Old Line Life Ins. Co. v. Superior Court

• Decision Date: 09 May 1991
• Docket Number: No. A051979,A051979
• Citation: 281 Cal.Rptr. 15,229 Cal.App.3d 1600
• Court: California Court of Appeals Court of Appeals
• Parties: OLD LINE LIFE INSURANCE COMPANY OF AMERICA, et al., Petitioners, v. The SUPERIOR COURT of Alameda County, Respondent; IMOGENE S. SILVERA TRUST, Real Party in Interest.

Page 15

281 Cal.Rptr. 15

229 Cal.App.3d 1600

OLD LINE LIFE INSURANCE COMPANY OF AMERICA, et al., Petitioners, v. The SUPERIOR COURT of Alameda County, Respondent;

IMOGENE S. SILVERA TRUST, Real Party in Interest.

No. A051979.

Court of Appeal, First District, Division 4, California.

May 9, 1991.

Review Denied July 31, 1991.

John C. Ferry, Samuel M. Zaif,

Kornblum, Ferry & Frye, San Francisco, for petitioners.

No appearance for respondent.

Roger L. Hartsell, Hartsell & Caselli, San Jose, for real party in interest.

ANDERSON, Presiding Justice.

Petitioners seek review of an order denying their motion for summary judgment. The action against petitioners arises from the rescission by petitioner, The Old Line Life Insurance Company (Old Line Life), of a life insurance policy. Rescission was based upon the undisputed fact that the insured misrepresented her history as a smoker on the insurance application. We conclude that the trial court erred in holding that there is a triable issue of fact as to the materiality of the misrepresentation. In addition, we reject the contention of real party in interest that Old Line Life waived its right to disclosure of the facts by its own failure to investigate.

I

On or about July 22, 1985, Old Line Life issued a life insurance policy in the amount of $250,000 to Imogene S. Silvera. On the application for the policy, Ms. Silvera indicated that she had not smoked cigarettes during the past 12 months. Ms. Silvera died as a result of breast cancer on December 6, 1986. Old Line Life's investigation of the claim for the insurance benefits revealed that Ms. Silvera had smoked between one and two packs of cigarettes a day for many years and had smoked during the 12 months preceding her application for insurance.

Petitioners moved for summary judgment in an action against them brought by the beneficiary of the policy, real party in interest herein. The motion was supported in part by the declarations of John Walthall, the insurance broker who sold the policy. Mr. Walthall stated that he had obtained Ms. Silvera's name from a list of persons who had recently become mortgagees. After Ms. Silvera returned a card he sent her, he telephoned her to discuss life insurance. During that conversation, Mr. Walthall asked her if she was a smoker. She asked why he was interested in knowing and he explained that the premiums were much lower for an applicant who does not smoke. She stated that she was a nonsmoker. Thereafter, Mr. Walthall met with Ms. Silvera in her home and again asked if she was a smoker and, in answer to her questioning, told her that rates for a smoker were approximately twice that for a nonsmoker. He also told her that if she misrepresented that she was a nonsmoker, the policy would be void. During that visit, an application was filled out. Ms. Silvera answered no to the question, "Has any person proposed for insurance ... smoked cigarettes during the past 12 months?" and to the question, "[d]oes any person proposed for insurance currently smoke pipes or cigars?" Mr. Walthall recorded the answers. He also asked Ms. Silvera to read and fill out a "Non-Smoking Declaration." She did so indicating that she had not smoked cigarettes during the past 12 months. In completing the line which read: "I do ____ do not ____ currently smoke pipes or cigars," Ms. Silvera placed a check after the phrase "I do." Mr. Walthall stated in his declaration that he did not believe the "Non-Smoking Declaration" had been sent to Old Line Life because the declaration was not necessary to the application.

The declaration of Donald Lotzer, Senior Vice President-Underwriting for Old Line Life, was also filed in support of the motion for summary judgment. Mr. Lotzer stated that Old Line Life would not have issued the subject policy had it been aware that Ms. Silvera had smoked cigarettes during the 12 months preceding the application date. Rather, it might have issued a smoker's insurance policy, the premium for which is about twice that of the policy issued. Mr. Lotzer stated that the nonsmoking declaration was not provided to Old Line Life until after the death of Ms. Silvera and went on to explain that the question of whether an applicant currently smokes pipes or cigars is not, by itself, material to Old Line Life. "An applicant for insurance who smokes only pipes or cigars is eligible for a nonsmoker's insurance policy. Only persons who have smoked cigarettes during the 12 months preceeding [sic] the date of application are ineligible for a nonsmoker's insurance policy. The purpose for asking the question whether pipes or cigars are smoked is to avoid needless suspicion of an applicant who represents that he has not smoked cigarettes during the past 12 months, but for whom a urine or blood test indicates the presence of tobacco by-products."

