Parker Precision Products Co. v. Metropolitan Life Ins. Co.

• Decision Date: 28 February 1969
• Docket Number: No. 17287,17288.,17287
• Citation: 407 F.2d 1070
• Parties: PARKER PRECISION PRODUCTS CO., a N. J. Corp., Quincy Lucarello v. METROPOLITAN LIFE INSURANCE CO., the United States of America and Leonard W. Leeds (Defendants); Small Business Administration (Defendant on Counterclaim).
• Court: U.S. Court of Appeals — Third Circuit

407 F.2d 1070 (1969)

PARKER PRECISION PRODUCTS CO., a N. J. Corp., Quincy Lucarello v. METROPOLITAN LIFE INSURANCE CO., the United States of America and Leonard W. Leeds (Defendants); Small Business Administration (Defendant on Counterclaim).

Nos. 17287, 17288.

United States Court of Appeals Third Circuit.

Argued December 2, 1968.

Decided February 28, 1969.

COPYRIGHT MATERIAL OMITTED

Lee A. Holley, Holley & Kroner, Orange, N. J., for appellants.

Eugene M. Haring, McCarter & English, Newark, N. J., argued for appellee, Metropolitan Life Insurance Co.

Thomas F. Campion, Shanley & Fisher, Newark, N. J. (Frederick B. Lacey, Newark, N. J., on the brief), for appellee, Dr. Leonard W. Leeds.

Before HASTIE, Chief Judge, and KALODNER and VAN DUSEN, Circuit Judges.

OPINION OF THE COURT

VAN DUSEN, Circuit Judge.

Plaintiffs-appellants challenge a March 11, 1967, order of the District Court which (a) entered judgment for defendant Metropolitan on its counter-claim for rescission of a $20,000. insurance policy on the life of the corporate appellant's deceased President on the ground that such policy was void as procured by fraud,¹ (b) provided for cancellation of such policy upon repayment to the corporate appellant and to the United States of America of the premiums paid ($4,744.80) plus interest (c) at the end of appellants' case against defendant Leeds dismissed the counts of the complaint against him, and (d) dismissed the balance of the claims of appellants and the United States against defendant Metropolitan.

Parker Precision Products Co. (the company), a New Jersey corporation, applied for an $85,000. loan from the Small Business Administration in 1962. As part of the collateral it was required to assign insurance to be procured on the lives of Parker and Lucarello, its President and Secretary-Treasurer, respectively. The company made application to the Metropolitan Life Insurance Co. for a $20,000. policy on Parker's life. In the medical questionnaire (Part B of the application), Parker answered negatively this question:

"Have you ever had, or been told that you had, or been treated for, or sought advice concerning: (a) Chest pain, disease of heart, arteries or other blood vessels?"

The following language appeared above his signature:

"I have read the foregoing answers before signing. They have been correctly written, as given by me, and are true and complete."

Also, Dr. Leeds, Parker's physician, in a separate report to Metropolitan, made no mention of any heart infirmity. According to Dr. Leeds' testimony at trial, however, Parker had visited him in 1957 complaining of chest pains. He diagnosed a posterior myocardial infarction, so informed Parker, and prescribed vasodilating drugs and hospital treatment. The hospitalization was refused.

The policy was duly issued and assigned and the loan consummated. Parker died in 1964. On receiving notice of death, Metropolitan again contacted Dr. Leeds, who revealed the 1957 heart attack. He stated later at trial that he had concealed it in his 1962 report at Parker's request.² It thereupon refused to pay and this action for the proceeds ensued, Metropolitan counterclaiming for rescission on grounds of fraud. In an amended complaint, the company added counts against Dr. Leeds based on alleged deceit and misrepresentation, as well as conspiracy with Parker. The United States was made a party defendant by Metropolitan, since it remained the assignee of the policy.

This case is governed by New Jersey law, under which material misrepresentations, even if innocent, will justify rescission of a life insurance policy under the doctrine of equitable fraud. Equitable Life Ass. Soc. v. New Horizons, Inc., 28 N.J. 307, 146 A.2d 466 (1958); Gallagher v. New England Mutual Life Ins. Co., 19 N.J. 14, 114 A.2d 857 (1955); Metropolitan Life Ins. Co. v. Tarnowski, 130 N.J.Eq. 1, 20 A.2d 421 (1941). Furthermore, a misrepresentation is material as a matter of law where knowledge of the truth would naturally influence the judgment of the insurer in making the contract, estimating the risk, or fixing the premium. Gallagher v. New England Mutual Life Ins. Co., supra; Urback v. Metropolitan Life Ins. Co., 127 N.J.L. 585, 23 A.2d 568 (1942); Kerpchak v. John Hancock Mut. Life Ins. Co., 97 N.J.L. 196, 117 A. 836 (1922). See Garman v. Metropolitan Life Ins. Co., 175 F.2d 24 (3rd Cir. 1949). Hence, the misrepresentation in Part B of the application, denying heart disease and chest pains, was clearly material.

