Stiegler v. Eureka Life Ins. Co. of Baltimore

• Citation: 127 A. 397,146 Md. 629
• Decision Date: 13 January 1925
• Docket Number: 20.
• Parties: STIEGLER v. EUREKA LIFE INS. CO. OF BALTIMORE.
• Court: Court of Appeals of Maryland

127 A. 397

146 Md. 629

STIEGLER v. EUREKA LIFE INS. CO. OF BALTIMORE.

No. 20.

Court of Appeals of Maryland

January 13, 1925

Appeal from Superior Court of Baltimore City; Carroll T. Bond Judge.

"To be officially reported."

Action by Gabrielle Stiegler against the Eureka Life Insurance Company of Baltimore. Judgment for defendant, and plaintiff appeals. Reversed, and new trial awarded.

Argued before PATTISON, ADKINS, OFFUTT, DIGGES, and PARKE, JJ.

J. Kemp Bartlett and J. Kemp Bartlett, Jr., both of Baltimore (John F. Evans, of Paterson, N. J., and Bartlett, Poe & Claggett of Baltimore, on the briefs), for appellant.

W. Calvin Chesnut, of Baltimore (Jacob S. New, of Baltimore, on the brief), for appellee.

PARKE J.

Alfred Stiegler was a doctor of chemistry in the employ of the United Piece Dye Works, an industry for dyeing silk at Hawthorne, near Paterson, N. J. On January 14, 1921, the Eureka Life Insurance Company, appellee, issued a policy of insurance for $5,000 on his life, payable at death to his wife, Gabrielle Stiegler, the appellant. The insurance policy was granted in consideration (a) of a written application, which was signed by the assured and made a part of the policy, and (b) of the payment in advance, on delivery, of the first annual premium. The policy provided, however, that, in the absence of fraud, all the statements made by the assured should be representations and not warranties, and that no such statements should void the policy or be used in defense of a claim under the policy, unless it be embraced in the application whose copy should be attached to the policy when issued.

The application was signed by the assured as of November 29, 1920, and a copy thereof was duly attached to the policy bearing date of January 14, 1921, and the first premium was paid on February 12, 1921. The policy was then in full force and effect, counting from January 14, 1921.

The application required the person seeking insurance (a) to state if he had ever applied to any company, order, or association without receiving insurance in the amount, or on the plan applied for, or at his actual age, or at the proper premium therefor, (b) and, if so, to give the particulars, (c) and to say if he had ever applied or negotiated, signed an application, or undergone a medical examination for insurance with any company, order, or association other than is covered by his former answers already recorded, and, if yes, to give the particulars. These questions were printed, and space was allotted for the appropriate answers. In a bracket directly opposite the place for the signature of the assured was this plain statement:

"And it is further declared and agreed that the foregoing statements and answers and also the statements and answers to the medical examiner are correct and wholly true, and that they shall form the basis of the contract of insurance, if one be issued."

The materiality of the answers to these questions was affirmatively determined by the stipulation of the policy and by this agreement contained in the application, and the extrinsic evidence on this record, also, made it indisputable that these inquiries and their written replies were material representations by the applicant for insurance. It is furthermore beyond controversy that, before making his application for the insurance with the appellee, the assured had applied for other insurance, and thereupon had undergone a medical examination, and thereafter had been refused insurance, and, in one instance, his advance payment of $100, on account of his premium, had been returned to him on December 1, 1919, because of his rejection as an insurable risk. Notwithstanding these facts, the proof is conclusive that the assured, in corrupt and fraudulent combination with the soliciting agent of the insurance company, deliberately denied his former application for life insurance in another company, his medical examination, and his failure to secure insurance, by answering no to the questions put, with full knowledge of the falsity of his answers, and with the express and declared purpose of deceiving the insurance company so as to procure the insurance sought.

The question of the bad faith of the applicant, or of the falsity and materiality of the representations contained in the application for a life insurance policy, is generally a question for the finding of the jury that will not be withdrawn from their consideration if the evidence on the point is conflicting or doubtful, but, if the fraud of the applicant or the falsity and materiality of the representation is shown by clear, convincing, and uncontradicted evidence, the court may so rule as a matter of law. Mutual Life Ins. Co. v. Willey, 133 Md. 665, 669, 106 A. 163; Metropolitan Life Insurance Co. v. Jennings, 130 Md. 622, 625, 101 A. 608; Ætna Life Insurance Co. v. Millar, 113 Md. 686, 693, 78 A. 483; Forwood v. Prudential Insurance Co., 117 Md. 254, 259, 83 A. 169; Mutual Life Insurance Co. v. Robinson, 115 Md. 408, 420, 80 A. 1085; Mutual Life Insurance Co. v. Rain, 108 Md. 353, 355, 70 A. 87; Mutual Life Insurance Co. v. Mullan, 107 Md. 457, 460, 69 A. 385; Dulany v. Fidelity & Casualty Co., 106 Md. 17, 38, 66 A. 614; Banker's Life Insurance Company v. Miller, 100 Md. 1, 6, 59 A. 116; Maryland Casualty Co. v. Gehrmann, 96 Md. 634, 651, 54 A. 678; Fidelity Mutual Insurance Co. v. Ficklin, 74 Md. 173, 183, 21 A. 680, 23 A. 197.

