Guardian Life Insurance Company of America v. Eagle

• Decision Date: 04 October 1973
• Docket Number: No. 73-1687. Summary Calendar.,73-1687. Summary Calendar.
• Citation: 484 F.2d 382
• Parties: GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Plaintiff-Appellee, v. John B. EAGLE et al., Defendants, Robert M. EAGLE, Independent Executor of the Estate of John B. Eagle, Deceased, and Eagle Lincoln Mercury, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

484 F.2d 382 (1973)

GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Plaintiff-Appellee, v. John B. EAGLE et al., Defendants Robert M. EAGLE, Independent Executor of the Estate of John B. Eagle, Deceased, and Eagle Lincoln Mercury, Inc., Defendants-Appellants.

No. 73-1687. Summary Calendar.^*

United States Court of Appeals, Fifth Circuit.

September 10, 1973.

Rehearing Denied October 4, 1973.

B. F. Coker, Joe K. Hendley, Dallas, Tex., for defendants-appellants.

Larry M. Lesh, Dallas, Tex., for plaintiff-appellee.

Before THORNBERRY, GOLDBERG and RONEY, Circuit Judges.

GOLDBERG, Circuit Judge:

This diversity case arises from an attempt by Guardian Life Insurance Company, plaintiff-appellee, to rescind a $100,000 policy on the life of the late John B. Eagle on the ground that Eagle knowingly and intentionally made false statements concerning his physical condition on the policy application. The trial court ordered cancellation of the insurance and denied the counter-claim of Eagle's beneficiaries, defendants-appellants,¹ for the face value of the policy. We affirm.

Appellants allege three points of error: (1) that there is insufficient evidence to support the trial court's finding that John Eagle knowingly made false statements with the intent to induce action by Guardian; (2) that Guardian has waived its right to rely on Eagle's allegedly fraudulent statements by its negligence in conducting the initial investigation; and (3) that Guardian is estopped from claiming that it was misled by Eagle since its agent had knowledge of Eagle's condition.

The first point can be quickly dispatched. The parties do not dispute that under Texas law an insurance company seeking to rescind a policy on the basis of false statements in the application struggles under the heavy burden of proving that the statements were (1) false, (2) known by the insured to be false, (3) material to the company's risk, (4) made with the intention of inducing reliance, and (5) actually relied upon. See Clark v. National Life & Accident Insurance Co., 1947, 145 Tex. 575, 200 S.W.2d 820. Following trial below the very able district judge made detailed findings of fact, and he held against appellants on each of these five specifications. Although appellee's original burden was great, it is more than equalled by the barrier confronting appellants here—the necessity of demonstrating that the findings of the court below are clearly erroneous. 52(a) F. R.Civ.P. In this instance, the task has proven impossible of performance; for when district court findings of fact are challenged "the question is not simply whether the reviewing court would have found otherwise but whether the trial court could permissibly find as it did." Movible Offshore, Inc. v. The M/V Wilken A. Falgout, 5 Cir. 1973, 471 F. 2d 268, 271. The record shows ample evidence on which the district court could have based its findings. The court was not required to believe, given the nature and seriousness of Eagle's condition and the frequency, duration, and variety of his medical examinations, that he was unaware of his medical history or had forgotten about previous treatments.

Appellants' second contention of error rest largely on the decision of this Court in Jefferson Amusements Co. v. Lincoln National Life Ins. Co., 5 Cir. 1969, 409 F.2d 644. Like the present case, Jefferson involved an attempt by an insurance carrier to defeat liability on a life insurance policy under Texas law by proof of fraudulent statements concerning the health of the insured. Quoting an earlier Mississippi diversity decision, this Court noted that:

"The mere fact that the insurer makes an independent investigation . . . does not absolve the applicant from telling the truth nor lessen the right of the insurer to rely upon his representations, UNLESS THE INVESTIGATION either discloses the falsity of the representations or DISCLOSES FACTS WHICH WOULD PUT A PRUDENT PERSON ON FURTHER INQUIRY."

Apperson v. United States Fidelity & Guaranty Co., 5 Cir. 1963, 318 F.2d 438, 441 emphasis added by Jefferson Court. Appellants argue for the application of this rule to prevent rescission on the basis of Eagle's incomplete answers to questions concerning prior hospitalization and his physician's non-responsive replies to a request for more detailed information. Appellants contend that Dr. McNamara's reply, in particular, would have prompted a prudent insurer to suspect concealment of relevant medical information.

The matter of appellee's prudence in accepting the policy on the evidence before it was argued in the district court. Questions concerning the industry practice were put to appellee's expert witness on cross-examination. There is no allegation here that the trial judge had inadequately instructed himself on the law, and it is the clear rule in this Circuit that questions concerning the diligence and justified reliance of an insurance company are issues of fact to be governed on appeal by the clearly erroneous standard. Apperson v. United States Fidelity & Guaranty Co., supra, at 442. See also Trawick v. Manhattan Life Insurance Co. of N.Y., N.Y., 5 Cir. 1971, 447 F.2d 1293. Jefferson, which upheld the determination of the trier of fact on the matter of rescission, is not to the contrary. And we cannot say that the statements elicited of appellee's expert, hedged as they were with comments on the great range of conduct within the insurance trade, satisfy appellant's burden of presenting evidence indicating clear error. Rule 52(a) F.R. Civ.P.

The final argument in favor of reversal is based on the Texas rule that false representations by the insured are not sufficient justification for rescission of a policy if the insurance carrier had knowledge of the true situation. Dossett v. Franklin Life Ins. Co., 1924, 276 S.W. 1097 (Tex.Com.App., Sec. B, opinion adopted, Tex.Sup.Ct.). As in the case of all corporate persons, appellee's knowledge must be evaluated on the basis of the information known to its agents. Appellants contend that by paying Eagle's personal physician, Dr. McNamara, to conduct the medical examination, appellee transformed the doctor into its own agent for the purpose of considering the policy, and that McNamara's knowledge of Eagle's condition should therefore be attributed to appellee. This...