Ledley v. William Penn Life Ins. Co.

• Decision Date: 05 January 1995
• Citation: 651 A.2d 92,138 N.J. 627
• Parties: Janice LEDLEY, Plaintiff-Appellant, v. WILLIAM PENN LIFE INSURANCE CO., Leonard C. Weissberger, and Penn Equities Corp., Defendants-Respondents, and John Does 1-5, John Doe Being a Fictitious Name, Defendants.
• Court: New Jersey Supreme Court

Page 627

138 N.J. 627

651 A.2d 92

Janice LEDLEY, Plaintiff-Appellant, v. WILLIAM PENN LIFE INSURANCE CO., Leonard C. Weissberger, and Penn Equities Corp., Defendants-Respondents and John Does 1-5, John Doe Being a Fictitious Name, Defendants.

Supreme Court of New Jersey.

Argued Oct. 11, 1994.

Decided Jan. 5, 1995.

George F. Hendricks, New Brunswick, for appellant (Hendricks & Hendricks, attorneys; Mr. Hendricks, of counsel; Patricia M. Love, on the brief).

B. John Pendleton, Jr., Newark, for respondent William Penn Life Ins. Co. (McCarter & English, attorneys; Mr. Pendleton and Eugene M. Haring, of counsel; Mr. Haring and Andrew O. Bunn, on the brief).

Carol A. Pisano, New York City, for respondents Leonard C. Weissberger and Penn Equities Corp. (Lambert & Weiss, attorneys; Ms. Pisano, Monroe Weiss, and Evan H. Stoller, of counsel; Ms. Pisano and Mr. Stoller, on the brief).

The opinion of the Court was delivered by

POLLOCK, J.

This appeal concerns the duties of an insurer and its agent when issuing a policy insuring the life of an insured who misrepresented his health in the policy application. In an unreported opinion, the Appellate Division affirmed the Law Division's grant of motions for summary judgment by defendants, William Penn Life Insurance Co. (William Penn or the insurer); Penn Equities, its general agent; and Leonard Weissberger, an independent insurance agent. We granted certification, 136 N.J. 296, 642 A.2d 1005 (1994), and now affirm.

We hold that when the insured materially misrepresents his or her health, the insurer, in the absence of knowledge of conflicting facts, does not have a duty to investigate independently the insured's medical history. We further hold that the agent is not liable for negligent completion of the insurance application when the insured knowingly misrepresents material facts relating to his health.

-I-

On March 15, 1990, William Penn issued a $140,000 life insurance policy to Steven Ledley (the insured), effective February 24, 1990. The policy contained a clause stating that it would be incontestable after two years from the date of issue. One month after issuance of the policy, on April 14, 1990, the insured died of heart failure. Plaintiff, Janice Ledley, the beneficiary, submitted a claim to William Penn. Because the death occurred within the period of contestability, William Penn began an investigation that revealed the insured's undisclosed extensive history of thyroid problems. Consequently, William Penn disclaimed coverage because of the insured's equitable fraud.

Plaintiff sued William Penn, Penn Equities, and Weissberger, alleging that Weissberger had negligently completed the application. William Penn counterclaimed, seeking rescission because the insured had materially misrepresented his health in the application.

When completing the application on February 24, 1990, the insured supplied the following answers to Weissberger, who recorded them on the application form:

8. HAS ANY PERSON PROPOSED FOR INSURANCE EVER HAD:

i. tumor, cancer, venereal disease, disorder of blood, skin, thyroid or other glands?

Answer: No.

* * * * * *

k. x-rays, electrocardiograms, blood studies or other diagnostic tests (past 5 years). When, why, by whom, with what results?

Answer: Yes. Blood studies done during physical M. Tillem. 65 East Northfield Road, Livingston N.J. Came back O.K. X-ray--Mountainside Hosp. Bay St. Montclair 1986. Auto accident--check up everything O.K.

1. treatment or consultations with any physician or practitioners, other than as stated above (past 5 years). Give details.

Answer: No.

In an affidavit in support of his motion for summary judgment, Weissberger stated that the insured had related that his thyroid, although enlarged, was normal and did not impair any of his bodily functions. The insured also had told Weissberger that thyroid surgery had been suggested for cosmetic purposes only. According to plaintiff's affidavit filed in opposition to the motion for summary judgment, Weissberger then said: "Well, I'm not going to put it on [the application] because there is not a category there for it. But when they obtain your medical records from the doctor, that information will be included." Plaintiff concedes, however, that the insured responded negatively to questions 8k and l. She also concedes that the insured falsely answered "no" to question 8i, which inquired about the existence of venereal disease. Contrary to the insured's negative response, he had been treated for gonorrhea.

