Mutual Benefit Health & Acc. Ass'n v. Smith

• Decision Date: 18 December 1934
• Parties: Mutual Benefit Health & Accident Association v. Smith.
• Court: United States State Supreme Court — District of Kentucky

Page 288

257 Ky. 288

Mutual Benefit Health & Accident Association v. Smith.

Court of Appeals of Kentucky.

Decided December 18, 1934.

1. Insurance. — Evidence of statements by insurance broker at time of application for health and accident policy that applicant reporting previous claims need not give any except last one held to estop insurer to rely on misrepresentations of insured concerning collection of other claims.

2. Insurance. — Knowledge of soliciting agent taking application for insurance and his acts of waiver are attributable to company he is representing.

3. Insurance. — Insurance company held responsible for act of waiver on part of broker selling insurance where company's agent shared commission but broker was never licensed or authorized by company to represent it (Ky. Stats., sec. 633).

4. Evidence. — In action on health and accident policy defended on ground of insured's misrepresentations in application, deposition of officer of another company that he had paid certain claim of insured on account of myocarditis, if offered to establish fact that insured had once been afflicted with heart disease, held inadmissible as hearsay, since writing was best evidence.

5. Trial. — In action on health and accident policy, court properly refused to instruct on defense of insured's misrepresentation in application that he had never had heart disease, where there was no evidence tending to establish untruth of such representation.

6. Insurance. — In action on health and accident policy, burden was on defendant to show insured's misrepresentation in application as to previous cancellation or rejection of insurance policies.

7. Insurance. — Evidence that insured had had other previous insurance of same character canceled, contrary to his representation in application, and that present policy would not have been issued had truth been disclosed held to render judgment for insured erroneous.

8. Insurance. — If by substantial falsity of material answers in application for insurance insurer was induced to issue policy, it may avoid liability irrespective of insured's knowledge that they were untrue.

9. Insurance. — False representations in application for insurance, if fraudulently made, will defeat recovery under policy regardless of their materiality.

Appeal from McCracken Circuit Court.

WM. MARSHALL BULLITT, BRUCE & BULLITT, ROBERT LEE BLACKWELL and WILLIAM F. McMURRAY, Jr., for appellant.

EATON & BOYD for appellee.

OPINION OF THE COURT BY STANLEY, COMMISSIONER.

Reversing.

The appeal is from a judgment in favor of Dr. Sydney Smith, a dentist of Paducah, for the accruements and right to recover future monthly indemnity of $100 of the appellant under a health and accident insurance policy on account of total disability resulting from pernicious anemia. The principal point of defense being pressed on appeal is that in his application the insured knowingly made material misrepresentations. The response was and is a denial and plea of estoppel by waiver of the agent who took the application. Over against this is the contention of the company that such person was not its agent, and, in any event, that the alleged waiver embraced only one of several misrepresentations. Other questions raised appear in the course of the opinion.

The following questions and answers contained in the application are involved:

"Q. Has any application ever made by you for life, accident or health insurance been declined?

A. No.

"Q. Has any life, accident or health policy issued to you been cancelled? A. Accident policy cancelled but reinstated.

"Q. Have you ever made claim for or received indemnity on account of any injury or illness; if so, give companies or associations, dates, amounts, and causes? A. Yes, Reliance Life April or May 1928.

"Q. Have you ever had any of the following diseases, heart disease? A. No."

The application was taken and the answers written by Jessie O. Rutter. The appellant's authorized local agent was L.T. Lindsey. For three or four months he had placed application blanks in the hands of Rutter and several other men that they might solicit business for him for a division of his commissions. The practice was for Lindsey to approve the applications by his own signature and transmit them to the proper office of the company for its acceptance or rejection. These brokers, as such subagents are called, and their acts were unknown to the company and its general agents. Dr. Smith's application was delivered to Lindsey by Rutter, and it appears that he afterward had a talk with the applicant and suggested a change in the kind of policy for which he had applied. Lindsey testified that there was another application filled out by Dr. Smith, but his testimony is so extremely ambiguous that it cannot be determined just what did occur and whether it was the application filled out by Rutter or another that was sent to the company to become the basis of the policy. Considering the testimony in connection with an inspection of the original application, it would seem from the erasures thereon merely that the class of policy was changed on the application taken by Rutter. At any rate, this application contains the answers as copied above.

