Self v. New York Life Ins. Co., 9297.

• Decision Date: 19 February 1932
• Docket Number: No. 9297.,9297.
• Citation: 56 F.2d 364
• Parties: SELF et al. v. NEW YORK LIFE INS. CO.
• Court: U.S. Court of Appeals — Eighth Circuit

56 F.2d 364 (1932)

SELF et al. v. NEW YORK LIFE INS. CO.

No. 9297.

Circuit Court of Appeals, Eighth Circuit.

February 19, 1932.

W. R. McHaney, of Smackover, Ark., and Coulter & Coulter, of Little Rock, Ark., for appellants.

Louis H. Cooke, of New York City, W. H. Rector, of El Dorado, Ark., and A. F. House and Rose, Hemingway, Cantrell & Loughborough, all of Little Rock, Ark., for appellee.

Before KENYON, VAN VALKENBURGH, and GARDNER, Circuit Judges.

KENYON, Circuit Judge.

John I. Self on June 6, 1929, received from appellee (designated herein as the "Insurance Company") a life insurance policy obligating it to pay to appellants, as beneficiaries, the sum of $10,000 in case of his death. On July 28, 1929, he died. The Insurance Company declined to pay the policy on the ground that the insured had knowingly made false statements in his application for such insurance, that he well knew when he made the application for insurance that he was so afflicted with serious diseases of the heart and blood vessels that no honest medical examiner would approve him as a subject for insurance, that he conspired with the Insurance Company's agent, one Howell, in finding some medical examiner who would recommend him and that they found one in the person of Dr. J. K. Sheppard, who certified to insurer that Self was in sound physical condition and approved him for the policy of insurance, and that the company did not know of the fraud until after Self's death. The trial court instructed a verdict for the defendant company.

Some questions preliminary to the main one should be disposed of. The beneficiaries moved in the trial court to have the answer made more specific in some particulars. The court overruled said motion and this is assigned as error. The ruling on this motion was clearly a discretionary matter with the court. The motion seems to have been made for the purpose of compelling the pleader to set forth the evidentiary facts instead of the ultimate ones. There was no abuse of discretion on the part of the trial court; hence no reversal on this ground should be indulged.

Appellants moved in the trial court to strike from the answer of defendant the paragraph which pleads the following provision of the policy: "That only the President, a Vice President, a Second Vice President, a Secretary or the Treasurer of the company can make, modify or discharge contracts, or waive any of the company's rights or requirements; that notice to or knowledge of the soliciting agent or the medical examiner is not notice to or knowledge of the company, and that neither one of them is authorized to accept risks or to pass upon insurability." The trial court refused to strike this allegation. Appellants claim the provision contravenes section 6061 of Crawford & Moses' Digest of the Statutes of Arkansas, which in a general way provides that any person soliciting or procuring applications for insurance shall be held to be the soliciting agent of the insurance company issuing the policy on such application, or a renewal thereof, anything in the application or policy to the contrary notwithstanding. Appellants say that the provision of the policy in suit is contrary to the public policy of the state of Arkansas and that the company was charged with any notice which its agent might have had as to certain matters. Counsel for appellants admit in their brief that the Arkansas Supreme Court has not placed any specific construction upon the statute under consideration. This statute is similar to one in the Iowa Code.

Appellants cite Jamison et al. v. State Ins. Co., 85 Iowa, 229, 52 N. W. 185, 187. This case involves a fire insurance policy where the applicant for the policy disclosed to the agent all the facts which, as accurately stated in the policy, would have shown the insurable interest in the applicant and the heirs of the estate for which she was administratrix in an amount equal to the amount of the policy. The agent erred in filling in the application making it show that the applicant alone was the beneficiary and it was without question that she alone did not have the requisite insurable interest. The court held that by virtue of the Iowa statute the agent was in fact the agent of the insurance company and that the filling in of the application was within the apparent authority of such agent. The insured was innocent of wrong and the failure of the original policy to state the truth was not in any way attributable to any intent on the part of the insured to defraud the company. The court said: "We do not hold that provisions of the character of those under consideration are wholly without effect. They may serve to draw the attention of the applicant to material matters, and, when that is done, he must act upon the notice received in good faith and with reasonable care. He cannot knowingly misrepresent a fact without endangering the validity of the policy."

