Lead Opinion
delivered the opinion of the Court.
We granted certiorari to review the decision in Wade v. Olinger Life Insurance Co.,
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 reаding 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 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.
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:
“In evaluating the plaintiffs 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:
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 ocсurred 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 protеction 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 questions, thе 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
The trial court found that the petitioner had answered the questions “truthfully” and in good faith. Even had application of the statute been raised below, the result, based upon the above analysis, would necessarily be the same. As there was competent evidence to support this finding below, we will not disturb it on appeal. New York Life Insurance Co. v. Fukushima, supra.
II.
The Applicant’s State of Mind
Consistency in the articulation of principles governing the avoidance of insurance pоlicies has been a troublesome task in this jurisdiction.
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 applicant of mаtters 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 J. Appleman, Insurance Law and Practice § § 73-75, 9481-9503 (1945 and Supp. 1976); 7 R. Anderson, Couch on Insurance 2d chap. 37 (1961 and Supp. 1976). This is the rule in this jurisdiction. See Hollinger v. Mutual Benefit Life Insurance Co.,
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
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 demonstrаted 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
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 misdemeаnor . . .
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 рrecedent 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 materiаlity or importance 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 sincеrity and lack of 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 answеrs should not be judged 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.,