New York Life Insurance v. McMaster

SANBORN, Circuit Judge,

аfter stating the facts as above, delivered the opinion of the court.

In form, this is a suit in equity to reform written contracts. In fact, it is a bald attempt to supersede written agreements with the parol negotiations which preceded and induced them. It is contended that the insurance company agreed in the preliminary negotiations that it would issue policies which would insure the life of the deceased for 13 months, in consideration of the payment of the first annual premiums, and that, either by mutual mistake or by the fraud of the company, policies were issued which insured his life for only 12 months and 17 days, in consideration of those premiums. A contract may be reformed in equity where a preliminary parol agreement is made, which fails of embodiment in the subsequent written contract through the fraud of one, or the mistake of both, of the parties to it. But the oral agreement and the fraud or Hie mutual mistake must be clearly proved before any such relief can be granted. The chief difficulty with this case is that neither the oral agreement nor the fraud nor the mutual mistake are established by the evidence. It is an indispensable requisite of a binding agreement that it; should have a good or a valuable consideration. If the insurance company agreed witli the deceased when he signed ids applications that it would issue policies which would insure his life for 13 mouths, in consideration of the payment of the first annual premiums, (here was no consideration for that agreement, because McMaster neither paid nor agreed to pay anything for this preliminary promise. He merely signed applications for policies, and, until lie received them and paid his premiums upon them; he was at perfect liberty to reject the insurance and to refuse the policies. Before these policies were delivered, on December 26,1893, no suit could have been maintained against him for the premiums, or for a specific performance of any agreement to take any insurance or to accept any policies, because he had never made any such agreement, and had never promised to pay any premiums. For could he have maintained an action against the insurance company upon its agreement to issue policies that' should give him insurance for 13 months, because that agreement was without consideration and void. There were, as is customary in life insurance cases, negotiations, but no contract, and no intention tо contract, otherwise than by policies made and delivered upon the simultaneous payment of the premiums; and the agreement upon which the appellee counts was nothing more than a representation or promise, without consideration, as to what would happen in the future. Society v. McElroy, 49 U. S. App. 548, 28 C. C. A. 365, and 83 Fed. 631, 638; Kendall’s Adm’r v. Insurance Co., 10 U. S. App. 256, 263, 2 C. C. A. 459, 461, and 51 Fed. 689, 691; Heiman v. Insurance Co., 17 Minn. 153, 157 (Gil. 127); Markey v. Insurance Co., 103 Mass. 78; Hoyt v. Insurance Co., 98 Mass. 539, 543; Markey v. Insurance Co., 118 Mass. 178, 194; 1 May, Ins. (3d Ed.) § 56.

