New York Life Ins. Co. v. Miller

• Decision Date: 25 October 1934
• Docket Number: No. 9918.,9918.
• Citation: 97 ALR 562,73 F.2d 350
• Parties: NEW YORK LIFE INS. CO. v. MILLER.
• Court: U.S. Court of Appeals — Eighth Circuit

97 ALR 562, 73 F.2d 350 (1934)

NEW YORK LIFE INS. CO. v. MILLER.

No. 9918.

Circuit Court of Appeals, Eighth Circuit.

October 25, 1934.

Clifford V. Cox and Donald Evans, both of Des Moines, Iowa (Wm. F. Riley and John Inghram, both of Des Moines, Iowa, on the brief), for appellant.

L. H. Salinger, of Carroll, Iowa (Edward A. Wissler and Salinger, Reynolds & Meyers, all of Carroll, Iowa, on the brief), for appellee.

Before BOOTH, Circuit Judge, and MUNGER and BELL, District Judges.

MUNGER, District Judge.

The appellee had a verdict and judgment against the appellant in an action upon two policies of insurance. The parties will be referred to as they appeared in the trial court. The defendant's answer alleged that the assured had obtained the policies by making, knowingly, false representations, consisting of untrue answers to questions propounded to him in his written application for the policies and the same facts were also alleged in a cross-bill, with allegations that upon discovery of the falseness of the representations the defendant had tendered to plaintiff the premiums which it had collected and had notified her that it had elected to rescind the policies. The prayer asked for a decree of rescission of the policies and for general relief. In her replication to the cross-bill, the plaintiff admitted that the assured had made the answers to the questions, as alleged, but denied their falsity and materiality, and denied that the policy was issued in reliance upon them. It also alleged that the defendant had an adequate remedy at law. When the case was first reached for trial, the defendant moved that the case be set for trial before the court on the equitable issues tendered for trial in the cross-bill. This motion was overruled, and an exception noted. Thereafter a jury was impaneled in the case and following this the plaintiff was given leave to amend her replication, and in her amendment the plaintiff alleged, in substance, that the copies of the application which were attached to the policies, when the policies were delivered to the assured, were not copies, because illegible. It does not appear that a verdict was reached by the jury at that time, but, one year later, a trial was had to a jury, resulting in the verdict and judgment mentioned.

It is assigned as error that the court overruled the defendant's motion asking for a trial of the equitable issues set forth in the cross-bill before the trial of the legal issues. The trial court held that the defendant had an adequate remedy at law. The appellant's claim that this was erroneous finds support in the case of New York Life Ins. Co. v. Marotta (C. C. A.) 57 F.(2d) 1038, 1039. In that case it appeared that an action at law had been brought to recover upon two life insurance policies, after the death of the insured. The defendant's answer alleged that the policies were procured by means of false and fraudulent answers given by the insured to questions propounded to him in his application for the insurance, and prayed for a rescission and cancellation of the policies. The trial court made an order dismissing the equitable defenses because the defendant had an adequate remedy at law, but this order was reversed by the Court of Appeals. The reason for the reversal was stated in this language:

"There is a clearly marked difference in the elements of proof necessary to support fraud as a defense to an action at law, and fraud as a ground for the equitable relief of rescission and cancellation. This distinction the court did not appear to recognize. No misrepresentation is fraudulent at law, unless it is made with actual knowledge of its falsity, or under such circumstances that the law must necessarily impute such knowledge to the party, at the time when he makes it; but the courts have clearly and repeatedly recognized that there may be actual fraud in equity, without any feature of moral culpability.