Upon interrogation by his own attorney, Dr. Smith denied having made or been paid any of five certain claims under a policy issued to him by the United States Fidelity & Guaranty Company. The defendant offered to prove by an officer of that company that it had paid those claims during the period from March 10, 1913, to May 19, 1924, but the court sustained the plaintiff's objection and refused an instruction on the plea.

Dr. Smith's evidence in relation to the matter of estoppel or waiver is that in answering the question as to previous claims for indemnity, he told Rutter "that I had insurance in the Reliance and that I had others and he said that was all I need to give." And further:

"Q. Did you or not at this time tell him you had made claims in the past and he told you it was not necessary to give any except the last one? A. Yes.

"Q. What did he tell you and what did you tell him? A. I gave him the Reliance that is all."

There was no contradictory evidence. In our opinion this statement is not sufficient to cover the representations that no insurance application had ever been declined or policy canceled. It is sufficient to work an estoppel against the company to rely upon misrepresentations as to having never made a claim for or received indemnity on account of an injury or sickness except against the Reliance Insurance Company providing Rutter is to be regarded as the agent of the company.

The established rule in this jurisdiction is that knowledge of a soliciting agent taking an application for insurance and his acts of waiver are attributable to the company he is representing. Continental Cas. Co. v. Linn, 226 Ky. 328, 10 S.W. (2d) 1079; Provident Life & Accident Ins. Co. v. Parks, 238 Ky. 518, 38 S.W. (2d) 446; Metropolitan Life Ins. Co. v. Trunick's Adm'r, 246 Ky. 240, 54 S.W. (2d) 917; Sun Indemnity Co. v. Hulcer, 251 Ky. 484, 65 S.W. (2d) 471. So much is conceded by the appellant. But it submits that it cannot be bound by the waiver of Rutter, who had never been licensed or authorized by the company to represent it and who was in fact unknown to the general agents and other officers of the company. It is proved in this record that the brokerage of insurance in this manner is a common practice. And so it appears from the reported cases. The authorities generally are not in accord as to the relationship of such a broker and the company he purports to represent and for whom he solicits business.

It is said in 14 R.C.L. 1157:

"It is generally held that the knowledge of, or notice to, an insurance broker is not imputable to an insurer from which he procures a policy, even though the insurer's agents share their commissions with him. And a provision in a statute governing the relations of foreign insurance companies to the state, and requiring certain things to be done by agents representing them, that the term `agent' shall include `any person who shall in any manner aid in transacting insurance business' of any company not incorporated by the laws of the state, does not make a broker procuring insurance for a property owner the agent of the insurer so as to bind it with his knowledge. However, there is authority to the effect that the knowledge of an agent soliciting insurance who turns over the application to a company which he does not represent, which issues and delivers a policy to him, waives a breach, as by accepting the application it recognizes him as its agent."

The broad distinctions are thus given in Cooley's Brief on Insurance, pages 3992, 3993:

"A mere insurance broker who procures a policy from an insurer for an applicant is not such an agent for the insurer as to have power to waive a forfeiture arising out of a breach of a condition of the policy procured by him. * * * "If an insurance agent to whom an application for insurance is made procures the policy from a company for which he is not the regularly appointed agent, he will, for that policy, be regarded as the agent of the company issuing it, so that the latter will be bound by his acts and statements at the time of issuing the policy, just the same as if he was its regularly appointed agent."

See Annotations, 38 L.R.A. (N.S.) 634.

We are among those courts holding the company responsible for any act of waiver on the part of a broker under circumstances like those presented by this record.

Section 633, Ky. Stats., declares that:

"Whoever solicits and receives applications for insurance on behalf of any insurance company, or transmits for any person other than himself an application for insurance, or a policy of insurance to or from such company, or advertises that he will receive or transmit the same, or who shall, in any manner, directly or indirectly, aid or assist in...