Russ v. Metropolitan Life Ins. Co.

• Decision Date: 09 November 1970
• Citation: 112 N.J.Super. 265,270 A.2d 759
• Parties: Elizabeth RUSS, Plaintiff, v. METROPOLITAN LIFE INSURANCE COMPANY, a corporation of the State of New York, Defendant.
• Court: New Jersey Superior Court

Page 265

112 N.J.Super. 265

270 A.2d 759

Elizabeth RUSS, Plaintiff, v. METROPOLITAN LIFE INSURANCE COMPANY, a corporation of the State of New York, Defendant.

Superior Court of New Jersey Law Division.

Nov. 9, 1970.

Sol D. Kapelsohn, Newark, for plaintiff (Kapelsohn, Lerner, Leuchter & Reitman, Newark, attorneys).

John L. McGoldrick, Newark, for defendant (Eugene N. Haring, Newark, of counsel, McCarter & English, Newark, attorneys).

ACKERMAN, J.S.C.

This matter is before the court on plaintiff's motion for judgment. It raises the question whether a life insurance policy may still be declared invalid after the death of the insured on the ground of equitable fraud and, in particular, it involves consideration of the scope and effect of the recent decision of the Supreme Court in Johnson v. Metropolitan Life Insurance Co., 53 N.J. 423, 251 A.2d 257 (1969), with respect to that point.

I

Plaintiff Elizabeth Russ is the beneficiary of an insurance policy issued by defendant on March 1, 1968 on the life of her son George C. Russ, Jr. The insured died at the age of 36 on September 25, 1968, approximately seven months after the issuance of the policy. Defendant declined to pay and this suit was instituted to collect death benefits under the policy in the amount of $4,000.

Defendant filed an answer denying liability and also a counterclaim praying that the complaint be dismissed and that the policy be declared void and rescinded because it was obtained by fraud. The counterclaim is based upon alleged false answers given by the insured to certain questions in the application for insurance dated February 10, 1968. The portion of the application which relates to the insured's past and present condition of health and his medical history consisted of five questions, numbered 15 through 19. It is alleged that all but one of these questions were answered falsely either in whole or in part.

Question 15 is the first of the questions in the medical sequence:

15. In past 5 years, have any physicians or other practitioners examined, advised, or treated you? No.

It is alleged that the said answer was false in fact in that the insured 'was examined, advised, and treated by physicians at the Essex County Overbrook Hospital, Cedar Grove, New Jersey, from June 23, 1962 until August 4, 1962, and on a second occasion, from August 14, 1967 to October 6, 1967.'

Question 16, which calls for information as to treatment, etc., for specific diseases or conditions, is alleged to have been falsely answered as follows 16. Have you ever received treatment, attention or advice from any physician or other practitioner for, or been told by any physician or other practitioner that you had:

(d) epilepsy, paralysis, dizziness, or any mental disorder? No.

It is alleged that the answer was false in fact because the insured 'had physical defects and impairments of health including chronic brain syndrome associated with alcoholism and psychotic reaction for which (he) was hospitalized at the Essex County Overbrook Hospital, Cedar Grove, New Jersey, from June 23, 1962 until August 4, 1962 and for which Mellaril, Noludra, and Paraldehyde were administered', and that he 'had physical defects and impairments of health including schizophrenic reaction, catatonic type, acute brain syndrome, and alcohol intoxication with psychotic reaction for which he was admitted and treated at the Essex County Overbrook Hospital, Cedar Grove, New Jersey, during the period August 14, 1967 to October 6, 1967 because of heavy drinking since 1959, withdrawal, and the stuporous loss of contact with reality. While so hospitalized, the said George C. Russ, Jr., demonstrated an episode of catatonia and was placed on various tranquilizers, including Thorazine and Noludar.'

Question 18 consisted of two parts and it is alleged that both were falsely answered. Question 18(a) and the answer thereto are as follows:

18(a) Have you any physical defect, or have you been aware of any impairments of health not revealed above? No.

It is alleged that said answer was false in fact for the same reasons that the answer to question question 16 was false.

Question 18(b) and the answer thereto are:

18(b) In the past 6 months, have you taken any prescribed medication or have you been advised to restrict you diet or living habits? No.

(If yes, state details below, who recommended, and give reason).