"The person making an untrue statement without knowing or believing it to be untrue, and without any intent to deceive, may be chargeable with actual fraud in equity. Of course, whatever would be fraudulent at law is fraudulent in equity; but the equitable doctrine goes further, and includes instances of fraudulent misrepresentation which do not exist at law. At law there must be a showing, not only of the falsity of the allegation, but also knowledge by the applicant of such falsity. As a general rule, courts of equity may grant relief by way of rescission, abatement, or otherwise, although no fraudulent intent on the part of the person making the representation is shown, and even though he may be honestly misled as a result of misapprehension or mistake. All that need be shown in such case is that the representations were false, and actually misled the person to whom they were made. A very large number of cases sustaining these distinctions are set forth in the appellant's brief, and need not be cited here. These authorities sustain the distinction which exists between fraud at law and fraud in equity so clearly as to remove the question beyond the domain of controversy. While it pretty clearly appears from the record that a number of the material questions answered by the applicant were untrue, under all the circumstances, there being a conflict of evidence, we think the court was right in submitting the question to the jury as to the existence or nonexistence of legal fraud; particularly as to whether or not the applicant was suffering from, and had been treated for, gout, and, if so, whether he had knowledge of the fact that he was treated for that disease. But that is only a portion of the case. Either prior to the submission of the case to the jury, or afterwards, under the pleadings, it was the duty of the court to find the facts upon which the equitable defenses were based, and, if the findings showed that the applicant's answers were untrue and material, it was the duty of the court to apply to those facts the equitable principle that such false representations were fraudulent, and entitled the defendant to a rescission of the policies, even though the applicant believed the answers to be true when he made them."

In Derry v. Peek, 14 App. Cases, 337, 359, Lord Herschell stated the distinction in the elements of proof between actions at law for deceit, and suits in equity for rescission, as follows:

"This action is one which is commonly called an action of deceit, a mere common law action. This is the description of it given by Cotton, L. J. in delivering judgment. I think it important that it should be borne in mind that such an action differs essentially from one brought to obtain rescission of a contract on the ground of misrepresentation of a material fact. The principles which govern the two actions differ widely. Where rescission is claimed it is only necessary to prove that there was misrepresentation; then, however honestly it may have been made, however free from blame the person who made it, the contract, having been obtained by misrepresentation, cannot stand. In an action of deceit, on the contrary, it is not enough to establish misrepresentation alone; it is conceded on all hands that something more must be proved to cast liability upon the defendant, though it has been a matter of controversy what additional elements are requisite. I lay stress upon this because observations made by learned judges in actions for rescission have been cited and much relied upon at the bar by counsel for the respondent. Care must obviously be observed in applying the language used in relation to such actions to an action of deceit."

In McFerran v. Taylor, 3 Cranch, 270, 281, 2 L. Ed. 436, which was a suit for specific performance, Chief Justice Marshall said:

"He who sells property on a description given by himself, is bound to make good that description; and if it be untrue in a material point, although the variance be occasioned by a mistake, he must still remain liable for that variance."

The case of Smith v. Richards, 13 Pet. 26, 36, 10 L. Ed. 42, was a suit for rescission of a contract to purchase a tract of land, upon which was a gold mine, upon the ground, alleged by the purchaser as the plaintiff, that he had been induced to make the contract by false representations of the seller. The court said:

"It is an ancient and well-established principle, that whenever suppressio veri or suggestio falsi occur, and more especially both together, they afford a sufficient ground to set aside any release or conveyance. This ancient principle, thus expressed with so much sententious brevity, is laid down in terms somewhat more comprehensive, and having a direct bearing on the present case, by a modern text-writer on equity. In 1 Madd. Chan. 208, it is thus stated: If, indeed, a man, upon a treaty for any contract, make a false representation, whether knowingly or not, by means of which he puts the party bargaining under a mistake upon the terms of bargain, it is a fraud, and relievable in equity. The doctrine thus laid down is almost in the very words used by the chancellor, in the case of Neville v. Wilkinson, 1 Bro. C. C. 546, with the exception of the words, whether knowingly or not; and the part of the proposition embraced by these words, is founded upon the case of Ainslie v. Medlycott, 9 Ves. 21, which fully sustains Mr. Maddock. In this latter case, the following strong language is used: `No doubt, by a representation, a party may bind himself just as much as by an express covenant. If, knowingly, he represents what is not true, no doubt, he is bound. If, without knowing that it is not true, he takes upon himself to make a representation to another, upon the faith of which that other acts no doubt he is bound; though his mistake was perfectly innocent.'

"But the doctrine is laid down with more comprehensiveness and precision by a still more modern writer on equity; who gives us, in the form of distinct propositions, what he...