Major Oil Corp. v. Equitable Life Assur. Soc. of US, 71-1208.

• Decision Date: 29 March 1972
• Docket Number: No. 71-1208.,71-1208.
• Citation: 457 F.2d 596
• Parties: MAJOR OIL CORPORATION, a Utah Corporation, Plaintiff-Appellee, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES, a corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

457 F.2d 596 (1972)

MAJOR OIL CORPORATION, a Utah Corporation, Plaintiff-Appellee, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES, a corporation, Defendant-Appellant.

No. 71-1208.

United States Court of Appeals, Tenth Circuit.

March 29, 1972.

Glenn C. Hanni, Salt Lake City, Utah (Strong & Hanni, Salt Lake City, Utah, with him on the brief), for plaintiff-appellee.

Wallace D. Hurd, Salt Lake City, Utah (Nicholas A. Mescia, New York City, with him on the brief), for defendant-appellant.

Before HAMLEY,^* SETH and McWILLIAMS, Circuit Judges.

McWILLIAMS, Circuit Judge.

On October 30, 1969, the Major Oil Corporation, a Utah corporation with its principal place of business in Salt Lake City, bought a $250,000 policy of insurance from the Equitable Life Assurance Society of the United States on one of its officers, Ray S. Brimhall, designating itself as the beneficiary. On November 23, 1969, Brimhall died in the Shadel Hospital in Seattle, Washington, the cause of death being "fat embolism secondary to fatty liver."

When Major made demand on Equitable for payment under the terms of the policy, Equitable refused payment on the ground that Major or Brimhall or both had misrepresented certain facts pertaining to the health of Brimhall. Thereupon Major brought the present action seeking to recover from Equitable the face amount of the policy, namely, $250,000. In its complaint Major alleged, among other things, that all conditions of the insurance policy had been performed.

In its answer, Equitable raised three affirmative defenses: (1) that Brimhall gave false answers to questions in the application, which were material to the risk and were relied on by Equitable in the issuance of the policy, and that had the true facts been known the policy would not have been issued; (2) that between the date of the application and the date the policy was delivered there were material changes in the statements and representations theretofore made by Brimhall in his application; and, (3) that the policy never took effect for the reason that on the day the policy was delivered and the initial premium paid Brimhall was not in good health, and therefore a condition precedent in the policy was not fulfilled.

Trial of the case was to a jury. However, after both sides rested, each moved for a directed verdict in its favor on the ground that the essential facts were not in dispute. So, though Major and Equitable were in sharp disagreement as to which party should prevail, they nonetheless did agree that the critical facts were not in dispute. The trial court denied Equitable's motion and granted that of Major, entering judgment against Equitable in favor of Major in the sum of $250,000 together with interest on such amount from and after December 30, 1969. Equitable now appeals, seeking a reversal of the judgment and a remand of the matter with direction that judgment be entered in its favor or, in the alternative, that there be a new trial.

This controversy stems from the fact that Brimhall had a drinking problem of considerable proportions and that he tried to conceal this fact from Equitable by making false statements in the application. Major concedes that Brimhall did give false answers in his application, and seeks to recover on the ground that Equitable in issuing the policy did not rely on his answers and waived the matter or, alternatively, is estopped from raising it. Under the circumstances we deem it necessary to set out the facts of the case in more than usual detail.

On August 27, 1968, Brimhall was admitted to Shadel Hospital in Seattle, Washington, where he was examined and treated by doctors and diagnosed as an alcoholic. Brimhall remained in the hospital through September 6, 1968, during which time he received aversion treatments and sodium pentothal treatments for his alcoholism. Additionally, he was given various laboratory tests, including a liver function test, the latter showing an impaired liver function. Specifically, Brimhall had an enlarged liver resulting from a fatty infiltration of the liver caused in turn by excessive consumption of alcohol over a prolonged period of time. This condition, as distinguished from cirrhosis of the liver, was one where the liver could be "rebuilt" if the intake of alcohol were eliminated or markedly reduced. Brimhall was advised by the hospital authorities that he was an alcoholic and that he had suffered impairment of his liver. As indicated, Brimhall was discharged on September 6, 1968, with the understanding that he should return for periodic "reinforcement treatments."

