Kentucky Central Life Ins. Co. v. Combs

• Decision Date: 26 April 1968
• Citation: 432 S.W.2d 415
• Parties: KENTUCKY CENTRAL LIFE INSURANCE COMPANY, Appellant, v. Dove COMBS, Appellee.
• Court: United States State Supreme Court — District of Kentucky

Page 415

432 S.W.2d 415

KENTUCKY CENTRAL LIFE INSURANCE COMPANY, Appellant, v. Dove COMBS, Appellee.

Court of Appeals of Kentucky.

April 26, 1968.

Rehearing Denied Nov. 1, 1968.

F. Byrd Hogg, Hogg & Cornett, Whitesburg, for appellant.

C. A. Noble, Jr., Hazard, for appellee.

MONTGOMERY, Judge.

Kentucky Central Life Insurance Company has been granted an appeal from a judgment of $1,000 in favor of Dove Combs, beneficiary under a policy of insurance on the life of Jim Combs. KRS 21.060(2). Appellant insists that it was entitled to a directed verdict because of false material answers to certain questions in the application for insurance.

The application for the policy was taken by appellant's agent, George Lucas, on March 1, 1964. The insurance became effective on March 9, 1964. The insured died of congestive heart failure on September 12, 1964.

The application contains the following questions and answers:

'8. Has Proposed Insured had any illness, injury or accident in past five years? (No)'

'10. Has Proposed Insured ever had any disease of the heart, liver or kidneys; cancer or diabetes? (No)'

Appellant says that after claim was made it discovered through a routine retail credit investigation that the insured had been confined in the Hazard Miners Memorial Hospital for a heart ailment and diabetes on October 22, 1962, for four days' treatment, and that he was still suffering from diabetes and heart disease at the time of his death.

Upon the trial, appellee, wife of the insured, admitted that her husband had the ailments prior to the application and that the answers to questions 8 and 10 in the application were false. Logan Combs testified that he was present when the agent of appellant took the application from his father. He described what transpired as follows:

'A. Asked him if he had been in the hospital in the last three years, writing up an application for a policy, he told him a year and a half ago. He asked him what his trouble was and he told him he had a little heart trouble, and I started laughing then, just making a joke out of it, I told my Dad, 'They won't sell you an insurance policy and you with heart trouble,' and George said, 'We'll not put that on there,' and he wrote it up.'

Lucas denied this conversation. Jim Combs was illiterate. Either Logan Combs or George Lucas signed Jim's name to the application for him.

KRS 304.656 provides:

'All statements or descriptions in any application for an insurance policy or in negotiations therefor, by or in behalf of the insured, shall be deemed to be representations and not warranties. Misrepresentations, unless material or fraudulent, shall not prevent a recovery on the policy.'

This statute has been construed to mean that a misrepresentation which is material or fraudulent bars a recovery. Metropolitan Life Insurance Company v. Tannenbaum, Ky., 240 S.W.2d 566; Reserve Life Insurance Company v. Thomas, Ky., 310 S.W.2d 267; Mills v. Reserve Life Insurance Company, Ky., 335 S.W.2d 955.

The rule gleaned from the statute, as so construed, is that when the falsity of the representation is established and its materiality is not disputed, there can be no recovery. This is true despite the illiteracy of the applicant. The cases cited say that an illiterate shall not permit an application to be signed for him until he has had a responsible person to examine for correctness the answers inserted by the agent. It is admitted by appellee that the applicant had his son at his side who could have checked the accuracy of the answers in the application. In each of the cases cited, the fact that the agent had inserted false answers did not relieve the applicant of this responsibility.

Admittedly, the answers given to questions 8 and 10 were false and material. Falsity and materiality of the answers seem to be the controlling standards. An exception is when the insurer is fully cognizant of all material facts concerning the insured's state of health, in which event it cannot be said as a matter of law that the insurer relied on the written statements in the application. Lincoln Income Life Insurance Company v. Burchfield, Ky., 394 S.W.2d 468. Such was not the case here.

The present case was submitted to the jury on the issue of whether the applicant signed the application, knowing that the agent had inserted false answers therein. This was a false issue. Under the statute and the cases cited, the true issue was whether the misrepresentations were material, as they admittedly were. In such case, a directed verdict should have been granted in favor of the appellant, whose motion for judgment n.o.v. should also have been sustained.

