Eastern Dist. Piece Dye Works, Inc. v. Travelers' Ins. Co.

• Decision Date: 09 January 1923
• Citation: 138 N.E. 401,234 N.Y. 441
• Parties: EASTERN DIST. PIECE DYE WORKS, Inc., v. TRAVELERS' INS. CO.
• Court: New York Court of Appeals Court of Appeals

234 N.Y. 441

138 N.E. 401

EASTERN DIST. PIECE DYE WORKS, Inc.,

v.TRAVELERS' INS. CO.

Court of Appeals of New York.

Jan. 9, 1923.

Action by the Eastern District Piece Dye Works, Inc., against the Travelers' Insurance Company. From a judgment of the Second Appellate Division (198 App. Div. 610,190 N. Y. Supp. 822), reversing a judgment of the Trial Term, which dismissed the complaint on questions of law, and granting a new trial, defendant appeals.

Affirmed.Appeal from Supreme Court, Appellate Division, Second Department.

William J. Moran, of New York City, for appellant.

Louis Marshall and Bernhard Bloch, both of New York City, for respondent.

HISCOCK, C. J.

The action is brought to recover on an insurance policy issued by the defendant upon the application of one Leontine Klein (and another whose part is immaterial) upon the life of said Klein and payable on proof of death to the plaintiff, of which she was the principal officer. The application was dated June 24, 1919, the policy was issued September 4 of the same year, and Mrs. Klein died November 26, 1919, as the resule of a major surgical operation.

The defendant refused to pay the policy and when this suit was brought to recover thereon interposed two defenses; one of purported or attempted rescission, and one based upon alleged misstatements in the application made by the insured for the policy. These defenses will be considered more fully hereafter when there have been set out the various facts which led up to and were involved in them.

In her application for the policy Mrs. Klein stated:

‘I am in sound condition mentally and physically.’

‘I have never had any bodily or mental infirmity or deformity.’ ‘I have not been disabled nor have I received medical or surgical attention within the past 5 years.’

It appeared without substantial contradiction and could have been found by a jury that about 30 years before making her application Mrs. Klein received in childbirth a laceration of the perineum or related parts, the extent thereof not being disclosed; that such a laceration was nothing more than that suffered by 40 per cent. of women bearing children and that it had never interfered with the applicant's general health or with her capacity for enjoying life and for business activity, which she exercised in an unusual degree as the president of the plaintiff; that some time ‘about six or eight months before the operation’ which resulted in Mrs. Klein's death, her family physician spoke to one of the surgeons at the hospital where she died about performing an operation for this laceration, which was an advisable course to pursue and a minor operation; that when the operation was undertaken the surgeon discovered some tissue which was thought to be cancerous and also an abnormal intestinal or rectal formation, which finally led him to perform a major operation which resulted in the death of the insured; that as a matter of fact the suggestion of cancerous tissue was entirely unfounded, and the abnormal formation which led to the fatal operation had existed from birth, did not in any manner interfere with the normal operation of the parts in question, and could not have been known by the insured; that the death of the patient was not in any manner the result of the lacerations or of an operation to cure the same.

In addition to the foregoing evidence a witness, who was an interne at the hospital where the operation upon Mrs. Klein was performed, was allowed, over objection and exception, to testify in substance that at the time of such operation the former told him that she was ‘torn’ 30 years before, and had a falling of the womb; that she had but little trouble until 3 years before, when she began to notice a mass protruding from the vagina the size of a hazelnut which gave no pain or discomfort and no urinary or rectal symptoms; that the condition had remained practically the same; that three weeks before the patient suddenly began to feel a sensation of pressure on bladder and rectum, also as if something was giving way in the pelvis; the symptoms were not very severe, but the patient felt that the time had at last arrived when an operation should be performed.

