Oster v. Riley

• Decision Date: 31 March 1967
• Docket Number: No. 40042,40042
• Citation: 276 Minn. 274,150 N.W.2d 43
• Parties: Margaret OSTER, widow of James R. Oster, deceased employe, Respondent, v. James A. RILEY dba Riley Construction Company, Respondent, Aetna Insurance Company, Relator.
• Court: Minnesota Supreme Court

Page 43

150 N.W.2d 43

276 Minn. 274

Margaret OSTER, widow of James R. Oster, deceased employe Respondent, v. James A. RILEY dba Riley Construction Company, Respondent Aetna Insurance Company, Relator.

No. 40042.

Supreme Court of Minnesota.

March 31, 1967.

Rehearing Denied May 3, 1967.

Syllabus by the Court

In the absence of fraud in the procurement of an antedated insurance policy, the insurer is on the risk for a loss occurring prior to the time the policy came into existence, but after the hour at which the policy, by its terms, took effect.

Firestone, Fink, Krawetz, Miley & O'Neill by James P. Miley, St. Paul, for relator.

Hansen & Hazen, St. Paul, McMenomy & Hertogs, Hastings, for Oster.

Beaudoin & Pavlak, and James W. Kenney, South St. Paul, for Riley Const. Co.

OPINION

FRANK T. GALLAGHER, Justice.

Certiorari to review a decision of the Industrial Commission affirming, as modified, the findings and determinations of its referee awarding the petitioner compensation and directing payment of medical, hospital, and funeral bills.

The petitioner, Margaret Oster, widow of James Oster, filed a petition with the Industrial Commission for compensation and benefits under the Workmen's Compensation Law. It is conceded that the death of Oster resulted from a personal injury arising out of and in the course of his employment. The sole issue is whether the workmen's compensation insurance policy under which the widow claims was inforce at the time of her husband's collapse.

The undisputed facts are these: On September 2, 1961, employer-respondent James Riley, who was about to undertake his first independent construction job, conferred with Murry Krug, an agent who had sold insurance to Riley's family for many years. Riley applied at that time for manufacturers' and contractors' coverage, but declined to order workmen's compensation insurance because he did not expect to have any employees for a long time. It was understood that as soon as he had someone on his payroll he would apply for a workmen's compensation policy.

On the evening of Thursday, September 7, 1961, Riley made arrangements to hire Oster, who reported for work at 9 a.m. the following Monday, September 11, at a lot where Riley was building a house. Oster worked under Riley's supervision until shortly after 10 o'clock that morning. At about 10:30 a.m. Riley found him lying on the ground and in distress. Riley and another man then took Oster to a nearby hospital, where his arrival was recorded at 11:10 a.m. Oster died 2 days later of an acute coronary thrombosis precipitated by the stress of physical work.

Riley reported Oster's illness and hospitalization to Krug on September 12, 1961. On September 18, one week after the accident, Krug mailed to Riley a policy of workmen's compensation insurance effective at 12:01 a.m., September 11. The policy had been sent to Krug by relator, Aetna Insurance Company.

I.

Much of the testimony at the Industrial Commission hearing concerned the time at which Riley called Krug's insurance agency to order workmen's compensation insurance. Aetna contends that Riley did not place the order until after he knew that Oster had collapsed on the job. Riley testified consistently that he made the call between 9:45 and 10 a.m., September 11, 30 to 45 minutes before he discovered Oster's collapse ; that Krug was not in; that he told Krug's secretary, Mary Elverhoy, that he wanted the insurance to take effect that day; and that Miss Elverhoy said she would talk to Krug. The latter testified that he called in to his office at about 12:15 p.m. that day and told Miss Elverhoy to order the policy Riley had requested from an underwriter at Aetna Insurance Company. Aetna was one of seven companies which Krug could bind for workmen's compensation insurance. Miss Elverhoy testified that she called the underwriter at about 1:30 p.m. that day. She also stated that Riley did not call her at Krug's office until 11 o'clock that morning at the earliest, which, if correct, would be half an hour after he discovered Oster's collapse.

The determination of the factual issue depends on the credibility of the testimony of James Riley and Mary Elverhoy. The referee, whose findings were affirmed by the commission, accepted Riley's version. Although the sequence of events related by Riley may raise some doubts, we cannot say that the commission's conclusion finds no support in the record. ¹ The other issues raised by Aetna must therefore be considered in the light of the finding that Riley called Krug's office before discovering Oster's collapse.

II.

