*1 No. C-859 Life Insurance Company Theresa Wade

(560 446) P.2d January Opinion rehearing and as Decided 1977. modified modified denied March 14, 1977. *2 Don, Shelley B. petitioner.

Gorsuch, Kirgis, Grover, Campbell, Walker & Warren, Robert E. Jr., Wadle, Michael J. for respondent.

En Banc. MR. JUSTICE ERICKSON delivered the opinion of the Court. granted certiorari to review the decision in Wade v. Olinger Colo. App. 544 P.2d 412 (1975). We reverse and remand with directions. grade 28-year-old is a woman with a ninth education. her In re- Life Insurance solicited business. Company (funeral arrangements) for a life insurance petitioner applied

sponse, $1,500, and named herself as bene- for her mother in the amount of home, came to the ficiary. petitioner’s An for the insurer inter- form for her. and filled out the petitioner, viewed selling insurance for sixteen that he had been testified per year. interviews While his and that he conducted about 300 years, his questionable, home was ability petitioner’s to recall the situation at asking general some general initially did indicate a testimony procedure through reading then regarding the health of the insured and questions form, in the list of omitting half of the items up but later, to be checked relevant ailments. The items were supposed omitted interview, sign near the end of the after the was asked to coverage Apparently, and to indicate the desired. this was form amount of *3 that “embarrassing” agent to avoid the The stated his incentive applicant. selling policies equal for consisted of a commission. The commission was to year’s to the first His entitlement the commis- premium policy. status of sion was not affected the continuation or the ultimate a which he sold.

During agent the the ad- petitioner, course of the interview with the seeking things her that he was as to which were only vised information delet- following apparently “serious.” He then read of the parts questions, “embarrassing”: ing might which he felt portions any did he or she ever have any person “3. Does above named now have or trouble, tuberculosis, following: high pressure, paraly- Heart blood tumor, disease, trouble, ulcer, sis, cancer, epilepsy, kidney venereal diabe- tes, alcoholism, asthma, edema, swelling or circula- emphysema, dropsy, fever, ailment, arthritis, disease, rheumatism, rheumatic muscular tory defect, mental other disease or ailment or physical injury, physical or sur- gical operation? named a any person by physician practitioner

“4. Has been attended for treatment or been admitted to a or sanitarium in the hospital past five years?” interview, just asking petitioner

At the end of the to initial the prior form, items. The may application have mentioned the omitted both petitioner questions negative. form indicated answered mother died of cancer and made Subsequently, petitioner’s petitioner a claim benefits due under the The insurer refused policy.1 pay, for claiming respect questions 3 and 4. responses fraud years The died within two of the insurance contract. Accord insured the date of the execution 10-7-102(1)(b), ingly, section the “incontestable” clause of the contract was not in effect. See 1973; Bailey, C.R.S. Union Mutual gone

Evidence at trial indicated that the mother had to a hospital for a emergency regarding injury room consultation foot 1970. pe- serious, testified that she that was titioner felt this incident not and the gives injury.2 record below no evidence as the seriousness of this Other indicated that the insured had received some treatment for evidence a mis- carriage, high blood pressure, petitioner and arthritis. The testified that knew only miscarriage. treatment for colds and for the She explic- she itly miscarriage advised the treatment and “check-ups,” some but told such he her matters were unimportant. occasions,

On two signed in 1967 and also treat- that, ment authorization forms her Hospital mother. records indicated authorizations, pursuant to these was briefly insured examined discharged within a few report hours. Those records contain a of a drink- ing spree diagnosis and a tentative of “alcoholism.” The record does not that show the plaintiff had of the content of these records. medical aide, records indicated only that insured saw a nurse social doctor, rather than a on several occasions.

