Jefferson Amusement Co. v. Lincoln National Life Ins. Co.

• Decision Date: 30 July 1969
• Docket Number: No. 26335.,26335.
• Citation: 409 F.2d 644
• Parties: JEFFERSON AMUSEMENT COMPANY, Inc., et al., Plaintiffs-Appellees, v. LINCOLN NATIONAL LIFE INSURANCE COMPANY, Defendant-Appellant, First National Bank in Dallas, Intervenor-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

409 F.2d 644 (1969)

JEFFERSON AMUSEMENT COMPANY, Inc., et al., Plaintiffs-Appellees, v. LINCOLN NATIONAL LIFE INSURANCE COMPANY, Defendant-Appellant, First National Bank in Dallas, Intervenor-Appellee.

No. 26335.

United States Court of Appeals Fifth Circuit.

March 11, 1969.

Rehearing Denied July 30, 1969.

George A. Weller, Weller, Wheelus & Green, Beaumont, Tex., B. Jeff Crane, Jr., Vinson, Elkins, Weems & Searls, Houston, Tex., Michael Marchese, Jr., Fort Wayne, Ind., for defendant-appellant.

John G. Tucker, Orgain, Bell & Tucker, Beaumont, Tex., for plaintiffs-appellees.

Lawrence L. Beason, Ernest E. Figari, Jr., Dallas, Tex., for appellee, First National Bank in Dallas, Coke & Coke, Dallas, Tex., of counsel.

Before TUTTLE and GEWIN, Circuit Judges, and PITTMAN, District Judge.

PITTMAN, District Judge:

This is an appeal by the Lincoln National Life Insurance Company from a jury verdict and judgment entered by the district court. This suit was brought by Jefferson Amusement Company, Inc. and Texas Goldcoast Television, Inc. to recover the proceeds of two insurance policies. The First National Bank in Dallas, an assignee on a third policy, intervened as a plaintiff after suit was commenced. All three policies were issued by Lincoln National Life Insurance Company on the life of Julius Gordon, president of Jefferson Amusement and Texas Goldcoast.

At the conclusion of the evidence the district court submitted the case to the jury, denying Lincoln's request for a directed verdict. The jury returned a verdict against Lincoln for $1,603,230.00, the face value of the three policies.

This appeal presents the following questions:

(1) Did the court err in not finding as a matter of law that the insured, Gordon, made fraudulent misrepresentations of material facts upon which the insurer, Lincoln, relied in issuing the policies?

(2) Did the court err in not finding as a matter of law that Gordon was not in good health at the time each of the policies was delivered?

(3) Did the court err in instructing the jury with respect to waiver of fraudulent misrepresentations?

(4) Did the court err in instructing the jury in the definition of an agent as it pertains to this case?

(5) Did the court err in refusing to admit testimony given by Gordon in a previous law suit?

The essential facts are as follows. On October 26, 1965, Julius Gordon applied to Lincoln for life insurance. Gordon, as president of Jefferson and Texas Goldcoast, was engaged in extensive business transactions in the course of which a loan of $1,500,000.00, secured by the stock of Texas Goldcoast, was being negotiated with the First Security National Bank. The policy for $320,000.00 in which Texas Goldcoast was the beneficiary was assigned as security, but the loan would have been approved without the assignment of the insurance. Gordon also had a commitment for the loan from another source which did not involve any insurance on his life. Gordon did not seek out the insurance. It was solicited by the defendant.

On October 26, 1965, after solicitation, Julius M. Gordon applied to the defendant for the insurance. On the basis of his application the policies of insurance involved in this case were issued; (1) policy dated September 28, 1965, in the face amount of $641,292.00, (2) a policy dated November 28, 1965, in the sum of $320,646.00 issued to Texas Goldcoast Television, Inc. as owner and beneficiary. This last policy was later assigned to the First National Bank in Dallas, the intervenor, and (3) a policy dated March 7, 1966, in the amount of $641,292.00, together with (1) supra issued to Jefferson Amusement Company, Inc. as owner and beneficiary (first issued November 30, 1965, but not accepted and re-issued on March 7, 1966).

On October 26, 1965, he was examined by two physicians appointed by Lincoln, Doctors Crager and Sargent. In answer to questions which were part of the examination, Gordon stated he had last consulted a physician or practitioner in 1963 — Dr. Crager. He also stated that to his knowledge he had never had, among other things, heart disease or chest pains. The answers were recorded by the physicians and signed by Gordon. A question on the application asked for the name of all physicians he had consulted during the last five years. He did not reveal consultations with Doctors Rafes, Pentecost, Thompson, or Chandler.

