Case Name: The Massachusetts Life Insurance Company v. Henry Eshelman et al., Executors of Leonard Betz, Deceased
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1876-12
Citations: 30 Ohio St. 647
Docket Number: 
Parties: The Massachusetts Life Insurance Company v. Henry Eshelman et al., Executors of Leonard Betz, Deceased.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 30
Pages: 647–661

Head Matter:
The Massachusetts Life Insurance Company v. Henry Eshelman et al., Executors of Leonard Betz, Deceased.
1. In an action on a policy of insurance issued by a life insurance company, upon a spurious application made and substituted by its agent for a genuine one made by the assured, the premium rates of the company when not put in issue in any way whatever, are not competent testimony to show complicity of the assured in the fraud; nor want of % knowledge by the company when the spurious application reached the home office, that another and genuine application had been made by the assured, or that the contract wa's inequitable.
2. In such action it is not competent to inquire of the president and examining surgeon of the company on the trial, whether, if the true condition of the life insured as to health had been known to the company at the time the spurious application was received at the home office, the policy would have been issued. The opinion of the witness in such case is not competent testimony.
3. A sub-agent of a life insurance company, appointed to represent it in a particular branch of its business, becomes, in reference thereto, the di rect representative of tlie company, and notice of a fact to him will operate as notice to the company, and it will be bound by acts done by him in respect to that branch of its business intrusted to him.
4. An action on a policy of life insurance can not be defeated by the company by showing that the agent of the company, taking the genuine application, imposed upon the company a spurious application, which the company believed to be genuine.
5. In an action on a policy of life insurance, where a genuine application was made by the assured, but issued on one forged by its agent, the company does not make a case for the rescission of the contract and cancellation of the policy, by tendering to the executors of the deceased policy-holder, the premium received, with interest, as soon as it discovered the fraud.
Error to the District Court of Stai’k county.
Plaintiffs below, defendants in error, as the executors of the will of Leonard Betz, deceased, brought this action on a policy of life insurance, issued by the plaintiff in error, the Massachusetts Mutual Life Insurance Company, on the life of Leonard Betz for the benefit of his wife, Elizabeth Betz. The policy bears date October 26, 1868. Leonard Betz died September 7, 1869. Proof of his death was made and accepted by the insurance company within the ninety days required by the policy. After the ninety days had expired, and the company refusing to pay the policy, suit was brought on the policy.
The answer admits the company issued the policy, upon an application purporting to be made by Betz; received the premium ; and had notice and proof of the death of Betz within ninety days after it occurred. It then charges the application to be spurious, of which the company was ignorant at the time the policy was issued and delivered to the assured; that the genuine application never reached the home office; that the forged application, without the knowledge, fault, or neglect of the company, or its authorized officers or agents, but with the knowledge and complicity of Betz, was made and forwarded to the company ; that the genuine application was made on one of the company’s printed blank forms, of which Exhibit “A” made part of the answer, is a •copy; that as soon as the company was informed that the application was spurious it tendered the premium received by it from Betz, with interest, to the executors; that the policy was issued by mistake, without fault on the part of the company, and for that reason no contract was made and none exists; that at the time Betz made his application he was diseased with fatal disorders of which he died.
As a second defense, it is alleged that under the laws of Massachusetts, the charter, by-laws, and regulations of the •company under which it was organized, it can only insure the lives of persons who are sound and in good health ; that this was well known to Betz when he made his application; the company at the time it issued the policy believed he was a person of good health, and that it was wholly without knowledge of his diseased condition until after his death.
The reply alleges that the application made by Betz, or made in his behalf with his knowledge, was true. It denies that Exhibit “ A,” is either the original or a true copy of Betz’ genuine application, but is wholly and essentially different from, and other than, the original application made by him. Denies the allegations of the second defense ; then alleges that Betz made his application for insurance through an authorized agent of the company, aud therein made a full and true statement of his condition as to health, according to the best of his knowledge, information, and belief, concealing nothing.
The application on which the policy was issued, a copy •of which is attached to the answer and marked Exhibit “ A,” is a forgery. The genuine signature of A. C. Goodwin, a soliciting agent of .the company, is attached to it as a witness. It was forwarded by Goodwin to J. P. Pendegrest, the general agent of the company for Northern Ohio, at Cleveland. By Pendegrest sent to the home office at Springfield, Massachusetts. The application reached Pendegrest between October 20th and 25th, 1868. The premium money and loan note were forwarded by Goodwin through Pendegrest to the home office. The policy bears «date October 26, 1868. The proofs show that Goodwin took and forwarded to the company, in all, about thirty applications, upon which the company issued policies; that the policy in suit when issued was forwarded from the home-office to Pendegrest, and by either him or Goodwin delivered to Betz.