The trial judgment court entered petitioner holding for the “the plaintiff answered the questions truthfully without any intent to deceive or misrepresent.” In reversing, the court of held appeals that: “In evaluating plaintiffs answers to on form, the trial court obviously light those considered answers agent’s plaintiff advice interested information concerning injuries context, or diseases that were ‘serious.’ In trial plaintiff court found that the questions truthfully answered to the best of However, knowledge. her agent’s if the statements are in conflict with the instructions the application, plaintiff not rely on the instructions of *4 Olinger’s agent relative to the questions how be application must answered.” (1) whether,

The before issues us are under the circumstances of this case, 10-2-204, 1973, of application section petitioner’s C.R.S. bars claim representations whether, reliance on the agent, (2) of the under the case, circumstances of this the petitioner possessed requisite state of mind to allow the insurer to avoid the policy. I.

Misrepresentation by Agent 10-2-204, 1973, Section provides, C.R.S. in pertinent part: 2 Thus, materiality proven this fact not the insurer. See Farmers and Bankers Life Allingham, 1972) law). Co. v. 457 (applying Insurance F.2d 21 Colorado

405 agent or not declaration made to con- no statement or “[B]ut having taken been made application, in shall be or considered as tained charging to or or it brought company, or the notice to with any liability by reason thereof.”3 case, insurer applying

In the statute this we note that the in raised the issue of the statute his applicability pleadings, never trial, are, during new the course of the his motion for a trial. thus, presented not considered be statute raised a waiver of stat low. This alone be considered sufficient basis for Sumner, Kinsey 34 utory protection. 9(i); See C.R.C.P. ex rel. v. People 61, (1974). 525 512 Denning Colo. P.2d See also v. A. V. Wilson 372, assuming Colo. 326 appli & 137 P.2d 77 Even raised, statute, cation of the statute had been we find under properly court, previously adopted by inapposite constructions the facts of this case. Fukushima, 236, York 74 New Colo. 220 Life 994

P. this court limited the of the above effect statute these terms:

“The solicitor and medical examiner of an insurance are company its agents, acts their and knowledge are of their principal those and the in- sured responsible cannot held for wrong through a perpetrated their fraud or False negligence. statements . . . known to them at the time made Accord, be false are added.) no defense.” (Emphasis Kras, Federal Co. Insurance v. 96 P.2d Colo. 45 636 Life (1935); Farnsworth, Northwestern Mutual Insurance v. Co. 60 (1915); Colo. see also Constitution Insurance Co. Rogerson, 130 Colo. P.2d (1954); German American Hyman, (1908) (no-waiver Co. Colo. 94 P.27 clause insurer; in policy inapplicable agent’s held estopped because acts such construed); clauses are to be narrowly Pomeroy v. Rocky Mountain Institute, Insurance and Savings (1886) (agent’s P. waiver of against applicant). insurer’s claim misrepresentation

A situation similar instant case arose United American Life Rebarchek, (D. There, Co. F.Supp. 1955). sought the insurer to avoid the policy because “material misrepresenta- tions” insured. insurer had filled out applica- asked, tion. The pursuant insured was application, “Do use al- you beverages “Sure, coholic form?” He I any responded: take drink a now “Sure, and then moderately.” ‘No,’ then said: down put because *5 all law, we do once in a while.” The court then noted that under Colorado payment The statute also or an obligation provides payment that an of a “agent premium who of knowingly insurance is procures by guilty fraudulent misdemeanor representations the part fraud on misinterpretation, negligence .

“. . since statutory probition, the agent fall without the in such circumstances the limitations ‘statements reasoning policy such also fall without same agent.” the and of promises’ relied, part, upon

The court Suravitz Prudential Rebarchek Co., (1914) (policy provision stating 244 Pa. 91 A. bind “falls of the agent company protecting prin- could not the short cipal from the agent the negligence preparing applica- or fraud of tion.”). recovery, been applied prevent

Even where statute has agent’s the terms of the insurer’s clearly act has been such as to qontradict form or In Benson Banker’s application Casualty policy. statute, 362 P.2d we applied issue of agent that the of an insurance com- company

