Johnson v. United Investors Life Ins. Co.

• Decision Date: 22 March 1978
• Docket Number: No. 59535,59535
• Citation: 263 N.W.2d 770
• Parties: Juanita A. JOHNSON, Appellee, v. UNITED INVESTORS LIFE INSURANCE COMPANY, Appellant.
• Court: Iowa Supreme Court

Page 770

263 N.W.2d 770

Juanita A. JOHNSON, Appellee, v. UNITED INVESTORS LIFE INSURANCE COMPANY, Appellant.

No. 59535.

Supreme Court of Iowa.

March 22, 1978.

Shaff, Farwell & Senneff, Clinton, and Patterson, Lorentzen, Duffield, Timmons, Irish & Becker, Des Moines, for appellant.

Jurgemeyer, Frey & Haufer and Petersen, Petersen & Eddy, Clinton, for appellee.

Considered en banc.

McCORMICK, Justice.

This is an appeal from a decree reforming a life insurance contract to eliminate an exclusion of double indemnity coverage for death while piloting a private aircraft. Defendant United Investors Life Insurance Company contends the trial court erred in holding it was bound by the knowledge and representations of its soliciting agent when it acted on the policy application and in finding the evidence sufficient to establish a basis for reformation. We affirm the trial court.

Plaintiff's husband Merlin Swan Johnson applied through defendant's soliciting agent Eller Lutes for a $100,000 annual renewable term life insurance policy which was to include double indemnity protection for accidental death. Lutes took the application in the Johnson farm home on January 4, 1973. After receiving the application, defendant issued a policy with an effective date of February 8, 1973. It provided primary coverage of $100,000 and included a double indemnity supplement. Plaintiff was the policy beneficiary.

Merlin Johnson was killed while piloting a private aircraft on January 15, 1974. Shortly thereafter Lutes notified plaintiff she would receive $200,000 under the policy's double indemnity coverage. However, defendant instead subsequently issued a benefit check for $100,000 because of a provision in the double indemnity rider excluding double indemnity coverage of death resulting from piloting private aircraft.

This litigation resulted from plaintiff's contention her husband desired double indemnity protection while piloting private aircraft, communicated this wish to Lutes when making application for the policy, and was assured by Lutes the double indemnity provision would cover that activity. She sought reformation of the policy to eliminate the exclusion on the ground of mutual mistake and asked judgment for $100,000. After trial, the trial court granted the relief requested. This appeal followed.

I. The soliciting agent's authority. The question relating to Lutes' authority is not, as alleged by defendant, whether he had authority to waive an exclusion in the insurance policy. Instead it is whether his knowledge and representations in obtaining the application for insurance are binding on defendant for purposes of reformation. The conduct upon which reformation was sought allegedly occurred while Johnson was applying for the policy.

No dispute exists that Lutes was a soliciting agent for defendant. Nor could there be. See § 515.123, The Code; Imperial Casualty & Indemnity Company v. Carolina Casualty Insurance Company, 402 F.2d 41, 44 (8 Cir. 1968).

Our cases have uniformly held that a soliciting agent's knowledge and material declarations at the time an application for insurance is obtained are binding on the company and may serve as a basis for reformation. Quinn v. Mutual Benefit Health and Accident Association, 244 Iowa 6, 14, 55 N.W.2d 546, 550-551 (1952); Lankhorst v. Union Fire Insurance Co., 236 Iowa 838, 20 N.W.2d 14 (1945); Mortenson v. Hawkeye Casualty Co., 234 Iowa 430, 12 N.W.2d 823 (1944); Green v. Phoenix Insurance Co., 218 Iowa 1131, 253 N.W. 36 (1934); Smith v. National Fire Insurance Co., 201 Iowa 363, 207 N.W. 334 (1926); Fitchner & Co. v. Fidelity Mutual Fire Association, 103 Iowa 276, 72 N.W. 530 (1897); see Metropolitan Casualty Insurance Co. of New York v. Friedley, 79 F.Supp. 978 (N.D.Iowa 1948).

As the cases make clear, the rule is not based on the agent's actual authority to bind the company to particular coverage. Rather it is based on the fact that in acting upon an application for insurance the company is charged with the agent's knowledge and representations while exercising his actual authority to obtain the application.

The facts in the Quinn case are analogous to those in which defendant is alleged to be bound in this case. Plaintiff Quinn offered evidence she told a soliciting agent of the defendant insurer she desired a health and accident policy which would contain no restrictions based on the fact she was a woman, one which would cover any illness or accident. The agent, according to Quinn's evidence, assured her attorney he would obtain such a policy for her. The agent filled out an application which Quinn signed without reading. When he later delivered a policy to her she did not read it either. Subsequently she had surgery for a female problem and made a claim on the policy. The company denied coverage because the policy contained an exclusion applicable to such surgery. The trial court reformed the policy to eliminate the exclusion and this court affirmed.

