#### Dayton I. CARLISLE, Plaintiff-Appellee, v. WASHINGTON NATIONAL INSURANCE COMPANY, Defendant-Appellant.

No. 11566.

Court of Appeal of Louisiana, Second Circuit.

Feb. 2, 1971.

On Rehearing May 25, 1971.

*419Mayer & Smith, by Sam A. Smith, Shreveport, for defendant-appellant.

Gahagan & Kelly, by Russell E. Gahagan, Natchitoches, for plaintiff-appellee.

Before BOLIN, PRICE and HEARD, JJ-

PRICE, Judge.

Defendant has taken this appeal from a judgment of the district court awarding to plaintiff the amount sued for under a hospital indemnity insurance policy, plus penalties and attorney’s fees.

Plaintiff, Dayton I. Carlisle, purchased a policy of insurance from M. H. Pierce, agent for defendant, Washington National Insurance Co., on September 28, 1966, in Coushatta, Louisiana. Subsequently, plaintiff was confined to Huckabay Memorial Hospital in Coushatta from February 21, 1969 through March 11, 1969. On March 25, 1969, a claim under the policy for the amount of $406.98 was forwarded to the defendant insurer, which the insurer refused to pay, contending the insured made false statements in his application for coverage which barred his right to recover under the policy.

Plaintiff filed this action on September 16, 1959, seeking recovery of policy benefits of $406.98, and due to a lapse of over thirty days without payment by the insurer after receipt of written claim under the policy, a penalty of $406.98 and reasonable attorney’s fees. Washington National Insurance Company answered, admitting it received the claim submitted by the insured, but denying plaintiff’s right to recover under the policy by alleging in a reconventional demand that the insured falsely asserted in his application for insurance that he had not been under a doctor’s care or confined to a hospital for the preceding two years and that he was in good health and free from any injury, whereas, in truth and fact, he was hospitalized for an illness during this period. Defendant urges these misrepresentations were made with an intent to deceive and resulted in an increased risk to the company. The insurer seeks rescission of the policy and a return of all payments made thereunder in excess of premiums paid by the insured. In answer to defendant’s demand in reconvention, plaintiff denied having made false statements, pointing out that the application form was completed by the defendant’s agent, whose transcribed response did not conform to that actually given by the plaintiff.

During the course of the trial on the merits, plaintiff responded to the recon-ventional demand of defendant by filing exceptions of no right and no cause of action. The exception of no cause of *420action was sustained, resulting in dismissal of the defendant’s reconventional demand.

After a trial on the merits judgment was rendered and signed in favor of plaintiff for the sum of $406.98 claimed under the insurance policy, together with a like sum as penalties and $600.00 for attorney’s fees.

From this judgment the defendant has perfected this suspensive appeal, specifying the lower court erred in the following particulars: in failing to find plaintiff made false statements in his application for insurance, thus barring recovery under the contract; in failing to grant a rescission of the insurance contract and a recovery of benefits paid thereunder to the plaintiff; in assessing penalties and attorney’s fees against the insurer; and in disallowing certain evidence which should have been admissible as reflecting on the credibility of the plaintiff as a witness. Plaintiff has answered and has filed a motion for damages for frivolous appeal.

The following is a resume of the facts surrounding the initiation of the policy in question and the pertinent testimony contained in the record:

M. H. Pierce, an agent for the defendant insurance company, solicited the sale of the policy in question and prepared the necessary application form which was in turn signed by Carlisle. On trial of the matter, Pierce gave contradictory testimony, first stating that he discussed the matter with plaintiff’s wife initially and obtained all of the necessary information for him to use in preparing the application form from her out of the presence of her. husband. Later in his testimony, while on direct examination and in answer to questions by the attorney for the defendant insurance company, Pierce stated that both Mr. and Mrs. Carlisle were present when he obtained the false responses in the application form, and that his source of information was Mr. Carlisle.

Carlisle, his wife, and three other witnesses who declared they were present in Carlisle’s store building at the time that Pierce prepared the application form, all testified that Pierce asked Carlisle if he had been hospitalized for the past two years, and that Carlisle replied that he had been in the Huckabay Clinic for treatment for bronchial pneumonia, and that he could get any additional information regarding this from the Clinic.

