Ellingwood v. N.N. Investors Life Ins. Co., Inc.

• Decision Date: 15 January 1991
• Docket Number: No. 18584,18584
• Citation: 111 N.M. 301,805 P.2d 70,1991 NMSC 6
• Parties: Patricia ELLINGWOOD, Individually and as the Personal Representative of the Estate of James M. Streeter, deceased, Plaintiff-Appellant, v. N.N. INVESTORS LIFE INSURANCE COMPANY, INC., a foreign corporation authorized to do business in New Mexico, and Theodore H. Brothers, Individually and as Agent for N.N. Investors Life Insurance Company, Inc., Defendants-Appellees.
• Court: New Mexico Supreme Court

Page 70

805 P.2d 70

111 N.M. 301

Patricia ELLINGWOOD, Individually and as the Personal Representative of the Estate of James M. Streeter deceased, Plaintiff-Appellant, v. N.N. INVESTORS LIFE INSURANCE COMPANY, INC., a foreign corporation authorized to do business in New Mexico, and Theodore H. Brothers, Individually and as Agent for N.N Investors Life Insurance Company, Inc., Defendants-Appellees.

No. 18584.

Supreme Court of New Mexico.

Jan. 15, 1991.

[111 N.M. 302] The Branch Law Firm, Turner W. Branch, Floyd W. Lopez, Albuquerque, for plaintiff-appellant.

Rowley & Parker, Warren F. Frost, Clovis, for defendants-appellees.

OPINION

RANSOM, Justice.

This case involves the authority of an insurance agent to bind an insurance company to a contract for temporary insurance on the basis of oral representations concerning immediate coverage upon payment of a premium. Patricia Ellingwood, as personal representative of the estate of James Streeter, brought suit against N.N. Investors Life Insurance Company, Inc. for breach of contract and against the company and its agent for negligence. The trial court granted summary judgment in favor of N.N. Investors because the enrollment application unambiguously stated coverage was not effective unless and until it was approved by the company. The court also concluded that in his application Streeter made material misrepresentations of fact that, in any case, gave N.N. Investors the right of rescission. We reverse, holding that issues of fact exist as to whether the agent had the apparent authority to bind the company to a contract for temporary insurance and whether Streeter made material misrepresentations.

Streeter was twenty-five when, on October 30, 1985, he applied for life and health insurance from N.N. Investors. He had a severe case of scoliosis, a congenital deformity of the spine that was readily apparent, but no physical examination or interview with a medical professional was required in connection with the application for insurance. The company's agent conducted an interview at Streeter's place of business where he worked as a self-employed manager of a donut shop. The agent asked Streeter questions printed on enrollment application forms and then filled out the forms after Streeter verbally answered the questions.

The forms did not include a specific question regarding scoliosis and no mention of that condition by name was included on the completed application. However, Streeter's "no" answers to questions 14(b) and 14(h) are asserted to have been misrepresentations in view of Streeter's congenital deformity. These questions read:

14. Has any person proposed for insurance EVER had any indication, diagnosis, or treatment of

* * * * * *

b. The respiratory system, including but not limited to shortness of breath, persistent hoarseness or cough, asthma, bronchitis, emphysema, tuberculo sis,, or chronic respiratory disorder? [Answer: No]

* * * * * *

h. Neuritis, arthritis, gout, disorder of the muscles or bones, including but not limited to spine, back, or joints? [Answer: No]

Following these questions, on lines provided for the explanation of any "yes" answers, with reference to question 14 the agent recorded that Streeter's lower spine had been surgically fused in October 1980. The name, address, and telephone number of the treating physician was provided. The agent also made a notation that Streeter was fully recovered and would accept a rider or limitation of coverage.

Streeter paid the agent the first payment due on the life and health insurance policies. Streeter's grandmother, who was present at the time, later testified that the agent told Streeter that he was fully covered by the policies as soon as he paid the premium. After completing the enrollment application, both the agent and Streeter signed the application. Immediately above Streeter's signature the following language appears:

I declare that the statement and answers in the application are complete and true to the best of my knowledge and belief and all information given to the representative has been recorded correctly and in its entirety. I agree that (a) this application will form a part of the certificate (b) the representative does not have the authority on behalf of the Company to accept risks, or to make, alter or amend the certificate or to extend the time for making any payment due on such certificate and (c) no insurance will take effect until the application is approved by the Company and the certificate is delivered to the Applicant while the conditions affecting insurability are as described herein and the first premium has been paid in full. I hereby acknowledge receipt of a copy of the Fair Credit Reporting Act and Medical Information Bureau notices.

