Wade v. Olinger Life Ins. Co.

• Decision Date: 31 January 1977
• Docket Number: No. C--859,C--859
• Citation: 192 Colo. 401,560 P.2d 446
• Parties: Theresa WADE, Petitioner, v. OLINGER LIFE INSURANCE COMPANY, Respondent.
• Court: Colorado Supreme Court

Page 446

560 P.2d 446

192 Colo. 401

Theresa WADE, Petitioner, v. OLINGER LIFE INSURANCE COMPANY, Respondent.

No. C--859.

Supreme Court of Colorado, En Banc.

Jan. 31, 1977.

As Modified on Denial of Rehearing March 14, 1977.

Shelley B. Don, Denver, for petitioner.

Gorsuch, Kirgis, Campbell, Walker & Grover, Robert E. Warren, Jr., Michael J. Wadle, Denver, for respondent.

ERICKSON, Justice.

We granted certiorari to review the decision in Wade v. Olinger Life Insurance Co., 37 Colo.App. 44, 544 P.2d 412 (1975). We reverse and remand with directions.

The petitioner is a 28-year-old woman with a ninth grade education. In 1971, the Olinger Life Insurance Company solicited her business. In response, the petitioner applied for a life insurance (funeral arrangements) policy for her mother in the amount of $1,500, and named herself as beneficiary. An agent for the insurer came to the petitioner's home, interviewed the petitioner, and filled out the application form for her.

The agent testified that he had been selling insurance for sixteen years, and that he conducted about 300 interviews per year. While his ability to recall the situation at the petitioner's home was questionable, his testimony did indicate a general procedure of initially asking some general questions regarding the health of the insured and then reading through the questions on the form, but omitting up to half of the items in the list of relevant ailments. The omitted items were supposed to be checked later, near the end of the interview, after the applicant was asked to sign the form and to indicate the amount of coverage desired. Apparently, this was to avoid 'embarrassing' the applicant. The agent stated that his incentive for selling policies consisted of a commission. The commission was equal to the first year's premium on the policy. His entitlement to the commission was not affected by the continuation or the ultimate status of a policy which he sold.

During the course of the interview with the petitioner, the agent advised her that he was seeking information only as to things which were 'serious.' He then read Parts of the following questions, apparently deleting portions which he felt might be 'embarrassing':

'3. Does any person above named now have or did he or she ever have any of the following: Heart trouble, high blood pressure, tuberculosis, paralysis, cancer, epilepsy, tumor, venereal disease, kidney trouble, ulcer, diabetes, alcoholism, asthma, emphysema, dropsy, swelling or edema, circulatory ailment, rheumatism, arthritis, rheumatic fever, muscular disease, physical injury, physical or mental defect, other disease or ailment or surgical operation?

'4. Has any person named been attended by a physician or practitioner for treatment or been admitted to a hospital or sanitarium in the past five years?'

At the end of the interview, just prior to asking the petitioner to initial the form, the agent may have mentioned the omitted items. The application form indicated that the petitioner answered both questions in the negative.

Subsequently, petitioner's mother died of cancer and petitioner made a claim for benefits due under the policy. ¹ The insurer refused to pay, claiming fraud with respect to the responses to questions 3 and 4.

Evidence at trial indicated that the mother had gone to a hospital emergency room for consultation regarding a foot injury in 1970. The petitioner testified that she felt that this incident was not serious, and the record below gives no evidence as to the seriousness of this injury. ² Other evidence indicated that the insured had received some treatment for a miscarriage, high blood pressure, and arthritis. The petitioner testified that she knew only of treatment for colds and for the miscarriage. She explicitly advised the agent of the miscarriage treatment and some 'check-ups,' but he told her such matters were unimportant.

On two occasions, in 1967 and 1970, the petitioner also signed treatment authorization forms for her mother. Hospital records indicated that, pursuant to these authorizations, the insured was examined briefly and discharged within a few hours. Those records contain a report of a drinking spree and a tentative diagnosis of 'alcoholism.' The record does not show that the plaintiff had knowledge of the content of these records. The medical records indicated that the insured saw only a nurse or social aide, rather than a doctor, on several occasions.

The trial court entered judgment for the petitioner holding that 'the plaintiff answered the questions truthfully without any intent to deceive or misrepresent.' In reversing, the court of appeals held that 'In evaluating the plaintiff's answers to the questions on the application form, the trial court obviously considered those answers in light of the agent's advice to plaintiff that Olinger was only interested in information concerning injuries or diseases that were 'serious.' In this context, the trial court found that plaintiff answered the questions truthfully to the best of her knowledge. However, if the agent's statements are in conflict with the instructions on the application, plaintiff may not rely on the instructions of Olinger's agent relative to how the questions on the application must be answered.'