Prior to the approval and issuance of any policy in question there was an investigation for Lincoln by its underwriter Quillen, its salesman Blieden, and a retail credit company. Quillen was made aware that some of the answers to the questions were "dishonest", i. e., there were doctors who had treated Gordon who had not been reported by him in his application and Gordon's negative answer concerning a kidney flare-up. The investigation revealed Gordon had received medical treatment from Doctors Pentecost and Rafes. The information revealed Dr. Pentecost had treated him for a kidney flare-up. Quillen requested reports from these doctors. Dr. Rafes reported he had treated Gordon for a headache. Dr. Pentecost was temporarily unavailable. Lincoln did not follow up with an interview with Dr. Pentecost and the application was approved without his report. Lincoln did nothing about taking these matters up with Gordon, Jefferson, Texas Goldcoast Television, nor taking steps to return the premium.

Dr. Pentecost was fully aware of Gordon's sexual problems and knew of the psychiatric treatment by Dr. Chandler, (He had traveled with Gordon to Dr. Chandler's clinic on one occasion.) including the use of LSD.

Agent Blieden supplied Lincoln with information with reference to Gordon's various business activities, reported he had known Gordon all his life, and he appeared to be healthy and was always a person of first class habits and reputation. He was assigned the additional duty of conducting an investigation. Blieden had known since, to wit, 1962, that Gordon had gone to a psychiatrist in California. He did not report it. He had the duty of delivering each policy and at that time determining whether or not Gordon was in good health. If he found him to be suffering from some type of illness he was not to deliver the policy. He delivered the policies and made no negative report.

Lincoln's medical examiner, Crager, was requested to disclose all facts which might disclose risks and did divulge other information concerning Gordon in addition to that filled out in the application form. Dr. Crager had been Gordon's physician for a number of years. He knew Gordon had a sexual problem for which he had sought psychiatric treatment and knew Gordon had been seeing a psychiatrist in California. At the time the application was filled out Dr. Crager did not call to Gordon's attention he had failed to list a doctor. He did not report these facts to Lincoln.

Gordon reported in the application that both of his parents died near the age of 50 from heart attacks and one sister died from a possible heart attack.

Gordon had consulted Dr. Thompson for various minor ailments such as complaints stemming from strained leg muscle, sugar in his blood being below normal, sinus, strain and tension, sore throat, cough and a tight sensation in his chest in connection with it. None of Dr. Thompson's findings indicated heart disease or anything other than minor disorders. (Dr. Chandler knew Gordon had consulted Dr. Thompson.)

The application asked only about the use of narcotic drugs to which he replied in the negative. The evidence in this case is that none of the drugs administered him by the doctors are classified as narcotics.

Gordon died on April 1, 1966, after suffering a heart attack the day before. The death certificate showed the immediate cause of death as "myocardial infarction" and the underlying cause as "arteriosclerotic heart disease."

Subsequent to Gordon's death Lincoln learned of Gordon's consultations with Doctors Thompson and Chandler which he had not disclosed. Dr. Thompson testified that on July 15, 1964, Gordon consulted him complaining of a sore throat and cough and "a tight sensation in his chest." An electrocardiogram, chest examination, and blood pressure examination were all normal. It was Dr. Thompson's opinion that Gordon was experiencing anxiety and nervousness.

Dr. Chandler, a California psychiatrist, was first consulted by Gordon in 1960 in regard to a sexual problem — one of inadequacy and frustration. Treatment by Dr. Chandler included the administration of LSD, amphetamines, ritalin, sansert, methedrine or speed, desoxyn, disoxyphedrine, ditran, and methaphetamine. The defendant's medical experts testified the drugs administered by Dr. Chandler did not have any adverse effect or contribute to Gordon's death. There was medical evidence that these drugs would cause a temporary increase in heart rate, could cause a dangerous increase in blood pressure, and could have various effects on different individuals. There was no evidence these drugs had an adverse permanent effect or in any way contributed to the development of Gordon's arteriosclerosis.

Lincoln's senior medical director testified that had Lincoln been aware that Gordon was under treatment by Dr. Chandler, (1) for anxiety and psychosomatic symptoms, (2) and/or that he had made complaint of chest pain to Dr. Thompson (there was no evidence of chest pains as such), Lincoln would not have issued the policy at standard rates, and with that history plus the third factor, (3) had Lincoln been aware of Gordon's drug treatment by Dr. Chandler, the policies would not have been issued on any basis.

With the exception of the physician who saw Gordon for the first time on the date he had his fatal attack, each physician who had treated or examined Gordon during his lifetime and who testified, found him to be in good health with no indication of heart trouble or heart disease. There was testimony to the effect that arteriosclerosis develops slowly in some cases...