World Insurance Company of Omaha, Nebraska v. Pipes

• Decision Date: 09 June 1958
• Docket Number: No. 16915.,16915.
• Citation: 255 F.2d 464
• Parties: WORLD INSURANCE COMPANY OF OMAHA, NEBRASKA, Appellant, v. Mrs. Zelma PIPES et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

255 F.2d 464 (1958)

WORLD INSURANCE COMPANY OF OMAHA, NEBRASKA, Appellant, v. Mrs. Zelma PIPES et al., Appellees.

No. 16915.

United States Court of Appeals Fifth Circuit.

May 6, 1958.

Rehearing Denied June 9, 1958.

COPYRIGHT MATERIAL OMITTED

Henry Bernstein, Jr., Monroe, La., Jack W. Marer, R. C. Andrews, Omaha, Neb., Hudson, Potts & Bernstein, Monroe, La., for appellant.

James Madison, Madison, Madison, Files & Shell, Bastrop, La., for complainants-appellees.

Before RIVES, BROWN and WISDOM, Circuit Judges.

WISDOM, Circuit Judge.

Mrs. Zelma Pipes and her two children filed suit, as the widow and heirs of Henry A. Pipes, against World Insurance Company of Omaha, Nebraska. They seek recovery upon a health and accident policy on Mr. Pipes for sickness disability benefits at the rate of $200 a month, totaling $1,846.62, and for hospital and drug bills of $1,761.56, making an aggregate of $3,608.18. A jury trial was waived. The District Court for the Western District of Louisiana gave judgment for this amount, with a like amount as a penalty, and attorneys' fees of $1,500. Jurisdiction is based on diversity of citizenship.

I.

Henry A. Pipes, a resident of Oak Ridge, Louisiana, was born July 11, 1901 and died March 16, 1956. In May 1953 Pipes experienced a swelling in his legs below the knees, particularly at the ankles. Upon examination albumen was found in his urine. Dr. Lucian M. Ferris, physician for Pipes, concluded that Pipes was suffering from nephritis, a kidney disease. The stage was undetermined. The record does not show that Dr. Ferris ever told Pipes he had nephritis (Bright's disease), or that the seriousness of nephritis was ever explained to Pipes. Bed-rest and diet restrictions are important elements in the treatment of nephritis. Pipes was not restricted as to diet or activity. He was allowed to continue the active management of three plantations totaling about 1800 acres. In connection with duties that included supervision of a herd of cattle, he rode horseback extensively and drove a station wagon 20,000 miles a year.

Mr. Pipes' condition appeared to respond quickly to treatment. He saw Dr. Ferris on June 23, July 28, September 8, and November 2 for treatment, but by December 15, 1953 all apparent signs of the disease had disappeared. With exception of the July 28 visit, all urinalyses showed albumen. There is no showing that Pipes was informed of this fact (except on one occasion), nor is there any showing that he understood the importance of the urinalyses.

On several occasions prior to November 18, 1953, Thomas Files, defendant's local agent, also a resident of Oak Ridge, attempted to sell Pipes a "Farmers' and Ranchers'" disability benefit insurance policy. This policy does not require a medical examination. On November 18, 1953, Pipes signed an application blank filled out by the agent. The two key questions and answers are as follows:

"11. Are you sound physically and mentally to the best of your knowledge and information? Yes * * *

"12. Have you ever had any of the following diseases? * * * Kidney disease? Yes * * * Albumen, July 1953. No after effects."

Pipes never told his family or his close friends that he had nephritis or Bright's disease, indicating, said the trial judge, "we think, that he did not know he had the malady, if he did". He continued his usual business and social activities. On the strength of the defendant having accepted his application, he dropped similar insurance with another company. Pipes paid two annual premiums.

Some time in late December 1954 or early January 1955 Pipes suffered an attack of dysentery during the course of which he lost about 15 pounds. From this time on his health steadily declined. In late May or early June 1955 he went to Dr. W. B. Liles, a urologist, who diagnosed his illness as glomerulonephritis, chronic, active, and possibly in the subacute stage. From this time until March 16, 1956, the date of death, Pipes was hospitalized. While hospitalized he attempted to pay the third insurance premium, but appellant refused to accept it, declined liability, and attempted to return the sum of the first two premiums paid by Pipes. This, Pipes refused to accept.

Pipes' widow and heirs ask for all accrued benefits under the policy. World Insurance denies liability on the grounds that: (1) Pipes falsely induced it to write the policy; and (2) there was no coverage under the terms of the policy, because "the cause" of the "sickness" did not "originate" more than fifteen days after the date of the issuance of the policy.