Continental Life Insurance Co. v. Chamberlain, 132 U. S. 304, 10 S. Ct. 87, 33 L. Ed. 341, is also cited by appellants as sustaining their position. In this case the agent of the insurance company had made a decision with respect to a matter of interpretation which the Supreme Court held was within the scope of his apparent authority. There was no fraud imputable to the insured. There was no question of the agency or of the act of the agent in either case being within the scope of his apparent authority. This presents quite a different situation from a case where the insured knowingly and fraudulently makes material false statements with the concurrence of the agent of the company and the medical examiner. When the agent goes into a fraudulent conspiracy of the kind alleged here with the insured to defraud his principal, he is not acting within any scope of his authority. It cannot be the policy of Arkansas by this statute to establish the doctrine that if the insurance agent acts against the interest of his principal, not only with the knowledge but with the connivance of the insured, the insurance company is bound by the act of such agent. It would open a wide door of fraud and enable a triumvirate of agent, medical examiner, and insured to defraud and plunder insurance companies at will. The Arkansas statute never, of course, intended that any such doctrine should be established as a matter of public policy.

The case of Mutual Life Insurance Co. of New York v. Hilton-Green, Executors of Wiggins, 241 U. S. 613, 622-623, 36 S. Ct. 676, 680, 60 L. Ed. 1202, seems conclusive against the position here taken by appellants. The facts are analogous to those in the case at bar, and Mr. Justice McReynolds in the opinion states: "The general rule which imputes an agent's knowledge to the principal is well established. The underlying reason for it is that an innocent third party may properly presume the agent will perform his duty and report all facts which affect the principal's interest. But this general rule does not apply when the third party knows there is no foundation for the ordinary presumption, — when he is acquainted with circumstances plainly indicating that the agent will not advise his principal. The rule is intended to protect those who exercise good faith, and not as a shield for unfair dealing."

The Arkansas statute evidently strikes at a policy pursued in the past where insurance companies ofttimes sought to make their agent the agent of the insured. The trial court was right in its ruling on this question.

Another question raised is to the admission of certain declarations of deceased. The assignments of error are clearly insufficient under the rules of the court to preserve this question as no evidence is set forth in substance therein as required by Rule 11. However, notwithstanding this, we may say that there was the right in the policy for insured to change the beneficiary (stipulation covering this has been filed in this court); therefore, the beneficiary had no vested interest in the policy. It is the Arkansas rule that declarations of insured are not admissible against the beneficiary. That is the general rule, and it is based on the theory that the beneficiary has a vested interest and the insured cannot affect it by statements made by him. 14 Ruling Case Law, p. 1376, § 545. The federal courts quite generally draw a distinction where the insured reserves the right in the policy to change the beneficiary. The reason of the rule fails when the insured can change the beneficiary, as could be done here. Therefore, the statements of the deceased testified to in this case were admissible.

The controlling question here is whether the trial court erred in instructing a verdict for the Insurance Company. The rule as to direction of verdicts is well established in the federal court. Where the evidence is of such character that reasonable men in an impartial and fair exercise of their judgment may honestly reach different conclusions, the court should not instruct a verdict on a fact question. Tabor v. Mutual Life Ins. Co. of New York (C. C. A.) 13 F.(2d) 765; Mutual Life Ins. Co. of New York v. Hatten (C. C. A.) 17 F.(2d) 889; Wharton v. Ætna Life Ins. Co. (C. C. A.) 48 F.(2d) 37.

Did the insured knowingly make false statements in his application for insurance? The burden to show that he did rests upon the Insurance Company. We turn to the evidence. The insured was a practitioner of medicine; he had been a medical examiner for this very company. In his...