Source: https://caselaw.findlaw.com/us-supreme-court/241/613.html
Timestamp: 2019-04-24 20:57:10+00:00

Document:
[241 U.S. 613, 614] Messrs. Frederick L. Allen, Emmett Wilson, Philip D. Beall, and Murray Downs for petitioner.
Messrs. William A. Blount, A. C. Blount, and F. B. Carter for respondents.
Respondents sued to recover upon four policies, not different except as to numbers, for $7,662 each, and dated December 16, 1908, on the life of their testator, Wiggins, who died March 26, 1910. By various pleas the insurance company set up that application upon which policies were based contained material representations both false and fraudulent. In reply the executors denied truth of each plea, and also alleged that if appli- [241 U.S. 613, 615] cation contained any misrepresentations, the actual circumstances were known to company when policies issued.
I have known the above named applicant for six years and saw him sign this application. I have issued binding receipt No. ___.
J. D. Torrey, Manager, Mobile, Ala.
'3. (a) What illnesses, diseases, or accidents have you had since childhood? Pneumonia. Number of attacks: One. Date of each: 1899. Duration: Thirty days. Severity: Not severe. Results: Complete recovery.
Geo. C. Kilpatrick, M. D.
I certify that my answers to the foregoing questions are correctly recorded by the Medical Examiner.
I certify that I have made this examination at Pine Barren, Fla., on this 15 day of December, 1908, and that the foregoing questions have been put, and the answers of the applicant recorded as stated.
During summer of 1907 assured suffered serious pains in his head, and, after consulting more than one physician, went to a sanitarium at Montgomery, Alabama, and was there operated on for a cystic enlargement of the lower jaw caused by an impacted wisdom tooth. He was confined to the sanitarium for ten days and remained under [241 U.S. 613, 618] immediate care of a physician from July 16th to August 13th, 1907.
Early in November, 1908, he applied to Prudential Insurance Company of America through J. C. Hogue, a special agent operating under J. R. Tapia, its manager at Mobile, Alabama, for insurance amounting to $40,000. The application was accompanied, according to its requirements, by two medical reports dated November 3d and 4th, signed respectively by Dr. J. C. McLeod and Dr. Geo. C. Kilpatrick. Several weeks later the company indicated unwillingness to accept risk because of location, but the application, although marked 'withdrawn,' was retained. At this time Wiggins had $30,000 insurance with the Prudential, $20,000 with the Equitable, and $5,000 with fraternal insurance companies.
The application of petitioner now under consideration resulted from earnest and persistent solicitation by the same J. C. Hogue. The circumstances under which papers were prepared and signed are not entirely clear; but it appears without contradiction that they were not signed by assured in Torrey's presence-there was no personal acquaintance between the two men. Also that neither medical report was signed by assured in presence of Dr. Geo. C. Kilpatrick or Dr. J. S. Turberville; and that neither physician made the personal examination certified by him. The physicians filled the blanks and signed their names at Hogue's request and because of his representations. Through Torrey, petitioner's district manager at Mobile, the application was forwarded to New York, and, relying upon its statements, officers there issued policies and sent them to assured with copies of application papers which, by reference, were incorporated therein. So far as appears, assured accepted them without objection and paid the premiums.
An effort was made to show that facts concerning Wiggins's medical history, former unsuccessful application to [241 U.S. 613, 619] Prudential, and circumstances surrounding transactions now in question, were known by Hogue, the medical examiners, or Torrey, each of whom, it is claimed, was petitioner's agent.
Assured was sixty-one years of age, president of a lumber company, apparently a man of considerable wealth, and experienced in insurance matters.
'The contract of insurance in this case as expressed by the policies, embraces the statements and representations of Wiggins, the deceased, made to the agent, Hogue, or to Kilpatrick, or Turberville, the medical examiners. Such statements were required to be truthfully made, and was a condition for the issuance of the contract, and this contract provides that all statements made by the insured shall, in the absence of fraud, be deemed representations, and not warranties. Whether the representations made by Wiggins in his application for insurance had been rejected; or whether he had been treated in a cure, san- [241 U.S. 613, 620] itarium, or hospital; or whether he had undergone a surgical operation; or whether he had had any illness or disease; or whether he had consulted a physician for his health, to serve as a defense by the company to this action, depends on whether such statements were knowingly false and fraudulently made.
'If Wiggins knew they were false, and that he made them with the fraudulent purpose of obtaining the policy of insurance, then such statements would avoid the policy and would serve as a good defense by the company; provided, that the company, at the time it accepted the application of the deceased as an insurance risk, had no knowledge of the falsity of the statements and representations made by Wiggins in his application for insurance.