Defendant, in an attempt to discredit the testimony of Carlisle, introduced, subject to a general objection made by plaintiff’s counsel, a number of applications made to other life and accident insurance companies for other policies tending to show that plaintiff had made false statements in all of these applications. Defendant also filed in evidence, subject to the same objection, interrogatories and answers thereto propounded to the various companies who had issued insurance policies to the plaintiff over a period of time reaching back to the year 1964. These interrogatories disclose that plaintiff had numerous periods of hospitalization and had collected benefits from all of the policies far in excess of the premiums paid thereon.

In his reasons for judgment the trial judge ruled this evidence inadmissible and concluded that the testimony of the defendant’s agent, Pierce, was unworthy of belief because of his obvious and flagrant contradictions in depicting his source of information in preparing the application form. The court further was of the opinion that although the responses in the application for insurance were in fact inaccurate, once the plaintiff had produced evidence placing the blame for the misstatements upon the agent for the insurance company who transcribed all answers to questions contained in the application form, then the burden rests on the insurer to prove the false statements were made by the insured with intent to deceive and the information not included *421was material and would have affected the issuance of the policy.

We can find no error in the trial judge’s conception of the principles of law controlling. The statutory source of the law is contained in La.R.S. 22:619 (as amended by Act 125 of 1958), providing as follows :

> “A. Except as provided in Subsection B of this Section and R.S. 22:692, no oral or written misrepresentation or warranty made in the negotiation of an insurance contract, by the insured or in his behalf, shall be deemed material or defeat or avoid the contract or prevent it attaching, unless the misrepresentation or warranty is made with the intent to deceive.

> “B. In any application for life or health and accident insurance made in writing by the insured, all statements therein made by the insured shall, in the absence of fraud, be deemed representations and not warranties. The falsity of any such statement shall not bar the right to recovery under the contract 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.”

In the Third Circuit case of Fruge v. Woodmen of World Life Insurance Society, 170 So.2d 539 (La.App. 3d Cir. 1965), the court discussed the responsibility of the agent in preparing the application for the insured as follows:

> “The rule also prevails in this state that when the agent of an insurer, acting within the scope of his authority, proceeds to fill out the blanks in an application for a policy of insurance, the acts, representations and mistakes of that agent are considered to be those of the insurance company. In such a case if the agent by mistake, fraud or negligence inserts erroneous or untrue answers to the questions contained in the application, these representations bind the insurer but are not binding upon the insured, provided that the insured was justifiably ignorant of the erroneous answers, had no actual or implied knowledge thereof, was guilty of no bad faith or fraud, and had no intent to deceive the insurer. Harris v. Guaranty Income Life Ins. Co.,226 La. 152, 75 So.2d 227; Telford v. New York Life Ins. Co., 227 La. 855, 80 So.2d 711; Oliver v. Penn. Life Ins. Co., 146 So.2d 246 (La.App. 3 Cir.); Gleason v. Bankers Life and Casualty Co., La.App. 2 Cir., 147 So.2d 86.”

The trial judge found that the evidence presented by defendant’s own witness, Pierce, clearly established that Carlisle made no representation to the agent that he had not been hospitalized within two years, and therefore, any other evidence tending to discredit plaintiff’s testimony would be immaterial in this case.

The testimony of Pierce referred to by the trial judge so strongly justifies this conclusion by the court that we quote the following excerpt from the transcript:

> “A. The answers to the question propounded are in your handwriting?

> “Q. Yes, sir.

> “A. Question three says, “Have you or any eligible applicant listed above, if any, been under doctor’s care or confined in a hospital during the past two years?’ Yes or no and the answer is written ‘No’. That is your handwriting?

> “A. Yes, sir.

> “Q. What did Mr. Carlisle tell you?

> “A. I talked to Mrs. Carlisle about this insurance. Not Mr. Carlisle.

> “Q. Wasn’t he there?

> “A. Afterwards. When I sold the policy, yes, sir. He was there when I sold the policy.

> “Q. When this application was signed by Dayton I. Carlisle, was Dayton I. Carlisle there?

> *422“A. Yes, sir.

> *“Q.*And he did sign the application?

> “A. Yes, sir.

> “Q. Did he sign it on the date that you put up here, 9/28/66?

> “A. Yes, he did.

> “Q. Did you ask him 'Have you or any eligible applicant listed above, if any, been under doctor’s care or confined in the hospital during the past two years?’