II.

Under Louisiana law, in order for an insurer to bar recovery on the ground of an insured's false statement, the insurer must show that the statement (1) was made with intent to deceive or (2) that it materially affected the risk. LSA — R.S. 22:619.¹ Louisiana authorities agree that where a defendant asserts a special defense of this sort, the insurance company has the burden of proving wrongful intent or materiality, and that the answers of the insured are construed in his favor. Telford v. New York Life Ins. Co., 1955, 227 La. 855, 80 So.2d 711; Bankson v. Mutual Benefit Health & Accident Association, 1948, 208 La. 1008, 24 So.2d 59; 1 Appleman, Insurance Law and Practice, p. 253. The insurer must prove by a preponderance of the evidence, that the insured was not in sound health when the policy application was made. Mataya v. Delta Life Insurance Company, La.App.1954, 71 So.2d 139.

There is no question of fraud or intent to deceive in this case. Defendant's counsel conceded that Pipes was completely honest in making his application for insurance and the trial judge found that Pipes did not make any deliberately false or fraudulent statement of facts.

The insurer attacks three words in the application as false and materially increasing the risk. These are the words "No after effects", used after the insured admitted having kidney trouble and answered "Yes * * * Albumen, July, 1953". The trial judge found that the defendant had not shown that these three words were false; that Pipes' condition had improved to such an extent, by November, that for all he knew, his recovery was complete, or virtually so, and he had no reason to believe he had "after effects". The medical evidence was conflicting. Dr. Ferris testified that "it's a good assumption" Pipes died of the "same type of disease" he had in May, 1953. But Dr. Liles, testified that in view of the remarkable and apparently complete recovery Pipes had made, it was entirely possible, and even likely, that he had sustained another infection, after November, 1953, which brought on a new attack of nephritis in early 1955 and it was this nephritis that culminated in his total disability from about June, 1955 until his death. Pipes' unrestricted freedom as to diet and activities supports the claimants' position.

Materiality cannot be settled by a post-mortem pronouncement of the insurer who is sued for not paying the insured's claim.² It is for the court to say whether the matter allegedly misrepresented would affect a reasonable insurer's judgment as to acceptance of the risk. Here, the words "No after effects", written November 18, 1953, cannot be divorced from the rest of the answer admitting kidney trouble and stating "Albumen, July 1953".³ It is a common knowledge, backed up by testimony in the record, that a reference to albumen in an insurance examination or application triggers a triple alert to insurance companies. This is the important material fact in the application. Pipes' honest answer to Question 12 was all the disclosure necessary for any reasonable underwriter to accept the risk or to investigate further.

The claimants make a strong case for estoppel.⁴ (1) First, it was Files, the insurer's local agent, not Pipes, who wrote out the answers to the questions in the application.⁵ World Insurance Company did not call on Files to testify. If anyone was in a position to find out whether Pipes was still suffering from nephritis it was Files, the insurer's local agent. And in the little town of Oak Ridge, Louisiana, if Files did not know of his own knowledge to what extent Pipes had recovered, he could have learned with little effort. (2) Further, in reliance on the World Insurance Company having accepted him as a risk, Pipes dropped a similar policy already in force with another company.⁶ (3) Finally, the answers Pipes gave in his application were sufficient to impel any reasonable underwriter to find out the facts. Instead, the World accepted the application and accepted the premiums. Under these circumstances, to us as to the trial judge, it seems unconscionable for the insurer to make the defense that Pipes falsely represented his condition of health in his application for insurance.

The insurer relies on Flint v. Prudential Insurance Co., La.App.1954, 70 So.2d 161; Karno v. Metropolitan Life Insurance Company, D.C.E.D.La.1956, 137 F.Supp. 893, affirmed 5 Cir., 1957, 242 F.2d 141; and Rhodes v. Metropolitan Life Insurance Company, 5 Cir., 1949, 172 F.2d 183. In each of these cases the insured made false statements in his application and there was strong evidence that the insured knew that the statement was false. On the other hand, the Court below found that the insured had no fraudulent intent, had made no false statements, and that the alleged misrepresentation was not material. We cannot say that the finding was clearly erroneous; on the contrary, we agree with the trial judge.

III.

The insurer's second defense is that there was no coverage under the terms of the policy, because the cause of Pipes' sickness did not originate more than fifteen days after the issuance of the policy. The policy covers:

"(c) loss of time commencing while the policy is in force and resulting from sickness, the cause of which originates more than fifteen days after the policy date * *"

The complainants argue that "sickness" means a disabling illness, and that the "caus...