Appellants urge, however, that they are not bound by the representations of Parker. He independently completed and signed Part B, the medical questionnaire, four days after the company had applied for the insurance and there was no evidence the appellants saw his statements until the policy, with a copy of the completed questionnaire attached, was issued. Nevertheless, we find that provisions in the application form require the rejection of this contention.

The owner application, signed on November 1, 1962, by Lucarello in his capacity as an officer of the company, contained the following language above his signature:

"It is understood and agreed that * * * the statements and answers subscribed to by the Life Proposed in the basic application which was signed by the Life Proposed on the 1st day of Nov., 1962, including the statements and answers referred to in Item 1 of the agreements therein and the statement below when signed by the Life Proposed, shall, together with this application, form the basis of any contract of insurance issued in connection with this application * * *."

Item 1 of the agreements includes this provision:

"It is agreed that: 1. The statements and answers in Part A and B of the application for this insurance shall form the basis of any contract of insurance issued in connection with this application."

In our view, the above provisions bind the appellants to Parker's statements. It was the company who applied for the policy and expected to be benefited by its issuance. By signing the owner application, the company and Lucarello agreed that "the statements and answers in Part * * * B * * * shall form the basis of the contract of insurance * * *." Appellants have cited no authority to show that it can ignore what the "Life Proposed" stated in Part B because such answers are dated four days after their owner application.³

Appellants' major contention is that the jury should have been allowed to decide whether Metropolitan relied upon Parker's statements. An insurer is not entitled to rescind if it relied on other than an insured's representations in issuing the policy. John Hancock Mut. Life Ins. Co. v. Cronin, 139 N.J. Eq. 392, 51 A.2d 2, 169 A.L.R. 355 (1947). Whether it so relied may be a question for the jury. See Ettelson v. Metropolitan Life Ins. Co., 164 F.2d 660 (3rd Cir. 1947) and 137 F.2d 62 (3rd Cir. 1943), cert. den. 320 U.S. 777, 64 S.Ct. 92, 88 L.Ed. 467 (1943); Garman case, supra.

At the time of considering the application, Dr. Tenbrinck, an Assistant Medical Director for Metropolitan, had before her Part A (the basic application), Part B (Parker's medical questionnaire), Part C (the report of a standard physical examination conducted by Dr. Mulvaney, a Metropolitan doctor), and reports from Dr. Leeds and Dr. Zins.⁴

As between the various reports, minor discrepancies exist with respect to dates. To a question in Part B, requesting the dates of and reasons for any EKGs or other diagnostic tests taken within the past five years, Parker had answered, "1962 — Dr. Leeds — annual chest x-ray, EKG, urinalysis, blood test."⁵ Dr. Leeds, queried as to "Laboratory Findings * * * with dates," responded in his 1962 report that he had taken an EKG in 1960. Furthermore, according to this report of Dr. Leeds, Parker's last visit before February 1962 had been in January 1960, whereas Dr. Zins recorded that Parker had been seeing Dr. Leeds every six months. Dr. Tenbrinck acknowledged at trial that she had noticed these inconsistencies but, ascribing them to Parker's forgetfulness, had relied upon Dr. Leed's chronology. This does not prevent Metropolitan from asserting reliance on Parker's material misrepresentations. The court was justified in considering Dr. Tenbrinck's testimony that a medical history recited by an insured from memory is rarely rendered with the accuracy of a physician's records.

Dr. Tenbrinck significantly pointed out, however, that "a patient wouldn't forget" a heart attack. She testified that in this regard she relied on Parker's statements, together with the medical reports before her. Although Metropolitan clearly embarked on an independent investigation by requesting medical reports, reliance on Parker's representations was not thereby precluded.⁶

"The mere fact that an insurer makes an investigation does not absolve the applicant from speaking the truth nor lessen the right of the insurer to rely upon his statements, unless the investigation discloses facts sufficient to expose the falsity of the representations of the applicant or which are of such a nature as to place upon the insurer the duty of further inquiry." John Hancock Mut. Life Ins. Co. v. Cronin, 139 N.J.Eq. at 398, 51 A.2d at 5.

Although the available medical data were insufficient to reveal any falsity in Parker's answers, the various blood pressure readings did present a deviation inter se.⁷ In determining whether this impressed Metropolitan with a duty of further inquiry, one factor to be considered is what avenues of investigation lay open at the time. Dr. Leeds testified that he made his original diagnosis of posterior myocardial infarction on the basis of EKGs taken in 1957. However, subsequent EKGs which he took in 1959 and 1960 were, in his opinion, inconclusive considered in isolation.⁸ The reports before Dr. Tenbrinck in 1962, however, disclosed no EKG taken earlier than 1960, the year given by Dr. Leeds in his 1962 report as the only such test he took....