“whether a misstatement previous which occurred within the five is interested in illness pany contrary express which statement is terms insur- year period, contract, binding is that the upon company require ance so as to policy notwithstanding falsity enforced of the information con- upheld tained therein.” agent’s representations, oral contradicting concluded “[t]he contract, binding express terms insurance could not be on the de added.) See company.” (Emphasis

fendant also Warner v. Farmer’s Exchange, (1934) Automobile Inter-Insurance 90 P. 965 by agent); waiver of clause (attempted forfeiture Commonwealth Kuhrt, Casualty (1924) (re Co. v. garding authority of bind company as to effective date insur Allen, ance). But see Massachusetts Protective Ass’n (D. 1931) (applying preclude Mo. Colorado law to insured’s claim of entry agent). false answers

The we case was stated in problem aptly face in this Cadez v. 1961): Casualty General 298 F.2d agents “It produce be that some insurance their enthusiasm negligent concerning coverage. business make reckless or statements persons The such that complexity modern insurance contracts is desir- ing great understandably place reliance on the who han- protection dles their insurance business.” which, if petitioner in this case was faced with literally, require

taken would an exhaustive disclosure of even open-ended, Therefore, the slightest ill-feeling asking her ever suffered mother. the agent about the to be proper given questions, construction to these seeking express was not alteration or waiver of the terms of form; seeking make merely contract or she was sense agent’s otherwise unanswerable response insurance questions.

407 interested was “serious” matters was a company reasonable of the form. See United interpretation American Insurance Co. v. Life Rebarchek, did supra. It not contradict the terms of and is not within the letter or of the insurer’s statutory protection against agents. express negligent the waiver of terms If the form, in his interpretation responsibility for such error must lie Fukushima, with the insurer. See New York Insurance Co. v. Life supra. To otherwise would invite promulgation hold of insurance applica- tion and forms conduct an which would trap unwary.4 The trial court found that had answered the ques “truthfully” good tions and in faith. Even had application of statute below, result, been raised based upon analysis, above would neces sarily be the competent same. As there was evidence to support this find below, New York ing we will not disturb it Insurance Co. appeal. Life Fukushima, supra. v.

II. The Applicant’s State Mind Consistency in the articulation of principles governing the avoidance of insurance has policies been a troublesome task in jurisdiction.5 Germania Insurance Co. v. Klein, 326, 25 Colo. App. 137 P. 73 Life held, the court on facts in which the misrepresentations were “grossly false” and in which ignorance a claim of incredible,” was “almost that: 4 applied Ross-Langford A similar construction was to a Missouri statute in v. Mercantile Town Co., 79, Mutual Insurance Mo.App. (1902) (waiver by soliciting agent 97 71 S.W. 720 of statu Johnson, tory protection). See also DeSoto Insurance Co. v. 795, 208 Ark. 187 S.W.2d 883 Life (1945) (estoppel); Jackson, Society Woodmen World Insurance (5th v. 243 F.2d 558 Life 1957) (applying generally law); Annot., 6, See Cir. 5 Florida 26 A.L.R.3d 256 divergent jurisdiction. authority There exist at least two lines of applies in this One line of cases Klein, 326, rule in Germania Insurance Co. v. (1913) (quoted 25 Colo. Life below) limiting language in text without applica reference to the in that decision that the rule was See, applicant.” are within the added.) ble to “matters . . . which (Emphasis e.g., Co., Casualty Benson v. Bankers 175, (1961); 147 Colo. 362 P.2d 1039 Life Safeco Goncha, 170, Insurance Co. v. (1960); 142 350 Drake v. State Farm Mutual Colo. P.2d 189 Co., 244, (1960); Automobile Insurance 142 Colo. 350 P.2d 566 Mutual Ass’n Benefit Christy, 425, (1959) (dissent); Capitol v. 139 Colo. 342 P.2d 1000 Insurance Co. v. Life Thurnau, 345, (1954); 130 Colo. Korrey, North American 275 P.2d 940 Life (1945); Security Talley, 157 P.2d 149 Ass'n v. P. 721 Benefit (1925); Hollinger Co., v. Mutual Insurance Colo.App. 541 P.2d 128 Benefit Life (1975), rev’d, Supreme C-793, contemporaneously opinion; Court No. announced Fallis with this Co., v. Zurich Insurance Colo.App. (1970); see also Johnson v. State (10th Farm 1949); Equitable 176 F.2d 83 Zolintakis v. Cir. Life (10th 1940) (dictum); Winn, Prudential Cir. Insurance Co. 1934) (dictum). F.2d 126 precedent recognize rule, Another apply line of rely- has refused either to the Germania instead See, ing upon beyond e.g., Olinger additional element applicant’s knowledge. Mutual Christy, supra (requires proof Ass’n beyond of fraud reasonable doubt clear Benefit York,

