First Trust Co. of St. Paul v. Kansas City Life Ins. Co., 10276.

• Decision Date: 22 August 1935
• Docket Number: No. 10276.,10276.
• Citation: 79 F.2d 48
• Parties: FIRST TRUST CO. OF ST. PAUL et al. v. KANSAS CITY LIFE INS. CO.
• Court: U.S. Court of Appeals — Eighth Circuit

79 F.2d 48 (1935)

FIRST TRUST CO. OF ST. PAUL et al. v. KANSAS CITY LIFE INS. CO.

No. 10276.

Circuit Court of Appeals, Eighth Circuit.

August 22, 1935.

Samuel Lipschultz, of St. Paul, Minn. (Harry Weiss, of St. Paul, Minn., on the brief), for appellants.

George D. McClintock, of Minneapolis, Minn. (George Hoke, Chester A. Marr, and Cobb, Hoke, Benson, Krause & Faegre, all of Minneapolis, Minn., on the brief), for appellee.

Before STONE and FARIS, Circuit Judges, and RAGON, District Judge.

STONE, Circuit Judge.

Appellants, as executors of Clarence E. Bergman, brought an action against appellee to recover on a policy insuring the life of Bergman. At the close of all the testimony the trial court directed a verdict for defendant. This is an appeal from the judgment entered on that verdict.

The defense to the action was that the policy was issued upon an application for insurance which contained certain pleaded willfully false statements as to the health and medical treatment of insured. The issues here have to do with the admission of evidence except as to the matter treated last hereinafter.

I. The Application.

Appellants contend that the court wrongfully admitted the original application and a photographic copy thereof attached to the policy. The basis of this contention is that the application was a part of the policy within the meaning of a state statute requiring the "form of policy" to be filed with and approved by the Commissioner of Insurance before contracts of insurance could be written in the state and that this form of application had not been so filed. The state statute is as follows: "No policy of life insurance shall be issued or delivered in this state, or be issued by a life insurance company organized under the laws of this state, until the form of the same has been filed with the insurance commissioner; and after the insurance commissioner shall have notified any company of his disapproval of any form, it shall be unlawful for such company to issue any policy in the form so disapproved. The commissioner's action shall be subject to review by any court of competent jurisdiction." Mason's Minn. St. 1927, § 3408.

It is undisputed that no form of application had been so filed with the commissioner by appellee although a form of policy had been. The application in question contained not only questions and answers as to the family history, physical condition, and habits of the insured, but also other provisions affecting the terms of the possible contract between the parties. When the application was offered in evidence and objection covering the above contention was made, the court ruled that the portion of the application containing the questions and answers and the signature of the insured were admissible and that the other portions were not admissible. Appellant complains of the admission of those parts of the application consisting of the questions, answers, and signature.

Appellants contend that the application is one document and indivisible; that the entire form was one which should have been filed under the statute; and that if any portion of the application is invalid because not filed, the entire instrument is affected by this vice and must be nullified.

That a document affecting a life insurance contract, which document contains both matter coming within this statute and matter not coming within it, admits of a judicial segregation of the good portion from the bad has been determined by the Supreme Court of Minnesota on a construction of the above section of the statute in Coughlin v. Reliance Life Ins. Co., 161 Minn. 446, 453, 201 N. W. 920. That case involved a premium note which contained provisions affecting terms of the contract which terms were no part of the policy form filed with the commissioner. The court there determined that the provisions in the note which affected the terms of the policy were invalid, but that they were separable from those terms applying only to the note and sustained the note. This case would seem to be direct authority to the effect that where the two portions of the document are capable of proper separation such can be accomplished within the terms of the statute. Such separation can be properly accomplished in the application before us. The part of the application containing the questions, answers, and signature of insured can be completely and effectively segregated from the remainder of the application without legal damage. The trial court was right in determining that this separation could be made. The question remains whether the portion of the application admitted by the court should have been filed under the statute.

