Lumbermens Mutual Casualty Company v. Klotz

• Decision Date: 10 March 1958
• Docket Number: No. 16879.,16879.
• Parties: LUMBERMENS MUTUAL CASUALTY COMPANY, Appellant, v. Dr. Harry Leslie KLOTZ, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

251 F.2d 499 (1958)

LUMBERMENS MUTUAL CASUALTY COMPANY, Appellant, v. Dr. Harry Leslie KLOTZ, Appellee.

No. 16879.

United States Court of Appeals Fifth Circuit.

January 14, 1958.

Rehearing Denied March 10, 1958.

COPYRIGHT MATERIAL OMITTED

D. L. Case, Dallas, Tex., Robertson, Jackson, Payne, Lancaster & Walker, Dallas, Tex., for appellant.

David L. Tisinger, Gaynor Kendall, Austin, Tex., Tisinger & Sloan, Austin, Tex., for appellee.

Before TUTTLE, JONES and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

In this declaratory judgment action by the Insurer with a successful counterclaim by the Assured for damage equivalent to the commuted value of weekly, total disability sickness benefits, the questions for us are: (1) whether the policy was voided by fraudulent misrepresentations of the medical history by the Assured; if not, (2) whether there was an anticipatory breach; and if so, (3) whether this entitled the Assured to recover as damages the present value of the payments for future disability while under the future care of a physician; and finally, (4) whether the Assured was entitled to Texas statutory penalties of 12% and attorney's fees on all or a part of the recovery.

Dr. Klotz, the Assured, a general physician and surgeon with an extensive practice in Austin, Texas, on December 27, 1955, made written application for a certificate of insurance, subsequently issued January 18, 1956, for a plan¹ "B" coverage providing $100 weekly indemnity under a Master Group policy issued to the Texas Medical Association for its applying members. The policy afforded broad coverage. It provided for payment of the stated weekly indemnity for such time, not to exceed 520 weeks for any one sickness, during which "* * * sickness wholly and continuously disables and prevents the Insured from performing the duties of his profession * * *." In a negative way, the policy required that during such disability the Insured be under the regular care and attendance of a physician other than himself.

On March 2, 1956 the Assured sufered a heart attack which, it was conceded, had totally disabled him up through the time of trial. Four weekly payments of $100 indemnity had been made when they were stopped by the Insurer on the ground that the Assured's medical history, received subsequent to the initial payment, established that certain statements in the application² were false.

Actually while it is this that is at the bottom of the controversy so that it may be described as the basic issue, the decision on it is, in contrast to the others, the easiest to reach. This is so because, coming here as it does, with the buckler and Shield of Fed.Rules Civ.Proc. rule 52, 28 U.S.C.A., the burden procedurally is heavy in demonstrating that the trial judge's findings were clearly erroneous. And from a substantive point of view, the policy of Texas, by successive requirements, establishes a substantial bulwark which the Insurer must overcome. It must first prove that the misrepresentation was of a fact material to the risk.³

Materiality having been proved, the burden is then "* * * on the insurer to plead and prove, not only that the answers made by the insured were false or untrue, but that the insured knew, or should have known, that they were untrue, and that he made them willfully and with the intention of inducing the insurer to issue him a policy." Clark v. National Life & Accident Insurance Co., 145 Tex. 575, 200 S.W.2d 820, 823. Bound as we are by Texas law, we have said "* * * the courts of Texas have firmly determined that false representations to avoid a policy must have been willful and made with a design to deceive or defraud." Equitable Life Assurance Soc. of United States v. Alvarez, (Tex.) 5 Cir., 141 F.2d 551, 552.

The Insurer asserts that it met this heavy burden since it was uncontradicted in fact that the answers to questions 1 and 3, note 2, supra, were incorrect in at least the eight respects⁴ described by it as from (a) to (h).

On (a), note 4, supra, there was no proof that the fact of this slight virus cold in 1949 was material, nor was there as to the fact of making cardiograms in (f) and (h). That he had been examined for prospective life insurance, (b), (c), (d), (g), did not establish that he had "received medical or surgical attention or service" inquired of in question 1, note 2, supra. This leaves then of consequence the fact, (e), that while he was in the hospital for the appendectomy, he suffered an attack of pericarditis and the fact, (b), (c), (d), and (g), that he had moderate hypertension. These might be relevant to the questions in the Application if either amounted to medical treatment, i. e., "attention or service" under question 1, or involved a "* * * disease of the * * * heart * * * in any form" under question 3, note 2, supra.