The issues before us are (1) whether, under the circumstances of this case, application of section 10--2--204, C.R.S.1973, bars petitioner's claim of reliance on the representations of the agent, and (2) whether, under the circumstances of this case, the petitioner possessed the requisite state of mind to allow the insurer to avoid the policy.

I

Misrepresentation by the Agent

Section 10--2--204, C.R.S.1973, provides, in pertinent part:

'(B)ut no statement or declaration made to or by an agent . . . not contained in the application, shall be taken or considered as having been made to or brought to the notice or knowledge of the company, or as charging it with any liability by reason thereof. ³

In applying the statute to this case, we note that the insurer never raised the issue of the applicability of the statute in his pleadings, during the course of the trial, or in his motion for a new trial. We are, thus, presented with application of a statute not raised or considered below. This alone may be considered a sufficient basis for waiver of the statutory protection. See C.R.C.P. 9(i); People ex rel. Kinsey v. Sumner, 34 Colo.App. 61, 525 P.2d 512 (1974). See also Denning v. A. V. Wilson & Co., 137 Colo. 372, 326 P.2d 77 (1958). Even assuming that the application of the statute had been properly raised, we find the statute, under constructions previously adopted by this court, inapposite to the facts of this case.

In New York Life Insurance Co. v. Fukushima, 74 Colo. 236, 220 P. 994 (1923), this court limited the effect of the above statute in these terms:

'The solicitor and medical examiner of an insurance company are its agents, their Acts and knowledge are those of their principal and the insured cannot be held responsible for a wrong perpetrated through their fraud or Negligence. False statements . . . known to them at the time made to be false are no defense.' (Emphasis added.)

Accord, Federal Life Insurance Co. v. Kras, 96 Colo. 589, 45 P.2d 636 (1935); Northwestern Mutual Life Insurance Co. v. Farnsworth, 60 Colo. 324, 153 P. 699 (1915); See also Constitution Life Insurance Co. v. Rogerson, 130 Colo. 26, 273 P.2d 1019 (1954); German American Insurance Co. v. Hyman, 42 Colo. 156, 94 P. 27 (1908) (no-waiver clause in policy held inapplicable because agent's acts estopped insurer; such clauses are to be narrowly construed); Pomeroy v. Rocky Mountain Insurance and Savings Institute, 9 Colo. 295, 12 P. 153 (1886) (agent's waiver of insurer's claim of misrepresentation against applicant).

A situation similar to the instant case arose in United American Life Insurance Co. v. Rebarchek, 134 F.Supp. 554 (D.Colo.1955). There, the insurer sought to avoid the policy because of 'material misrepresentations' by the insured. The agent of the insurer had filed out the application. The insured was asked, pursuant to the application, 'Do you use alcoholic beverages in any form?' He responded: 'Sure, I take a drink now and then moderately.' The agent then said: 'Sure, put down 'No,' because we all do once in a while.' The court then noted that under Colorado law,

'. . . since Misinterpretation, negligence or fraud on the part of the agent in such circumstances fall Without the statutory prohibition, by the same reasoning such also fall without the policy limitations on 'statements and promises' of the agent.'

The Rebarchek court relied, in part, upon Suravitz v. Prudential Insurance Co., 244 Pa. 582, 91 A. 495 (1914) (policy provision stating that agent could not bind the company 'falls far short of protecting the principal from the negligence or fraud of the agent in preparing the application.').

Even where the statute has been applied to prevent recovery, the agent's act has been such as to clearly contradict the terms of the insurer's application form or policy. In Benson v. Banker's Life and Casualty Co., 147 Colo. 175, 362 P.2d 1039 (1961), we applied the statute to the issue of

'whether a misstatement of an insurance company agent that the company is interested only in illness which occurred within the previous five year period, which statement is contrary to the express terms of the insurance contract, is binding upon the company so as to require that the policy be upheld and enforced notwithstanding the falsity of the information contained therein.'

We concluded that '(t)he agent's oral representations, Contradicting the express terms of the insurance contract, could not be binding on the defendant company.' (Emphasis added.) See also Warner v. Farmer's Automobile Inter-Insurance Exchange, 104 Colo. 359, 90 P. 965 (1934) (attempted waiver of forfeiture clause by agent); Commonwealth Casualty Insurance Co. v....