The word "policy" as applied to insurance may be an ambiguous term. It may mean the entire contract between the parties, or it may mean that part of the contract excluding attached papers which define none of the terms of insurance. The statutes of Minnesota recognize this distinction. In section 3402, Mason's Minn. St. 1927, which sets forth provisions which must be included in every policy, is a requirement that "a provision that all statements made by the insured shall, in the absence of fraud, be deemed representations and not warranties, and that no such statement shall avoid the policy unless it is contained in a written application and a copy of such application shall be endorsed upon or attached to the policy when issued." The just-quoted provision makes a distinction between the policy and the application and requires a copy of the application to be indorsed upon or attached to the policy. With this statutory recognized distinction in mind it would seem clear that section 3408, requiring filing and approval of the form of "policy," was not intended to include the form of application, at least in so far as that application maintained its true character as such. The practical reasons for such are not difficult to discover. A policy of insurance is supposed to contain a statement of the rights and obligations of each of the parties thereto. Having this character and considering the advantage of insurers in defining such rights and obligations and further considering the important place in modern society of life insurance, it might well be that the state would want to protect the policyholders from unfair conditions in policies by requiring the form thereof to meet the approval of a public official.

The application occupies an entirely different place in the transaction. It is one among other antecedent dealings between the insurer and the insured which may ultimately result in the making of a contract of insurance, which contract is the policy itself. Its normal and true function is as a proposal to enter into an insurance contract with the setting forth of information thought material by the insurer to enable it to determine the desirability of making such a contract. That such is the character of an application for insurance has been directly declared by the Minnesota Supreme Court Schwartz v. Germania Life Ins. Co., 18 Minn. 448, 455 (Gil. 404); Heiman v. Phoenix Mut. Life Ins. Co., 17 Minn. 153, 157 (Gil. 127), 10 Am. Rep. 154, by this court McNicol v. N. Y. Life Ins. Co., 149 F. 141, 143; Travis v. Nederland Life Ins. Co., 104 F. 486, 488, and by other federal and state courts Mutual Life Ins. Co. of N. Y. v. Hilton-Green, 202 F. 113 (C. C. A. 5); Miller v. Northwestern Mut. Life Ins. Co., 111 F. 465, 468 (C. C. A. 4); Witten v. Beacon Life Ass'n, 225 Mo. App. 110, 33 S.W.(2d) 989, 991, and see Brancato v. National Reserve Life Ins. Co., 35 F. (2d) 612 (C. C. A. 8); Steinle v. N. Y. Life Ins. Co., 81 F. 489 (C. C. A. 5). While there are good reasons for a state control of the terms and conditions of an insurance contract, yet the entrance into such contract is an entirely voluntary matter. Whether an insurer will enter such a contract with a particular person depends upon a situation which must appear satisfactory to the insurer. Naturally, the situation in every instance must be developed by such information as seems to the particular insurer to be necessary or useful. Not only is this self-evident, but the statutes of Minnesota directly recognize this situation in section 3396, which applies to statements made in an application "without previous medical examination." The application is one of the customary methods of acquiring desirable information from the insured himself in respect to matters deemed important by the insurer and concerning which the insured would have knowledge. When this character of the usual and true application is considered, very good reasons are found why the state should have little interest in limiting or regulating true applications although abundant reasons can be found for regulation of the rights and obligations of the contract into which the parties may enter. In this situation, the section of the statute here involved should be construed as not including such parts of an application as are confined to the acquirement of information upon which the insurer is to determine the desirability of the contract.

II. Testimony of the Dietitian and the Nurse.

A part of the application for this insurance is dated August 10, 1932, and therein the insured stated that he was then "in good health and free from every disease and infirmity." Another part of the application contained declarations made to the medical examiner of insurer, was signed by the insured, and dated September 27, 1932. This contained his statement, in effect, that except for a skin infection he had not consulted or been treated by any physician for any ailment or disease. In support of its proof of actual fraud, appellee placed several witnesses on the stand for the purpose of showing that insured had been treated for diabetes at the Mayo Clinic at various times during 1932 and before his application was sent to the company. Among these witnesses was Dr. Pollock, who testified from the Clinic records that insured...