As to the hypertension, the court found, as the facts compelled, that Dr. Klotz had not been treated for this condition, nor had he received medical or surgical advice or attention. It was not then within the compass of question 1. And then on evidence from an impressive array of competent doctors of standing in the community and their profession, in which the Insurer's expert stood alone in his contrary opinion though recognizing the existence of a "conflict of opinion" on it, the court found as a medical fact that hypertension was not a disease of the heart. It was not then within question 3.

Added to this was the fact acknowledged by the Insurer's chief underwriter that usually life, health or accident insurance applications made express inquiry as to hypertension or high blood pressure. As the questions used here did not fairly require affirmative disclosure of this history, the omission would not amount to a misrepresentation, even though the subject generally might be material. And on the Assured's good faith, his testimony was uncontradicted that, not being asked, he assumed the information was not desired and had he understood otherwise, he would have given the full information.

A similar analysis demonstrates that the court's findings are adequately supported as to pericarditis.⁵ This is an inflammation of the pericardium, the sac in which the heart rests. The evidence was undisputed that when he was stricken with acute appendicitis, Dr. Klotz was suffering from a chest cold or bronchitis. In surgery he experienced minor pains in the chest which, after examination and repeated cardiograms, (each of which was normal, i. e., negative) over the next week or two, led to a diagnosis of pericarditis associated with, or an extension of, the bronchial infection to the pericardium. This the court expressly found. Again there was an abundance of medical opinion from experts of unchallenged competence. In their view pericarditis which was an extension of bronchial infection was not a disease of the heart. One of the Insurer's experts agreed expressly that it was not a "true heart disease," and the other, testifying on direct that pericarditis "may be" a heart disease, readily conceded on cross examination that it could also be a mere "extension of a bronchial infection" such as a cold, and "therefore not heart disease." On this the court found that it was not a heart disease. Thus this event was not within question 3.

So far as question 1 was concerned, the court considered that the pericarditis was incidental to the treatment being received by him in connection with the appendectomy for which he had entered the hospital. The court further found, on ample basis, that "the insured promptly and completely recovered from said ailment pericarditis, and suffered no lasting physical damage therefrom; and such illness was not material to the insurance risk."

With the answers thus narrowed to this one, if it is assumed that the reply to question 1 was incorrect by the omission of pericarditis, the Insurer had yet the heavy burden of going the next step to establish bad faith with a purpose to defraud. As to this and all of the answers, the court found that these "were given in good faith, and without any intention on the part of the insured to deceive the insurer, or to conceal from the insurer any relevant fact in connection with the issuance of the certificate of insurance applied for."

There is no evidence which directly points to a purpose to deceive. None is suggested save the fact that as a man, the Assured knew of his own treatment for pericarditis, and as a doctor examining applicants professionally for life insurance, he knew of its general materiality, so that we must impute, as a matter of law, a deliberate intention to defraud. Standing over against this, which the trial court could, and presumably did credit, besides the apparently minor nature of this incidental condition from which he fully recovered, was the acknowledged professional standing amongst his fellow doctors and in the community, his long service, several years as its president, on the Texas State Board of Medical Examiners, his vigorous, energetic active professional and personal life with no indications of imminent physical infirmities soon to strike, his deliberate choice of plan B, rather than plan A, despite its larger indemnity, his prior purchase of life insurance at medically rated premiums, and his express statements that he attempted honestly and fairly to give the full information requested. To cap it all, the court also had before it the Insurer's own characterization⁶ of these misstatements as "* * * an unfavorable past health history which you Dr. Klotz apparently inadvertently omitted in completing your application."

Whether the omission from the answers of this one medical event was an innocent mistake of memory or judgment, or was, on the other hand, from a motive to defraud the Insurer was a question of fact for the Trial Court. The findings are not clearly erroneous and certainly there is no basis for concluding that this was a fraudulent misrepresentation as a matter...