Wade v. Olinger Life InsuranceWade v. Olinger Life Insurance
Lead Opinion
delivered the opinion of the Court.
We granted certiorari to review the decision in Wade v. Olinger Life Insurance Co.,
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.
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 reаd 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 priоr 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.
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.
On two occasions, in 1967 and 1970, the petitioner also signed treatment authorization forms for her mother. Hospital recоrds 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 soсial 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:
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.”
In applying the statute to this case, we note that the insurer never raised thе 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,
In New York Life Insurance Co. v. Fukushima,
“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 wrоng 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,
A situation similar to the instant case arose in United American Life Insurance Co. v. Rebarchek,
The Rebarchek court relied, in part, upon Suravitz v. Prudential Insurance Co.,
Even where the statute has been applied to prevent recovery, the agent’s act has been such as to clearly qontradict the terms of the insurer’s application form or policy. In Benson v. Banker’s Life and Casualty Co.,
“whether a misstatement of an insurance company agent that the company is interested only in illness which оccurred 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,
The problem we face in this case was aptly stated in Cadez v. General Casualty Co.,
“It may be that some insurance agents in their enthusiasm to produce business make reckless or negligent statements concerning policy coverage. The complexity of modern insurance contracts is such that persons desiring рrotection understandably place great reliance on the agent who handles their insurance business.”
The petitioner in this case was faced with questions which, if taken literally, would require an open-ended, exhaustive disclosure of even the slightest ill-feeling ever suffered by her mother. Therefore, in asking the agent about the proper construction to be given to these quеstions, the petitioner was not seeking an alteration or waiver of the express terms of the contract or application form; she was merely seeking to make sense of otherwise unanswerable questions. The agent’s response that the insurance company was interested only in “serious” matters was a reasonable interpretation of the form. See United American Life Insurance Co. v. Rebarchek, supra. It did not contradict the terms of the apрlication and is not within the letter or policy of the insurer’s statutory protection against the waiver of express terms by agents. If the agent was negligent in his interpretation of the form, the responsibility for such error must lie with the insurer. See New York Life Insurance Co. v. Fukushima, supra. To hold otherwise would invite promulgation of insurance application forms and conduct by an agent which would trap the unwary.
The trial court found that the petitioner had answered the questions “truthfully” and in good faith. Even had application
II.
The Applicant’s State of Mind
Consistency in the articulation of principles governing the avoidance of insurancе policies has been a troublesome task in this jurisdiction.
“A false statement or declaration of a fact material to the risk, and upon which the policy is based, will avoid the policy, whether that misrepresentation be the result of intention or of mistake, and whether made in good faith or not so made.”
More recently, the court of appeals, in Gomogda v. Prudential Life Insurance Co.,
“. . . an insurance policy cannot be avoided on the basis of false statements or declarations of an applicant, unless such statements or declarations are material to the risk or form the basis on which the policy is issued, and unless they are made with knowledge on the part of the applicаnt of matters which make them false or misleading. Thus, the test is one of fraud and deceit.”
The Gomogda decision reviewed prior Colorado case law and concluded that an element of knowledge on the part of the applicant was required in order for an insurer to avoid the policy. We agree with that portion of the Gomogda analysis. While there exist some exceptions by virtue of case law and special statutes, the majority rule among other jurisdictions clearly appears to require proof of an element of “knowledge,” while dispensing with proof of an “intent to deceive.” See generally 17
The nature of the disclosures required on insurance application forms such as the one in this case presents an additional problem. The pervasive, detailed, and often open-ended questions asked of the many insurance applicants increases the opportunity for innocent omission or mis-statement of “known,” but seemingly trivial items. Moreover, the value-judgments inherent in defining such terms as “heart trouble,” “physical or mental defect,” “alcoholism” or “other . . . ailment” make evaluation of the state of mind required to avoid an insurance contract difficult. The legal concept of “knowledge” may be too imprecise if used alone. In the instant case, the applicant may have “known” that her answers to the questions were “false” in some literal sense, but the instructions by the agent that the insurer was interested only in “serious” matters may have disarmed any concеrn that these matters were important to the insurer.
