Fountain & Herrington v. Mutual Life Ins. Co.

Decision Date12 January 1932
Docket NumberNo. 3204.,3204.
PartiesFOUNTAIN & HERRINGTON, Inc., v. MUTUAL LIFE INS. CO. OF NEW YORK.
CourtU.S. Court of Appeals — Fourth Circuit

E. K. Bryan, of Wilmington, N. C. (John A. Stevens and Bryan & Campbell, all of Wilmington, N. C., on the brief), for appellant.

J. O. Carr, of Wilmington, N. C. (Carr, Poisson & James, of Wilmington, N. C., on the brief), for appellee.

Before PARKER and SOPER, Circuit Judges, and WEBB, District Judge.

PARKER, Circuit Judge.

This is an appeal in an action instituted to recover on a policy of life insurance. The defendant admitted the execution of the policy, but alleged that same was avoided by reason of the falsity of certain representations contained in the application. Plaintiff, in reply, alleged that defendant's local agent had knowledge of the facts, and that the delivery of the policy under the circumstances was a waiver of the right to rely upon the falsity of the representations. Plaintiff also alleged that, after the delivery of the policy, the insured communicated the facts to an investigating agent of the company, with the request that the company elect at once what action it intended to pursue, and that its failure promptly to declare a forfeiture and return the premium was a waiver of the right to rely upon a forfeiture. At the conclusion of the evidence, the trial judge instructed the jury to answer the issues submitted in favor of the defendant, and from judgment thereon the plaintiff has appealed.

The insured was one Joseph W. Herrington. On November 5, 1929, he applied to defendant for a policy on his life in the sum of $10,000; and in his application, attached to and made a part of the policy, he stated in answer to questions expressly directed to these matters that he was in good health; that he had had no illness or disease since childhood, except one attack of malaria in 1923; that he had consulted no physician for any ailment within five years, except one physician in 1923; and that no other application for insurance on his life was then pending or contemplated. Preceding the questions in the application the following statement was made: "All the following statements and answers and all those that the insured makes to the company's medical examiner, in continuation of this application, are true, and are offered to the company as an inducement to issue the proposed policy."

The uncontradicted testimony showed that all of the statements of the insured heretofore quoted were false. He was not in good health, but had been suffering with pains which he thought were being caused by appendicitis, for which he underwent an operation in the latter part of January, 1930, which resulted in his death on February 1st. He had consulted a physician with regard to his condition frequently during the year preceding his application, and at the time of the application he had pending with the Pilot Life Insurance Company an application for life insurance which he had filed on November 1st. In the application to the Pilot Life, in answer to the question, "Have you ever been advised to have, or do you contemplate a surgical operation," he answered, "Appendicitis advised four years chronic type."

There was testimony on behalf of the plaintiff that at the time of issuing the policy defendant's local agent who solicited same knew that insured had consulted a local physician with regard to his condition, and that the application with the Pilot Life was pending. The application to defendant, however, contained the following provision: "It is agreed that no agent or other person except the president, vice-president, a second vice-president, or a secretary of the company has power on behalf of the company to bind the company by making any promise respecting benefits under any policy issued hereunder or accepting any representations or information not contained in this application, or to make, modify or discharge any contract of insurance, or to extend the time for payment of a premium, or to waive any lapse or forfeiture or any of the company's rights or requirements." And a similar provision was contained in the face of the policy as issued.

The policy was issued on November 12th. On December 5th defendant received information that insured had had attacks of appendicitis, and sent its investigator to Wilmington to look into the matter. He made a report which was referred to the legal department of the company for an opinion. There is nothing in the record to show what this report contained or that the investigation was completed. One witness testified that the investigator stated that insured had said to him that, if the company wanted the policy back, it should say so and return his money, and that, if there was anything wrong with the policy, he did not want it. The local agent testified that insured told him that he wanted the company to make up its mind to do something, because he could get the insurance with another company. But neither the local agent nor the investigator had authority to cancel the policy or return the premium; and there is no evidence that insured ever called upon the company, or upon any of its agents having authority in the premises, to make any election with respect to canceling or continuing the insurance.

