Billington v. Prudential Insurance Co. of America, 12161.

• Decision Date: 09 April 1958
• Docket Number: No. 12161.,12161.
• Citation: 254 F.2d 428
• Parties: Mary F. BILLINGTON, Plaintiff-Appellee, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

254 F.2d 428 (1958)

Mary F. BILLINGTON, Plaintiff-Appellee, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.

No. 12161.

United States Court of Appeals Seventh Circuit.

April 9, 1958.

B. Howard Caughran, Indianapolis, Ind., Walter W. Siebert, Chicago, Ill., Dowden, Denny, Caughran & Lowe, Indianapolis, Ind., C. Malcolm Moss, Chicago, Ill., of counsel, for appellant.

Aribert L. Young, Indianapolis, Ind., James A. Colvin, Indianapolis, Ind., for appellee.

Before HASTINGS and PARKINSON, Circuit Judges, and WHAM, District Judge.

HASTINGS, Circuit Judge.

The Prudential Insurance Company of America appeals from a judgment entered for appellee as beneficiary under a $10,000 life insurance policy issued by that company on the life of appellee's husband. The case was tried without a jury and, on this appeal, appellant charges error in the failure of the trial court to grant defendant's motion for judgment filed at the close of all the evidence, in its adoption of certain findings and conclusions of law, and in its entry of judgment for appellee.

The policy in question was issued July 1, 1953 and the insured died less than two years later, within the contestable period, on April 20, 1955. Claim for proceeds of the policy and a proof of death form were submitted to the company shortly thereafter. The proof of death showed that insured had died of Hodgkin's disease of two and one-half years duration. After proper investigation of the circumstances, the insurance company elected to rescind the policy on the ground that insured had made material misrepresentations as to his prior state of health and medical history in the application for the policy. On June 8, 1955 appellee was informed that the company could not honor her claim, and all premiums paid on the policy were tendered to her. This offer was at first refused, but the following month, after consulting someone in the office of the Insurance Commissioner of the State of Indiana where she received no satisfaction, appellee accepted the return of premiums and signed a release. This action was commenced eight months later, the money representing premiums plus interest being deposited by appellee with the clerk of the trial court on June 21, 1957.

On these admitted facts a serious question arises whether or not there was a mutually agreed upon rescission or cancellation of the insurance contract. Appellee in accepting the money tendered by the insurance company was aware that it represented a return of premiums, and she signed what appears to be a standard form releasing any claim she might have had under the policy. Although we have been cited to no Indiana cases on this precise point, there is support for the proposition that, after death of the insured, an acceptance of a tender of premiums by the beneficiary amounts to a rescission of a voidable policy by consent. Peterson v. New York Life Insurance Co., 1932, 185 Minn. 208, 240 N.W. 659, 80 A.L.R. 180; Tully v. New York Life Insurance Co., 1930, 228 App. Div. 449, 240 N.Y.S. 118; 80 A.L.R. 185. Cf. Meyer v. Johnson, 1935, 7 Cal.App.2d 604, 46 P.2d 822, 823. It is clear that in Indiana after the death of the insured, a tender of premiums for avoidance of a policy of insurance for false material representations in the application must be made to the beneficiary. Grand Lodge of Brotherhood of Railroad Trainmen v. Clark, 1920, 189 Ind. 373, 127 N.E. 280, 18 A.L.R. 1190; Sofnas v. John Hancock Mutual Life Ins. Co., 1939, 107 Ind.App. 539, 21 N.E.2d 425; American Central Life Ins. Co. v. Rosenstein, 1910, 46 Ind.App. 537, 92 N.E. 380. The tender of premiums was thus made to the proper party.

There is no contention that the insurance company exercised fraud or coercion in its dealings with the beneficiary. She accepted the money and retained it for a considerable period of time with a full understanding of the good faith position of the company, knowing that certain statements in the insured's application for insurance were not true. Although she was not given a copy of the release she signed, she testified that she knew the money represented a return of premiums paid. Even characterizing the release a "receipt" as the trial court does in its findings, the fact remains that the beneficiary, being cognizant of the company's position, could not possibly have expected to retain the premiums and still recover the benefits under the policy.

However, apart from consideration of whether, pursuant to general law, there was completed mutual rescission of the policy, we find that, under the applicable Indiana law, the policy should be avoided due to false material representations of the insured in his application for the policy. The answers to certain health questions in Part 2 of the application which was signed by the insured denied that he had consulted or been attended by a physician during the previous five years, that his weight had changed in the past year, that he had a run down condition or that he had any indication of a blood or gland disorder. The findings of the trial court disclose that for a long time prior to the date of his death the insured had visibly enlarged lymph glands of the neck. During 1950 or 1951 he experienced swelling of the lymph glands in the armpits and sought treatment at the Indianapolis Industrial Clinic. In 1952, the insured while working at two full time jobs became run down, fatigued and lost weight; and in the fall of that year, approximately six months before he applied for the policy, he consulted Dr. Riggs, his family doctor, who referred him to Dr. Fouts, a specialist in hematology. Dr. Fouts conducted a blood and bone marrow test and advised that a biopsy of one of the enlarged glands be made at the local hospital. The insured refused to submit to a biopsy. The specialist did not diagnose the case but wrote to Dr. Riggs of his suspected diagnosis of Hodgkin's disease.

The district court found that the insured was not guilty of fraud in answering the questions on the application and was at no time, prior to the application for the policy, aware of the seriousness of his illness. However, it has been held in Indiana, that false representations, concerning a material fact, which mislead, will avoid an insurance contract, like any other contract, regardless of whether the misrepresentation was made innocently or with fraudulent design. Metropolitan Life Ins. Co. v. Becraft, 1938, 213 Ind. 378, 384, 12 N.E.2d 952, 955, 115 A.L.R. 93. "If the misrepresentation was brought about by forgetfullness or mistake it is just as injurious as an intentional fraud. It accomplishes a fraud upon the other contracting party by inducing him to act upon a false premise, where he would not have acted had he known the truth. * * * If there is misrepresentation of a material matter the law constructs the fraud." Id., 213 Ind. at pages 384-385, 12 N.E.2d at page 955. See also Brotherhood of Railroad Trainmen v. Virden, 1940, 216 Ind. 324, 329, 24 N.E.2d 934, 937.

The trial court's findings indicate also that the insured in applying for the policy of insurance did in fact inform the soliciting agent that he had lost weight; that he had seen doctors within the five year period specified in the application, but that they did not find anything; and that he had suffered from a run down condition which caused him to see a doctor. The enlarged glands, according to the findings, were visible to the agent. Additionally, the court found that the medical examiner of defendant examined and personally...