For is there any proof of fraud in this record. The fraud upon which reliance is placed here is pleaded as the basis of an estoppel. The claim is that the insurance company is estopped from denying that the actual contracts were the oral agreement for insurance for 13 months from December 26, 1893, and that the written contracts should be so reformed as to have this legal effect, because the solicitor promised that such wоuld be the agreements. But a willful intent to deceive, or such gross negligence as is tantamount thereto, is an essential element of such an estoppel. There must be either some moral turpitude or some breach of duty. Bank v. Farwell, 19 U. S. App. 256, 262, 265, 7 C. C. A. 391, 394, 396, and 58 Fed. 633, 636, 639; Henshaw v. Bissell, 18 Wall. 255, 271. The deceit of its victim, and consequent damage, are essential elements of actionable fraud. If the acts of this insurance company did not deceive the insured, or if he was not induced thereby to change his position to his damage, no fraud which will warrant relief was perpetrated upon him. Before any cause of action for a reformation or avoidance of these policies can be maintained on the ground of fraud, convincing proof must be furnished that by some trick, artifice, or deceit of the company, the insured was induced to accept ‍‌​​​​​‌​‌​​​‌​​‌‌‌​​‌‌‌‌‌​​​​‌‌‌​​​‌‌​‌‌‌‌‌‌‌‌​​‍his policies, and to pay his first premiums, in the belief that they insured his life, for 13 months from December 26,1893. But he received the policies on that day, and he retained them in his possession until he died, on January 18, 1895. Their provisions are plain, clear, and free from all ambiguity and doubt. They stipulate that the company insures his life for 12 months and 17 days from December 26, 1893, only, and that at the end of that time they shall become void unless the second annual premiums are paid, He could not have been deceived as to the terms or legal effect of these contracts, if he read them. It was his duly to read and know the conten is of the policies when he accepted them. It is true that the evidence is Unit he did not read them, but the legal effect of his acceptance is the same as if he had read them. lie had the oрportunity to read and to learn their contents, and, if he did nor, it was his own gross negligence, and no act of the insurance company or its agent that concealed them and misled him as to their effect. The statement of the agent II days before the deceased received the policies lluit they would insure him for 13 months from the payment of the first premiums was not a statement of an existing fact. It was not calculated to impose upon him, or to prevent him from reading his policies, and learning for himself whether this promise had berm kept or broken. It was not a fraudulent representation, because fraud can never be predicated of a promise or a prophecy. Railway Co. v. Barnes, 27 U. S. App. 421, 12 C. C. A. 48, and 64 Fed. 80; Sawyer v. Prickett, 19 Wall. 146, 163; Kerr, Fraud & M. (Bump’s American Notes) 85, note 3. 'Neither the company nor its agent, therefore, made any representation or promise, or used any artifice or deceit, to prevent the insured from learning the terms of his policies. Their conten!s were not concealed. They were not misrepresented. The deceased must accordingly be conclusively presumed to have known their terms when he accepted them. If one can read his contract, his failure to do so is such gross negligence that it conclusively estоps him from denying knowledge of its contents. unless he was dissuaded from reading it by some trick, artifice, or fraud of the oilier party to the agreement. Railway Co. v. Belliwith, 55 U. S. App. 113, 28 C. C. A. 358, and 83 Fed. 437, 440. Contracts for insurance are no exceptions to this rule. Morrison v. Insurance Co.. 69 Tex. 353, 359, 6 8. W. 605; Quinlan v. Insurance Co., 133 N. Y. 356, 365. 31 N. E. 31; Wilcox v. Insurance Co., 85 Wis. 193, 55 N. W. 188; Fuller v. Insurance Co., 36 Wis. 599, 604; Herbst v. Lowe, 65 Wis. 316, 26 N. W. 751; Hankins v. Insurance Co., 70 Wis. 1, 2, 35 N. W. 34; Herndon v. Triple Alliance, 45 Mo. App. 426, 432; Palmer v. Insurance Co., 31 Mo. App. 467, 472; Insurance Co. v. Yates, 28 Grat. 585, 593; Ryan v. Insurance Co., 41 Conn. 168, 172; Barrett v. Insurance Co., 7 Cush. 175, 181; Holmes v. Insurance Co., 10 Metc. (Mass.) ‍‌​​​​​‌​‌​​​‌​​‌‌‌​​‌‌‌‌‌​​​​‌‌‌​​​‌‌​‌‌‌‌‌‌‌‌​​‍211, 216; Insurance Co. v. Swank, 12 Ins. Law. J. 625, 627; Insurance Co. v. Hodgkins, 66 Me. 109, 112; Insurance Co. v. Neiberger, 74 Mo. 167, 173; Beach, Ins. (1895) § 414, and cases cited. The legal conclusion that thе insured knew the terms of his policies, because he had an opportunity to know them, and it: was his duty to do so, is in accordance with the actual fact. The proof is clear and indisputable that before December 13, 1894, he was notified that his second annual premiums fell due on December 12, 1894, and that his policies would expire on January 12,1895. unless he paid them, and that he replied that he did not intend to keeр the insurance in force, and did not care to pay them. This record therefore presents no evidence that the insurance company or its agent made any representation of which fraud can be predicated, and it presents no evidence that the insured was deceived into taking his policies by any misrepresentation of the company or its agent.

The case is equally barren of evidence of a mistake in drafting the policies. The mistake which will warrant the reformation of a contract must be a mutual mistake. A court of equity may not reform a written agreement, on the ground of mistake, so as to impose on one of its parties obligations which he did not intend to assume when he made it. Insurance Co. v. Henderson, 32 U. S. App. 536, 546, 16 C. C. A. 390, 394, and 69 Fed. 762, 767. It is conceded by counsel for appellee that the act of the solicitor of the insurance company in directing the policies to be dated on the same day as the applications was the act of the company. The agent of the company, and the company itself, therefore, intended to make the term of insurance in these policies exactly what it was made by their terms, and there was no mistake on their part in drafting and delivering the сontracts. The result of a careful examination' of the record is' that there was no binding, legal agreement before the policies were delivered, no fraud which induced the insured to accept them, and no mutual mistake in drafting or delivering them; and the policies cannot be reformed on any of these grounds.

