Mutual Life Ins. Co. of New York v. Chandler

• Decision Date: 25 January 1927
• Citation: 120 Or. 694,252 P. 559
• Parties: MUTUAL LIFE INS. CO. OF NEW YORK v. CHANDLER. [a1]
• Court: Oregon Supreme Court

252 P. 559

120 Or. 694

MUTUAL LIFE INS. CO. OF NEW YORK v. CHANDLER. ^[a1]

Supreme Court of Oregon

January 25, 1927

Appeal from Circuit Court, Multnomah County; Geo. G. Bingham, Judge.

Suit by the Mutual Life Insurance Company of New York against Helen E. Chandler. Decree for defendant, and plaintiff appeals. Reversed and rendered.

Wallace McCamant, of Portland (McCamant & Thompson and Ralph H. King, all of Portland, on brief), for appellant.

Leon W Behrman and Stanley Myers, both of Portland (Leon W. Behrman Stanley Myers, and Julius Cohn, all of Portland, on the brief), for respondent.

BURNETT C.J.

On January 18, 1922, the plaintiff issued a life insurance policy to Orvin E. Chandler, insuring his life in favor of his wife, the defendant here. It contained a clause reading thus:

"This policy shall be incontestable after two years from its date of issue, except for nonpayment of premiums."

The insured died by suicide January 18, 1923, and thereafter the defendant furnished proof of the death and the claimant's certificate in due time acording to the terms of the policy. The company refused payment of her claim, but she did not bring an action to recover upon the same. Lest it be foreclosed, however, by the lapse of two years from its date of issue to contest the policy, the plaintiff brought this suit to cancel it. All the premiums due by the terms of the policy had been paid. As a preliminary to bringing the suit the plaintiff tendered to the beneficiary the return of those premiums with interest thereon from the date of their payment, but she refused them and they were brought into court.

The basis of the plaintiff's contest is that in the application the assured was required to answer certain questions, and in the same application admittedly agreed as follows:

"All the following statements and answers and all those that I make to the company's medical examiner in continuation of this application are true and are offered to the company as an inducement to issue the proposed policy."

The interrogatories principally relied upon with their answers are these:

"17. What illnesses, diseases, injuries or surgical operations have you had since childhood? A. Influenza September, 1921, duration one week, mild, resulting in recovery; tonsilitis, one attack, September, 1921, one week duration, moderate, resulting in recovery, the tonsils being removed. Did not stop work.

"18. State every physician or practitioner who has prescribed for or treated you, or whom you have consulted in the past five years. A. None except Dr. Cathey, Morgan bldg., August 1921, tonsils removed.

"19. Have you stated in answer to question 17 all illnesses, diseases, injuries, or surgical operations which you have had since childhood? A. Yes.

"20. Have you stated in answer to question 18 every physician and practitioner consulted during the past five years and dates of consultation? A. Yes."

The making and delivery of the policy, the death of the assured, and the tender, refusal, and profert of the premiums are all admitted. Further answering, the defendant filed a cross-bill for the recovery of the amount she alleges is due on the policy. Her cross-bill was traversed by the reply.

It is provided in the policy as follows:

"This policy and the application herefor, copy of which is indorsed hereon or attached hereto, constitute the entire contract between the parties hereto. All statements made by the insured shall, in the absence of fraud, be deemed representations and not warranties, and no such statement of the insured shall avoid or be used in defense to a claim under this policy unless a copy of the application is indorsed on or attached to this policy when issued."

There is some dispute about whether the assured had tuberculosis, infection of the "hilus gland" (so-called in the complaint) and chronic cough, but it is uncontroverted in the testimony that almost coeval with, or at least a short time before the assured made application for a policy, he had consulted a physician other than the one named in the application and had taken treatment from him for tuberculosis.

One difference between a warranty and a representation is that the former is a part of the contract and must be strictly true, else the contract is avoided whether the statement therein warranted is essentially material to the risk or not. On the other hand, a representation must be material to the consideration of the risk, but if false, being material, it amounts to legal fraud and will avoid the contract. In the first, materiality is not necessarily essential, but in the latter it is indispensable. Buford v. New York Life Ins. Co., 5 Or. 334. If a representation is material to the risk and likewise false, it will be as potent for rescission of the contract embodied in the policy as if the untrue statement was in form a warranty. The remedy on the warranty proceeds upon the theory of breach of the contract constituting a defense against its enforcement. On the other hand, the cynosural feature of a false representation is fraud in the negotiations materially inducing the formation of the contract and furnishing ground for its recission or resistance to its enforcement. The issue in the instant case, therefore, depends upon whether an untrue answer to the question about his having consulted other physicians is material.

We may lay aside the question whether in fact the assured was afflicted with tuberculosis or inflammation of the "hilus gland" with the observation that the weight of authority is that there must be an element of willfulness or knowledge that the statement on that point is untrue in order to bind the assured. The reason of this is that many times a person may be afflicted with a disease, at least in its incipient stages, without being aware thereof and may answer in good faith that he has not had any such disease. The representation, however, that he has not consulted or been treated by any other physician is one peculiarly within his knowledge, and the law requires in such a case the utmost good faith and full disclosure in answer to direct inquiries on the part of one making an application for the policy.

It was held in Williams v. Mutual Life Ins. Co. of New York, 61 Mont. 66, 201 P. 320, that:

"Concealment by applicant for insurance of the fact that in the preceding year he consulted two doctors, and during several months was treated by one of them, held fraudulent."

In Lewis v. New York Life Ins. Co., 201 Mo.App. 48, 209 S.W. 625, a policy of this kind was involved, and it was there ruled that:

"Insured's statement in application for life policy that he had consulted but one physician when in fact he had consulted a number related to a matter forming the very basis or foundation of the contract, and worked a legal fraud on the company whether applicant intended to deceive or not."

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