The court in Quinn held the insurer was charged with knowing what its soliciting agent knew and found the evidence established a basis for reformation:

The company, acting through its authorized agent, Sullivan, knew what insurance plaintiff desired and ordered. To her Sullivan was the company, and according to everyday business practice she dealt with him and rightly so. While she admits that she did not read either the application or the policy, we hold that under our holdings, she was not negligent in that respect. She thought she was getting the protection she desired; Sullivan thought so. Under the record she was entitled to receive it. 244 Iowa at 15, 55 N.W.2d at 551.

Under the principles recognized and applied in Quinn, defendant in this case was bound by the knowledge and representations of Lutes when he obtained Johnson's application.

Other authorities are in accord. "The acts and declarations of a soliciting agent while writing an application for insurance are those of the company itself." 16 Appleman, Insurance Law and Practice, § 8698 at 213.

This is true even when the agent is mistaken. The mistakes of the soliciting agent are the mistakes of the insurer. Id. 1977 pocket part at 41; Parry v. State Farm Mutual Automobile Insurance Co., 191 Neb. 628, 216 N.W.2d 875 (1974); American Family Mutual Insurance Company v. Bach, 471 S.W.2d 474, 479 (Mo.1971) ("The insurer is bound by the mistake of a soliciting agent."); 44 C.J.S. Insurance § 279 at 1114 ("A soliciting agent may be deemed to be an agent of the company within the meaning of this rule, so that, even though he is without power to issue a policy his mistake is deemed to be a mistake of insurer, and insurer cannot defeat reformation because of the limited powers of its agent."); 43 Am.Jur.2d Insurance § 359 at 410 (" * * * (M)ost courts hold that a policy may be reformed where it does not conform to the agreement of the parties, although the mistake, insofar as the company is concerned, was that of a mere soliciting agent with no power to write or to issue a policy.").

Defendant seeks to distinguish these authorities by citing cases holding a soliciting agent's actual authority to bind his principal does not go beyond the scope of his principal's authorized line of business. See, e. g., Hockemeyer v. Pooler, 268 Minn. 551, 130 N.W.2d 367 (1964). However, such cases are based on the rule that actual authority, express or implied, cannot exist unless the principal has capacity to enter the legal relation sought to be created by the agent. Restatement (2d) of Agency § 7, Comment a. Assuming, without deciding, that this rule would be a limitation on Lutes' authority, no evidence exists from which it could be found defendant lacked capacity to write the policy desired by Johnson.

Defendant offered evidence that neither it nor any other insurer in the industry did in fact write a policy providing double indemnity coverage for accidental death while flying private aircraft. However, the reason given for not doing so was the alleged difficulty in rating the hazard for premium purposes. The witnesses acknowledged aviation accidents were within the primary coverage of the policy and agreed $200,000 in such coverage could have been obtained. Thus, defendant did not show a lack of capacity to insure the risk. The rule relied on by defendant is inapposite.

A party seeking reformation does not have the burden to prove the insurer would actually have insured the particular risk or class of risk if its agent had not made a mistake. Reformation may be had to afford coverage of any lawful risk. Heikes v. Farm Bureau Insurance Company of Nebraska, 181 Neb. 827, 151 N.W.2d 336 (1967); Kaiser v. Carolina Life Insurance Co., 219 S.C. 456, 65 S.E.2d 865 (1951). A court of equity may grant reformation even when the provision at issue is inhibited by statute, provided the statute does not make it void and the parties are not in pari delicto. Baldwin v. Equitable Life Assurance Society of the United States, 252 Iowa 639, 650-651, 108 N.W.2d 66, 73 (1961).

We hold defendant was bound by Lutes' knowledge and representations when it acted upon Johnson's application for insurance.

II. Sufficiency of the evidence. Plaintiff sought reformation based on mutual mistake. It was her burden to prove by a preponderance of clear, satisfactory and convincing evidence that through mistake the policy failed to express the mutual intent of the parties. Schuknecht v. Western Mutual Insurance Company, 203 N.W.2d 605, 609 (Iowa 1973). In reformation cases involving insurance policies, less proof is required than in contract cases generally. Baldwin v. Equitable Life Assurance Society of the United States, 252 Iowa 639, 108 N.W.2d 66 (1961).

A mistake within the meaning of reformation doctrine "is a belief that is not in accord with existing facts." Restatement (2d) of Contracts § 293 (Tent. Draft No. 10).

Plaintiff's theory was that her husband and Lutes mutually intended the...