Of the defenses set up by the defendant the one attempting or purporting to set forth facts by way of rescission has practically disappeared from consideration in the arguments now addressed to us, and does not require discussion. The other defense of misstatements in the application relied upon presents various questions, and an accurate statement of some of its important allegations becomes material. It alleges that the policy in question was issued in consideration of the ‘declarations' made by the insured in her application for the policy, that at that time she was in sound condition mentally and physically, that she never had had any bodily or mental infirmity or deformity, and that she had not been disabled or received medical or surgical attention within 5 years prior to her application for said policy of insurance, which declarations she ‘warranted’ to be true; ‘that her said declarations, * * * all of which were warranted by her to be true, were not true.’

Some time prior to the trial an order was made requiring the defendant to serve a bill of particulars of the respects in which it claimed that the insured was not in the physical condition and free from ailments and deformities as stated in her application for the policy, and such a bill of items was served. At the close of the case the defendant moved for a dismissal of the action, and the plaintiff moved for the direction of a verdict, and, as already stated, the former motion was granted on the ground that applicant's statements heretofore quoted were false and avoided the policy. While the plaintiff's trial lawyer did not in any specific or satisfactory manner extricate himself from the position which was created by these two requests for the disposition of the case as a matter of law, he did after the motions were made engage in a colloquy with the court, which indicated that he thought that the question whether the applicant's statements were untrue ought to be submitted to the jury, and when an order was made by the trial judge denying a motion for a new trial there was inserted in it a statement that the motion was denied ‘upon the ground that there was not a single question of fact that the court could leave to the jury, as stated by the court at the time of the trial herein.’ Out of all of these circumstances arise several questions which it is necessary to discuss.

It is quite questionable whether the defendant under its bill of items did not limit itself to urge as a defense the unusual intestinal or rectal formation which was only discovered when the insured was placed upon the operating table, and which it is undisputed never interfered with the normal functions of her organs, and could not have been known by her. The bill of items which was served is somewhat complicated and equivocal, and it is difficult to determine whether it included and gave defendant the right also to urge by way of defense the condition of laceration which had existed for a long time. On the trial, however, this latter condition was developed and considered, apparently without any particular surprise or injury to plaintiff, and we have concluded to give the defendant the benefit of that interpretation of its bill of items which permitted this to be done.

We then come to a construction of defendant's answer which set up the alleged missatements in the applicatio for a policy as a defense to the latter. The question here presented is the one whether the answer alleged a breach of warranty in respect of these statements, or whether it simply alleged them as constituting misrepresentations by which the issue of the policy was procured. This question is one of importance, especially, in view of section 58 of the Insurance Law (Const. Laws, c. 28). Prior to 1906 a breach of warranty contained in an application for insurance constituted a defense to a claim upon the policy, although the warranty related to an immaterial matter. A misrepresentation contained in the application on the other hand only became a defense if it related to a material matter. Donley v. Glens Falls Ins. Co., 184 N. Y. 107, 76 N. E. 914,6 Ann. Cas. 81. Confronted by this condition of the law, and desiring to modify it, the Legislature in 1906 adopted section 58 of the present Insurance Law, which provides:

‘Every policy of insurance issued or delivered * * * by any life insurance corporation doing business within the state shall contain the entire contract between the parties, * * * and all statements purporting to be made by the insured shall in the absence of fraud be deemed representations and not warranties.’

The result of this provision is that in order to produce a warranty in an application for insurance whereof a breach would necessarily and ipso facto avoid the policy, the statement claimed to constitute or have the effect of a warranty must be characterized by and include the element of fraud, and which ordinarily would be established by proof that the person making it knew that the statement was false, and wherefrom could be inferred an intent to deceive and cheat. A misstatement, even though stated in the form of a warranty, if made in good faith and without this element of fraud, passed into the same class as an ordinary representation and became a defense to the policy only if it was material. On the other hand, the effect of a misrepresentation was left unchanged by the statute. If material it constituted a defense, although made innocently and without any feature of fraud; it was sufficient that it was material as an inducement for the issue of the policy, and was untrue.

Coming to the present answer, the plaintiff insists that the defendant pleaded the alleged misstatements of the applicant concerning her health as warranties, and that...