In order to protect innocent insurance applicants, an applicant must be reasonably chargeable with knowledge that the facts omitted or misrepresented were within the scope of questions asked on the application. A particular misrepresentation not only must be actually material to the insurer’s risk, as dеmonstrated by customary underwriting procedures, it also must be such that a reasonable person would, under the circumstances, have understood that the question calls for disclosure of specific information.
See Colo. J.I. 19.4;
For example, an applicant may “know” that he or the prospective insured has had “any physical injury” in the sense of a bruise or sore muscle from some routine physical activity. Under the rule announced in this case, the trier of fact would look at the circumstances of the case, e.g., the bruise or soreness, and decide if a reasonable person would have perceived it as
Contemporaneously with the announcement of this opinion, the elements which an insurer must prove in order to avoid an insurance policy for fraud were set out in Hollinger v. Mutual Benefit Life Insurance Co.,
It appears that the trial court applied an erroneous (“intent to deceive”) test.
Accordingly, we reverse the court of appeals and order that the case be remanded to the trial court for a redetermination in light of the principles articulated in this decision.
MR. JUSTICE HODGES, MR. JUSTICE GROVES, MR. JUSTICE LEE, and MR. JUSTICE CARRIGAN concur.
MR. CHIEF JUSTICE PRINGLE concurs in the result.
MR. JUSTICE KELLEY dissents.
Notes
The insured died within two years of the date of the execution of the insurance contract. Accordingly, the “incontestable” clause of the contract was not in effect. See section 10-7-102(1)(b), C.R.S. 1973; Union Mutual Insurance Co. v. Bailey,
Thus, the materiality of this fact was not proven by the insurer. See Farmers and Bankers Life Insurance Co. v. Allingham,
The statute also provides that an “agent who knowingly procures by fraudulent representations payment or an obligation for payment of a premium of insurance is guilty of a misdemeanor . . .
A similar construction was applied to a Missouri statute in Ross-Langford v. Mercantile Town Mutual Insurance Co.,
There exist at least two divergent lines of authority in this jurisdiction. One line of cases applies the rule in Germania Life Insurance Co. v. Klein,
Another line of precedеnt has refused either to recognize or apply the Germania rule, instead relying upon an additional element beyond the applicant’s knowledge. See, e.g., Olinger Mutual Benefit Ass’n v. Christy, supra (requires proof of fraud beyond reasonable doubt or by clear and convincing evidence); Supreme Tribe of Ben-Hur v. York, 70 Colo. 175,
Finally, at least one case appears to rely exclusively upon “knowledge” as the relevant inquiry into the applicant’s state of mind. See Southern Surety Co. v. Farrell,
We are aware that past decisions of this court have stated that “it is for the insurer to determine the materiality or importаnce of the answers to such questions rather than for the applicant . . . regardless of the fact that he may consider them of no consequence.” Capitol Life Insurance Co. v. Thurnau,
The Colorado Jury Instructions define “material fact” as one to which “a reasonably prudent person under the circumstances would attach importance ... in determining his course of action.” While the Colorado Jury Instructions are not intended to operate as positive law, they are intended to operate as consistent guides to the proper legal principles involved. See C.R.C.P. 51.1, construed in Gallegos v. Graff,
A similar analysis was applied recently in Howard v. Golden State Mutual Life Insurance Co.,
“[I]n insurance law, misrepresentation refers to a truth synonymous with sincerity and lack оf fraud, rather than to the literal meaning of truth, which is relating things exactly as they are. The truth or falsity of a representation on an insurance policy should be examined in the light of what the applicant knew or had reason to know at the time of the application.
“The insured is not specially equipped to determine what facts are material to the acceptance of a risk. He may be expected to answer in good faith the questions that are put to him, but not to bring an understanding of medicine beyond that of the medical profession to the problem of materiality. . . .
“In the case before us, the [applicant] answered the questions put to him by the insurance application and the insurance agent. We agree . . . that his answers should not be judgеd on a standard beyond which the [applicant] was capable of answering.” (Emphasis in original.)
See generally, Annot.,
Dissenting Opinion
dissenting:
I respectfully dissent. I interpret the record with respect to the factual situation differently than does the majority. As a result, I agree with the opinion of the court of appeals. Both the reasoning and conclusions expressed therein appear to me to be consistent with the opinion of this court in Hollinger v. Mutual Benefit Life Insurance Co.,