In re CERTIFIED QUESTION
WICKERSHAM
v.
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
Supreme Court of Michigan.
N. Dwight Teachworth, P.C. (by N. Dwight Teachworth), for plaintiff.
Dickinson, Wright, McKean, Cudlip & Moon (by John E.S. Scott, Philip M. Frost, Richard M. Bolton, and Susan Bieke Neilson) for defendant.
BLAIR MOODY, JR., J.
Plaintiff asserts a claim for proceeds as beneficiary under a life insurance policy. Defendant responds that the deceased misrepresented a material fact in the application for the policy which bars recovery.
Pursuant to GCR 1963, 797.2,[1] this Court ordered consideration of the following question certified by the United States District Court, Eastern *60 District of Michigan, Southern Division.
"Should the term `materiality' in [MCL 500.2218; MSA 24.12218] be construed to require only that a misrepresentation affect the insurer's risk, or should it be construed also to require that the subject of the misrepresentation be related to the cause of the insured's death?"
We conclude that a material misrepresentation need not specifically relate to the cause of an insured's death for an insurance company to be entitled to the rescission or avoidance of a life insurance policy.
I
The United States District Court set forth the relevant facts in the certificate prepared in conformity with GCR 1963, 797.2(b):
"Plaintiff, Linda Wickersham, initiated this action to recover forty-four thousand ($44,000.00) dollars allegedly due on a life insurance policy issued by the defendant. The policy insured the life of the plaintiff's husband who had died in a swimming accident. The plaintiff was named as the insured's beneficiary. Defendant denies liability under the policy, and has offered to rescind it and return the insured's premiums to the plaintiff.
"Defendant argues that the insured misrepresented his medical record at the time he applied for the policy, and that these misrepresentations deceived the defendant into accepting an insurance application which it otherwise would have rejected. Plaintiff concedes these facts, but argues that misrepresentation can only justify recission [sic] if the insured dies of a cause related to the subject of the misrepresentation. It is stipulated that the insured's death was not related to his undisclosed health problem, paroxysmal tachycardia."
*61 The statute in question, MCL 500.2218; MSA 24.12218, provides:
"The falsity of any statement in the application for any disability insurance policy covered by chapter 34 of this code may not bar the right to recovery thereunder unless such false statement materially affected either the acceptance of the risk or the hazard assumed by the insurer.
"(1) No misrepresentation shall avoid any contract of insurance or defeat recovery thereunder unless the misrepresentation was material. No misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make the contract.
"(2) A representation is a statement as to past or present fact, made to the insurer by or by the authority of the applicant for insurance or the prospective insured, at or before the making of the insurance contract as an inducement to the making thereof. A misrepresentation is a false representation, and the facts misrepresented are those facts which make the representation false.
"(3) In determining the question of materiality, evidence of the practice of the insurer which made the contract with respect to the acceptance or rejection of similar risks shall be admissible.
"(4) A misrepresentation that an applicant for life, accident or health insurance has not had previous medical treatment, consultation or observation, or has not had previous treatment or care in a hospital or other like institution, shall be deemed, for the purpose of determining its materiality, a misrepresentation that the applicant has not had the disease, ailment or other medical impairment for which such treatment or care was given or which was discovered by any licensed medical practitioner as a result of such consultation or observation. If in any action to rescind any contract or to recover thereon, any misrepresentation is proved by the insurer, and the insured or any other person having or claiming a right under the contract, shall prevent full disclosure and proof of the nature of the medical *62 impairment, the misrepresentation shall be presumed to have been material." (Emphasis added.)
The issue presented is whether the above-quoted statute requires that there be a causal relation between a material misrepresentation and the loss insured against before a right to recover under an insurance policy is barred.
II
We begin our analysis with the language of the statute. The opening sentence of the statute does not specifically state or suggest that the material misrepresentation relate to the cause of death. The statute requires that the misrepresentation "materially [affect] either the acceptance of the risk or the hazard assumed by the insurer".[2]
Acceptance of the risk and hazard assumed are terms with different meanings. One court has explained the meaning of hazard assumed in this manner:
"A misstatement to be material to the hazard assumed must be shown in some way to have affected it or contributed to the loss, and in a substantial manner." Prudential Ins Co of America v Saxe, 77 US App DC 144, 156; 134 F2d 16, 28 (1943), cert den
Based upon the limited record in this case and the narrow question presented for review, it is apparent *63 that the misrepresentation of the insured's medical record did not affect or contribute to the hazard assumed in this case the death of the insured.