convincing evidence); Supreme Tribe Ben-Hur v. (1921) 70 P. risk,

“A false statement or declaration a fact material to the and upon based, which the policy is will avoid the whether that policy, misrepresen- mistake, tation be the result of intention or of good and whether made in or not so faith made.” recently,

More the court of appeals, Gomogda Prudential *7 Co., 31 Insurance 501 756 found Colo.App. P.2d that: “. . . an insurance cannot be avoided on the of basis false statements or declarations of an applicant, unless such statements or declarations are issued, material risk or form the basis on which the policy is and un- they knowledge less are made with part applicant of matters Thus, which make them false misleading. the test is one of fraud and deceit.”

The Gomogda decision reviewed prior Colorado case law and concluded knowledge that an element of the part of the applicant was required order for an policy. agree insurer avoid the with that portion of the Gomogda analysis. While there exist exceptions some by statutes, virtue of case law special the majority rule among ju other risdictions clearly appears to of an require proof “knowledge,” element of dispensing while with proof of an “intent to deceive.” See 17 generally J. 73-75, Appleman, Insurance Law and (1945 Practice 9481-9503 § § Anderson, 1976); Supp. R. Couch on Insurance 2d chap. (1961 1976). and Supp. jurisdiction. This is rule in this See Hollinger Co., v. Mutual Insurance 192 Colo. 560 P.2d 824. Benefit Life The nature of the disclosures required on insurance application forms such as the one in this presents case an additional problem. The pervasive, detailed, and often open-ended questions asked of the many insurance ap- plicants increases the for innocent opportunity omission or mis-statement “known,” of seemingly Moreover, but trivial items. the value-judgments defining trouble,” inherent in such terms as “heart “physical or mental de- fect,” “alcoholism” or “other . . . ailment” make evaluation of the state of mind required to avoid an insurance contract legal difficult. The con- cept “knowledge” of bemay too if imprecise used alone. In the instant case, the applicant may have “known” that her answers to the questions sense, were “false” in some literal but the instructions (fraud); Gomogda (1972) (fraud); Colo.App. v. Prudential (10th 1972) see also Allingham, Farmers and Bankers Insurance Co. v. F.2d Cir. law; (applying denying applicant good Colorado relief to insurer where said he was in health and recently undergone failed to inform insurer that he had extensive medical examinations and muscle biopsy); Smith, (10th 1969) (impact Commercial pre-trial Germania rule avoided court’s construction of order waiver as of insurer’s claim for fraud). proof recission without Finally, appears rely at exclusively upon “knowledge” inquiry least one case as relevant into applicant’s Farrell, Surety state of mind. See Southern Co. v. may interested in “serious” matters have disarmed only insurer was these matters were to the insurer. any important concern that an protect applicants, applicant innocent insurance order omitted reasonably chargeable be the facts must misrepresented scope applica were within the asked on actually A be particular misrepresentation tion. not must material risk, customary underwriting procedures, the insurer’s demonstrated would, it also must person reasonable such that a under the circum stances, specific question have understood that calls disclosure information.6 accord, 19.4;7

