Gardner v. North State Mut. Life Ins. Co.

• Decision Date: 29 October 1913
• Citation: 79 S.E. 806,163 N.C. 367
• Parties: GARDNER v. NORTH STATE MUT. LIFE INS. CO.
• Court: North Carolina Supreme Court

79 S.E. 806

163 N.C. 367

GARDNER v. NORTH STATE MUT. LIFE INS. CO.

Supreme Court of North Carolina

October 29, 1913

Appeal from Superior Court, Edgecombe County; Cline, Judge.

Action by Eula B. Gardner against the North State Mutual Life Insurance Company. Judgment for defendant and plaintiff appeals. Reversed.

Where an insurance agent delivers a policy with knowledge of a materially false representation on the part of the applicant he acts for himself and not for the company, and participates in a fraud which avoids the policy.

Where an insurance agent wrongfully delivers a policy with knowledge that insured is then suffering from his last illness, such knowledge will not be imputed to insurer.

This is an action to recover the amount of an insurance policy alleged to have been issued by the defendant in March, 1912 on the life of John B. Gardner, in favor of the plaintiff, who was his wife. John B. Gardner died in March, 1912, shortly after he made his application for insurance, and the policy was delivered to him by defendant's local agent during his last illness; he being then sick with typhoid fever, which caused his death. The application contained a representation by him that he had not been intimately associated with any one suffering from any transmissible disease within the year before his death. At the time of the application, and after the examination of the applicant by a physician, said agent issued what is called in the case a "binding receipt," one of the provisions of which is the following: "In the event this policy shall be approved by the medical director of the company, then the insurance applied for shall be deemed to relate back to and be in force from and after the date of this receipt, but not otherwise." And also the following provision: "That the company shall not incur any liability under this application unless the policy has been issued, delivered, and paid for while I am in good health." The issues and answers thereto by the jury will disclose the nature of the controversy, and sufficiently present the question upon which the opinion of the court rests. They are as follows: "(1) Did John B. Gardner represent in his application for insurance that he had not, at the time of his application, been intimately associated with any one suffering with any transmissible disease within the past year? A. Yes. (2) Had said Gardner, within the year prior to his application, been intimately associated with any one suffering with any transmissible disease? A. Yes. (3) Was said representation material to a contract of insurance between the said Gardner and the defendant? A. Yes. (4) Was the said Gardner sick with typhoid fever at the time that the policy in question was left with him by B. H. Howle? A. Yes. (5) Did the defendant manager at Rocky Mount (V. T. Lamb) ratify the act of Howle in issuing the 'binding receipt' and the delivery of the policy in pursuance thereof? A. Yes. (6) Did the policy in question, at the time it was left with said Gardner by said Howle, become a consummated contract of insurance between the defendant and the insured? A. Yes. (7) In what amount, if anything, is the defendant indebted to the plaintiff? A. $1,000." The court set aside the verdict upon the sixth and seventh issues, and, having given judgment for the defendant upon those which remained, the plaintiff appealed, reserving her exceptions.

E. B. Grantham and F. S. Spruill, both of Rocky Mount, for appellant.

Rouse & Land, of Kingston, for appellee.

WALKER J.

This case has not been tried upon the real and decisive issue raised by the pleadings; but we will consider this question presently and in its order. A careful review of the evidence, the course of the trial and development of the case, the charge of the court and the issues, leads us to conclude that the jury disobeyed the instructions upon the sixth issue, and it may be clearly inferred that the trial judge set aside the verdict as to the sixth and seventh issues because of this fact. The jury were charged that, if it was found from the evidence the representation in the application mentioned in the first three issues was material, they should answer the sixth issue, "No," or, if they found that the agent of defendant, V. T. Lamb, did not ratify the "binding receipt" (if it was void), and that John B. Gardner was sick with typhoid fever when he received the policy, they should answer the sixth issue, "No," even though they found that the representation was not material. This instruction was not followed by the jury. The false and material representation has something to do with the "binding receipt" and to the extent hereinafter indicated. The effect of the "binding receipt" was correctly stated by Judge Cline, and it is thus defined in Vance on Insurance, p. 160: "The binding slip is merely a written memorandum of the most important terms of a preliminary contract of insurance, intended to give temporary protection pending the investigation of the risk by the insurer, or until the issue of a formal policy. By intendment it is subject to all the conditions in the policy to be issued. These informal writings are but incomplete and temporary contracts--memoranda given in aid of parol agreements. Such memoranda usually fix all the essential provisions that are variable; but they are not ordinarily intended to include all the terms of the agreement, and always look to the formal policy that is expected subsequently to issue for a complete statement of the contract made. Hence, as heretofore stated, the contract evidenced by the binding slip is subject to all the conditions of the contemplated policy, even though it may never issue, and the same is true of other informal written contracts." Lipman v. Insurance Co., 121 N.Y. 454, 24 N.E. 699, 8 L. R. A. 719.

