Hofeld v. Nationwide Life Ins. Co.

Decision Date21 January 1975
Docket NumberNo. 45471,45471
Citation59 Ill.2d 522,322 N.E.2d 454
PartiesJean L. HOFELD, Adm'x, Appellee, v. NATIONWIDE LIFE INSURANCE COMPANY, Appellant.
CourtIllinois Supreme Court

O'Brien, Hanrahan, Wojcik & Coniff and Torshen, Fortes & Eiger, Ltd., Chicago (Jerome H. Torshen and Lawrence H. Eiger, Chicago, of counsel), for appellant.

William J. Harte, Ltd., and Albert F. Hofeld, Jr., Chicago (William J. Harte and Philip Rock, Chicago, of counsel), for appellee.

Charles D. Kuhnen, Chicago, and George B. Gillespie, Springfield (Gillespie, Burke & Gillespie, P.C., Springfield, of counsel), for amicus curiae Health Ins. Assn. of America.

DAVIS, Justice.

Plaintiff's decedent filed suit in the circuit court of Cook County wherein judgment was entered in favor of plaintiff and against the defendant in the sum of $17,516.46, plus interest. The appellate court affirmed (7 Ill.App.3d 226, 287 N.E.2d 215), and we granted leave to appeal.

The National Association of Women's and Children's Apparel Salesmen, Inc. (NAWCAS), a Georgia corporation, with its office in Atlanta, Georgia, is a national organization of traveling salesmen who sell women's and children's apparel. Albert F. Hofeld, plaintiff's decedent, a resident of Illinois, was a member of NAWCAS. The defendant, Nationwide Life Insurance Company, issued two group health insurance policies to NAWCAS, making available certain coverage for NAWCAS members.

Plaintiff's decedent applied for coverage under the basic plan (hospitalization, medical and surgical) on July 29, 1962; the application was accepted by the defendant on August 15, 1962. The plaintiff's decedent applied for coverage under the optional plan (disability income) on July 13, 1963, and the application was accepted by the defendant on August 1, 1963.

In 1964 and 1965, the defendant paid benefits under both policies for claims of plaintiff's decedent. In November, 1965, the defendant stopped paying benefits on the ground that plaintiff's decedent had made material fraudulent representations in his application for the optional disability income coverage. In January of 1966, the defendant notified the plaintiff's decedent that no further benefits would be paid under either policy, since his case was under investigation.

Mr. Hofeld commenced this action in March of 1966, seeking a declaratory judgment that this coverage remain in force under both policies, and, upon his death, the administratrix of his estate was substituted as plaintiff. Mr. Hofeld also paid all the premiums until his death.

The defendant insurer asserted by way of an affirmative defense to this action that fraudulent statements were made in the second application for insurance. The plaintiff's reply denied the allegations of fraud asserted in the affirmative defense. The defendant also counterclaimed for a return of the benefits previously paid by it. The defendant moved for summary judgment on the counterclaim, which alleged fraudulent misrepresentations.

In opposition to this motion, the plaintiff asserted the provisions of section 154 of the Illinois Insurance Code (Ill.Rev.Stat.1973, ch. 73, par. 766), which provides:

'No misrepresentation or false warranty made by the insured or in his behalf in the negotiation for a policy of insurance, or breach of a condition of such policy shall defeat or avoid the policy or prevent its attaching unless such misrepresentation, false warranty or condition shall have been stated in the policy or endorsement or rider attached thereto, or in the written application therefor, of which a copy is attached to or endorsed on the policy, and made a part thereof. No such misrepresentation or false warranty shall defeat or avoid the policy unless it shall have been made with actual intent to deceive or materially affects either the acceptance of the risk or the hazard assumed by the company. This section shall not apply to policies of marine or transportation insurance.'

Plaintiff's affidavits demonstrated that a copy of the application was not attached either to the master policy issued to NAWCAS or to the certificate of insurance issued to plaintiff's decedent. Plaintiff then moved to withdraw her reply to the affirmative defense and her answer to the counterclaim and to strike the affirmative defense and to dismiss the counterclaim.

The trial court held that section 154 of the Illinois Insurance Code was applicable and that the defendant could not assert the defense of fraudulent misrepresentations in the application because it was not attached either to the master policy or to the individual certificate. Plaintiff's motions thus were granted, and judgment was entered for the plaintiff in the sum of $17,516.46, plus interest.