There is no evidence that defendant took any action recognizing the validity of the policy after acquiring notice of the falsity of the matters contained in the application; and, while no effort was made to effect a cancellation or return the premium prior to the death of insured, there is no such evidence of undue delay or of other circumstance as would warrant an inference that the company intended to waive the falsity of the statements contained in the application and continue the insurance.

As the policy, by its express provisions, was not to take effect until delivered to the insured and the premium thereon paid, and as it was delivered and the premium was paid in North Carolina, it was, without the aid of any statute, unquestionably a North Carolina contract governed by the laws of North Carolina. Equitable Life Society v. Clements, 140 U. S. 226, 11 S. Ct. 822, 35 L. Ed. 497; Hogue-Kellogg Co. v. G. L. Webster Canning Co. (C. C. A. 4th) 22 F. (2d) 384. And, as the application was taken in North Carolina, this result follows by express provision of the North Carolina statute. Consol. St. N. C. ß 6287; Williams v. Mutual Reserve Fund Life Ass'n, 145 N. C. 128, 58 S. E. 802, 13 Ann. Cas. 51.

Under the law of North Carolina, statements in the application are deemed representations and not warranties, and will not prevent a recovery on the policy, unless material or fraudulent. Consol. St. ß 6289. But, if material, they render the policy voidable; and they are to be deemed material if they are of such a nature as would materially influence the judgment of the insurance company either in accepting the risk or fixing the premium rate. Bryant v. Metropolitan Life Ins. Co., 147 N. C. 181, 60 S. E. 983; Gardner v. North State Mut. Life Ins. Co., 163 N. C. 367, 79 S. E. 806, 48 L. R. A. (N. S.) 714, Ann. Cas. 1915B, 652. Answers made in response to questions in the application as to prior illness, consultation with physicians and applications for other insurance, where the applicant, as here, declares that they are true and offers them as an inducement to the issuance of the policy, are deemed material as a matter of law. George Washington Life Ins. Co. v. American Collapsible Box Co., 185 N. C. 543, 117 S. E. 785; Mutual Life Ins. Co. v. Leaksville Woolen Mills, 172 N. C. 534, 90 S. E. 574, 576; Alexander v. Metropolitan Life Ins. Co., 150 N. C. 536, 64 S. E. 432. The rule is thus stated by Mr. Justice Brown, speaking for the Supreme Court of North Carolina in the Leaksville Woolen Mills Case, supra, as follows: "The materiality of the representations is not open to dispute. It does not depend upon inferences drawn from facts and circumstances to be proved, in which event the question is one for the jury. A different rule prevails where the representations are in the form of written answers made to written questions. In such case the questions and answers are deemed to be material by the acts of the parties to the contract."

And this is in accordance with the rule as laid down by the federal courts. Mutual Life Ins. Co. v. Hilton-Green, 241 U. S. 613, 36 S. Ct. 676, 60 L. Ed. 1202; ?tna Life Ins. Co. v. Moore, 231 U. S. 543, 34 S. Ct. 186, 58 L. Ed. 356; New York Life Ins. Co. v. Fletcher, 117 U. S. 519, 6 S. Ct. 837, 29 L. Ed. 934; Jeffries v. Life Ins. Co., 22 Wall. 47, 22 L. Ed. 833; Union Indemnity Co. v. Dodd (C. C. A. 4th) 21 F.(2d) 709, 55 A. L. R. 735; Keeton v. Jefferson Standard Life Ins. Co. (C. C. A. 4th) 5 F.(2d) 183. The rule is thus stated by the Supreme Court of the United States in the Jeffries Case, and the statement is quoted with approval by the Supreme Court of North Carolina in the Leaksville Woolen Mills Case: "The proposition at the foundation of this point is this, that the statements and declarations made in the policy shall be true. * * * There is no place for the argument either that the false statement was not material to the risk, or that it was a positive advantage to the company to be deceived by it. * * * The company deems it wise and prudent that the applicant should inform them truly whether he has made any other application to have his life insured. * * * The same is true of its inquiry whether the party is married or single. The company fixes this estimate of its importance. The applicant agrees that it is thus important by accepting this test. It would be a violation of the legal rights of the company to take from it its acknowlged power thus to make its opinion the standard of what is material, and to leave that point to the determination of a jury. The jury may say, as the counsel here argues, that it is immaterial whether the applicant answers truly if he answers one way,...

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