Stipcich v. Metropolitan Life Ins Co

• Decision Date: 21 May 1928
• Docket Number: No. 97,97
• Citation: 48 S.Ct. 512,72 L.Ed. 895,277 U.S. 311
• Parties: STIPCICH v. METROPOLITAN LIFE INS. CO. Re
• Court: U.S. Supreme Court

277 U.S. 311

48 S.Ct. 512

72 L.Ed. 895

STIPCICH

v METROPOLITAN LIFE INS. CO.

No. 97.

Reargued March 6, 1928.

Decided May 21, 1928.

Messrs. Chester I. Long, of Wichita, Kan., and G. C. Fulton, of Astoria, Or., for Stipcich.

[Argument of Counsel from page 312 intentionally omitted] Messrs. F. Eldred Boland and Samuel Knight, both of San Francisco, Cal., for Metropolitan Life Ins. Co.

[Argument of Counsel from page 313 intentionally omitted] Mr. Justice STONE delivered the opinion of the Court.

The plaintiff brought this action in the circuit court for Clatsop county, Oregon, as beneficiary of a policy by which the defendant had insured the life of her husband, Anton Stipcich. The case was removed for diversity of citizenship to the United States District Court for Oregon. The company defended principally on the ground that 'Stipcich, after applying for the insurance and before the delivery of the policy and payment of the first premium, had suffered a recurrence of a duodenal ulcer, which later caused his death, and that he failed to reveal this information to the company.

It was shown on the trial by uncontradicted evidence that after his application Stipcich consulted two physicians and that they told him that an operation for the removal of the ulcer was necessary. Plaintiff then made tender of evidence to the effect that Stipcich had communicated this information to Coblentz, the defendant's agent who had solicited the policy, and that the visit to the second doctor was made at Coblentz' request to confirm the diagnosis of the first.

The proffered evidence was excluded, and at the close of the whole case, and over plaintiff's objection, the court directed a verdict for the defendant (8 F.(2d) 285), stating that it did so because Stipcich was under a duty to inform the defendant of his knowledge of the serious ailment of which he had learned after making application for insurance, and that he had failed in that duty since his communication of the facts to Coblentz did not amount to notice of them to the insurance company. The case was taken on writ of error to the Circuit Court of Appeals for the Ninth Circuit. That court certified to this certain questions of law presented by the case. Judicial Code, § 239 (28 USCA § 346), Without answering, we ordered the entire record to be sent up and the case is here as though on writ of error (48 S. Ct. 205, 72 L. Ed. —).

An insurer may, of course, assume the risk of such changes in the insured's health as may occur between the date of application and the date of the issuance of a policy. Where the parties contract exclusively on the basis of conditions as they existed at the date of the application, the failure of the insured to divulge any later known changes in health may well not affect the policy. Mutual Ben. Life Insurance Co. v. Higginbotham, 95 U. S. 380, 24 L. Ed. 499. See New York Life Insurance Co. v. Moats (C. C. A.) 207 F. 481; Grier v. Insurance Co., 132 N. C. 542, 44 S. E. 28. Compare Gardner v. North State Mutual Life Insurance Co., 163 N. C. 367, 79 S. E. 806, 48 L. R. A. (N. S.) 714, Ann. Cas. 1915B, 652. But there is no contention here that the parties contracted exclusively on the basis of conditions at the time of the application. Here both by the terms of the application and familiar rules governing the formation of contracts no contract came into existence until the delivery of the policy, and at that time the insured had learned of conditions gravely affecting his health, unknown at the time of making his application.

Insurance policies are traditionally contracts uberrimae fidei and a failure by the insured to disclose conditions affecting the risk, of which he is aware, makes the contract voidable at the insurer's option. Carter v. Boehm, 3 Burrows, 1905; Livingston v. Maryland Insurance Co., 6 Cranch, 274, 3 L. Ed. 222; McLanahan v. Universal Insurance Co., 1 Pet. 170, 7 L. Ed. 98; Phoenix Life Insurance Co. v. Raddin, 120 U. S. 183, 189, 7 S. Ct. 500 (30 L. Ed. 644); Hardman v. Firemen's Insurance Co. (C. C.) 20 F. 594.