Judgment reversed.

WILLIAMS, C.J., and EDWARD P. HILL, MILLIKEN and STEINFELD, JJ., concur.

OSBORNE and PALMORE, JJ., dissent.

OSBORNE, Judge (dissenting).

The real question presented in this case is who must bear the responsibility for the acts of an insurance agent done when filling out an application for a policy to be submitted to the company. If he is acting as the agent of the insurer, then obviously any false or wrong answers he inserts in the application should not be attributed to the insured, thereby giving the company a weapon with which to void the policy. This question was answered in Standard Auto Insurance Association v. Russell, 199 Ky. 470, 251 S.W. 628 (1923). Here the insured filed an application with the company containing erroneous statements, one of which concerned the value of the automobile insured. After a loss, the company based its defense upon the false answers in the application. The insured countered this defense with the contention that the false answers were inserted by the agent of the company and did not represent the actual responses to the questions which he had given. In resolving the issues between the parties, this court said:

'Our rule regards an insurance solicitor as the agent of the company and not of the insured; and if such agent writes false answers to questions propounded to the applicant, or by misleading statements induces the applicant to make false answers, when the applicant is acting in good faith and without any intention to deceive, the company will be estopped to rely upon the answers to defeat the policy. * * *

'It is the general rule, says 14 R.C.L. p. 1174, that an insurance agent, in making out an application for insurance, acts as the agent of the insurer, and not of the insured, and if the insured makes proper answers to the questions propounded, the insurer cannot take advantage of a false answer inserted by its agent contrary to the facts as stated by the applicant. Nor can the insurer avoid the force of this rule by stating in the policy that the agent or the physician acts as the agent of the insured in taking the application or in making the medical examination, as such a statement in the policy is, generally speaking, in direct variance with the actual facts; and the same is true of a provision that it shall not be responsible for the agent's act. Masonic Life Ass'n of Western N.Y. v. Robinson, 149 Ky. 80, 147 S.W. 882, 41 L.R.A.,N.S., 505; Id., 156 Ky. 371, 160 S.w. 1078; Knights of Maccabees of the World v. Shields, 156 Ky. 270, 277, 160 S.W. 1043, 49 L.R.A.,N.S., 853.'

In Wright's Adm'r v. Northwestern Mut. Life Ins. Co., 91 Ky. 208, 214, 15 S.W. 242, (1891), in dealing with the same problem dealt with in the Russell case, this court said:

'Although the questions were not put to nor answered by William Wright, but by his mother, acting for him, yet, if the agents were informed by her of his actual occupation, the company is as much bound thereby, if at all, as if he had given the information. And, while it is doubtless true that the company would not have issued the policy if the answer of Rebecca Wright in respect to his occupation had appeared in the application, as some of the witnesses testified on the trial she made it, it is equally manifest the policy would not have been accepted, nor any premiums paid, if either Rebecca Wright, who paid, or William Wright, for whom it was paid, had believed a forfeiture would or could be legally claimed upon the grounds now relied on as defense to the action. * * * 'An insurance company establishing a local agency must be held responsible to the parties with whom they transact business for the acts and declarations of the agent within the scope of his employment, as if they proceeded from the principal.' It seems to us, considering the amount of business intrusted to and done by soliciting agents of insurance companies, the circumstances under which and persons with whom it is generally done, and the opportunities they have, and temptation put in their way by the companies to overreach those desiring, or, rather, those whom they persuade to insure, the rule mentioned would be nearly inoperative, if not made to apply to them as well as general agents; for a large, if not the largest, portion of the business and consequent profits of life insurance companies is obtained by them. They are empowered to solicit and receive applications, which every company well knows cannot in many, if not most, cases be made out intelligently by applicants without their advice and instruction; and moreover, as pay for their services is made to depend upon commissions on premiums collected, they have a direct interest in making each application conform to requirements of the company, which may be, and is often, done by explanations and assurances that are deceptive, yet relied on by the insured. We think not to make an insurance company responsible for acts and declarations of its soliciting agents in the matter of preparing applications would not only give it undue advantage of ill-informed and unsuspecting persons, but be an invitation to both the company and its agents to take it.'

In commenting upon the Wright case in Hurst Home Ins. Co. v. Ledford, 207 Ky. 212, 268 S.W. 1090, (1925), we said:

'This case has been followed and...