On the trial certain testimony, proposed to be offered by the company, was objected to and ruled out. Verdict and judgment for plaintiffs. Motion for a new trial made and overruled. The case comes here on a bill of exceptions-embodying all the testimony, admitted and excluded. The-instructions given on request of plaintiffs; also charges requested by the company and refused, together with the-exceptions of defendant to the various rulings of the court on the admissibility of testimony; the instructions given and refused, on the motion for a new trial, and to the judgment.
On the request of the plaintiff the court instructed the jury substantially:
1. That if the agent of defendant took the application of Leonard Betz for a life policy, and the policy in suit was-issued hy defendant and delivered to Betz, the plaintiffs can recover, although such agent suppressed the genuine application, and without the knowledge or consent of Betz,, got up and forwarded to the home office a spurious application upon which the company, believing it to be genuine,, issued the policy and caused it to be delivered to Betz.
2. The delivery'by Betz of the application to the agent of defendant was a delivery thereof to the company, and the defendant is estopped from setting up as a valid defense to the action on such policy, that its agent substituted and forwarded to defendant, without the knowledge or consent of Betz, a forged application which was believed at the home office to be the genuine application of Betz.
3. That under the issue raised by the first defense, the burden of the proof is upon the defendant. It must show that the true application o-f Betz was, by his connivance,, or with his knowledge, suppressed and a spurious one forwarded to the home office of defendant.
The-defendant requested the court to instruct the jury substantially:
1. If the soliciting agent of defendant did suppress the' genuine application of Betz, and forward to the home office of defendant a forged application purporting to come from Betz, the plaintiffs can not recover, if the genuine declaration disclosed that Betz was so seriously diseased as to have made his application wholly ineffectual' and incapable of procuring a policy, and the defendant, as soon as it discovered the pretended application was forged, tendered to the executors of Betz the premium money, with interest and premium note received of Betz.
2. Defendant’s second request is directly the reverse of the proposition given to the jury at plaintiff’s request, except as to the tender of premium money, etc.
8. 'Where a person makes his application for a policy of life insurance upon one of defendant’s printed blanks to a sub-agent, who has no power to pass upon applications or make contracts of insurance, and at the time the applicant is diseased, and conscious, from the nature of his disease, that he can not long survive, and the agent suppressing the genuine application, forges and forwards to defendant a forged application, representing the applicant to be in good health, and the authorized officers of the defendant, believing the statements of the forged application to be true ones and not knowing differently, issue to such applicant a life-policy, and he dies within a year, because of the diseases upon him at the time he made his genuine application, his. executors can not recover in an action on the policy, upon the defendant tendering them the premium money, etc., received hy it.
4. The policy sued on having been issued on a forged application and forged physician’s certificate, the plaintiffs can not recover, unless they show that Betz made true statements in his application, and made true answers to the questions therein.
5. If it is shown that Betz made his application to a sub-agent of defendant, upon a printed blank form like the one- .attached to the answer of defendant, he was charged with notice, that a person, to obtain a policy of insurance upon his life from defendant, must be in good health, and usually enjoy good health.
The case went to the district court on error, where the rulings and judgment of the court of common pleas were affirmed. It is here sought to obtain a reversal of the judgments of the lower courts.
The assignments of error relied on are:
That the district court erred in affirming the judgment of the court of common pleas; because, first, the •court of common pleas erred in ruling out testimony proposed to be offered by the defendant, below; second, that court erred in the instructions given to the jury requested by plaintiff, below; third, that court erred in refusing to instruct the jury'as requested by -defendant, below; and fourth, that court erred in refusing to grant a new trial, as requested by defendant, below.
McSweeney, Linch & Day, for plaintiff in error,
argued, that the application was the basis of the contract, and upon it the company, not the agent, make the contract. The subject-matter of the contract is the risk described in the application. If the minds of the parties contemplate different risks, described in different applications, they do not meet, and there is no contract.
The knowledge of the agent should be regarded as immaterial. 1 Phillips on Ins.,' secs. 374-377 ; 6 Cush. 42; Lee v.Ins. Co., 3 Gray, 583 ; Smith v. Ins. Co., 24 Penn. St. 320; Smith v. Ins. Co., 19 Ohio St. 290; Hill v. North, 34 Vt. 604-6113; Phillips on Ins. sec. 667.
No question is made as to the general doctrine, that a principal is bound to make good the fraud of the agent committed upon another, when acting for the principal, in the line of his duty.
But in addition to the fact that what the agent did was not in the line of his duty, nor while acting for the principal, nor while treating with tlie other party, it is to be noticed that the fraud was upon the principal, and not upon the stranger.