It is strenuously insisted, however, that the statement of the solicitor of the company that its pоlicies would give insurance for 13 months, in consideration of the payment of the first annual premiums, was a construction of the terms of the policies which the company is estopped from denying, in the absence of fraud and mistake, and that the appellee is entitled to recover the indemnity promised, on this ground, whether he is entitled to a reformation of the policies or not. The case of Insurаnce Co. v. Chamberlain, 132 U. S. 304, 10 Sup. Ct. 87, is cited and relied upon in support of this proposition. In that case the agent of the insurance company wrote the answers of the applicant to the questions propounded in his application. One of those questions was, “Has the said party [the applicant] any other insurance on his life?” When the agent asked this question, the applicant told him that he had сertain certificates of membership in certain cooperative societies, which he named, and that he did not know whether they would be considered insurance or not. The agent told him emphatically that he did not consider that insurance, and that the proper answer to the question was “No;” and he thereupon wrote the answer, “No other,” into the application, and the applicаnt signed it. The company undertook to defend an action on the policy' on the ground that' this answer was false, because the applicant had insurance in the co-operative societies; and the supreme court held that inasmuch as the agent of the company, after hearing all the facts, dictated and wrote the answer, the company was estopped from claiming that'it was false. Indeed, it is well settled that an insurance company is estopped' from defending against a loss on the ground that the policy is avoided by a false answer in the application, where the insured told the agent the truth, and the latter wrote the falsehood into the application himself. The false statement then becomes the statement of the company, and not of the insured, and it may not plead its own wrong, to forfeit its policy. Laclede Mfg. Co. v. Hartford Ins. Co., 19 U. S. App. 510, 521, 9 C. C. A. 1, and 60 Fed. 351; Insurance Co. v. Robison, 19 U. S. App. 266, 7 C. C. A. 444, and 58 Fed. 723; Insurance Co. v. Russell, 40 U. S. App. 530, 553, 23 C. C. A. 43, 54, and 77 Fed. 94, 106; Insurance Co. v. Wilkinson, 13 Wall. 222, 225; Insurance Co. v. Mahone, 21 Wall. 152; Insurance Co. v. Snowden, 12 U. S. App. 704, 7 C. C. A. 264, and 58 Fed. 342; Kausal v. Association, 31 Minn. 17, 21, 16 N. W. 430; Dietz v. Insurance Co., 31 W. Va. 851, 8 S. E. 616. This rule, however, is very far from the proposition that an opinion expressed, or a promise or agreement made, in the previous parol negotiations, to the effect that the subsequent written contract which results from them will have a certain legal effect, must prevail over the plain terms and right construction of the actual, written agreement, which is subsequently made and accepted. The former statement is based on existing- facts, completely disclosed, while the latter is a mere opinion or promise as to what (lie future will bring forth. The former is the statement ‍‌​​​​​‌​‌​​​‌​​‌‌‌​​‌‌‌‌‌​​​​‌‌‌​​​‌‌​‌‌‌‌‌‌‌‌​​‍of the effect of known and existing conditions, which, if false and injurious, is fraudulent, while the latter is a mere promise or prophecy, which cannot be fraudulent, even if it is a mist alce. The latter proposition is the converse of the established rule that written contracts shall prevail over the previous oral negotiations from which they result. Nevertheless, it has a familiar sound. It has been repeatedly presented to, and has repeatedly received the condemnation of, this and other courts. In Laclede Mfg. Co. v. Hartford Ins. Co., 19 U. S. App. 510, 513, 520, 9 C. C. A. 1, 3, 8, and 60 Fed. 351, 353, 358, the agent of the insurance company told thе insured, in the previous preliminary negotiations, that the policy upon seven boilers, which he was soliciting him to take, would certainly cover any additional boilers which the insured might subsequently acquire, provided only seven were in operation at a time. The insured took the policy in reliance upon this representation. After he had obtained it, he acquired additional boilers, one of which explodеd while only seven were in operation. He brought an action upon the policy for the explosion, but it failed. This court declared:

“That the opinion that Eickbcff [the agent] expressed, or, if it could be so called, the promise that he made, before the policy was issued, that it would cover all after-acquired boilers, when but seven were in use, was merged in the written contract evidenced by the рolicy, and was not available to the plaintiff in this action, either as a representation, an agreement, or an estoppel.”