On October 4 and 5, 1968, and again on December 8 and 9, 1968, Brimhall returned to Shadel for such reinforcement treatments. He apparently had not been drinking during the interim. On January 26, 1969, however, Brimhall returned to the hospital in an intoxicated condition and was given further aversion treatments as well as sodium pentothal treatments. The liver function tests given on this occasion showed little improvement. On this occasion Brimhall was discharged on February 1, 1969. On February 14, 1969, Brimhall relapsed again and the president of Major, one John Fairbanks, called Shadel and was advised that Shadel would not readmit him as of that time.

However, on October 7, 1969, Brimhall was again admitted to Shadel Hospital in an intoxicated condition. On that occasion, he complained about chest pains which he said he had been experiencing for several months. Before administering further treatment, Shadel had Brimhall examined by a cardiologist who, after a series of tests, concluded that "this patient did not have angina pectoris and therefore did not have coronary heart disease, but I did not rule this out as still a possibility, but the probabilities were against it, from my examination." Accordingly, aversion treatments and sodium pentothal treatments were resumed. Liver function tests made at this time showed improvement. Brimhall was then released on October 20, 1969, and returned to Salt Lake City. On November 21, 1969, Brimhall returned to Shadel for a reinforcement treatment and apparently had had nothing to drink since his last discharge from the hospital.

On November 23, 1969, while in Shadel for the reinforcement treatment, Brimhall died in his sleep from pulmonary embolism. As indicated, Brimhall's cause of death was listed as "fat embolism secondary to fatty liver." The doctor performing the postmortem testified that there was a minimal degree of arteriosclerosis and that the liver was "sufficiently fatty to have caused his death," even though the liver itself was not "unusually large," though it was "in the top range of normal."

Brimhall submitted his application for insurance on September 9, 1969, and there is no doubt that he did give false answers to questions contained in the application. For example, he answered in the negative a question as to whether he had ever been treated for or had any known indication of any disease or disorder of the liver. Additionally, he also answered in the negative the question as to whether he had consulted or been examined or treated by any physician, practitioner or specialist in the past five years. In response to a question as to when and where he had previously been a patient in a hospital, Brimhall disclosed only that he had been in a hospital as a child to have his tonsils and adenoids removed, and in 1966 when he was hospitalized in a Salt Lake City hospital for thyroiditis. No mention was made of his hospitalization and treatment for alcoholism in Shadel Hospital.

The facts and circumstances surrounding the issuance of the policy here in question must be detailed inasmuch as the trial court in directing a verdict in effect ruled that in issuing the policy Equitable did not rely on the false answers given by Brimhall in his application and waived the matter or, alternatively, that Equitable was estopped from raising such as a defense. John Fairbanks, the president of Major, a publicly held corporation, was a former agent (from 1959 to 1962) for Equitable in Salt Lake City. In July 1969, Fairbanks was contacted by two agents of Equitable who sought to sell Major a "key man life insurance policy" on the lives of both Fairbanks and Brimhall. The agents testified that Fairbanks informed them that "he didn't know whether Brimhall could obtain insurance, standard * *," and that when asked why, Fairbanks stated that Brimhall had been an alcoholic, had been to a hospital in Seattle about a year or a year and a half before where he received the "cure" and that he had no problem at the moment. The response of the agents to this information was that "the only way to find out whether a policy would be issued and at what rate would be to submit applications to Equitable and to another company to determine what underwriting action might be taken." One of these agents reported the fact of Brimhall's history of alcoholism to Equitable's agency manager in Salt Lake City. The other agent on the day Brimhall was given a physical examination by Equitable's doctor alerted the doctor's office that Brimhall had a drinking problem and had been treated therefor in a Seattle hospital.

Brimhall's application was dated September 9, 1969, and in due time it was forwarded to Equitable's underwriting department in New York, N. Y. The decision to issue the policy in question was eventually made by the underwriting staff in New York City and the series of events which preceded Equitable's decision to issue the policy is of key importance.

The Medical Information Bureau, hereinafter referred to as MIB, is a central fact collecting agency to which many life insurance companies belong. Equitable, Phoenix Mutual Life Insurance Company, and Pacific Mutual Life Insurance Company (the significance of the latter two companies will be developed later), are all members of MIB. Whenever a member company receives information concerning an insurance...