See Unger Metropolitan Colo. J.I. Prosser, W. The Law (1968); Ill.App.2d N.E.2d 907 Torts, 1971). 108 at 718 ed. § example, For “know” that he or the prospec tive insured had “any physical injury” has sense of a bruise or sore muscle from some routine physical activity. Under the rule announced in case, case, e.g., the trier of fact look at the would circumstances *8 soreness, the bruise or would person reasonable and decide if a have past We are aware that decisions court that “it of this have stated is for the insurer to determine materiality importance questions applicant of the to such rather the answers than for regardless consequence.” Capitol that he the fact consider them of no Insurance Co. Life Thurnau, 345, (1954). See, v. e.g., 130 Colo. 275 P.2d 940 North American Insurance Co. Life Korrey, (1945). point subjective v. 113 Colo. 157 P.2d of such cases was that — applicant actually appreciated importance given of mind state of the whether he fact — materiality. agree. today’s is irrelevant issue of to the The rule under decision makes explicit proposition implied previous in our cases: it is the insurer’s burden to show both that representations applicant, looking he relied on the ap and that it was reasonable for the at the plication agent, expect form and the conduct of the to do the insurer so. The Tenth Circuit re cently reached a similar result under Colorado law in and Bankers Farmers Insurance Co. (1972). Allingham, questions v. with was faced as to whether he had any physical “surgical operation.” recently undergone or had a “ailments” He had extensive medi biopsy diagnostic purposes, cal had a ques and of muscle tissue for examinations but answered the negative. phrasing in tions After issue as insurer whether the had shown the facts omitted risk,” magnitude to be “material to the the court noted that the had “ailments not risen to such Allingham’s particular a failure disclose was deliberate concealment of matters within his that, definition, knowledge,” “biopsy” as a matter of the term was not included in the term “surgical operation.” Jury reasonably prudent The Colorado Instructions “material one define fact” as to which “a person importance determining under the circumstances would attach in ... his course of action.” law, Jury operate positive they While the Instructions are not intended Colorado as are in 51.1, operate guides proper legal principles consistent tended involved. See C.R.C.P. Graff, Gallegos (1973). Cline, construed Colo. See also Davis authority contrary, P.2d 362 In the absence legal princi ples persuasive. articulated in the instructions be should considered asked which, of the nature because it as an item

perceived insurance, to know about in as- desire the insurer would type sessing the risks.8 of this the ele- opinion, with the announcement

Contemporaneously to avoid an insurance in order prove an insurer must which ments Mutual Hollinger were set out fraud Benefit 560 P.2d 824. (“intent to an erroneous trial court applied It appears deceive”) test. that the case and order appeals we reverse the court

Accordingly, light princi- redetermination to the trial court for a be remanded ples articulated in this decision. GROVES, MR. JUS- HODGES, MR. JUSTICE

MR. JUSTICE LEE, CARRIGAN concur. and MR. JUSTICE TICE in the result. CHIEF JUSTICE PRINGLE concurs MR. KELLEY dissents.

MR. JUSTICE dissenting:

MR. JUSTICE KELLEY with to the factual respect I the record interpret dissent. respectfully I result, agree a I majority. than does the As differently situation ex- and conclusions reasoning Both the appeals. of the court of opinion of this court opinion with the therein to me to consistent appear pressed Hollinger v. Mutual Benefit Life 824. 560 P.2d *9 recently applied in Howard v. Golden State Mutual analysis was A similar (1975), where the court noted: 231 N.W.2d 60 Mich. law, synonymous sincerity misrepresentation refers to a truth and lack insurance “[I]n fraud, truth, meaning relating things exactly they which is are. The than to the literal rather light falsity representation on an insurance should be in the of what truth or of a examined application. reason to know at the time of the knew or had specially equipped acceptance to determine what facts is not are material to “The insured him, put good expected are but not to to answer in He risk. faith profession problem understanding beyond bring of the medical of mate- of medicine riality. us, [applicant] questions put applica- answered the to him the insurance before

“In the case agent. agree judged . . not be on a standard the insurance . that his answers should tion and capable answering.” original.) [applicant] (Emphasis beyond which the Annot., generally, 26 A.L.R.3d 1061 See