Munger v. Equitable Life Assur. Soc.

• Decision Date: 31 March 1933
• Docket Number: No. 8530.,8530.
• Citation: 2 F. Supp. 914
• Parties: MUNGER et al. v. EQUITABLE LIFE ASSUR. SOC. OF THE UNITED STATES.
• Court: U.S. District Court — Western District of Missouri

2 F. Supp. 914

MUNGER et al. v. EQUITABLE LIFE ASSUR. SOC. OF THE UNITED STATES.

No. 8530.

District Court, W. D. Missouri, W. D.

March 31, 1933.

William S. Hogsett, of Kansas City, Mo. (Hogsett, Smith, Murray & Trippe, of Kansas City, Mo., on the brief), for plaintiffs.

William C. Michaels, of Kansas City, Mo. (Alexander & Green, of New York City, and Meservey, Michaels, Blackmar, Newkirk & Eager, of Kansas City, Mo., on the brief), for defendant.

OTIS, District Judge.

Memorandum and Order on Defendant's Demurrer to the Petition.

Defendant has demurred to the petition in this case on the ground, among others, that it does not state facts sufficient to constitute a cause of action in plaintiffs against defendant.

The plaintiffs are the executors of the estate of George H. Bunting, deceased. The petition alleges that in February, 1932, Bunting applied to the defendant, through one of its agents, for a contract of insurance upon his life in the amount of $25,000, that at the time of his application he made an advance payment of the required premium (first by a note and thereafter by a check taking up the note, which check was cashed by the defendant), that he underwent a medical examination, that he passed that medical examination satisfactorily, that he was an insurable risk, that while his application was pending and had not been acted on he was advised by the soliciting agent who had taken his application that there was some difficulty at the home office which was delaying action, but that he hoped to be able later to hand to Bunting the contract he had applied for. The defendant, so far as Bunting was aware or had been advised, had neither accepted nor rejected his application when on April 7, 1932, he was fatally injured in an automobile accident from which he died on the same day. After his death notice thereof was given to the defendant by Bunting's son, who was then notified by the defendant that the application had been declined March 1, 1932. It is alleged in the petition that the defendant owed a duty to Bunting either to accept or reject his application without unnecessary delay and within a reasonable time; that the defendant negligently violated this duty, and thereupon became liable in damages to Bunting, and upon his death to plaintiffs.

It is alleged also in the petition that the defendant fraudulently cashed the premium check given it by Bunting, fraudulently kept and retained the premium represented by the check, fraudulently deprived him of the use and benefit thereof, fraudulently masked from him the rejection of his application, and fraudulently led him to believe that his application had been accepted and was in force. The word "fraudulently," several times repeated as here indicated, was added to the petition by amendment before the argument on the demurrer.

Whether the petition states facts sufficient to constitute a cause of action in plaintiffs is the subject of this opinion.

1. There is no contention by plaintiffs that the defendant is under any contractual liability arising from its failure either to accept or reject the application within a reasonable time. That is not the theory of the petition. The theory is that an unreasonable delay is a breach of duty owing an applicant for insurance which subjects the company to liability in tort. The theory is supported by a number of opinions in decided cases, none of which, however, is controlling here. The cases cited are Duffie v. Bankers' Life Ass'n, 160 Iowa, 19, 139 N. W. 1087, 1090, 46 L. R. A. (N. S.) 25; Behnke v. Standard Accident Ins. Co. (7 C. C. A.) 41 F.(2d) 696; Strand v. Bankers' Life Ins. Co., 115 Neb. 357, 213 N. W. 349, 350; Kukuska v. Insurance Co., 204 Wis. 166, 235 N. W. 403, 405; American Life Ins. Co. v. Nabors (Tex. Civ. App.) 48 S. W.(2d) 459; Columbian National Life Ins. Co. v. Lemmons, 96 Okl. 228, 222 P. 255; De Ford v. New York Life Ins. Co., 75 Colo. 146, 224 P. 1049; Dyer v. Missouri State Life Ins. Co., 132 Wash. 378, 232 P. 346; Fox v. Life Ins. Co., 185 N. C. 121, 116 S. E. 226; Carter v. Life Ins. Co., 11 Hawaii, 69.