> “A. I had went over it * * * I didn’t ask him * * * wait a minute, can I explain what I am talking about * * *

> “Q. You answer me first and then can * * * did you * * *

> “A. No, sir, I did not.”

Although it is argued by counsel for appellant that Pierce later in the case changed his testimony and stated both Mr. and Mrs. Carlisle gave him the information and the court was in error in its summation of the effect of this witness’ testimony, we believe his first version given under cross-examination should prevail. We also concur with the trial judge that his diametrically opposed version given one day later only weakened the credibility of this testimony. No explanation was offered by the witness showing any logical reason for such a variance.

Accepting, arguendo, that the evidence ruled inadmissible by the trial judge should have been allowed, the defendant has not proven any representation was made by Carlisle. This fact has been clearly admitted by its own agent, Pierce, whose testimony binds defendant.

We, therefore, find no error in the conclusion reached by the trial judge in this regard. We do not find the actions of the defendant to have been arbitrary or capricious to warrant the assessment of penalties and attorney’s fees. The company was in possession of an application which on its face indicated a misrepresentation existed.

In a case analogous to the situation under consideration, Manuel v. American Income Life Insurance Co., 212 So.2d 169 (La.App. 3d Cir. 1968), our brothers of the Third Circuit denied penalties, holding that an insurer, after discovering a misstatement in an application for insurance sufficient to void a policy, could sincerely believe that it was given fraudulently by the insured. We concur in this view and are of the opinion the insurer has the right to a judicial interpretation of a doubtful claim without being subjected to penalties. We find no merit in plaintiff’s request for damages for frivolous appeal.

For the foregoing reasons, the judgment appealed from is amended to reject plaintiff’s demands for penalties and attorney’s fees, and as amended, is affirmed at appellant’s cost.

Before AYRES, BOLIN, PRICE, HEARD, and HALL, JJ.

AYRES, Judge.

A rehearing was granted to afford an opportunity for a reconsideration of plaintiff’s demands for penalties and attorney's fees awarded by the trial court and denied by this court in our original opinion.

No need exists for a further detailed statement of the facts. They are substantially set forth in our original opinion.

Plaintiff’s claim for penalties and attorney’s fees is based on defendant’s failure to pay plaintiff’s claim under a hospital and surgical policy issued by defendant within a period of 30 days from the date upon which written notice and proof of claim were furnished to the insurer, as required by the provisions of LSA-R.S. 22:657. This section of the statute further declares:

> *“Failure to comply with the provisions of this Section*[with reference to making *423timely payments] *shall subject the insurer to a penalty payable to the insured of double the amount of the health and accident benefits due under the terms of the policy or contract during the period of delay, together with attorney’s fees to be determined by the court."*(Emphasis supplied.)

In denying liability, defendant contended plaintiff-insured made false statements in his application for insurance coverage, and thus his right to recover under the policy was barred. The trial court nevertheless awarded plaintiff the principal of his claim and an equal amount thereof of $406.98 as penalties and $600.00 as attorney’s fees.

On the basis of our initial finding that the actions of the defendant were not arbitrary or capricious because the insurer was in possession of an application which, on its face, indicated to the insurer that a misrepresentation of the facts existed in the insured’s application, we concluded that the refusal of defendant to pay plaintiff’s claim was neither arbitrary nor capricious. Therefore, the judgment appealed, so far as the allowance of penalties and attorney’s fees were concerned, was reversed. From our review of the record on rehearing, we are convinced that our original conclusion in this respect was erroneous.

In the case of Morein v. American Physicians Insurance Company, 192 So.2d 887, 889 (La.App., 3d Cir. 1966), the court was presented with a factual situation similar to that in the instant case. There the defendant denied liability under a hospital and surgical policy on the basis of a false answer to a question contained in the application. Without questioning Mrs. More-in, defendant’s agent wrote “No” in answer to a question as to whether she had ever had an insurance policy canceled. This response was false, as the agent well knew, for just six months previously he had sold her a similar policy issued by the same insurer. The defendant in that cause canceled the earlier policy only a few weeks before the application was taken for the second policy. The agent represented to the insured that he had come to her to rewrite a new policy because his company had not really intended to cancel her former hospitalization coverage. Our brethren of the Third Circuit held there was no merit in the policy defense urged by the defendant and stated:

> “The acts of an insurance agent in filling out an application form falsely are the acts of his principal, the insurer, and they do not bind the innocent insured nor bar recovery by him or his beneficiaries.”