Additional relevant facts are that the master group insurance policies issued by defendant to NAWCAS each provided: 'This Policy is delivered in the state specified above (Georgia) and is governed by the laws thereof.'

The defendant is an Ohio insurance corporation. The two group health insurance policies were applied for by NAWCAS in Georgia, and the policies were issued and delivered to NAWCAS in Georgia. Solicitation of members for insurance coverage was made through NAWCAS News, a trade periodical. Members normally would make application for insurance; the individual insurance certificates were issued either from Georgia or Ohio. The numerous NAWCAS members covered by the insurance programs reside throughout the United States.

The plaintiff's decedent was at all times a resident of Illinois. He maintained his business in Illinois. He mailed his application for insurance from Illinois and received the certificates in Illinois. He likewise mailed his premiums from Illinois and received his benefit payments in this State.

The dispute in this case involves only the second policy. The threshold question is whether the policy provision that the law of Georgia shall govern is to be given effect as to the Illinois insured. It is conceded that under Georgia law the application would not have to be attached to the master group policy or certificate in order for the insurance company to raise the defense of fraudulent misrepresentation. The appellate court held that the public policy of Illinois would be violated if the Georgia law were to govern.

Group insurance policies are those issued by insurance companies to a group policyholder, such as an employer, association or union. Certificates are then issued to the participating insureds, such as employees or members. The master policy is the primary contract and must first be looked to in construing group insurance policies. (1 Appleman, Insurance Law and Practice sec. 46 (1965).) Commonly, the certificates summarize the more important provisions of the policy terms as they apply to the insured. Often it is stated that the certificates do not constitute a part of the insurance contract. (44 Am.Jur.2d Insurance, sec. 1870 (1969).) It may even be suggested by statute that only the master policy, the application of the employer and the individual applications shall constitute the entire contract. (Ill.Rev.Stat. 1973, ch. 73, par. 979(2) (a).) The individual insured normally sees only the certificate issued to him. If it contains provisions conflicting with those in the master policy, the certificate normally will be held to control. Courts have so held either under the theory that the certificates are a part of the total contract under the particular language of the certificate or on the theory of estoppel. See Thieme v. Union Labor Life Insurance Co., (1957),12 Ill.App.2d 110, 114--115, 138 N.E.2d 857; John Hancock Mut. Life Ins. Co. v. Dorman (9th Cir. 1939), 108 F.2d 220; Parks v. Prudential Ins. Co. of America (E.D.Tenn.1951), 103 F.Supp. 493; Williams v. American Casualty Co. (1971), 6 Cal.3d 266, 98 Cal.Rptr. 814, 491 P.2d 398; 1 Appleman, Insurance Law and Practice sec. 46 (1965).

Here there is no conflict between the certificate and the master policy insofar as the applicable law is concerned. The certificate is silent in this regard. The insured normally must be charged with the knowledge of the terms of the master policy. Phelps v. Elgin Academy (1970), 125 Ill.App.2d 364, 368, 260 N.E.2d 864; Williamson County v. Standard Accident Insurance Co. (1961), 32 Ill.App.2d 363, 366, 178 N.E.2d 149; Roehrig v. Missouri State Life Insurance Co. (1929), 251 Ill.App. 434, 441.

With regard to the applicable law in this case, insurance contract provisions may be governed by the location of the subject matter, the place of delivery of the contract, the domicile of the insured or of the insurer, the place of the last act to give rise to a valid contract, the place of performance, or other place bearing a relationship to the general contract. And, generally, the parties may validly stipulate as to the applicable law. 12 Appleman, Insurance Law and Practice sec. 7074 (1943); Annot., 53 A.L.R.3d 1095 (1973).

The Restatement (Second) of Conflict of Laws, in Comment (h) to section 192 (1971), states:

'Group life insurance. In the case of group life insurance, rights against the insurer are usually governed by the law which governs the master policy. This is because it is desirable that each individual insured should enjoy the same privileges and protection. So where an employer arranges for group life insurance for its employees, the rights of a particular employee against the insurer will usually be determined, in the absence of an effective choice-of-law clause and at least as to most issues, not by the local law of the state where the employee was domiciled and received his certificate but rather by the law governing the master policy with respect to that issue. This will usually be the state where the employer has his principal place of business.

Choice-of-law provisions contained in group life insurance policies are more likely to be given effect than in the case of ordinary life insurance. This is because the...

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