This authorizes any licensed physician, medical practitioner, hospital, clinic or other medical or medically related facility, insurance company, the Medical Information Bureau or other organization, institution or person, that has any record or knowledge of me or my family, to give N.N. Investors Life Insurance Company, Inc., any such information. A photographic copy of this authorization shall be as valid as the original. I UNDERSTAND THAT COVERAGE IS NOT EFFECTIVE UNLESS AND UNTIL APPROVED AND ISSUED BY THE COMPANY.

Streeter also signed two acknowledgement forms in connection with health insurance, one for a group major medical policy, the other for a group catastrophic hospital expense benefit plan. Both forms contained the following:

Upon my request, your representative, whose signature appears below, visited me to determine my interest in applying for insurance with your company. Your representative was courteous and fully and completely explained to me from the same certificate, all the provisions as contained in the certificate, including every benefit, exclusion, limitation, waiting period, and deductible, if any. Your representative asked each question on the enrollment application which I signed only after a full review of the provisions and all the answers had been filled in. The answers to the health questions were fully answered to the best of my knowledge, and all the answers on the application are exactly those, with nothing left out, which I in any way related or stated to the representative. I fully understand and agree that if any material information is omitted from the application, it could provide the basis for the Company to refuse coverage and to refund all my premiums as though my coverage had never been enforced. In signing this form, I agree that I have carefully examined and understand the provisions of the specimen certificate and application, and that the Company is not bound by any knowledge or statement made by or to the representative, unless set forth here on the application.

I hereby acknowledge receipt of the Outline of Coverage for Group Catastrophic Hospital Expense Benefits. I understand that coverage is not effective unless and until approved by the Company.

The language in the above forms indicates that insurance coverage was not in force until the application was approved. The sample certificate that the agent used during the interview to explain coverage and benefits stated that coverage would begin on the date shown in the certificate schedule once the company had approved the enrollment application.

The application subsequently was forwarded to the underwriting department of N.N. Investors which, based only on the information contained in that application, issued Streeter a certificate of insurance for major medical and catastrophic hospital expenses and term life insurance. The health insurance coverage included a special exceptions rider excluding from coverage "any disorder and/or disease of, or injury to, the cervical, thoracic, lumbar or sacroiliac spine on James Streeter." Both health policies excluded coverage for an illness that was a pre-existing condition as defined by the certificate of insurance.¹ As stated on the certificate schedule, the effective date of coverage for all three policies was to be 12:00 noon, November 12, 1985.

Following a hunting trip, Streeter brought himself to the emergency room of the Clovis High Plains Hospital on November 10, 1985. He was diagnosed as having severe bronchial pneumonia. Shortly thereafter, at 3:40 a.m. on November 12, he died. Upon receiving claims under the life and health insurance policies, N.N. Investors initiated an investigation of Streeter's medical history and for the first time sought and obtained medical records from the family physician and surgeon listed on the application forms. N.N. Investors states that at this time they discovered that the purpose of the 1980 surgery to fuse his spinal column was the correction of a "severe deformity associated with scoliosis which Mr. Streeter had suffered since birth." They stated they also discovered that he had been admitted to the medical intensive care unit due to pulmonary compromise during the 1980 hospitalization.

N.N. Investors refused to pay any benefits under any of the policies stating that Streeter had failed to disclose (1) his scoliosis and (2) the incident of pulmonary compromise. N.N. Investors asserted that the nondisclosure amounted to material misrepresentations that formed the basis for a right of rescission and returned all of Streeter's premiums. In addition to the initial premium Streeter paid in October, N.N. Investors also refunded two premiums they had withdrawn from his bank account in November and December pursuant to an arrangement for automatic withdrawals. Since the initiation of suit, N.N. Investors also claims to have discovered that Streeter was hospitalized at least thirteen other times for treatment of scoliosis and that he suffered from a "severe restrictive pulmonary defect" that greatly reduced his lung capacity. Records are said to show that he was hospitalized for the treatment of pneumonia three times between the years ...