In Insurance Co. v. Henderson, 32 U. S. App. 536, 540, 543, 547, 16 C. C. A. 390, 391, 393, 395, and 69 Fed. 762, 764, 766, 768, the agent of the insurance company informed the insured, in the previous parol negotiations which led to the contract, that the policy he would receive would cover his death by assassination. The policy subsequently delivered excepted from the risks against which it insured “intentional injuries inflicted by Ihe insured, or any other person.” The insured was shot from ambush. A suit was brought to reform the policy so as to cover the risk which the solicitor had assured the deceased would be covered by the policy. But this court directed the dismissal of the bill, and held that:

“When the risks Intended to be insured against are clearly described In the policy, and the insured has a full and fair opportunity to read the instrument, the company will not be bound by representations made by its agent, in good faith, that the policy covers risks that are not in fact within its provisions."

In Thompson v. Insurance Co., 104 U. S. 252, 259, the policy provided that it should be void on the nonpayment of the note taken for the premium; and the supreme court held that a plea that a parol agreement was made, at the time of the giving and accepting of the note and policy, that the policy should not become void for the nonpayment of the note, but should only be voidable at the election of the company, was bad. Mr. Justice Bradley, in delivering the opinion of the court, said:

“An insurance company may waive a forfeiture, or may agree not to enforce a forfeiture; but a parol agreement, made at the time of issuing a рolicy, contradicting the terms of ‍‌​​​​​‌​‌​​​‌​​‌‌‌​​‌‌‌‌‌​​​​‌‌‌​​​‌‌​‌‌‌‌‌‌‌‌​​‍the policy itself, like any other parol agreement inconsistent with a written instrument made contemporary therewith, is void, and cannot be set up to contradict the writing:"

In Insurance Co. v. Mowry, 96 U. S. 544, 547, the policy provided that it should be void and wholly forfeited if the premiums were not punctually paid. The agent who procured the policy agreed with the insured that the company should give notice whеn the premiums fell due, but this agreement was not contained in the policy. The company failed to give the notice, and the insured failed to pay the premium. The agreement of the agent before the policy issued was claimed to be an estoppel of the company against insisting upon the forfeiture of the policy. Mr. Justice Meld, in delivering the opinion of the court, said: .

“All previous verbal arrangements were merged in the written agreement. The understanding of the parties as to the amount of the insurance, the conditions upon which it should be payable, and the premium to be paid, was there expressed, for the very purpose of avoiding any controversy or question respecting them. * * * An estoppel cannot arise from a promise as to future action with respect to a right to bе acquired upon an agreement not yet made. * * * The doctrine has no place for application when the statement relates to rights depending upon contracts yet to be made, to. which the person complaining is to be a party. He has it in his power, in such cases, to guard in advance against any consequences of a subsequent change of intention and conduct by the persоn with whom he is dealing. For compliance with arrangements respecting future transactions, parties must provide by stipulations in their agreements when reduced to writing. The doctriñe, carried to the extent for which the assured contends in this case, would subvert the salutary rule that the written contract must prevail over previous verbal arrangements, and open the door to all the evils which that rule was intended to рrevent. White v. Ashton, 51 N. Y. 280; Bigelow, Estop. 437, 441; White v. Walker, 31 Ill. 422; Faxton v. Faxon, 28 Mich. 159.”