The fact that the agent of the insurance company co-operated in the fraud does not prevent the application of this principle. It was not within the scope of the agent's authority deliberately to deceive and mislead his principal by confederating with the assured to substitute falsehood where truth was vital to prevent the perpetration of a fraud on his principal. On a policy so obtained no recovery is permitted, unless the insurer has otherwise agreed or lost its defense through a waiver or an estoppel. Globe Reserve Life Insurance Co. v. Duffy, 76 Md. 293, 300, 301, 25 A. 227; Forwood v. Prudential Ins. Co., 117 Md. 254, 261, 264, 83 A. 169; and see cases supra and infra.

The insurance carrier had, in fact, agreed that the policy held by Stiegler should be incontestable one year from its date of issue, except for nonpayment of premium, or for service in the army or navy in time of war, without its written consent. The law is definitely settled by the clear weight of authority that a life insurance policy may establish a reasonable period of limitation, as one or more years, within which the insurer must discover and assert such defenses to the policy as may exist, even if these be fraud on the part of the insured and the agents of the insurer. 2 Williston on Contracts, § 811, pp. 1556, 1557; 14 Ruling Case Law, title "Insurance," § 380, pp. 1199-1201; Mutual Life Insurance Co. v. Hurni Packing Co., 263 U.S. 167, 44 S.Ct. 90, 68 L.Ed. 235, reported and annotated in 31 A. L. R. pp. 102-118.

This case is not within any of the prescribed exceptions of the nonforfeiture clause, and the assured died beyond the term of one year from the issuance of the policy, so the controversy here hinges on whether or not the insurance company effectively rescinded the contract of insurance within the allotted year of investigation and discovery.

The insurance carrier remained in ignorance of the fraud of the assured until some time during the first half of December, 1921, when, as a result of an investigation begun in June or July, 1921, the insurer had enough information to justify it in terminating the contract of insurance.

The discovery of this fraud was within the period of one year from the date of the issuance of the policy and its incontestable clause had, therefore, not become effective. It was, accordingly, the privilege of the insurer to affirm the contract, or, at its option, rescind the contract, as a contract induced by fraud is not void but voidable, at the election of the party defrauded. Rawlins v. Wickham (1853) 3 De G. & J. 304, 322, 28 L. J. Ch. 188, and infra.

It has been urged by the appellant that the true interpretation of the nonforfeiture clause of the policy on which this action is brought limited the insurance carrier to a defense at law of fraud, if a loss occurred within the year and an action were brought thereon, or to a proceeding in equity, within the year, to cancel the policy.

It is true that this contention of the appellant is supported by cases which have adopted the view of the Supreme Court of North Carolina in Trust Company v. Insurance Co., 173 N.C. 558, 92 S.E. 706. See Insurance Company v. Buford, 61 Okl. 158, 160 P. 928; Ramsey v. Insurance Company, 297 Ill. 592, 131 N.E. 108; Ebner v. Insurance Company, 69 Ind.App. 32, 121 N.E. 315; Insurance Company v. McIntyre (C. C. A.) 294 F. 886; Insurance Co. v. Pickering (C. C. A.) 293 F. 496. The Supreme Court of North Carolina rested its conclusion on this statement of its view of the law:

"It follows, therefore, that the conduct of the defendant in notifying the insured that it would cancel the policy, and in tendering the first premium which had been paid, did not rescind or cancel the contract, as the plaintiff did not consent thereto, and amounted to no more than a breach, and that the remedy of the defendant was to institute an action for cancellation within the year, and, as it did not do so, the policy was in force at the expiration of the year," supra, p. 567 (92 S.E. 711).

This court is unable to agree that the recission of a contract procured by deceit in a material matter cannot be effected on its discovery by the defrauded party except through litigation, unless the defrauded party obtain the consent of the wrongdoer. The doctrine of recission does not depend upon such an illusory and unstable...