Dreiling v. Home State Life Ins. Co.

• Decision Date: 03 November 1973
• Docket Number: No. 46976,46976
• Citation: 213 Kan. 137,515 P.2d 757
• Parties: Bernard R. DREILING, Appellee, v. HOME STATE LIFE INSURANCE COMPANY, Appellant.
• Court: Kansas Supreme Court

Page 757

515 P.2d 757

213 Kan. 137

Bernard R. DREILING, Appellee, v. HOME STATE LIFE INSURANCE COMPANY, Appellant.

No. 46976.

Supreme Court of Kansas.

Nov. 3, 1973.

Syllabus by the Court

1. In an action to rescind two life insurance contracts approximately two years after their issuance on the ground of fraud, for misrepresentations made by agents of the insurance company as to the nature and character of the policies on which the insured was induced to accept the insurance, the trial court rescinded the transactions and entered judgment for only a partial restoration to the plaintiff of the premiums paid, and on appeal it is held: (a) The evidence is sufficient to sustain the findings of the trial court which support rescission of the contracts; (b) that the plaintiff's action is not barred by the statute of limitations or laches; (c) that the plaintiff is not estopped in his efforts to seek rescission; and (d) that the trial court erred in entering judgment for only a partial return of the premiums paid.

2. To constitute actionable fraud the representations must relate to some material past or present fact, as opposed to promised actions in the future which might or might not occur.

3. A receipt for a policy of insurance containing contractual features which purport to release an insurance company for promised investment features of the transaction, which are not set forth in writing in the policy of insurance issued, may be explained where the execution of the receipt is induced by fraud.

4. Rescission of a contract is the annulling or abrogation or unmaking of the contract and the placing of the parties to it in status quo. It necessarily involves a repudiation of the contract and a refusal of the moving party to be further bound by it.

5. Rescission is an equitable remedy designed to afford relief from contracts entered into through mistake, fraud, or duress. Ordinarily, the nature of relief asked in such cases must be such as to place the parties in their original situation.

6. The general rule is that one who seeks to rescind a contract, or to have equity rescind it, must place the other party in substantially the same condition he was in when the contract was executed, but there are a number of exceptions to the rule.

7. An insured may rescind a life insurance policy and recover the premiums paid for misrepresentations made by its agents as to the nature and character of the policy on which the insured was induced to accept it, and in so doing it is not necessary that the insured restore the value to him or the cost to the insurance company of the insurance coverage prior to the rescission.

James W. Sargent, of Regan, Sargent, Klenda, McGannon & Paup, Wichita, argued the cause, and Collins & Collins, Wichita, were with him on the brief for the appellant.

H. R. Kuhn, of Arn, Mullins, Unruh & Kuhn, Wichita, argued the cause, and was on the brief for the appellee.

SCHROEDER, Justice.

This is an action for the rescission of two insurance contracts almost two years after their issuance for fraudulent misrepresentations made by the insurance company's salesman and its agency director.

There being no basic dispute in the facts, the points asserted on appeal call for a review of the law applied by the trial court in determining the controversy.

Bernard Dreiling (plaintiff-appellee and cross-appellant) worked as a barber in Wichita, Kansas, at all times relevant to this case. The Home State Life Insurance Company (defendant-appellant) was a newly organized life insurance company and instituted a vigorous campaign of selling life insurance in the Wichita area in the years 1968 and 1969.

Early in 1967 Dreiling purchased 3500 shares of stock at $2.50 per share from First National Investors Corporation ^IC, which is the parent company of Home State Life Insurance Company, the appellant herein. This purchase was made before the Home State Life Insurance Company was formed. Dreiling later learned about its formation through a friend.

