Murray v. Montgomery Ward Life Ins. Co.

• Decision Date: 06 January 1977
• Docket Number: No. 76--054,76--054
• Citation: 38 Colo.App. 498,563 P.2d 20
• Parties: Bill F. MURRAY, Plaintiff-Appellant, v. MONTGOMERY WARD LIFE INSURANCE COMPANY, Defendant-Appellee. . II
• Court: Colorado Court of Appeals

Page 20

563 P.2d 20

38 Colo.App. 498

Bill F. MURRAY, Plaintiff-Appellant, v. MONTGOMERY WARD LIFE INSURANCE COMPANY, Defendant-Appellee.

No. 76--054.

Colorado Court of Appeals, Div. II.

Jan. 6, 1977.

As Modified On Denial of Rehearing Feb. 3, 1977.

Certiorari Granted April 25, 1977.

Jenkins & Littlejohn, P.C., Joseph P. Jenkins, Estes Park, for plaintiff-appellant.

Anderson, Dressel & Woodard, William F. Dressel, Fort Collins, for defendant-appellee.

PIERCE, Judge.

Plaintiff, Bill Murray, sued defendant seeking recovery under a life insurance policy issued by defendant insuring plaintiff's deceased wife, Betty. A jury found in favor of the defendant. We affirm.

The life insurance policy was issued under the following circumstances. In October 1972, Betty Murray fell from a horse, incurring serious skull and brain injuries. She underwent a series of surgical operations, a number of physicians taking part in her treatment. She was later moved to another hospital for further treatment and therapy. After her release from the second hospital in January 1973, she continued to receive physical therapy for treatment of numerous disabilities incurred as a result of the accident. These included the inability to talk, and difficulty in controlling her motor reflexes. She still suffered from these disabilities at death.

In February 1973, upon application by plaintiff, defendant issued a hospital income insurance policy to plaintiff covering him and his spouse. Betty Murray was subsequently hospitalized on several occasions, for a lung infection and for therapy and review of the original surgery. Claims under the hospital income policy were made by plaintiff and paid by defendant based upon these hospitalizations; information regarding decedent's head injury and physical condition was thereby submitted to defendant.

Later, during the fall of 1973, plaintiff received in the mail a life insurance application from defendant, which was completed and sent to defendant with decedent as the named insured. This application was purportedly prepared and signed by decedent with plaintiff's help; however, the authenticity of decedent's signature and the extent of her participation in the preparation of the application were questioned by defendant at trial. The application bore a negative response to a question concerning the occurrence of any 'disease or disorder' of the lungs. To another question concerning whether any family member had consulted or been examined by any physician or had undergone x-rays, an affirmative answer was indicated as to deceased, 'x-rays' being circled and the date of the fall indicated. The name and address of the principal treating physician was written in a space for 'Name and Address of Each Physician, Hospital, Etc.' No hospitals were listed, and no other doctors were shown. As the reason and results of treatment, the application stated: 'Head injury from fall--recovered.'

The life insurance policy under which plaintiff claims was thereafter issued in January 1974. Decedent was rehospitalized in February 1974 for installation of an acrylic plate in her skull at the situs of her earlier injury. As a result of this operation, an infection developed ultimately causing her death in April 1974.

Plaintiff filed a claim which defendant refused to pay, offering return of the single premium paid. This litigation followed.

Plaintiff's principal contentions are that the trial court erred in denying plaintiff's motion for a directed verdict, and in refusing to enter judgment in his favor notwithstanding the jury verdict. He premises these contentions on defendant's alleged failure to establish the legal prerequisites for rescission grounded on fraudulent misrepresentations. In the alternative, plaintiff contends that, even if defendant's evidence on fraud was sufficient to warrant submission of that issue to the jury, the issuance of the policy, as a matter of law, constituted waiver by defendant of the fraud defense. None of these contentions is persuasive.

The evidence established that numerous factual matters were omitted from the application. It was undisputed that these omissions were actually material to the insurer's risk, and were fully within the scope of questions contained in the application. Wade v. Olinger Life Insurance Co., Colo., 560 P.2d 446 (announced January 31, 1977). Hence, these omissions alone warranted submission of the fraud issue to the jury. See Fallis v. Zurich Insurance Co., 28 Colo.App. 235, 472 P.2d 174 (1970).

However, a jury question was also presented with regard to plaintiff's misleading characterization of decedent's treatment as 'x-rays' and her present condition as 'recovered.' We agree with plaintiff that the ambiguity of answers to questions contained in insurance applications are to be construed in favor of the insured. See Olinger Mutual Benefit Assoc. v. Christy, 139 Colo. 425, 342 P.2d 1000 (1959). Nevertheless, a factfinder might well conclude here that the application contained knowingly false statements which materially affected the insurer's risk. Hollinger v. Mutual Benefit Life Insurance Co., Colo., 560 P.2d 824 (announced January 31, 1977); Wade v. Olinger Life Insurance Co., supra. See also Gomogda v. Prudential Insurance Co., 31 Colo.App. 154, 501 P.2d 756 (1972). Thus, the trial court acted properly both in submitting the fraud issue to the jury and refusing to set aside the resulting verdict.

Plaintiff further contends that defendant waived its right to avoid liability due to the issuance of the policy despite its possession of information regarding decedent's medical history which it received from the claims filed under the hospitalization policy. We do not agree.

Testimony established that the life insurance policy was issued solely in reliance on the statements contained in the application, in ignorance of the omissions and misrepresentations therein, and would not have been issued had the true facts been known. Although both policies were billed to plaintiff's account, only the hospitalization policy was issued to the plaintiff. His wife was the named insured under the life insurance policy. It was further established that defendant had no cross-index system which would have put the issuing company employees on notice as to the misrepresentations in the life insurance application.

Waiver of legal rights can occur when a known entitlement is voluntarily relinquished with the intent of abandonment. Millage v. Spahn, 115 Colo. 444, 175 P.2d 982 (1946). See also Zimbelman v. Hartford Fire Insurance Co., 92 Colo. 536, 22 P.2d 866 (1933). However, the evidence in this case did not establish waiver as a matter of law. Both the extent to which defendant was chargeable with knowledge of the truth and the nature of its intent in issuing the policy presented disputed questions of fact. The case was properly submitted to the jury, without objection by plaintiff, solely on the issue of whether defendant, without resorting to further inquiry, acted reasonably in issuing the policy in reliance on the statements contained in the application. Hollinger v. Mutual Benefit Life Insurance Co., supra. See also ...