See, also:

> Frugé v. Woodmen of World Life Insurance Society, 170 So.2d 539 (La.App., 3d Cir. 1965)

> and the decisions therein cited.

Appropriate to the situation existing in the instant case is the holding in Olivier v. Pennsylvania Life Insurance Company, 146 So.2d 246, 248 (La.App., 3d Cir. 1962), to the effect that when an insurance agent prepares an application for an insurance policy he acts as agent of the insurer, and any erroneous or untrue answers to questions contained in the application bind the insurer but not the insured, provided the insured justifiably had no knowledge of the omissions or mistakes of the agent and had been guilty of no fraud or bad faith. In this connection, see, also:

> Harris v. Guaranty Income Life Insurance Company, 226 La. 152, 75 So.2d 227 (1954);

> Telford v. New York Life Insurance Company, 227 La. 855, 80 So.2d 711 (1955);

> Miller v. Preferred Life Insurance Company, 107 So.2d 323 (La.App., 2d Cir. 1958 — cert. denied).

ON REHEARING

That plaintiff made no misrepresentation to defendant’s agent concerning his prior medical history in procuring the insurance clearly appears from the record. The agent testified, at one point, he did not *424even question plaintiff as to whether he had been hospitalized during the past two years, though he admitted writing the answer to the appropriate question. However, as found by the trial court, defendant’s agent did question plaintiff relative to his state of health, prior treatment, and hospitalization. Plaintiff answered these questions correctly, but the answers given were not the same as those recorded in the application. Plaintiff had no knowledge that the answers were false until after making claim for the benefits provided by the policy. The facts with reference to the agent’s interrogation of plaintiff and plaintiff’s answers to the questions were testified to not only by plaintiff and his wife but by three disinterested witnesses who stated they were present in plaintiff’s store when the plaintiff’s application for insurance was taken and signed.

With reference to the agent’s relationship with the defendant, it may be pointed out that his authority did not extend merely to the solicitation of insurance and the acceptance of applications therefor, but he was state manager for the defendant for the State of Louisiana. Included in his duties were the hiring, supervising, and training of men to work for defendant, as well as the selling of insurance himself. Clearly, under this relationship, the agent’s knowledge of the actual facts concerning the taking of the application is imputable to his principal under the rule that an insurance agent acts as an agent for the insurer when he assumes the responsibility of filling out applications for insurance coverage. See:

> Olivier v. Pennsylvania Life Insurance Company, supra;

> Frugé v. Woodmen of World Life Insurance Society, supra;

> Morein v. American Physicians Insurance Company, supra.

Moreover, under the aforesaid state of facts, the defendant’s action in denying liability was not reasonably based. Although charged with the knowledge of the facts possessed by its soliciting and state agent, the defendant, so far as the record discloses, made no investigation to ascertain why the false answers were recorded by its agent in plaintiff’s application.

Appropriate here is a further observation made in the *Morein*case, supra:

> “The insurer apparently preferred to resist liability upon its technical and tenuous defense rather than to evaluate the legal and factual inefficacy of its position and then pay within thirty days of proof of loss and demand as required by statute. *The courts have consistently held health and accident insurers liable for statutory penalties where for similar reasons they have denied liability to their policyholders upon legal or factual defenses which upon investigation would prove to be insubstantial.”*(Emphasis supplied.)

See, also:

> Bankson v. Mutual Ben. Health & Accident Ass’n, 208 La. 1008, 24 So.2d 59 (1945);

> Miller v. Preferred Life Insurance Company, supra;

> Gleason v. Bankers Life & Casualty Company, 147 So.2d 86 (La.App., 2d Cir. 1962).

Thus, it can only be concluded that in the absence of an investigation the defendant’s refusal to settle plaintiff’s claim was not reasonable but arbitrary and capricious, and forms an additional basis warranting plaintiff’s recovery of penalties and attorney’s fees.

No issue exists as to the quantum of the awards. Penalties are determined by statute and are fixed in a sum equal to the principal award. Attorney’s fees are fixed and determined by the court as reasonable under the particular facts and circumstances of the case. No abuse of discretion is *425urged or shown. Our review of the record discloses no abuse of discretion vested in the trial court.

For the reasons herein assigned, it is now ordered that the judgment appealed be, and it is, accordingly affirmed at defendant-appellant’s costs.

Affirmed.