It is alleged that the answer to this question was false it fact in that the insured 'had taken the prescribed medicines, Thorazine and Noludar and various tranquilizers during his hospitalization at the Essex County Overbrook Hospital from August 14, 1967 to October 6, 1967 for heavy drinking, withdrawal from reality, and catatonic stupor, and during which he received a diagnosis of schizophrenic reaction, catatonic type, accute brain syndrome, and alcohol intoxication with psychotic reaction.'

The last question alleged to have been falsely answered is as follows:

19. For any 'YES' answer to questions 15--18 identify question and give full details. * * *

The application form provides space for details with columns headed 'question,' 'disorder, symptoms or other reasons for consultation,' 'dates and duration,' 'treatment received or recommended,' and 'name and address of each physician or other practitioner and each hospital.' The space for answers to this question was left blank by the insured.

Defendant claims that this answer was false in fact for the same reasons that the answers to questions 15, 16, 18(a) and 18(b) were false.

The counterclaim further alleges that the answers were material to the risk and were relied upon by defendant in the issuance of the policy; that defendant had elected to rescind the policy and had tendered to plaintiff the sum of $42.84 representing the premiums received on the policy, and that the tender had been refused.

It was specifically alleged in the counterclaim that equitable fraud rather than legal fraud was charged. Paragraph 21 thereof states:

21. The defendant does not allege in this Counterclaim that the aforesaid misrepresentations were made knowingly or with intent to deceive, but the defendant does allege that they were false in fact and material to the risk. The defendant further says that in viewof the rules of law and evidence governing the defense of actions at law, it has no adequate relief save but by resort to the equitable power of this Court.

In her answer to the counterclaim for rescission plaintiff generally pleaded lack of knowledge or information sufficient to form a belief as to the allegations with respect to the answers in the application and the falsity thereof. But she denied defendant's allegations that the said answers were material to the risk and relied upon by defendant in issuing the policy. And in answer to paragraph 21 of the counterclaim she alleged that 'if false statements were made by George C. Russ, Jr. they were not knowingly made, nor were they made with intent to deceive.'

Thereafter plaintiff filed the motion now before the court. It prays for 'summary judgment' on the ground that there exists no genuine issue as to any material fact and that she is entitled to judgment as a matter of law. No affidavits of any kind were filed by the parties, however, and it is obvious that they conceive the motion to be one simply to test whether the counterclaim for rescission based upon equitable fraud states a claim upon which relief can be granted. For the purpose of the motion plaintiff concedes the truth of the allegations of the counterclaim. Taking defendant's concession that it 'alleges' only equitable fraud, it is plaintiff's contention that the decision of the Supreme Court in the Johnson case has changed the law and that, overruling a long line of cases to the contrary, it is dispositive authority that a life insurance policy can no longer be rescinded for equitable fraud after the insured has died.

There is no doubt that the issue is squarely presented here as to whether equitable fraud, as distinguished from legal fraud, will afford a basis for rescission. Some of the questions in the application alleged to have been falsely answered are subjective questions and some are objective. As to subjective questions, such as questions 16 and 18(a), it is now well settled that in order to establish even equitable fraud, defendant must prove not only that the insured actually had a mental disorder or other physical defect or impairment of health but also that he knew that he had it. In other words, such questions are construed as seeking to probe the insured's state of mind, and if a negative answer is a correct statement of his knowledge and belief, it is not a misrepresentation at all--it is neither legal nor equitable fraud. See Johnson, supra; Shapiro v. Metropolitan Life Insurance Co., 114 N.J.Eq. 378, 168 A. 637 (E. & A.1933); Colonial Life Ins. Co. of America v. Mazur, 25 N.J.Super. 254, 260, 96 A.2d 95 (Ch.Div.1953); Ettelson v. Metropolitan Life Insurance Co., 164 F.2d 660 (3 Cir.1947). However, if the answer is not a correct statement of his state of mind, the answer is propably legal fraud as well as equitable fraud. In such case the answer would be a willful untruth and, although alguably there might still be lacking the intent to deceive which is an essential ingredient of legal fraud, it would certainly be a 'knowing' misrepresentation. See Duff v. Prudential Ins. Co., 90 N.J.L. 646, 648, 101 A. 371 (E. & A.1917).

The language used by defendant in paragraph 21 of the counter-claim is the classic form of allegation for asserting equitable fraud which has been employed in pleadings over the years. Cf. 3 N.J. Practice (Marsh and Fischler), Practice Forms (rev. ed. 1960), § 289, at 151. Although it states that defendant does not allege that the misrepresentations were made 'knowingly' and therefore might be said to omit a necessary element to charge equitable fraud with respect to the answers to...