By its terms, the policy under consideration here became effective at 12.01 a.m. on September 11, some 10 hours before the onset of Oster's disability. If the policy did not cover the accident that morning, it must be for some reason to be found outside the four corners of the document. In the absence of fraud, the parol evidence rule precludes the introduction of evidence to show a variation in the written contract. ²

Aetna cites Rommel v. New Brunswick Fire Ins. Co., 214 Minn. 251, 8 N.W.2d 28, for the proposition that 'a binding contract of insurance does not become effective until one of the possible insurers is selected by the agent.' We held in that case (214 Minn. 252, 8 N.W.2d 30):

'* * * (W)here an application for insurance is made to an agent who represents several companies, no contract of insurance is Engendered between the insured and any particular company until such company is designated by the agent * * *.' (Italics supplied.)

In the instant case there was no contract until 12:15 p.m. on September 11, when Krug selected Aetna from among seven possible insurers. But when he did select Aetna, a binding contract resulted--a contract which by its terms became effective at 12:01 a.m. that day. The flaw in Aetna's argument is its failure to distinguish between the time the policy went into Existence and the time it went into Effect. The first event is governed by the acts of the parties, the second by the terms of the policy.

Aetna concedes that in the absence of fraud the legality of predating and antedating a policy of insurance is well established. ³ We stated in Wales v. New York Bowery Fire Ins. Co., 37 Minn. 106, 109, 33 N.W. 322, 323, that if at the time the application for insurance was made both parties were ignorant of a prior loss, 'it would have been competent for them, by antedating the policy, to have made it retroactive.' The application of this principle to workmen's compensation is discussed in 2 Larson, Workmen's Compensation Law, § 92.20:

'The only situation in which the insurance would be defeated for all purposes by act of the employer is that in which the insurance is absolutely void Ab initio, rather than voidable; this would occur if the employer attempted to insure against an accident that had already occurred, by pre-dating the insurance and fraudulently concealing the known existence of an injury within the period so covered. But if the happening of the accident during the period covered by the antedated policy was unknown to both parties, the insurance carrier would be liable, since such liability does not offend the basic principle that there cannot be insurance against a known loss.' (Italics supplied.)

See, Matter of Weydman v. Niagara Boiler Works, 264 N.Y. 503, 191 N.E. 536.

The commission found Riley to have acted in good faith. Thus, the principal question in this appeal is whether Riley's failure to notify Krug's office at the first possible moment after his knowledge of Oster's accident constituted as a matter of law a fraud upon the insurance company. It seems clear that it would not constitute a fraud if Riley thought, at least if he reasonably thought, that by that time he was already insured.

Riley could reasonably have understood that he would be insured, i.e., that the company would be 'bound,' as soon as Krug's secretary told him that Riley wanted insurance and Krug selected a company to carry such insurance. ⁴ See, Nehring v. Bast, 258 Minn. 193, 103 N.W.2d 368, 85 A.L.R.2d 1400; Rommel v. New Brunswick Fire Ins. Co., 214 Minn. 251, 8 N.W.2d 28; Glens Falls Ind. Co. v. D. A. Swanstrom Co., 203 Minn. 68, 279 N.W. 845. In fact, this occurred about 12:15 p.m., but Riley could have expected, and reasonably so, that it would occur much sooner. There is nothing in the record to show that Riley should have suspected that Krug would not arrive at his office shortly after Riley's call. He might have reasonably expected Krug was merely a little late in arriving on the Monday morning in question. His secretary testified that he did not come to the office at all that day and did not telephone until 12:15 p.m. Riley in no way could be charged with that knowledge.

It is clear that an applicant, even where he knows the insurance has not yet been effected, is held to no higher standard than that of reasonable care in notifying the insurer of a loss occurring before the insurance becomes binding. See, McLanahan v. Universal Ins. Co., 26 U.S. (1 Peters) 170, 7 L.Ed. 98. Thus, even if Riley should have anticipated the insurance was not yet effected, the commission could have found he had do duty to notify Krug until after 11:10 that morning when Riley had delivered Oster to the hospital. The commission could find that a reasonable man would attend to a sick employee first.

It was open to the commission to find that by 11:10, Riley justifiably thought he was covered by insurance. If such was the case, Riley was not obliged to notify Krug of the loss at the first reasonably possible moment. In Glens Falls Ind. Co. v. D. A. Swanstrom Co., 203 Minn. 68, 73, 279 N.W. 845, 847, this court stated:

'* * * Lack of disclosure of changed conditions coming into being after the application and before the release of the policy does not conclusively prove fraud. * * * The trial court finds no fraud or deceit exists. There is nothing in the record to...