Knepp v. Nationwide Ins. Co.
| Decision Date | 03 February 1984 |
| Citation | 471 A.2d 1257,324 Pa.Super. 479 |
| Parties | Dennis C. KNEPP and Karen L. Knepp, Parents and Natural Guardians of Dennis C. Knepp, Jr., a minor, and Dennis C. Knepp, Jr., as an individual, Appellants, v. NATIONWIDE INSURANCE COMPANY. Dennis C. KNEPP and Karen L. Knepp, Parents and Natural Guardians of Dennis C. Knepp, Jr., a minor, and Dennis C. Knepp, Jr., as an individual, Appellants, v. NATIONWIDE INSURANCE COMPANY. |
| Court | Pennsylvania Superior Court |
Submitted May 31, 1983.
John R. Carfley, Philipsburg, for appellants.
Grant H. Fleming, State College, for appellee.
Before ROWLEY, WIEAND and CIRILLO, JJ.
These are consolidated appeals from an order of the trial court en banc sustaining exceptions filed by Nationwide Insurance Company and dismissing exceptions filed by the Knepps to the decision of the trial judge sitting without a jury and from the entry of judgment in favor of Nationwide.
Dennis C Knepp, Jr., was born on December 9, 1973. At that time it was discovered that he suffered from a congenital condition known as coronal hypospadias or hypospadias of the first degree, a disorder of the urethra. The condition was diagnosed almost immediately after birth and it was noted on the hospital's "Newborn Examination Record." Dennis' physician informed the Knepps of the nature of Dennis' condition at or near the time of his birth and over the next four years, Dennis' parents twice inquired as to whether it was not yet necessary for corrective surgery to be performed. They were informed that surgery would not be necessary until after Dennis had begun to attend school.
On June 8, 1977, the Knepps applied to Nationwide for two policies of insurance, one denominated a "Hospital and Surgical Expense Policy" and the other a "Major Medical Expense Policy." Nationwide approved the applications and, on September 1, 1977, issued the two policies.
On June 9, 1978, surgery was performed on Dennis in an unsuccessful attempt to correct the disorder. The Knepps submitted a claim to Nationwide for the cost of the operation and related expenses claiming that the costs were covered by the policies issued some nine months prior to the operation. By letter dated November 2, 1978, Nationwide denied the claim stating that "the policies are designed to cover only those illnesses, injuries or disorders which have their origin after the effective date of the policy [sic]." The letter also informed the Knepps that the company believed that the Knepps had wrongfully failed to disclose Dennis' condition and labelled the failure as a "material misrepresentation." Nationwide gave the Knepps the option of signing waivers as to Dennis with regard to "any disorder of the urethra," or having the policies terminated and all premiums returned. The Knepps failed to respond. By letter dated February 9, 1979, Nationwide informed the Knepps that it presumed they would not execute the waivers and that the company was giving them formal notice of cancellation. A check was enclosed with this letter "in full refund of the premiums paid."
The Knepps commenced this action on March 3, 1979, by filing a complaint containing two counts. Count I stated a claim in assumpsit for $1,393.70 representing the costs attendant to the surgery. In Count II, the Knepps sought a declaratory judgment in their favor "reinstating" the insurance policies without any restriction as to Dennis in order to have insurance coverage for future surgery necessary to correct the hypospadias.
The case was tried on November 6, 1979, before the Honorable Richard M. Sharp, President Judge, sitting without a jury. By an opinion and order dated January 17, 1980, Judge Sharp found in favor of the Knepps on Count I and in favor of Nationwide on Count II. Both parties filed exceptions to the decision and argument was heard by a court en banc. The court en banc sustained Nationwide's exceptions to the decision on Count I and dismissed the Knepps' exceptions to the decision on Count II. Judgment was subsequently entered in favor of Nationwide on both counts of the complaint and the Knepps appealed. [1]
Appellants present two issues for our consideration. First, whether the trial court en banc erred in concluding that appellee insurer was not required to reimburse the Knepps for the cost of the unsuccessful surgery of March, 1979. Second, whether the trial court erred in holding that Nationwide could rightfully rescind the insurance policies and return the premiums to the Knepps.
