Santilli v. State Farm Life Ins. Co.

• Court: Oregon Supreme Court
• Writing for the Court: HOWELL
• Citation: Santilli v. State Farm Life Ins. Co., 278 Or. 53, 562 P.2d 965 (Or. 1977)
• Decision Date: 19 April 1977
• Parties: Imogene R. SANTILLI, Appellant, v. STATE FARM LIFE INSURANCE COMPANY, a corporation, Respondent.

Page 965

562 P.2d 965

278 Or. 53

Imogene R. SANTILLI, Appellant, v. STATE FARM LIFE INSURANCE COMPANY, a corporation, Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted March 7, 1977.

Decided April 19, 1977.

D. Richard Fischer, of Anderson, Fulton, Lavis and Van Thiel, Astoria, argued the cause and filed a brief for appellant.

Vawter Parker, Portland, argued the cause for respondent. With him on the brief were James H. Clarke, Edwin A. Harnden, and Dezendorf, Spears, Lubersky & Campbell, Portland.

HOWELL, Justice.

Plaintiff appeals from a summary judgment entered in favor of defendant in an action to recover on a life insurance policy issued by the defendant insurance company on plaintiff's husband. The facts are not in dispute and were presented to the trial court by stipulation.

In November, 1972, plaintiff's husband, Edward Santilli, made application to State Farm Life Insurance Company to purchase a mortgage life insurance policy. Mr. Santilli was quoted a 'standard' premium of $120.40 per year. However, as a result of disclosures on the application form, the defendant insurance company required him to have a medical examination. It then learned that plaintiff's husband had been treated for high blood pressure and that there was a history of high blood pressure in his family. Defendant then rated the policy as a 'Table 4,' increased the premium to $223.80 per year and excluded the waiver of premium in event of disability clause.

The policy was issued in January, 1973, but was backdated to December 19, 1972. The second year's premium was not paid, and on January 24, 1974, the defendant insurance company notified plaintiff's husband that the life insurance policy had lapsed but offered to reinstate the policy without evidence of insurability if the premium was paid by February 9, 1974. If the premium was not paid by February 9, the policy could be reinstated only by filling out an application for reinstatement and showing evidence of insurability.

Plaintiff's husband did not pay the premium prior to February 9, and the policy lapsed. However, on February 15, 1974, six days after the 'late payment offer' expired, plaintiff's husband paid the full premium and caused the reinstatement application to be filled out. The policy was reinstated on February 26, 1974.

Plaintiff's husband died on November 11, 1974, apparently of a heart attack. The defendant investigated plaintiff's claim as beneficiary of the policy and discovered that, contrary to the reinstatement application, the deceased husband had seen a doctor on six occasions in 1973, and, as a result, defendant denied plaintiff's claim under the policy.

Plaintiff's complaint alleged two causes of action: the first cause sought the amount due under the policy and attorney fees, and the second cause sought compensatory and punitive damages for an alleged bad faith failure to pay plaintiff's claim. Defendant demurred to plaintiff's second cause of action, and the trial court sustained the demurrer. Defendant then moved for summary judgment on plaintiff's first cause of action, and plaintiff agreed to litigate the remaining issues in that fashion. After hearing an oral summary of the evidence which the parties stipulated would be produced at trial, and after reviewing the exhibits submitted, the court granted defendant's motion for summary judgment. Plaintiff assigns as error both the order granting defendant's motion for summary judgment on plaintiff's first cause of action and the order sustaining defendant's demurrer to her second cause of action.

Pursuant to ORS 18.105(3), a motion for summary judgment will be granted only if the pleadings and the evidence produced at the hearing on the motion 'show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.' It is undisputed that incorrect answers were recorded in response to several of the questions on the application for reinstatement of the deceased's life insurance policy. Defendant contends that these incorrect answers relieve it of its duty to pay plaintiff's claim. ORS 743.042 provides that:

'(1) * * * Misrepresentations, omissions, concealment of facts, and incorrect statements (in any application for an insurance policy) shall not prevent a recovery under the policy unless * * *

'* * *

'(b) Material either to the acceptance of the risk, or to the hazard assumed by the insurer.'