'The knowledge of the agent of the insurance company would be the knowledge of the company, and if the agent representing the company in taking the application, or the statements of the medical examiners had knowledge of the falsity of the statements, then the insurance company would be estopped from setting up such false statements or misrepresentations of which they had knowledge before the issuance of the policy, as a defense to this action.
'That, under the language of the policies involved in this suit, the defendant, to avoid the policies for false representations, must establish their falsity, materiality, and the knowledge of the insured, actual or imputed, of their falsity.
All parties treat the policies as Florida contracts. The medical examiners' reports are plainly integral parts of application, and by apt words the latter became an essential constituent of the policies.
Considered in most favorable light possible, the above quoted incorrect statements in the application are material representations; and, nothing else appearing, if known to be untrue by assured when made, invalidate the policy without further proof of actual conscious design to defraud. Moulor v. American L. Ins. Co. 111 U.S. 335, 345 , 28 S. L. ed. 447, 450, 4 Sup. Ct. Rep. 466; Phoenix Mut. L. Ins. Co. v. Raddin, 120 U.S. 183, 189 , 30 S. L. ed. 644, 646, 7 Sup. Ct. Rep. 500; AEtna L. Ins. Co. v. Moore, 231 U.S. 543, 556 , 557 S., 58 L. ed. 356, 365, 366, 34 Sup. Ct. Rep. 186; May, Ins. 4th ed. 181.
The general rule which imputes an agent's knowledge to the principal is well established. The underlying reason for it is that an innocent third party may properly presume sume the agent will perform his duty and report all facts which affect the principal's interest. But this general rule does not apply when the third party knows [241 U.S. 613, 623] there is no foundation for the ordinary presumption,-when he is acquainted with circumstances plainly indicating that the agent will not advise his principal. The rule is intended to protect those who exercise good faith, and not as a shield for unfair dealing. Distilled Spirits (Harrington v. United States) 11 Wall. 356, 367, 20 L. ed. 167, 171; American Surety Co. v. Pauly, 170 U.S. 133, 156 , 42 S. L. ed. 977, 985, 18 Sup. Ct. Rep. 552; American Nat. Bank v. Miller, 229 U.S. 517, 521 , 522 S., 57 L. ed. 1310, 1312, 1313, 33 Sup. Ct. Rep. 883; Mechem, Agency, 2d ed. 1815.
Section 2765 of the Florida statutes, supra, undertakes to designate as agents certain persons who in fact act for an insurance company in some particular; but it does not fix the scope of their authority as between the company and third persons, and certainly does not raise special agents, with limited authority, into general ones, possessing unlimited power. We assume Hogue, Torrey, and the medical examiners were in fact designated agents of the company, with power to bind it within their apparent authority; and in such circumstances the statute does not affect their true relationship to the parties. See Continental L. Ins. Co. v. Chamberlain, 132 U.S. 304, 310 , 33 S. L. ed. 341, 343, 10 Sup. Ct. Rep. 87; New York L. Ins. Co. v. Russell, 23 C. C. A. 43, 40 U. S. App. 530, 77 Fed. 94, 103; Wood v. Firemen's F. Ins. Co. 126 Mass. 316, 319; John R. Davis Lumber Co. v. Hartford F. Ins. Co. 95 Wis. 226, 234, 235, 37 L.R.A. 131, 70 N. W. 84.
The assured at the least consciously permitted an application containing material misrepresentations to be presented by subordinate agents to officers of the insurance company under circumstances which he knew negatived any probability that the actual facts would be revealed; and later he accepted policies which he must have understood were issued in reliance upon statements both false and material. He could claim nothing because of such information in the keeping of unfaithful subordinates. Moreover, the false representations accompanied and were essential parts of the policies finally accepted. He did not repudiate, and therefore adopted and approved, the [241 U.S. 613, 624] representations upon which they were based. Beyond doubt an applicant for insurance should exercise toward the company the same good faith which may be rightly demanded of it. The relationship demands fair dealing by both parties. New York L. Ins. Co. v. Fletcher, 117 U.S. 519, 529 , 533 S., 534, 29 L. ed. 934, 939, 940, 6 Sup. Ct. Rep. 837; Northern Assur. Co. v. Grand View Bldg. Asso. 183 U.S. 308, 361 , 46 S. L. ed. 213, 234, 22 Sup. Ct. Rep. 133; United States L. Ins. Co. v. Smith, 34 C. C. A. 506, 92 Fed. 503.
Considered with proper understanding of the law, there is no evidence to support a verdict against petitioner, and the trial court should have directed one in its favor.
Judgment of the Circuit Court of Appeals is reversed and the cause remanded to the United States District Court, Northern District of Florida, for further proceedings in accordance with this opinion.

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