We agree with the trial court's determination that Dennis' disorder is not covered by the policies issued by Nationwide. Nationwide agreed, in each of the two policies, to pay benefits "in the event of injury or sickness" as those terms were defined in the policies. Sickness is defined in the policies as: [2]
"Sickness" means sickness or disease contracted by an Insured Family Member more than 15 days after such Insured Family Member becomes covered under this policy and while such coverage is in force ...." (Emphasis added.)
Thus, coverage is not provided for sicknesses contracted prior to the effective date of the policy.
It is a rule of long standing that insurance policies may permissibly be drafted to limit coverage to illnesses arising after the commencement of insurance coverage. Myers v. Metropolitan Life Insurance Company, 152 Pa.Super. 507, 33 A.2d 253 (1943). See also: IB Appleman, Insurance Law and Practice (rev. ed., 1981), § 396. In Myers, this Court sanctioned the use of the terms "commencing" and "occurring" in drafting such valid limitations within the definitions of coverage. We perceive no difference between the two terms construed in Myers, supra, and the term "contracted" as used in the policies currently before us. The limitation to illnesses or disorders subsequent to the effective date of coverage contained in these policies is therefore valid.
It is clear, of course, that the condition for which coverage is claimed in the present case was contracted prior to the issuance of the policies. We follow Myers in holding that a congenital condition cannot qualify as an event covered by a policy with coverage drawn in the manner set forth above. "To say that a congenital condition occurred or commenced [or was contracted] more than [three] years after the birth of [an insured] is a contradiction on its face." Id. at 515, 33 A.2d at 257. A congenital condition, by definition has its inception at or before the birth of the individual afflicted. [3] It is undisputed that Dennis' condition is congenital.
Appellants argue that they were not aware of the extent of Dennis' condition when they purchased the policies. Whether the Knepps were aware of Dennis' condition, or its extent, is of no moment, however, in determining whether the policy provides coverage for a pre-existing condition. Where, as here, a policy of insurance is drawn to cover only prospective illnesses the insured's knowledge or lack of knowledge of the pre-existing illness is immaterial in a suit to recover claimed benefits. Guise v. New York Life Insurance Co., 127 Pa.Super. 127, 191 A. 626 (1937); McKown v. State Mutual Life Assurance Co., 127 Pa.Super. 117, 191 A. 621 (1937). It is therefore clear to us, and the court en banc so held, that the policies involved in this case do not provide coverage for Dennis' condition. [4]
We also conclude that the court en banc correctly held that the Knepps were not entitled to reinstatement of the insurance policies. There can be no real dispute that Mr. and Mrs. Knepp incorrectly answered questions on the application for insurance. They informed Nationwide that Dennis did not have, and that they had not been informed that Dennis suffered from, a "disease or disorder of the genito-urinary tract." Moreover, when asked about whether they "or anyone proposed for coverage ever had been advised or have or contemplated having a surgical operation," they revealed only circumstances relating to one of Mrs. Knepp's pregnancies. By the Knepps' own testimony, these answers were false. It is also beyond cavil that the Knepps' misstatements and omissions were material to the insurer's consideration of the Knepps' application for insurance coverage.
Under such circumstances, an insurer may rightfully rescind the policies of insurance. Section 622 of the Insurance Company Law of 1921, Act of May 17, 1921, P.L. 682, Art. VI, § 622, 40 P.S. § 757, states:
The falsity of any statement in the application for any policy [of health or accident insurance] shall not bar the right to recovery thereunder, unless the false statement was made with actual intent to deceive, or unless it materially affected either the acceptance of the risk or the hazard assumed by the insurer. (Emphasis added.)
As recently stated by the United States Court of Appeals for the Third Circuit in interpreting this section:
When the policy is sought to be avoided on the ground of fraud, the statute requires intent to deceive. However, recovery [on the policy] may be denied on alternate and separate grounds if false statements materially affected the risk accepted or the hazard assumed by the insurer. In these latter two instances, if the statements are false to the knowledge of the applicant but are not made with intent to deceive, they nevertheless void the policy.
Connecticut Mutual Life Insurance Co. v. Wyman, 718 F.2d 63, 67 (3rd Cir.1983).
Because the statements were in fact false, because the Knepps were informed of the nature of Dennis' condition, and because the misstatements were material to the acceptance of the risk and the hazard assumed by the insurance carrier, the trial court en banc properly refused to reinstate these policies.
The appeal at No. 642 Philadelphia 1981 is quashed. In the...
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