I have read and studied each of the cases plaintiffs have cited, and others. Most of them, so far as they deal with the present question, were written with scissors and paste. They but say, "We have said so before," or, "So elsewhere has the ruling been." Such cases are of little value. The Supreme Court of the United States has not spoken on this subject save in dictum. The Court of Appeals for the Eighth Circuit has not spoken. For us the question is a new one — there is no precedent to follow — and, being new, must be decided in the light of principle and reason, not on a show of hands.

The theory of tort liability in a case like this is relatively novel in the law. Insurance contracts have been written for centuries, but only lately was it conceived that they are so different from other contracts as that one could acquire rights against an insurance company merely because the company delayed in accepting an offer to enter into a contract. There is natural curiosity to know what are the grounds on which this heterodoxy rests.

Nothing is more elementary than that there cannot be a tort liability unless there has been a legal duty which has been breached to one's injury.

Only four of the cases relied on by plaintiffs undertake to demonstrate the essential pre-existing legal duty. And what, according to them, is the duty basis for the asserted liability in tort? The answer is best and most fairly put in brief but exact quotations.

The Court of Hawaii (it leads the procession) said (Carter v. Life Ins. Co., supra): "Having received the application, having accepted the trust, he the insurance agent was, under the circumstances, bound either to forward it or to return it within a reasonable time. * * * Those engaged in the insurance business * * * should not mislead an applicant into believing that they would at least act upon his application and so cause him to delay applying to some other company. To hold the company liable in this case is in effect to hold, as equity holds, that that which ought to have been done was done."

Said the Supreme Court of Iowa (Duffie v. Bankers' Life Ass'n, supra): "This view that there can be no negligence for a contract of insurance by reason of delay overlooks the fact that the defendant holds and is acting under a franchise from the state. The legislative policy, in granting this, proceeds on the theory that chartering such association is in the interest of the public to the end that indemnity on specific contingencies shall be provided those who are eligible and desire it and for their protection the state regulates, inspects, and supervises their business. Having solicited applications for insurance, and having so obtained them and received payment of the fees or premiums exacted, they are bound either to furnish the indemnity the state has authorized them to furnish or decline so to do within such reasonable time as will enable them to act intelligently and advisedly thereon or suffer the consequences flowing from their neglect so to do. Otherwise the applicant is unduly delayed in obtaining the insurance he desires, and for which the law has afforded the opportunity, and which the insurer impliedly has promised, if conditions are satisfactory. Moreover, policies or certificates of insurance ordinarily are dated as of the day the application is signed, and, aside from other considerations, the insurer should not be permitted to unduly prolong the period for which it is exacting the payment of premium without incurring risk."

Said the Supreme Court of Wisconsin (Kukuska v. Home Mutual Hail-Tornado Ins. Company, supra):

"In cases like this, the duty springs from the consensual acts of the parties and the surrounding circumstances rather than any specific provision of law applicable to the holder of the franchise as such.

"* * * By the soliciting, making and receiving of the application, the parties had entered into some kind of a consensual relationship. By the terms of the application it was not to ripen into a contract until the application was approved. But for this language in the application, it might be held that the failure to act within a reasonable time resulted in approval. * * *

"Under such circumstances, having in view the nature of the risk against which the insurer seeks protection, is there not a duty upon the insurer to act upon the application within a reasonable time? Can the insurer, having pre-empted the field, retain control of the situation and the applicant's funds indefinitely? Does not the very nature of the transaction impose upon the insurer a duty to act? It is considered that there is a duty. * * *"

Said the Supreme Court of Nebraska (Strand v. Bankers' Life Ins. Co., supra): "The view that there is a remedy based on negligence seems to be founded on reason and justice. The receipt in the present case shows on its face that the insurance company, without assuming any insurance risk, accepted conditionally the first annual premium. The transaction makes the insurance company applicant's trustee for the return of the premium if the application is rejected and for the unconditional acceptance of the premium if the application is approved and the policy delivered. In connection with the application the receipt implies time for a proper investigation of the risk under consideration. Good faith and fairness of both parties are required in negotiations for insurance. The retaining of the money of the applicant beyond a reasonable time would deprive him of its possession and use during the delay. The use of money or interest thereon is a valuable right. Negligent or inexcusable delay on the part of a trustee is a wrong, if it deprives the beneficiary of the use of a trust fund which has served its purpose as such. * * * In addition, an unreasonable delay and the retention of an unearned premium might deprive an...