In Assurance Co. v. Norwood, 57 Kan. 610, 611, 613, 615, 617, 618, 47 Pac. 529, 532, the agent of the insurance company agreed with the insured, in the preliminary negotiations, that they should be permitted to carry $37,500 additional insurance, and promised to make out the policies to that effect. In reliance upon this agreement and promise, the insured neglected to read the policies when they were delivered. They were for $2,500 each, permitted only $32,500 cоncurrent insurance, and provided that they should be void if the insured procured more without the consent of the company. The insured obtained $37,500 concurrent insurance, and the company defended an action on one of the policies on the ground that it was avoided by this overinsurance. The insured pleaded the previous oral agreement and promise, and alleged that the company wаs thereby estopped from making this defense. The supreme court of Kansas held that the plea could not be sustained, and that there could be no recovery upon the policy. In Union Nat. Bank v. German Ins. Co., 18 C. C. A. 203, 71 Fed. 473, the circuit court of appeals for the Seventh circuit came to a like conclusion. In Association v. Kryder, 5 Ind. App. 430, 435, 31 N. E. 851, the solicitor of the company promised the insured in the prior parol nеgotiations, that the policy of insurance on his barn and its contents would insure his horses, whether they were in or out of the barn. The horses were killed by lightning in the field near the barn; and, to the plea that the association was bound by the construction which the agent gave to the policy, the court answered:

“The policy was read hy the appellee, and the representation was not of any material fаct, hut of a question of law, relative to the construction ‍‌​​​​​‌​‌​​​‌​​‌‌‌​​‌‌‌‌‌​​​​‌‌‌​​​‌‌​‌‌‌‌‌‌‌‌​​‍of the contract. The appellee had no right to rely upon such representation, and fraud cannot he predicated upon it.” Burt v. Bowles, 69 Ind. 1; Clodfelter v. Hulett, 72 Ind. 137.

In Casualty Co. v. Teter, 136 Ind. 672, 673, 676, 679, 36 N. E. 283, the agent represented to the insured that a policy of insurance against accidents of travel as a passenger on a public conveyance, which he was soliciting him to take, wоuld cover accidental injuries which he might receive while he was caring for and selling a load of horses which he was about to transport to market by rail. He fell from a hayloft in a livery barn while caring for Iris horses in a market town to which they had been transported, but the supreme court of Indiana held that he could not recover.

It is useless to review other decisions. This jiroposition is founded in reason, and sustained by the authorities, and it should he deemed to be the settled law of the land: No representation, promise, or agreement made, or opinion expressed, in the previous parol negotiations as to the terms or legal effect of the resulting written agreement, can be permitted to prevail, either at law or in equity, over the plain provisions and just interpretation of the contract, in the absence of some artifice or fraud which concealed its terms, and prevented the complainant from reading it. Laclede Mfg. Co. v. Hartford Ins. Co., 19 U. S. App. 510, 513, 520, 9 C. C. A. 1, 3, 8, and 60 Fed. 351, 353, 358; Insurance Co. v. Henderson, 32 U. S. App. 536, 540, 543, 547, 16 C. C. A. 390, 391, 393, 395, and 69 Fed. 762, 764, 766; Thompson v. Insurance Co., 104 U. S. 252, 259; Insurance Co. v. Mowry, 96 U. S. 544, 547; Assurance Co. v. Norwood, 57 Kan. 630, 611, 633, 47 Pac. 529, 530, 531, 532; Association v. Kryder, 5 Ind. App. 430, 435, 31 N. E. 851; Union Nat. Bank v. German Ins. Co., 18 C. C. A. 203, 71 Fed. 473; Casualty Co. v. Teter, 136 Ind. 672, 673, 676, 679, 36 N. E. 283; Burt v. Bowles, 69 Ind. 1; Clodfelter v. Hulett, 72 Ind. 137; Hudson Canal Co. v. Pennsylvania Coal Co., 8 Wall. 276, 290; Insurance Co. v. Lyman, 15 Wall. 664; Pearson v. Carson, 69 Mo, 550; Insurance Co. v. Neiberger, 74 Mo. 167; Lewis v. Insurance Co., 39 Conn. 100.

Under the evidence presented in this record, the appellee cannot recover upon these policies, either at law or in equity; and the decree below must be reversed, and the case must be remanded to the court below, with directions to dismiss the bill. It is so ordered.

Case Details

Case Name: New York Life Insurance v. McMaster

Court Name: Court of Appeals for the Eighth Circuit

Date Published: Mar 21, 1898

Citation: 87 F. 63

Docket Number: No. 976

Court Abbreviation: 8th Cir.