Our inquiry must proceed, however, as the words of the statute and the case law reflect a conceptual difference between the terms "hazard assumed" and "acceptance of the risk". The Legislature's use of "either" and "or" leads to a recognition that the two terms have different meanings. Acceptance of the risk refers to the time of making of the contract of insurance and to the insurance concept of risk. Whether an insurer determines to enter into a contract is affected by its assessment of the likelihood of a fact increasing the chances of the loss insured against. See Jefferson Standard Life Ins Co v Clemmer, 79 F2d 724, 733 (CA 4, 1935).
Thus, the conceptual difference between the two phrases is that "acceptance of the risk" relates to the evaluation made before issuance of an insurance policy which differs from "hazard assumed", which refers to the circumstances of the loss. Jones v Prudential Ins Co of America,
"The risk involved in insuring against a possible loss is distinct from the actual occurrence of the loss. In determining whether the acceptance of the risk was affected, the focus properly must be on the basis for the issuance of the policy, not on the circumstances of the insured's subsequent death."
The portion of the statute including the risk and hazard language was part of
In prior litigation dealing with these concepts, this Court has not previously adopted plaintiff's view that before an insurance policy may be rescinded or avoided there must be a causal relation between the misrepresentation and the loss. In Western & Southern Life Ins Co v Ogrodnik,
A review of all the subsections under this statute fails to support the claim of plaintiff that a causal relation between the false statement and loss is required. In 1957, the Legislature amended MCL 500.2218; MSA 24.12218 by adding the four numbered paragraphs to this section.
Subsection (1) sets forth a test of materiality which focuses upon the time frame prior to issuance of the policy: Whether "knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make the contract". In the instant case the parties agree that the misrepresented information would have led to such a refusal. Under our statute this forecloses further inquiry into the question of materiality.
That materiality is to be tested well before the loss occurs is also demonstrated by subsection (2). This statutory language defines representation and misrepresentation as a statement "at or before the making of the insurance contract as an inducement to the making thereof". Similarly, subsection (3) also explains that the focus is upon "the acceptance or rejection of similar risks". This procedure also occurs prior to the issuance of the policy. Accordingly, these additional subsections reinforce the conclusion that there is no requirement under this statute of a causal relation between a misrepresentation and the circumstances of the loss before a right to recover under an insurance policy is barred because of a material misrepresentation.
*66 In Cartwright v Maccabees Mutual Life Ins Co,
"In the instant case, the insurer introduced substantial evidence of specific and grossly inaccurate representations in the Cartwright application. Not only can there be no disagreement among reasonable men that these false statements would materially affect the acceptance of the risk by defendant, but also they are presumed material by reason of plaintiff's invocation of the privilege to prevent full disclosure to the jury of the extent of Mr. Cartwright's medical impairment."
It should not pass unnoticed, however, that the Legislature has limited in other ways an insurer's power to avoid an insurance policy on grounds of material misrepresentation. Under the provisions of MCL 500.4014; MSA 24.14014, an insurance policy generally "shall be incontestable after it shall have been in force during the lifetime of the insured for 2 years". The scope of this incontestability provision may be found in Bogacki v Great-West Life Assurance Co,
There is no doubt that the incontestability clause, if applicable, would have barred the defense asserted in the instant case. The two-year limit permits full investigation by an insurance *67 company of any matters which formed part of the decision to make the contract. In effect, the statute permits an insurance company to continue to investigate or to wait to further investigate, for a full two years. Once the time limit is passed the insurer may no longer, in general, avoid the policy. This statute balances the concerns of insureds that years after the application date an insurance company would refuse to pay benefits and desire to avoid contracts, no matter how old, if there was a material misrepresentation at the time the contract was made. The impact of this section lends no force to the suggestion that a causal relation is necessary.
III
Our conclusion today is in accord with the majority view which rejects the requirement that there be a causal relation between the misrepresentation and the cause of death.[4]
"[I]t is immaterial that there is no causal or other *68 relationship between the loss which is sustained under the policy and the falsity of the representation." 7 Couch, Insurance (2d ed), § 35:87, p 102. See also § 35:47, p 56.
43 Am Jur 2d, Insurance, § 737, p 724 states:
"In the absence of a statute providing otherwise, however, it is not necessary to the defense of an action on a life insurance policy on the ground that misstatements in the application as to the applicant's medical history were material to the risk, that the matters not disclosed should have had a causal relation to the death of the insured." See also § 760, pp 743-745, and §§ 782-783, pp 763-768. Cf. 45 CJS, Insurance, § 595(3), pp 407-409.