In support of their opposition to the motion for summary judgment, real party attached the declaration of Andrew F. Whitman, a consultant on insurance and risk management practice. After setting forth the information contained in the application and statements of Walthall and Lotzer regarding company practice, Mr. Whitman concluded that Old Line Life had been free to attain more information, that Old Line Life waited until after Ms. Silvera died to do proper investigation and underwriting reports, that "they were on notice that she smoked by the non-smoking declaration given to the agent" and that Old Line Life should not be able to re-underwrite Ms. Silvera's application after her death.

II

Sections 331 and 359 of the Insurance Code provide that material misrepresentations or concealments in an application for insurance are grounds for rescission of the policy. Section 334 specifies that "[m]ateriality is to be determined ... solely by the probable and reasonable influence of the facts upon the party to whom the communication is due...." "The fact that the insurer has demanded answers to specific questions in an application for insurance is in itself usually sufficient to establish materiality as a matter of law." (Thompson v. Occidental Life Ins. Co. (1973) 9 Cal.3d 904, 915-916, 109 Cal.Rptr. 473, 513 P.2d 353.)

"Other cases, however, inquire into the nature of the information withheld, and the likely practice of the insurance company had the concealed facts been truthfully disclosed. [Citation.] The test is the effect which truthful answers would have had upon the insurer." (Taylor v. Sentry Life Ins. Co. (9th Cir.1984) 729 F.2d 652, 655; see also Imperial Casualty & Indemnity Co. v. Sogomonian (1988) 198 Cal.App.3d 169, 181, 243 Cal.Rptr. 639.)

Real party contends that there is a triable issue of fact as to whether Old Line Life would have issued a nonsmoking policy had the company known the true facts of Ms. Silvera's smoking habits. Mr. Lotzer testified that the company would not have done so. However, real parties contend that the record is replete with instances by which Mr. Lotzer was contradicted. None of the citations to the record, however, contradicts Mr. Lotzer's assertion that a nonsmoking policy would not be issued to a cigarette smoker.

Section 359 of the California Insurance Code provides: "If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time the representation becomes false." "[An insurance company] has the unquestioned right to select those whom it will insure and to rely upon him who would be insured for such information as it desires as a basis for its determination to the end that a wise discrimination may be exercised in selecting its risks." (Robinson v. Occidental Life Ins. Co. (1955) 131 Cal.App.2d 581, 586, 281 P.2d 39.)

"The most generally accepted test of materiality is whether or not the matter misstated could reasonably be considered material in affecting the insurer's decision as to whether or not to enter into the contract, in estimating the degree or character of the risk, or in fixing the premium rate thereon." (12a Appleman, Insurance Law & Practice (1981) § 7294, p. 368, fn. omitted, emphasis added; see also 7 Couch on Insurance (2d ed. 1985) § 35:79, p. 127.) Not every jurisdiction, however, has accepted as material a misrepresentation that affected only the premium. (See Massachusetts Mut. v. Manzo (1989) 234 N.J.Super. 266, 560 A.2d 1215, 1232; Harrington v. Aetna Casualty and Surety Company (Tex.Civ.App.1972) 489 S.W.2d 171.) The California Supreme Court in dicta has accepted the definition quoted above and has included the fixing of premiums within its definition of materiality. In Holz Rubber Co., Inc. v. American Star Ins. Co. (1975) 14 Cal.3d 45, 61, 120 Cal.Rptr. 415, 533 P.2d 1055, the court wrote: "Materiality is determined by the probable and reasonable effect that truthful disclosure would have had upon the insurer in determining the advantages of the proposed contract. (Citations.) Essentially, we must decide whether the insurer was misled into accepting the risk or fixing the premium of insurance. (Citations.)"

The only California case found that allowed rescission because of a misrepresentation material only to the premium is Bennett v. Northwestern Nat. Ins. Co. (1927) 84 Cal.App. 130, 136, 257 P. 586. There the insured brought an action on a policy covering his automobile for loss due to fire or theft. In affirming a defense verdict, the court wrote: "The evidence shows without contradiction that a higher premium rate was charged for insurance on 1920 models than on those of the year 1921, and in view of the rule that a misrepresentation is material which would affect the rate of premium or influence the insurer in accepting or rejecting the risk [citations], the model of the car was a fact material to the risk and the warranty if untrue would avoid the policy."

Apparently, there has been no California case exploring the materiality of misrepresentations regarding smoking history on...