The insured also had an extensive history of thyroid problems. In 1989, he had been examined by an internist, Dr. Michael Tillem, who referred him to Dr. Dikengil for a series of thyroid-function tests: a thyroid-uptake study, thyroid scintigraphy, and thyroid ultrasound. The tests revealed probable nodules in the right and left lobe of the thyroid, which led Dr. Dikengil to suggest further evaluation. Dr. Tillem also referred the insured to Dr. Howard M. Berg, a specialist in otolaryngology, for consultation concerning the insured's thyroid goiter. In a January 23, 1990, letter from Dr. Tillem, he and Dr. Berg recommended "surgical removal of part of your thyroid so that the sections in question may be sent to the lab for analysis to rule out any cancerous growth." The letter also expresses the concern of both doctors that the "two nodules may represent bleeding into the goiter or quite possibly a thyroid cancer."

The insured, however, decided not to undergo the surgery on the advice of his sister, a pre-medical student. She advised the insured to control his thyroid condition by monitoring his intake of iodine. One month after receiving Dr. Berg's letter recommending surgery, the insured met with Weissberger to complete the life insurance application.

In support of its motion for summary judgment to rescind the policy, William Penn submitted an affidavit by Derek Rice, a senior life underwriter. Rice concluded that if the insured had disclosed his thyroid goiter and "cold," or possibly malignant nodules, William Penn would not have issued the policy. The Law Division found that the insured had materially misrepresented his thyroid condition and had failed to disclose the names of consulting physicians. Further, the court found that the insured's misrepresentations about a possible thyroid malignancy entitled the insurer to rescind the policy.

In opposition to Weissberger's motion for summary judgment, plaintiff submitted a report by an insurance expert who concluded that Weissberger should have reported the insured's enlarged thyroid to the insurer and should have advised the insured to answer "yes" to question 8i concerning the existence of a thyroid disorder. The trial court concluded that plaintiff had failed to raise a factual issue whether Weissberger had led the insured to believe the insurer would investigate his medical records.

The Appellate Division likewise found that the insured's failure to disclose his various thyroid tests and consultations with physicians other than Dr. Tillem constituted material misrepresentations. It concluded that William Penn was not under a duty to investigate the insured's medical history because it did not possess sufficient facts to prompt an independent inquiry. The court noted that the policy expressly states: "[N]o information as to any matter made a subject of inquiry [in the application] ... shall be considered known by the Company unless set out in writing on this application." Because the application failed to disclose any information about the insured's thyroid condition, William Penn had no reason to make further inquiries.

The Appellate Division similarly determined that Weissberger had not been negligent. Because the insured had provided false information by concealing his various thyroid tests and consultations with Dr. Berg, Weissberger was not guilty of negligent completion of the insurance application.

Before us, plaintiff does not challenge the materiality or falsity of the insured's answers on the application. Nor does she contend that Weissberger's knowledge should be attributed to William Penn. Instead, she claims that Weissberger negligently completed the insurance application and that the insurer failed to investigate the insured's medical condition.

-II-

We begin our review of the grant of defendants' motions for summary judgment by recognizing that we should consider the facts in the light most favorable to plaintiff. Judson v. Peoples Bank & Trust Co., 17 N.J. 67, 75, 110 A.2d 24 (1954).

A court may order rescission of a life insurance policy for equitable fraud even after the death of the insured. Formosa v. Equitable Life Assurance Soc'y, 166 N.J.Super. 8, 13, 398 A.2d 1301 (App.Div.1979), certif. denied, 81 N.J. 53, 404 A.2d 1153 (1979). Within the statutory two-year period of contestability, N.J.S.A. 17B:25-4, an insurer may contest a policy for equitable fraud, whether the insured is alive or dead. Ibid. Even after the expiration of the contestability period, an insurer may deny a claim if the insured committed fraud in the policy application. Paul Revere Life Ins. Co. v. Haas, 137 N.J. 190, 644 A.2d 1098 (1994). To rescind a policy, an insurer need not show that the insured actually intended to deceive. Massachusetts Mut. Life Ins. Co. v. Manzo, 122 N.J. 104, 114, 584 A.2d 190 (1991). Even an innocent misrepresentation can constitute equitable fraud justifying rescission. Metropolitan Life Ins. Co. v. Tarnowski, 130 N.J.Eq. 1, 3-4, 20 A.2d 421 (E. & A.1941).

Equitable fraud, however, distinguishes between subjective and objective questions on the application. See Formosa, supra, 166 N.J.Super. at 18, 398 A.2d 1301 (concluding that insured's knowingly false reply to subjective question whether insured had ever been treated for or had any known indication of diabetes constituted equitable fraud); Russ v. Metropolitan Life Ins. Co., 112 N.J.Super. 265, 271, 270 A.2d...