The prevailing view at common law also held that it is not necessary that the misrepresentation relate to a matter which caused the loss. Anno: Impairment of insured's health or physical condition not contributing to his death or disability as affecting insurer's liability,
In contrast, some states do require, by statute, that the misrepresentation "shall have actually contributed to the contingency or event on which the policy is to become due and payable" before a misrepresentation is material and an insurance policy is rendered void.[5] "These statutes constitute *69 a material departure from the common law rule." Meyer, supra, § 6:10, p 171. As the Michigan statute does not contain such a precise legislative command, it becomes difficult to presume that by not using similar terminology the Legislature intended Michigan's statute to be construed as to require a causal relation contrary to the common-law standard.
In the absence of a specific directive, the vulnerability of plaintiff's position becomes apparent for another reason. What would be the consequence if an insurer sought to rescind the policy prior to the death of the insured? Would it be acceptable for the insured to assert that there was no cause-effect relation established and thus rescission could not be allowed? To read the statute as requiring a causal relation after death, but not before death, would mean that the "or" in the phrase "acceptance of the risk or the hazard assumed" would be read in the disjunctive before the loss occurred, but in the conjunctive after the loss. Furthermore, the word "either" would be read out of the statute in a suit before the loss. Cf. Robinson,
Furthermore, consideration of some of the inequitable consequences that would flow from the requirement of showing a causal relation indicate that such an interpretation is not persuasive. If an applicant disclosed his or her medical history and such history was material under subsection (1) in that it "would have led to a refusal by the insurer", *70 this applicant would fail to get a policy. On the other hand, the beneficiary of an applicant who had concealed his or her material medical history could receive policy benefits. A showing that it would not have accepted the risk would not aid the insurer. The fact that an applicant might be uninsurable would have no relevancy. The only issue would be whether the misrepresentation had a causal relation to the insured's death. Proving the particular cause of death and all of its contributing factors is not always possible. Accordingly, absent clear direction, we cannot conclude that the Legislature intended to place applicants who deliberately misrepresent or conceal material facts in such an advantageous legal position as compared to those who reasonably disclose them. Cf. Ketchum & Co, Inc v State Mut Life Assur Co of Worcester, Mass, 162 F2d 977, 979 (CA 2, 1947).
Plaintiff argues that Howard v Golden State Mutual Life Ins Co,
It is important to note that the instant case involves a narrow question based upon a limited record. We are not presented with a record involving questions of good-faith answers, errors in writing the application, concealment of trivial or *71 clearly nonmaterial ailments, reliance, or other questions of fact. The parties have stipulated that the insurer would have refused to make the contract and apparently agreed that the only issue left for determination is the certified question. That is the only issue before this Court.
Accordingly, we answer the certified question by concluding that no causal relation need be shown.
Costs are governed by GCR 1963, 797.2(e).
COLEMAN, C.J., and KAVANAGH, WILLIAMS, LEVIN, FITZGERALD, and RYAN, JJ., concurred with BLAIR MOODY, JR., J.
NOTES
Notes
[1] GCR 1963, 797.2(a) provides:
"When a federal court or state appellate court considers a question that Michigan law may resolve and that is not controlled by Michigan Supreme Court precedent, the court may on its own motion or that of an interested party certify the question to the Michigan Supreme Court."
[2] The parties do not dispute the applicability of this portion of the statute to the case at bar involving a life insurance policy rather than a policy of disability insurance. Cf. Housour v Prudential Life Ins Co of America,
[3] 1948 CL 522.17; MSA 24.280 provided:
"The falsity of any statement in the application for any policy covered by this chapter shall not bar the right to recovery thereunder unless such false statement was made with actual intent to deceive or unless it materially affected either the acceptance of the risk or the hazard assumed by the insurer."
[4] See generally Benson v Bankers Life & Casualty Co, 147 Colo 175;
[5] Kan Stat Ann § 40-418, Mo Rev Stat § 376.580, RI Gen Laws § 27-4-10. Ark Stat Ann § 66-3208 does not contain the same language as these three statutes. However, § 66.3208(c) states in part:
"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."
This language has led the Arkansas Supreme Court to hold that the insurer must show a causal relation to avoid a credit life insurance policy. National Old Line Ins Co v People,