Powell v. Time Ins. Co.

Citation382 S.E.2d 342,181 W.Va. 289
Decision Date16 June 1989
Docket NumberNo. 18224,18224
CourtSupreme Court of West Virginia
PartiesJohn Albert POWELL, Jr. v. TIME INSURANCE COMPANY.
Syllabus by the Court

1. W.Va.Code, 33-6-7 (1957), has abolished the common law concept of warranties with regard to statements by an insured in an application for insurance.

2. W.Va.Code, 33-6-7 (1957), is designed to alleviate the harshness of the common law and is to be liberally construed in favor of the insured.

3. W.Va.Code, 33-6-7 (1957), provides that "[m]isrepresentations, omissions, concealments of facts, and incorrect statements shall not prevent a recovery under the policy unless...." This language indicates that not all misrepresentations will avoid an insurance policy, but only those specifically identified in subsections (a), (b), and (c) of the statute.

4. In order to be fraudulent under W.Va.Code, 33-6-7(a) (1957), misrepresentations, omissions, concealments of facts, and incorrect statements on an application for insurance by an insured must be knowingly made with an intent to deceive the insurer and relate to material facts affecting the policy.

5. Under W.Va.Code, 33-6-7(b) and (c) (1957), in order for a misrepresentation in an insurance application to be material, it must relate to either the acceptance of the risk insured or to the hazard assumed by the insurer. Materiality is determined by whether the insurer in good faith would either not have issued the policy, or would not have issued a policy in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or otherwise.

6. W.Va.Code, 33-6-7 (1957), adopts the test of whether a reasonably prudent insurer would consider a misrepresentation material to the contract.

7. Where an insurer seeks to avoid a policy based on a material misrepresentation, this assertion is in the nature of an affirmative defense which the insurer must prove by a preponderance of the evidence.

H. John Rogers, Martinsville, for Powell, Jr.

Paul T. Tucker, Bachmann, Hess, B & Garden, Wheeling, for Time Ins. Co.

MILLER, Justice:

This is an appeal from a judgment of the Circuit Court of Wetzel County, rendered on March 17, 1987, which directed a verdict in favor of Time Insurance Company (Time) in an action brought by the plaintiff below, John Albert Powell, Jr., to recover life insurance benefits. The plaintiff contends that the lower court erred in directing the verdict. We find no error warranting reversal, and we affirm the judgment of the circuit court.

On January 19, 1983, John Albert Powell, Sr., father of the plaintiff, applied for a life insurance policy from Time through David Miles, an independent insurance agent in New Martinsville, Wetzel County. On the application, Mr. Powell denied having been treated for any respiratory disorder. 1 In addition, the application listed no regular physician for Mr. Powell and bore the following handwritten notation: "Applicant states he was never treated, or examined." (Emphasis in original). The application was signed by both Mr. Powell and Mr. Miles.

On January 21, 1983, Time referred Mr. Powell to Ricaredo Suyao, M.D., for a medical examination. The medical examination report form, furnished by Time and designated as "PART 2" of the application, contained negative responses to a number of questions concerning Mr. Powell's health history and medical treatment 2 and was signed by both Mr. Powell and Dr. Suyao. Although Dr. Suyao noted that Mr. Powell smoked one pack of cigarettes every three days, he found no evidence of any respiratory abnormality.

Time subsequently issued Mr. Powell a life insurance policy, dated January 21, 1983, providing for a death benefit of $25,000 and naming the plaintiff as the sole beneficiary. Mr. Miles received the policy on February 12, 1983, and delivered it to Mr. Powell on February 28, 1983.

On March 24, 1983, Mr. Powell died at the age of sixty-five. The death certificate listed carcinoma of the lung of two months' duration as the immediate cause of death, with pulmonary emphysema listed as an unrelated condition contributing to death. The plaintiff subsequently filed a claim against his father's life insurance policy. Time, however, refused to honor the policy and, instead, refunded to the plaintiff the premiums Mr. Powell had paid before his death.

In October, 1983, the plaintiff instituted a civil action in the Circuit Court of Wetzel County to recover the proceeds of the insurance policy. The complaint also sought compensatory and punitive damages on the ground that Time had acted in bad faith in refusing to honor the policy. In its answer, Time asserted that Mr. Powell had misrepresented the facts in his application, thereby barring recovery by the plaintiff.