It is clear that false information submitted by a prospective insured may bar recovery under the statute if that information was 'material.' Bunn v. Monarch Life Insurance, 257 Or. 409, 478 P.2d 363 (1971); Leigh v. Consumers Nat. Life Ins. Co., 240 Or. 290, 401 P.2d 46 (1965); Mutual Life Ins. Co. of N.Y. v. Chandler, 120 Or. 694, 252 P. 559 (1927). Although the materiality of the false information is normally a question of fact, under some circumstances the misrepresentations may be found to be material as a matter of law. Knight v. Continental Casualty, 259 Or. 46, 485 P.2d 403 (1971). However, the burden of proving the materiality of the misrepresentations involved always rests on the insurer who seeks relief from its responsibilities under the insurance agreement. Bunn v. Monarch Life Insurance, supra at 412, 478 P.2d 363; E. Patterson, Essentials of Insurance Law 426, § 82 (2d ed. 1957); W. Vance, Insurance 408, § 70 (3d ed. 1951). Therefore, the issue on appeal in this case is whether the defendant insurer has carried its burden of proving the materiality of the misrepresentations as a matter of law so as to be entitled to a summary judgment.

In this context, a false representation is material only if the insurer would not have accepted the application at the premium stated had a truthful answer been given. Bunn v. Monarch Life Insurance, supra at 412, 478 P.2d 363. As stated in Patterson, supra at 415:

'This test conforms to the basic principle of rescission for misrepresentation, that the party misled should have the right to avoid the contract if but for the misrepresentation he would not have given his assent to its terms. This test of materiality has considerable support in judicial precedents involving transactions other than insurance contracts. The law is not concerned with punishing careless misstatements, nor even willful ones, in actions designed for the enforcement of private rights. It is not enough for a party to a contract to prove that in some detail the other party made a misstatement; the former should be prepared to show that the misstatement made a serious difference to him. The strong public policy that supports the enforcement of contracts as made can be outweighed only by showing that the party seeking to avoid the contract was really misled, that is, that he would not have made the contract if he had known the facts misrepresented.' (Emphasis deleted.)

Thus, in order to avoid its obligations under this contract, the defendant insurer was required to prove that it would not have accepted plaintiff's husband's application for reinstatement if it had received correct answers to each of the questions involved.

The defendant, however, has offered no proof on this issue. Consequently, unless we can say that it is a matter of common knowledge that the defendant insurer would not have reinstated the policy at the premium quoted if a full disclosure had been made, the defendant was not entitled to summary judgment. See Knight v. Continental Casualty, 259 Or. at 50, 485 P.2d at 405. ¹

Under the circumstances of this case, we cannot say that plaintiff's husband's false representations were material as a matter of law solely on the basis of our own general knowledge of insurance practices. The misrepresentations involved in this case relate only to changes in the deceased's health since the time he initially applied for insurance coverage and underwent a thorough medical examination. ² When viewed in the light most favorable to plaintiff, ³ the evidence indicates that the deceased's health underwent no substantial change during that period. Although plaintiff's husband did not disclose that he had been seeing a physician regularly about high blood pressure and had been on medication to reduce his blood pressure, this condition was apparently substantially the same as it was at the time of the previous medical examination. At that time, the defendant insurer learned of the high blood pressure condition and that plaintiff's husband had been taking medication to control it for several years. It also learned that plaintiff's husband had a weight problem. These facts did not cause the insurer to refuse coverage, but, instead, the policy was issued at a much higher premium. When plaintiff's husband applied for reinstatement of his original policy, he agreed to continue paying this enhanced premium. Since the defendant insurer had previously agreed to issue plaintiff's husband a policy at this higher premium level after full disclosure, we cannot say, as a matter of law, that it would have refused to reinstate that policy if it had known that plaintiff's husband had continued to receive treatment for his high blood pressure condition.

Moreover, if correct answers to defendant's questions had been given, upon further inquiry the defendant insurer would have learned that plaintiff's husband had been successful in reducing his weight and in cutting back on his smoking and drinking during the intervening period. Significantly, it was stipulated that the doctor who had treated plaintiff's husband would have testified that there was 'no medical evidence that (his) health deteriorated in any way between 1972 and 1974.' Under these circumstances, and in the absence of any evidence from the defendant insurer that reinstatement of the policy would have been refused if it had received correct answers to all questions on the reinstatement application, we cannot say that the incorrect answers were material as a...