Kansas City Life Ins. Co. v. Cox

• Citation: 104 F.2d 321
• Decision Date: 06 June 1939
• Docket Number: No. 7803.,7803.
• Parties: KANSAS CITY LIFE INS. CO. v. COX.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

104 F.2d 321 (1939)

KANSAS CITY LIFE INS. CO. v. COX.

No. 7803.

Circuit Court of Appeals, Sixth Circuit.

June 6, 1939.

COPYRIGHT MATERIAL OMITTED

Joseph Martin, of Nashville, Tenn. (J. M. Peebles, Douglas Henry, and G. Henry Tyne, all of Nashville, Tenn., on the brief), for appellant.

Cecil Sims, of Nashville, Tenn. (R. E. Dotson, of Pulaski, Tenn., on the brief), for appellee.

Before HICKS, SIMONS, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

This suit is brought to reform a life insurance policy and enforce it for the benefit of the appellee, Memory Townsend Cox.

On March 16, 1934, L. E. Cowden, a licensed agent of the appellant, Kansas City Life Insurance Company, in Tennessee but not in Alabama, procured from Stuart Gray Cox, deceased husband of appellee, at Athens, Alabama, his signed application for a policy of life insurance on his life in the sum of $5,000, with the appellee as beneficiary.

Cowden had defective hearing and A. L. Caughran, who accompanied him, filled in the assured's answers on part one of the application and dated it March 16, 1934. Paragraph 21 thereof provided for any special agreement as to the date of the policy and it was left blank because there was no such agreement or understanding between the soliciting agent and the assured that either the application or policy should be antedated. The assured, on March 16, 1934, gave Cowden his note for $46.30 in part payment of the first premium, which he kept and mailed part one of the application to appellant's general agent at Nashville, Tennessee, in whose office, without the knowledge or consent of assured or notice to him, the date of the application was changed from March 16, 1934, to March 12, 1934. The record does not show the date, but appellant's general agent at Nashville admits making other changes, although he did not recall this one. Part one of the application was received at the home office of appellant in Kansas City, Missouri, on March 22, 1934, but the policy was not then issued, and on May 18, 1934, Cowden procured from the assured a supplemental application which dispensed with a medical examination. This was also forwarded to the general agent at Nashville and to the appellant's home office; approved by its medical department on June 4, 1934, and the policy issued June 7, 1934, dated March 15, 1934, and registered with the Commissioner of Insurance of Missouri on June 8, 1934, as required under the state law. It was then forwarded to appellant's general agent at Nashville, Tennessee, who notified Cowden it was ready for delivery to the assured on the payment of the first premium of $148.80.

On June 16, 1934, Cowden notified the assured his policy had been issued but could not be delivered until the first annual premium was paid in full and suggested that he execute an additional note for the balance which he could discount. Before executing the last note in the amount of $98.40, balance of the premium due, the assured inquired of Cowden as to whether the policy covered him for a period of one year from the date of this note and was told by him that it did.

About June 16, 1934, Cowden discounted both notes with the Farmers Bank of Lynchburg, Tennessee. The bank mailed the policy to the assured who receipted for it on July 7, 1934, and retained it until his death, June 16, 1935. The bank remitted, out of the proceeds of the notes, $100 to the general agent of appellant at Nashville, Tennessee, and retained the balance for Cowden.

When the policy was prepared at appellant's home office, June 4, 1934, was inserted as its effective date and the anniversary date of the premium. Without assured's consent and for the purpose of establishing the premium at the age of thirty-three, these dates were later erased and the date of March 15, 1934, inserted in lieu thereof before the policy left its home office.

Assured and his family moved from Athens, Alabama, in February, 1935, to Giles County, Tennessee, where he lived until his death. Three premium notices were mailed him at Athens, Alabama, on February 15, 1935, March 23, 1935, and April 8, 1935, with appellant's return address on the envelopes, none of them being returned. On April 25, 1935, appellant mailed to the assured at the same address, a letter notifying him that his policy had lapsed and inclosing a form of application for reinstatement. Only the first premium was paid and appellant recorded the policy lapsed on its books April 15, 1935.

Appellee called on appellant for payment which was refused. The lower court rejected all the defenses and reformed the policy to show its date of issue June 7, 1934, and its value to be $4,893.40, the amount of insurance the premium paid by assured would have purchased at the age of thirty-four, and awarded the appellee judgment in that sum.

Appellant makes the following points against the decree: first, that the evidence of mutual mistake was not clear and convincing; second, that there was no evidence of meeting of the minds of the parties upon the reformed policy; third, that the assured was guilty of laches imputable to the appellee; fourth, that the court based its decree on incompetent evidence.

Courts of equity have the power, and it is their duty, to reform insurance contracts to reflect agreements fairly and legally entered into with policyholders where, through mutual mistake, or mistake upon the part of one and inequitable conduct on the part of the other, the agreement actually entered into does not express the real contract between them.

The exercise of this power involves the change of a written instrument and for this reason should be applied only when the proof of the mutual mistake or inequitable conduct on the part of one of the parties is clear, convincing and satisfactory and leaves no reasonable doubt that the writing does not correctly embody the intention of the parties. West End Savings Bank v. Goodman, 223 Ala. 185, 135 So. 161; North Carolina Mutual Life Insurance Company v. Martin, 223 Ala. 104, 134 So. 850.

Appellant's agents testified that following the custom in its home office, without the contemporaneous consent of the assured, it predated the policy to March 15th for the purpose of having the premium calculated at age thirty-three, saving the assured $4.10 annually, and that had the policy been dated June 7th, the premium would have been calculated at age thirty-four.

The policy was antedated eighty-three days, and the assured overpaid the first premium in the amount of $32.86. It would require eight years to return, without interest, the first year's overpayment of the savings by predating.

Cowden represented to the assured that the policy was in effect for one year from June 16, 1934, and it is conceded by appellant that it was not in force until that date, and there is not a scintilla of evidence in the record that the assured, by an affirmative act, consented to its antedating. Appellant urges that because it intentionally antedated the policy, although done without the knowledge of the assured, there was no mutual mistake and that under such circumstances appellee would be entitled to rescission, not reformation.

A mutual mistake which furnishes the ground of relief in equity is one where both parties were in error regarding some material fact, this error being the inducement, or one of them, for the making of the contract. If the agents of the appellant included only those in the home office, its contention would be sound, but it is a general principle of law that field agents of an insurance company, in taking applications or delivering policies, are the agents of the company and it is bound by any representations of fact made by them to the assured which induce him to accept the policy, unless the assured by...