Burnham v. Bankers Life & Cas. Co., 11924

• Decision Date: 02 June 1970
• Docket Number: No. 11924,11924
• Citation: 470 P.2d 261,24 Utah 2d 277
• Court: Utah Supreme Court
• Parties: d 277 Patricia M. BURNHAM, Plaintiff and Appellant, v. BANKERS LIFE & CASUALTY COMPANY, an Illinois corporation, Defendant and Respondent.

Page 261

470 P.2d 261

24 Utah 2d 277

Patricia M. BURNHAM, Plaintiff and Appellant, v. BANKERS LIFE & CASUALTY COMPANY, an Illinois corporation,

Defendant and Respondent.

No. 11924.

Supreme Court of Utah.

June 2, 1970.

Robert M. Yeates, Denis R. Morrill, Kenneth W. Yeates, of Mulliner, Prince & Mangum, Salt Lake City, for plaintiff and appellant.

Don J. Hanson, of Hanson & Garrett, Salt Lake City, for defendant and respondent.

CALLISTER, Justice:

Plaintiff, the designated beneficiary, initiated this action to recover the balance due on a decreasing term rider in an insurance policy issued on the life of her husband, Preston J. Burnham, deceased. The defendant insurance company alleged that the policy was issued January 1, 1962, and lapsed upon failure to pay premiums on April 1, 1967. Thereafter, the policy was reinstated on July 21, 1967, pursuant to an application by the insured, wherein there was contained a provision that the applicant and company agreed that the reinstatement of the policy should be contestable on account of fraud or misrepresentation in material facts therein stated at any time within two years from the date of approval thereof. Defendant alleged that the insured made a misrepresentation of material fact and that if said fact had been known to the defendant, the policy would not have been reinstated.

Subsequently, defendant filed a motion for summary judgment based on the pleadings, a deposition of Dr. Herbert B. Fowler, and the affidavit of defendant's attorney. The defense attorney in his affidavit asserted that Preston J. Burnham, in response to a question on the application for reinstatement, represented that the only physician or practitioner whom he had consulted or who had treated him during the past five years was L. Bert Green, M.D., whom he had consulted for an upper respiratory infection in June of 1967. The affidavit continued with a statement that the insured had in fact consulted on a professional basis on eighty occasions between 1963 and 1965 with Dr. Herbert B. Fowler, M.D., a psychiatrist. The defense attorney swore that had the company known the insured was seeing a psychiatrist and had expressed suicidal tendencies, the policy would not have been reinstated. The affidavit further contained a statement that the insured committed suicide on February 20, 1968. Defense counsel concluded with an assertion that the insurance company did not learn of the foregoing information until after the death of the insured at which time the company elected to rescind that portion of the contract concerning the decreasing term rider.

The trial court in a memorandum decision stated that the governing issue was whether the failure of the insured in his application for reinstatement to disclose his numerous visits to Dr. Fowler ¹ constituted a fraud upon the insurance company. The trial court reasoned that under Section 31--22--18(2), U.C.A.1953, the insurance company had a right upon reinstatement of the policy to exclude or restrict liability to the same extent as when the contract was originally issued. The company could have inserted as one of the terms of reinstatement the two-year restriction against the beneficiary collecting on account of death by reason of suicide. Disclosure by the insured of his consultations with Dr. Fowler would have enabled the insurer to consult the psychiatrist and based on the information obtained the company would have had the option to insert the two-year contestability restriction concerning death by suicide. The insured's failure to disclose prevented the insurer from exercising its right to evaluate the information it might have obtained from Dr. Fowler and to apply restrictions to the reinstated policy. The court ruled that this failure to disclose was a misrepresentation by omission and a fraud upon the insurer. The court granted defendant's motion for summary judgment.

It should be observed parenthetically, although it is not dispositive of the issues of this action, that a summary judgment was inappropriate because there were disputed issues of material facts. First, unless the misrepresentations in the negotiation for an insurance policy are made with intent to deceive and materially affect either the acceptance of the risk or the hazard assumed by the insurer, the insurance contract cannot be avoided by an insurance company. Mere falsity of answers to questions propounded are insufficient if not knowingly made with intent to deceive and defraud. ² Second, whether or not a misstatement in an application is material to the risk, while it is for the jury to determine, depends not upon what the insurer or the insured may think about the materiality or the importance of the false information given or the true information withheld, but upon what those engaged in the insurance business, acting reasonably and naturally in accordance with the usual practice among insurance companies under such circumstances, would have done had they known the truth; that is, whether reasonably careful and intelligent men would have regarded the facts stated as substantially increasing the chances of the happening of the event insured against so as to cause a rejection of the application. ³

There are three relevant provisions in the insurance contract; they provide:

Incontestability

This policy shall be incontestable after it has been in force during the lifetime of the Insured for two years from its date of issue, except for nonpayment of premiums, * * *

Suicide

If within two years from the date of issue of this policy the Insured shall die by suicide, while sane or insane, the liability of the Company shall be limited to an amount equal to the premiums which have been paid for this policy.

Reinstatement

This policy may be reinstated (unless previously surrendered for its cash value) at any time within 5 years after default in premium payment, upon furnishing evidence of insurability satisfactory to the Company, all the payment of all past due premiums with interest compounded at 5% per annum * * *.

In Gressler v. New York Life Insurance Company ⁴ this court determined that under Utah law a life insurance policy with a clause providing for reinstatement after lapse for nonpayment of premiums upon presentation of evidence of insurability satisfactory to the insurer, is not entirely terminated upon default of the premium payment, for the insured has a contractual right under the policy to reinstate fully upon compliance with the conditions for reinstatement contained in the policy. Furthermore, an application for reinstatement is neither an offer to enter into a new contract of insurance nor an offer to enter into a contract to reinstate the old policy; rather it is the first step taken to comply with the conditions of reinstatement. The Gressler case is cited in 17 Couch on Insurance 2d as an example of the continuing contract concept. ⁵

In the instant action, by the express terms in the suicide clause, time is to be reckoned 'from the date of issue of this policy,' not from the date of reinstatement. By the reinstatement clause, the insured was given an absolute right to reinstate upon payment of the amount in default and production of evidence of insurability satisfactory to the company. ⁶ The company cannot by...