Carter v. Business Men's Assur. Co. of America

• Decision Date: 01 June 1937
• Docket Number: No. 263.,263.
• Citation: 19 F. Supp. 599
• Court: U.S. District Court — Western District of Kentucky
• Parties: CARTER v. BUSINESS MEN'S ASSUR. CO. OF AMERICA.

19 F. Supp. 599

CARTER v. BUSINESS MEN'S ASSUR. CO. OF AMERICA.

No. 263.

District Court, W. D. Kentucky, at Bowling Green.

June 1, 1937.

Laurence B. Finn, of Bowling Green, Ky., for plaintiff.

B. J. Bethurum, of Somerset, Ky., for defendant.

HAMILTON, District Judge.

Barlow Bryant, a resident of Monroe county, Ky., made application on December 19, 1934, to the defendant for a policy of insurance on his life in the principal amount of $5,000. Pursuant to his application, the defendant issued its policy No. L-201200 on December 30, 1934. Bryant died February 3, 1936, and his administrator filed with the defendant proofs of loss and demand for payment, which was refused.

This action was instituted March 31, 1936, in the Circuit Court of Monroe county, Ky., and within the time provided under the law was removed to this court on the ground of diversity of citizenship.

The defendant answered, admitted the issuance of the policy, and alleged that in the application, which was made a part thereof, the insured made false and fraudulent answers to the following material questions:

"Q. 2. Have you consulted or been treated by any physician or surgeon within the past five years? A. No.

"Q. 3. Have you ever been under observation, care or treatment in any hospital, sanitarium, asylum or similar institution? A. No. * * *

"Q. 6. Have you ever been addicted to the use of any drug or liquor?' A. No."

The defendant alleged that the insured had within the period stated in question No. 2 been treated by a regularly practicing physician for sickness and disease, and had also been confined in a sanitarium for treatment for the excessive use of intoxicating liquors and narcotic drugs, which was contrary to his answer to question No. 3; and further, that the insured had habitually and continuously used liquor and narcotics excessively, contrary to his answer to question No. 6.

Defendant further alleged that the insured made the false statements in his application for the purpose of deceiving defendant and causing the issuance of the policy, all of which was a fraud.

The plaintiff, in his reply, admitted the questions and answers were as stated in the application, but alleged the insured had at the time given true and correct answers to the agents, who wrote untrue answers.

The defendant, in its rejoinder, denied its agents had written untrue answers, and further alleged the insured had signed the application after it was written and had accepted it as a part of the policy, and was estopped to deny its correctness.

The defendant demurs to the second paragraph of the reply, and the plaintiff to the second paragraph of the rejoinder; and the case is submitted on these demurrers.

In addition to the parts of the application specifically pleaded, the defendant relies on that part of the policy which provides:

"This policy and the application herefor constitute the entire contract of insurance between the parties hereto. All statements made by the insured shall in the absence of fraud be deemed representations and not warranties, and no such statement shall void the policy unless it is contained in the application and a copy thereof attached to the policy when issued. * * *

"This policy is issued in consideration of an application for insurance, copy of which is attached hereto and made a part hereof."

And also on the following provisions of the application: "(30) Do you agree that no person except an executive officer of the Company shall have authority to make or modify any contract of insurance in behalf of the Company or to waive any of its requirements and that the falsity of any answer in this application shall bar the right to recover hereunder if such answer is made with intent to deceive or materially affects the acceptance of the risk by the Company, and do you expressly waive on behalf of yourself and of any person who shall have, or claim, any interest in any contract issued hereunder, all provisions of law forbidding any physician or other person who has attended or examined or who may hereafter attend or examine you from disclosing any knowledge or information which he has or may hereafter acquire? Yes."

