which Wood was not aware, namely, the fact that Gurkin occasionally brought
inventory from one store to the other, infrequently made deposits for his brothers’ stores when they
were unable to do so, regularly stopped at the Grand Junction store before attending business
meetings with his brothers, and regularly drove to his revenue-producing farm. We must determine
whether these constitute business uses which Gurkin failed to disclose.

        Garretson testified that an underwriter would consult the guidelines to determine whether a
given use constituted a business use, and that if a use was not covered by the underwriting
guidelines, the underwriter would use his or her reasonable judgment to determine whether it
constituted a business use. Only one of the uses of which Wood was not aware, transporting
merchandise from one store to another, is ostensibly listed as a business use under the guidelines.
The testimony was that this happened “occasionally,” when one store unexpectedly ran low on a
certain type of merchandise. As to the remaining uses, an underwriter would be presumed to use
reasonable judgment and good sense. The fact that Gurkin used the truck to drive to the Grand
Junction store before going to the Moscow store for business-related meetings, that he infrequently
made deposits for his brothers, or that he drove to his farm, simply is not a business use. Overall,
it appears that Gurkin just used the truck to drive wherever he needed to go, and that any “business”
aspect of his use was de minimus. Under these circumstances, the evidence does not preponderate
against the trial court’s finding that Gurkin made no misrepresentations regarding his use of the
Vehicle.




                                                -8-
        Tennessee Insurance also appeals the trial court’s finding that the agent, Wood, was not
negligent because Wood failed to convey his knowledge about the Vehicle’s uses to Tennessee
Insurance and, in the alternative, failed to make a diligent inquiry as to Gurkin’s uses of the Vehicle.
The trial court found that Wood was not negligent because Wood applied the underwriting
guidelines to the uses of which he was aware and reasonably determined that they were not business
uses. The evidence does not preponderate against this conclusion. Wood understood Gurkin to be
using the Vehicle for all of his needs. The only arguable business uses of which Wood was aware
was Gurkin’s driving to the Grand Junction store, with a stop at the Moscow store two to three times
per week, and to the bank to make deposits and obtain change for the Grand Junction store. These
likewise are de minimus. Under these circumstances, we agree with the trial court’s conclusion that,
based on what he knew, Wood reasonably determined that Gurkin’s truck was for personal use and
that Wood was not negligent in failing to tell Tennessee Insurance what he knew.

        To the extent that Wood failed to ferret out all of Gurkin’s uses for the Vehicle, Wood can
not be held liable, even assuming he was negligent, because he was not the proximate cause of any
harm to Tennessee Insurance. As noted above, Gurkin’s failure to report these activities as business
uses did not constitute a misrepresentation. Thus, had Wood reported these uses, Tennessee
Insurance could not reasonably have charged an additional premium for business use. Therefore,
Wood cannot be held liable for Tennessee Insurance’s failure to learn of these uses, because the lack
of knowledge caused no damage to the insurance company. See Fireman’s Fund Ins. Co. v.
Jamieson, 531 F. Supp. 423, 425 (W.D. Tenn. 1982) (“If the negligence of the agent does not alter
the risk the insurance company was willing to take, the agent’s negligence is not the cause of the
insurer’s loss.”). Accordingly, the evidence does not preponderate against the trial court’s holding
that Wood had no liability to Tennessee Insurance.

       Therefore, the decision of the trial court is affirmed. Costs of this appeal are taxed against
the Appellants Permanent General Insurance Companies, Permanent General Assurance Corp.,
Tennessee Insurance Company, and Ingram Industries Insurance Group, and their sureties, for which
execution may issue if necessary.



                                                        ___________________________________
                                                        HOLLY M. KIRBY, JUDGE




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