In order to accomplish its 'fast selling' program to get 'quick money', the Home State Life Insurance Company brought into Kansas what is known in the trade as 'blue suede shoe' type of salesmen who were otherwise characterized as 'hot shots, contact men and storm troopers'. The scheme of operation of the appellant involved seeking out persons who appeared to have a broad 'sphere of influence' in the community. Mr. Dreiling has over six hundred customers passing through his barber shop per week. Such individuals were solicited by the company and appointed 'county directors.' Their only function in the company's scheme of operations was to act as a 'bird dog' for the company and refer names of prospective customers to agents of the company. The list of 'county directors' was then used by the soliciting agent as an entree in making his pitch to the customer. In order to permit the payment by the company of a 'referral fee,' it was necessary for the company to assist the 'bird dog' and 'county director' in procuring an insurance license from the insurance commissioner's office. The 'bird dog' or 'county director' was specifically prohibited from selling the company's insurance program; he did not have to be knowledgeable in the insurance field and was appointed as a 'county director' for the company only because of his contract or influential position with potential customers.

Dreiling first had contact with the Home State Life Insurance Company in March of 1969. At that time an agent of the Home State Life Insurance Company named Kelly Pete contacted and arranged to meet with the Dreilings. In the meeting Rete discussed a policy referred to as the AC5 contract.

The record discloses the AC5 insurance contract in question is, in reality, a combination of eight policy forms put together. Some of its features are:

(a) $10,000 of ordinary life insurance with premiums payable over a twenty-year period;

(b) $36,000 of decreasing term insurance, decreasing at the rate of $900 per year (c) a provision for the return of all premiums in the event of death of the insured;

(d) increasing death benefits in the form of a rider;

(e) a change option so the owner could do away with all riders and make a normal 20-day life policy out of it; lowering the premium to a little less than half; and

(f) a 10-year paid-up option provision.

Mr. Dreiling testified that first thing Kelly Pete did was to show him and his wife a big book with all of the names of the county directors of the Home State Life Insurance Company. He then proceeded to tell them about the AC5 contract, which Mr. Dreiling described as sounding 'fantastic, as far as life insurance coverage and the investment benefits.' Regarding the policy taken on the life of his daughter, Mr. Dreiling testified:

'. . . He said that Mary, who is age four, would have life insurance policy of $10,000 with annual premium payments of $415 and some odd cents plus a 10% dividend paid annually on this $415, which I could either take out or leave in and I would draw another 10% upon what I left in. I had to make two payments of $415 per year. I told him I could do it this year and next year maybe not and he said that the great thing about the AC5 is the fact that you are only required to make two payments. You can make more payments and get 10% dividends on whatever you put in. I asked how a company could do this and make money. He said that we are a new insurance company and it brings in quick money and we are not going to do this for too long a period of time and then they will start selling straight life insurance. My wife and I asked him several times to make clear that no more than two payments were required. He agreed that this was the case each time. He told us that we would receive 10% of the 800 plus dollars, that Mary would be insured for $10,000, after five years I could get my initial investment back and still have the insurance paid up, and if I left my dividends in I was to get 10% on it.

'He further told us that after making two annual payments, insurance would remain in full force and effect and everything stays intact. At this time I signed an application for the AC5 policy with Mr. Pete. I gave him a check for the first payment in the amount of $415 and some odd cents. I made a subsequent payment the following year.

'Kelly Pete and Mr. (George) Hamic, who was the agency director for Home State Life delivered the contract to me. After reading the contract, I saw there was nothing in it about the investment portion, the 10% return, and the two annual payments. When I brought this up to Mr. Hamic, he said this portion of the contract hadn't been approved by the State Insurance Commissioner and that when it was it would be delivered to me. When I asked how I would know this would come about, he said that there were responsible men on the Board of Directors and that if the company reneged on their promises, the businesses of the Directors would suffer. I then signed the receipt for the policy. They told me that after the changes were approved by the Insurance Department, that they would be delivered to me in a separate contract.'

On cross-examination Mr. Dreiling testified:

'Mr. Kelly Pete and Mr. Hamic said that these representations were not contained in the policy because such provisions had not yet been approved by the Insurance Commissioner. They said that this had to be done in the future, and the Agency Director said that even (if) it were not passed by the Insurance Commissioner, the Board of Directors would not renege on the contract as alleged, with the investment portion of it.'

Mrs. Dreiling, the wife of Bernard Dreiling testified:

'Kelly Pete told my husband and I that we are simply purchasing another part of the company, a life insurance policy with an investment feature, which was very desirable to us. I say 'another part of the company' because of the stock interest my husband already had in FNIC. We would d...