In what has been said or what will hereinafter be said, it must not be understood that we are deciding whether, where a "binding slip" has been delivered to the applicant, the company, in the event of his death or illness occurring subsequently, but before the acceptance of the application, can arbitrarily or even unreasonably reject it or withhold its approval or the approval of the medical director, and thereby avoid its liability, under the clause in the binding slip requiring the approval of the application by the medical director of the company before the insurance shall take effect. This course was taken in Grier v. Insurance Co., 132 N.C. 542, 44 S.E. 28; the policies having been delivered in both cases, the only difference in the two being that in Grier's Case there was no allegation of fraud or a false and material representation, while in this case there is. We are confining ourselves to a consideration of the false representation and its effect upon the later transactions. Nor do we pass upon the question whether the "binding slip" was actually delivered, as the jury have, by clear implication from their answer to the fifth issue, found as a fact that it was, contrary to defendant's contention that it was not delivered.

When properly executed, the "binding slip" protects the applicant for insurance against the contingency of sickness intervening its date and the delivery of the policy, if the application for insurance is accepted. If the application is not accepted in the proper exercise of the company's right, and the insurance, therefore, is refused, the "binding slip" ceases eo instanti to have any effect. It does not insure of itself, but is merely a provision against any illness supervening it, if there is afterwards an acceptance of the application, upon which it depends for its vitality. This view, which is the prevailing one, if there is anything to the contrary, is clearly stated by the Chief Justice in Grier v. Insurance Co., 132 N.C. 542, 44 S.E. 28, where it is said that the risk of future illness, that is, after the date of the "binding receipt," is taken by the company, if it afterwards accepts the application, or the insurance becomes effective, and the insurance relates back to the date of the receipt, and, further, that the receipt of the premium acknowledged in the policy, and the recital of the fact that the policy was delivered while the insured was in good health, cannot be contradicted, in the absence of fraud or other sufficient equitable element, as they affect the validity of the contract of insurance, which cannot be impeached in this collateral way. This is sound doctrine, when confined within its proper limits, and not only is it such, but it is also eminently just.

The company can show that the manual delivery of the policy was conditional, for this goes to the execution of the contract, or it may prove fraud or other equitable matter in the same way, for the purpose of showing that it never took effect as a contract, as in Garrison v. Machine Co., 159 N.C. 285, 74 S.E. 821, Pratt v. Chaffin, 136 N.C. 350, 48 S.E. 768, and Powell v. Insurance Co., 153 N.C. 124, 69 S.E. 12; but, when the policy is once delivered, and becomes effective as a contract, statements therein which, if falsified, will affect its continued validity cannot be contradicted with a view to avoid the insurance. The entire subject is fully discussed in Grier's Case, supra, and to some extent in Kendrick v. Insurance Co., 124 N.C. 315, 32 S.E. 728, 70 Am. St. Rep. 592, and Rayburn v. Casualty Co., 138 N.C. 379, 50 S.E. 762, 107 Am. St. Rep. 548. See, also, Joyce on Insurance, § 64.

It became material to inquire whether the company, by its agent with competent authority, had ratified the execution of the binding receipt, as the policy itself was delivered to John B. Gardner while he was ill with typhoid fever, which resulted in his death; the application, which he signed providing that it...