Southern Farm Bureau Life Ins. Co. v. Cowger, 87-300

• Decision Date: 18 April 1988
• Docket Number: No. 87-300,87-300
• Citation: 295 Ark. 250,748 S.W.2d 332
• Parties: SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY, Appellant, v. Mary Irene COWGER, Appellee.
• Court: Arkansas Supreme Court

Page 332

748 S.W.2d 332

295 Ark. 250

SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY, Appellant, v. Mary Irene COWGER, Appellee.

No. 87-300.

Supreme Court of Arkansas.

April 18, 1988.

Laura A. Hensley and C. Tab Turner, Little Rock, for appellant.

J.L. Hendren, Bentonville, for appellee.

NEWBERN, Justice.

The appellant, Southern Farm Bureau Life Insurance Company (the company), insured the life of Ronald Cowger. Mr. Cowger was killed in a tractor accident, and the company refused to pay the $100,000 policy amount to the beneficiary, appellee Mary Irene Cowger, because Mr. Cowger had misrepresented his health when applying for the policy. In accordance with our decision in National Old Line Ins. Co. v. People, 256 Ark. 137, 506 S.W.2d 128 (1974), the trial court instructed the jury that, if the fact or facts not revealed in the insurance application were not the cause of death, the misrepresentation would not bar recovery. We overrule that case, but we do so prospectively only, and thus the judgment before us now is affirmed. We also affirm the part of the judgment allowing a fee of $33,000 to Mrs. Cowger's counsel.

Mr. and Mrs. Cowger wanted to borrow from a bank to build chicken houses on their farm. The bank required that Mr. Cowger's life be insured. Mr. Cowger applied for a $100,000 policy with the company and submitted to a physical examination conducted by a paramedic on behalf of the company who asked him questions about his health and wrote down Mr. Cowger's answers on a form. Mr. Cowger's responses included his statements that he had not suffered stomach or liver disorders or used alcohol to excess in the last ten years. The truth was that Mr. Cowger had been hospitalized more than once during that time and had been diagnosed as having cirrhosis of the liver, acute alcoholism, and delirium tremens. The evidence showed, and it is not contested by Mrs. Cowger, that Mr. Cowger was aware of his condition when he applied for the policy.

On June 21, 1986, which was within the two-year period in which the policy remained contestable, Mr. Cowger was killed by being pinned beneath an overturned tractor on a slope he was attempting to mow. He had been released from his final hospitalization for alcoholism symptoms the day before. No blood test was done, and there was no evidence Mr. Cowger was drunk or drinking when his death occurred.

1. Causation

In Old Republic Ins. Co. v. Alexander, 245 Ark. 1029, 436 S.W.2d 829 (1969), the insurer sued to rescind a health policy on the ground that the insured had stated he had not had "heart trouble." The insured counterclaimed to recover on the policy for injury to his leg from a shooting accident. We upheld a judgment denying rescission and awarding damages on the counterclaim because a negative answer to the question about "heart trouble" was not necessarily a misrepresentation. The insured had been diagnosed as having more than one kind of heart disease, but the results of exploratory surgery were negative.

Justice George Rose Smith filed a concurring opinion in which he stated he would have reached the same result on the counterclaim because the insured's heart condition had nothing to do with the leg injury. The opinion quoted part of what is now Ark.Code Ann. § 23-79-107 (1987) as follows:

Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless either:

(1) Fraudulent; or

(2) Material either to the acceptance of the risk or to the hazard assumed by the insurer; or

(3) The insurer in good faith would not have issued the policy or contract or would not have issued a policy or contract in as large an amount or at the same premium or rate or would not have provided coverage with respect to the hazard resulting in the loss if the facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.

Justice Smith contended that these provisions were only the minimum requirements of an insurer's proof and that "irrelevant" misrepresentations should not bar insurance claims.

In National Old Line Ins. Co. v. People, supra, we adopted Justice Smith's position. In that case, an applicant for credit life insurance stated in the application, which was also the policy document issued by a car dealer as agent for the insurer, "I hereby apply for the insurance shown above and represent that I am now in good health, both mentally and physically, and free from any mental or physical impairment of any chronic disease, and am the age shown above." Just above the applicant's signature appeared the statement in larger capital letters, "I AM NOW IN GOOD HEALTH." The jury, responding to an interrogatory, concluded that the policy application contained no misrepresentation. The undisputed evidence was that the insured was not in good health but had been treated, for four years before making the application, for high blood pressure and diabetes.