Defendant also relies on section 679, Carroll's Kentucky Statutes, 1936 Edition, which is as follows: "All policies or certificates hereafter issued to persons within the Commonwealth of Kentucky by corporations transacting business therein under this law, which policies or certificates contain any reference to the application of the insured, or the by-laws, or the rules of the corporation, either as forming part of the policy or contract between the parties thereto, or as having any bearing on said contract, shall have such application, by-laws and rules, or the parts thereof relied upon as forming part of the policy or contract between the parties thereto, or as having any bearing on said contract, attached to the policy or certificate, or printed on the face or reverse side thereof, and unless either so attached and accompanying the policy, or printed on the face or reverse side thereof, shall not be received as evidence in any action for the recovery of benefits provided by the policy or certificate, and shall not be considered a part of the policy, or of the contract between the parties. The policy or certificate, and the rules and regulations, shall be printed, and no portion thereof shall be in type smaller than brevier: Provided, however, That nothing in this section shall be construed as applying to evidence used in reinstatement of a policy or certificate. But the provisions of this section and this subdivision shall not apply to secret or fraternal societies, lodges, or councils, which are under the supervision of a grand or supreme body, and secure members through the lodge system exclusively, and pay no commission, nor employ any agents, except in the organization and supervision of the work of local subordinate lodges or councils."

Plaintiff insists that the knowledge of defendant's soliciting agent was imputed to it, and, since the agent knew of the insured's answers, which were not a misstatement, and thereafter the defendant issued its policy, it is deemed to have waived the provisions of the application relied upon and it is now estopped from pleading as a defense the alleged material misstatements of facts.

Defendant insists that the insured accepted its policy with the knowledge that material facts were misstated, and he knew this when he signed the application. He is now estopped to claim imputed knowledge of its agent to the defendant, or to claim that the defendant has waived any defensive provision of the policy or the application.

Estoppel, while recognized as an essential part of the law, is not its favorite. Its application always locks the door to truth and is a barrier against an investigation of the facts. It lives in the law to prevent an undue advantage being obtained by one party at the expense of another which could not otherwise be rectified.

Section 656(e), Carroll's Kentucky Statutes, 1936 Edition, makes it a crime for the agent or officer of a life insurance company doing business in the commonwealth to falsify or cause to be falsified, or insert or cause to be inserted, in any application for life insurance, any answer to a question propounded in such application of an applicant for insurance, or insert or cause to be inserted in any such application any statement or answer other than the statement or answer made by the applicant. It is not to be lightly presumed that any agent of an insurance company would commit a crime in connection with his business.

Section 633 of Carroll's Kentucky Statutes, 1936 Edition, provides, among other things, whoever solicits and receives applications for insurance on behalf of any insurance company shall be held to be an agent of such company, anything in the policy or application to the contrary notwithstanding. The Court of Appeals of Kentucky has consistently construed this section of the statute to apply to applications for policies, and, where the agent fills in the application, he represents the company and not the insured. Standard Auto Insurance Association v. Henson, 201 Ky. 230, 256 S.W. 414; Svea Fire & Life Insurance Company v. Walker, 235 Ky. 289, 30 S.W.(2d) 1105. See, also, Kentucky Macaroni Company v. London & Provincial Marine & General Insurance Company (C.C.A.) 83 F.(2d) 126.

The reply of the plaintiff in the case at bar alleges that the insured made correct answers to each and every one of the questions asked, and the agent of the company, without his knowledge or consent, inserted false answers.

We are here dealing with a contract which was executed in Kentucky, and the decisions of its Court of Appeals, while not controlling, should be followed unless in conflict with the federal courts.

In the case of Metropolitan Life Insurance Company v. Trunick's Administrator, 246 Ky. 240, 247, 54 S.W.(2d) 917, 918, the insurance company resisted payment of a policy on the ground that the insured in her lifetime had made false answers in the application for insurance in regard to her condition of health, hospitalization, and medical care. It developed the insured had cancer, had been in hospitals, and been treated by physicians. It was insisted that the agent of the insurer knew the true facts, but fraudulently concealed them from the insurer. The policies expressly provided they should be void "if * * * the insured * * * has within two years before date hereof been attended by a physician for any serious disease or complaint."

The evidence heard at the trial conclusively showed that some, if not all, of the statements relied on were both false and material. The court, in holding the insured's agent had waived the forfeiture provisions of the policy for fraudulent misrepresentation, said:

"The sole question presented for determination is whether or not any facts were shown which relieved the plaintiff from the...