Concededly, the modern practice of requiring the applicant for life insurance to answer questions prepared by the insurer has relaxed this rule to some extent, since information not asked for is presumably deemed immaterial. Penn Mutual Life Insurance Co. v. Mechanics' Savings Bank & Trust Co. (C. C. A.) 72 F. 413, 435-441, 38 L. R. A. 33, 70. See Clark v. Manufacturers' Insurance Co., 8 How. 235, 248, 249, 12 L. Ed. 1061. Compare Phoenix Life Insurance Co. v. Raddin, 120 U. S. 183, 190, 7 S. Ct. 500 (30 L. Ed. 644).

But the reason for the rule still obtains, and with added force, as to changes materially affecting the risk which come to the knowledge of the insured after the application and before delivery of the policy. For even the most unsophisticated person must know that, in answering the questionnaire and submitting it to the insurer, he is furnishing the data on the basis of which the com- pany will decide whether, by issuing a policy, it wishes to insure him. If, while the company deliberates, he discovers facts which make portions of his application no longer true, the most elementary spirit of fair dealing would seem to require him to make a full disclosure.¹ If he fails to do so the company may, despite its acceptance of the application, decline to issue a policy, Canning v. Farquhar, 16 Q. B. D. 727; McKenzie v. Northwestern Mutual Life Insurance Co., 26 Ga. App. 225, 105 S. E. 720; or, if a policy has been issued, it has a valid defense to a suit upon it, Equitable Life Assurance Society v. McElroy (C. C. A.) 83 F. 631, 636, 637. Compare Traill v. Baring, 4 De G., J. & S. 318; Allis-Chalmers Co. v. Fidelity & Deposit Co. of Maryland, 114 L. T. 433. Compare Piedmont & Arlington Life Insurance Co. v. Ewing, 92 U. S. 377, 23 L. Ed. 610.

This generally recognized rule, in the absence of authoritative local decision, we take to be the law of Oregon. Its application here is not affected by Oregon Laws, § 6426 (1) (c), which provides that the policy shall set forth the entire contract between the parties. The defendant in insisting that Stipcich was under an obligation to disclose his discovery to it is not attempting to add another term to the contract. The obligation was not one stipulated for by the parties, but is one imposed by law as a result of the relationship assumed by them and because of the peculiar character of the insurance contract. The necessity for complying with it is not dispensed with by the failure of the insurer to stipulate in the policy for such disclosure.

The evidence proffered and rejected tended to show that the insured, in good faith, made the required disclosure to Coblentz who, for some purposes, admittedly represented the defendant. If he represented it for this purpose the evidence should have been received. Coblentz was the licensed agent of respondent under Oregon Laws, § 6425, which provides that every life insurance company doing business in the state 'shall give written notice to the insurance commissioner of the name and residence of, and obtain from him a license for every person appointed by it to act as its agent within this state, which license shall state, in substance, that the company is authorized to do business in this state and that the person named therein is constituted an agent of the company for the transaction of business in this state. * * *' The insured knew no other agent of defendant and dealt with Coblentz alone. So far as appears, no other person or agency was designated under the statute or held out by the defendant as representing it in connection with Stipcich's application for insurance or the delivery of the policy or as the appropriate person or agency to receive information concerning either of them. The insured delivered the application to Coblentz and later paid to him the first premium, receiving in return the policy and a receipt executed by Coblentz in defendant's name. In communicating to him the information as to his changed condition of health Stipcich acted only in what must have appeared to him the most natural and obvious way to supplement the information already given in his written application.

Defendant relies on the established rule, here expressed in part at least in the printed clause of the application, incorporated in the policy and printed in the margin,² that the authority of a soliciting agent to receive the application and transmit it to the company and to deliver the policy when issued, does not include power to vary the terms of the contract, to waive conditions or to receive information sought by questions in the application other than that embodied in it. But Coblentz, when the insured communicated the information to him, did not purport to vary any term of waive any condition of the proposed insurance contract; he did not acquiesce in a variation of the application; nor in connection with the preparation of the written application did he receive any information not written into it. The insured merely communicated information, supplementing the application, to the designated agent of the company for the transaction of business in the state, as the most natural and appropriate channel of communication to the company.

In insisting that it was entitled to information of the insured's change of health after the application, but that such information could not be effectively communicated to its agent to receive the application and transact business with insured preliminary to the acceptance of the risk, defendant is not aided by the stipulations of the policy and any doubts as to the agent's implied authority to receive it must be resolved in the light of the Oregon statutes. Oregon Laws, § 6435, reads as follows:

'Any person who shall solicit and procure an application for life insurance shall, in all matters relating to such application for insurance and the policy issued in consequence thereof, be...