The majority opinion quoted the statutory language above and concluded that there must be a causal relation between the misrepresentation and the loss for recovery to be barred, presumably meaning a causal relation between the condition misrepresented and the loss. We stated that subsection (a)(3) of the statute supported the conclusion to some extent by this language: "the insurer in good faith ... would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known." We said, "Thus it would be a defense to the insurer, in a back injury case, to show that if the applicant had disclosed a history of back trouble it would have excepted that hazard from the policy." Justice Byrd filed a persuasive dissenting opinion, the essence of which was that we were guilty of a gross misinterpretation of the statute.

While it may be that subsection (a)(3) offers some support for our rationale when combined with the assumption that the statute states only a minimum of proof the insurer must make to bar recovery for misrepresentation, that conclusion ignores the remainder of the quoted statutory language. The statute could not be clearer in stating that misrepresentation will not bar recovery unless it is fraudulent or "[m]aterial either to the acceptance of the risk or to the hazard assumed by the insurer." As one critic of our opinion put it:

Whatever tendency the language emphasized by Justice Smith in paragraph [ (a)(3) ] of [the statute] may have, when lifted out of context to suggest a requirement that a misrepresented fact has contributed to the loss for which policy benefits are sought, fades when the paragraph is read as a whole.

D.F. Adams, Misrepresentation in the Procurement of Insurance, 4 UALR L.J. 17, at 79 (1981).

Our opinion in the National Old Line case, however, did not rest solely on the support we found in the statutory language. We wrote:

Fairness and reason support the view that a causal connection should be essential. Otherwise, when the insured is killed by a stroke of lightning or by being run over by a car, the insurance company could successfully deny liability by showing that the insured was suffering from diabetes when he stated that he was in good health.

Such considerations of fairness are especially pertinent to a credit life insurance policy like the one before us. This was a short-term policy, to remain in force for only three years. The company made no medical examination of the applicant, relying upon him either to refuse to sign the application if he was not in good health, in which case the policy would never be issued, or to "clip a note" to the application, explaining his health condition. The appellant had the burden of proving its affirmative defense, but it made no effort to show that the automobile salesman who took People's application made any explanation of the printed form or of the significance of the representation of good health. If People had lived for three years the insurer would have sustained no loss. In the circumstances it is plainly unjust to permit the company to deny liability on the basis of a misrepresentation that had no connection with People's death (or so the jury might have found) and that would have provided no defense to the insurer if the policy had excluded coverage for loss resulting from the undisclosed ailments. [256 Ark. at 142, 506 S.W.2d at 131.]

Given the emphasis placed on the type of policy and the type of medical inquiry which occurred in the National Old Line case, there is the temptation to limit its holding to credit life policies tendered by automobile salespersons where no detailed medical questions are asked. We cannot do that because the sweep of principle adopted in the opinion is too broad. We have applied the ruling only in very similar cases, Ford Life Ins. Co. v. Samples, 277 Ark. 351, 641 S.W.2d 708 (1982); Ford Life Ins. Co. v. Jones, 262 Ark. 881, 563 S.W.2d 399 (1978), and not in "regular" insurance cases where the misrepresentation occurred in response to a more thorough investigation of the health of the prospective insured. Thus this is, in a way, a case of first impression in this court, and we do not feel that our decisions have become as much a part of the statute as its very words. See Lucky v. Equity Mut. Ins. Co., 259 Ark. 846, 537 S.W.2d 160 (1976). Cf. Crawford v. Emcasco, 294 Ark. 569, 745 S.W.2d 132 (1988). Our court of appeals has, however, applied our National Old Line case rationale in a regular term life insurance policy case, like the one before us now, Capitol Old Line Ins. Co. v. Gorondy, 1 Ark.App. 14, 612 S.W.2d 128 (1981), and in a health insurance policy case, Ward v. Union Life Ins. Co., 9 Ark.App. 131, 653 S.W.2d 153 (1983). In cases like the credit life cases where the insurance application questions and the answers required are very general and not detailed, the factual question whether the applicant for insurance has indeed...