Trial commenced in the circuit court in March, 1985, but ended in a mistrial. A second trial, limited by stipulation of the parties to the issue of Time's liability under the policy, was conducted before a jury on March 16 and 17, 1987.

The evidence at trial centered on Time's defense of misrepresentation. Mr. Miles testified that when Mr. Powell had appeared at his office to apply for the insurance policy, he seemed healthy, although he smoked heavily. Mr. Miles testified that he had personally asked Mr. Powell every question on the application and accurately recorded Mr. Powell's responses. Mr. Miles further testified that after completing the application, he gave it to Mr. Powell and read through it aloud before Mr. Powell signed it. Mr. Miles stated that Mr. Powell was referred to Dr. Suyao only after he asserted that he had never been examined by a doctor and asked Mr. Miles to recommend a physician for the required medical examination. Mr. Miles testified that he was unaware of Mr. Powell's illness until he visited him in the hospital on March 15, 1983.

Time also introduced evidence that Mr. Powell had sought treatment for breathing difficulties at the Veteran's Administration (VA) Hospital in Clarksburg as early as 1967, at which time he was given a chest x-ray and an electrocardiogram and was diagnosed as suffering from obstructive pulmonary emphysema. Records indicate that Mr. Powell returned to the VA Hospital with similar complaints in 1974, 1975, and 1977, and, after similar tests, was treated for pulmonary emphysema on each occasion. Dr. Arturo Mardones, a physician at the VA Hospital, testified that he had treated Mr. Powell for advanced pulmonary emphysema several times in 1981 and 1982 and had ordered chest x-rays on each occasion. Dr. Mardones characterized Mr. Powell's condition as chronic and of long standing, and testified that he had informed Mr. Powell several times that he had emphysema and should stop smoking.

Time also offered evidence that on February 1, 1983, Mr. Powell had consulted Terry T. Tallman, M.D., complaining of a chronic cough and shortness of breath that had worsened in the previous two months. Dr. Tallman's notes indicate that Mr. Powell gave a history of chronic obstructive lung disease of two years' duration, for which he had been treated at the VA Hospital. Dr. Tallman referred Mr. Powell for x-rays and a biopsy, which confirmed his suspicions that Mr. Powell was suffering from lung cancer.

John Hildebrandt, manager of Time's underwriting department, testified that in determining whether to issue an insurance policy, Time relied on the information contained in the policy application and ordinarily conducted no independent investigation of the representations therein unless there was some indication that further information was needed. Mr. Hildebrandt testified that a notation of treatment by a physician within the previous five years would have triggered such an investigation and that Time would have required further information, such as a doctor's report, before approving the application. Mr. Hildebrandt also testified that the diagnosis of emphysema made Mr. Powell uninsurable and that had Time been aware of his long history of pulmonary disease, it would never have issued the policy.

The plaintiff presented evidence that Mr. Powell had a tenth-grade education, was occasionally employed as a house painter, and had an excellent reputation in the community for truthfulness. The plaintiff's evidence showed that Mr. Powell had never told family members that he was suffering from a respiratory condition and that emphysema and cancer are unrelated diseases. The plaintiff admitted that he had occasionally driven his father to the VA Hospital when he had a cold or for a checkup, but stated that until the diagnosis of lung cancer in March of 1983, the only serious medical problem his father had ever exhibited was a loss of hearing in the last year of his life.

The plaintiff also attempted to introduce evidence that his father had previously obtained a life insurance policy from another company, but had voluntarily allowed the policy to lapse in October, 1982. As the prior policy allegedly had been in effect long enough to have become incontestable by the insurer, the plaintiff argued that the evidence was relevant to demonstrate the absence of fraud on the part of Mr. Powell. The trial court, however, refused to allow the plaintiff to introduce this evidence.

At the close of the evidence, Time moved for a directed verdict. The circuit court found that the evidence showed material misrepresentations and/or omissions in the application and that Time, in good faith, would have refused to issue the policy had it been aware of the truth. On this basis, the court directed the jury to return a verdict in Time's favor.

I.

At common law, the effect of false statements made in an insurance application upon the validity of a policy was dependent, in large part, on whether such statements were characterized as warranties or representations. In Myers v. Mutual...

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