Again, the action was upon the contract, and not for any-alleged fraud, and if the fraud is to be made the basis of action, what is the measure of damages ? What did Betz lose, other than the premium he paid ? This has been tendered back, and that -would be the extent of the company’s-liability for the agent’s fraud. It can not be urged, to-swell the damages, that had this policy not been issued he might have obtained a policy from another company. If this company had rejected him, would’ he have applied elsewhere ? That is mere speculation. The strong probabilities are he would not. Certainly he never could get a. policy.
S. Meyer & Son, for defendant in error:
The testimony of the "president and medical examiner, excluded, was improper, and properly ruled out — it not-being pertinent to the’ issue. Bliss on L. Ins. secs. 139, 140, 142, 274, 275; May on Ins. secs. 14-26. It was incompetent, even if pertinent. Bawls v. Ins. Go., 36 Barb. 357; Ins. Go. v. Gatheal, 7 Wend. 72, 78, 79; Campbell v. Bicharás, 5 Barn. & Adol. 840 ; 27 Eng. C. L. R. 207.
The acts of the agent, in the business of the principal,, whilst acting within the scope of his employment, are binding upon the principal, and are substantially his acts; and that, so long as the agent acts within the scope of his employment, it matters not whether he faithfully observes and executes his instructions or violates the same,, whether he acts in good faith toward his principal, or acts fraudulently, unless the other party have knowledge of his dereliction, and participate in the fraud. In either case,, the responsibility of the principal remains the same. And it is equally well established that the knowledge of the* agent, whilst transacting the business of the principal, within the scope of his employment, becomes, and is, substantially the knowledge of the principal. See Story on Agency, secs. 451, 452; 19 Ohio St. 131; lb. 168, 169;. 'Smith’s Master and Servant, 151; 21 How. 202; Hoover, Assignee v. Wise et al., 1 Otto, 310, 311; Bank v. Davis, 2 Hill, 451; Ingalls v. Morgan, 10 blew York, 178; Fulton Bank v. N. Y. $ S., 4 Paige, 127; Story on Agency, secs. 452, 454; Storrs v. City of Utica, 17 New York, 104; Bond v.Vandenberg, 1 Barb. Chan. 273 ; JRourke v. Story, 4 E. D. Smith, 54; Lincoln v. Battle, 6 Wend. 475 ; Bliss on Life Insurance, secs. 77, 79, 82, 83, 277, 278, 287', 289, 290, 291,292, 294 ; Müller v. Mutual Benefit Life Ins. Go., 31 Iowa, 216; May on Insurance, secs. 132, 139, 140-143; Wilkinson v. Connecticut Mut. Life Ins. Co., 30 Iowa, 119; Insurance Co. v. Wilkinson, 13 Wall. 223-236; SavingsBank v. Charter Oak Ins. Co., 31 Conn. 517; Horwitz v. Fquit. Ins. Co., 40 Mo. •557 ; Ayres v. Hartford Ins. Co., 17 Iowa, 176 ; The Howard Ins. Co. v. Bruner, 11 Harris, 50; JRowley v. Empire Ins. Co., 30 New York, 550; 2 Amer. Lead. Oases (5th ed.), :915, 916, 919, 921, 922 ; Clark v. Manuf. Ins. Co., 2 W. & M. 472 ; 8 How. 235 ; Wilson v. Conway Fire Ins. Co., 4 R. I. 141; Manhattan Fire Ins. Co. y. Weill et al. (Sup. Court, Virginia, 1877), 3 Law and Equity Reporter, 652.
As to there being no contract because of a want of the meeting of minds, see Bliss on Ins., secs. 82, 83, 287, 289, 291, 292 ; Wilson V. Ins. Co., 4 R. I. 141.
As to a rescission of the contract, see 2 Am. L. O. 922.

Opinion:
Ashburn, J.
There are several questions to be considered. Chief among them are:
1. The exclusion of certain proposed testimony.
2. The liability of the insurance company for the fraudulent acts of its sub-agent, Goodwin.
3. The right of the company to have a rescission of the •contract of insurance.
1. Eirst as to the exclusion of testimony.
On the trial, Price, the president of the company, was introduced as a witness on behalf of the company. Six of the questions asked him were objected to and excluded. Three of the questions asked Smith, the examining surgeon •of the company, were also excluded.
Price was asked,
" Does your company insure more than one class of lives, •and has it more than one set of rates ? "
" Please produce and attach to your deposition a list of your company's rates for 1868."
These questions were properly rejected. The testimony desired to be elicited by them, was pertinent to no issue in' the case. The company claimed in argument, that, the premium list would tend to show the company had no knowledge that Betz had made an application differing from the one forwarded to the home office; that he was a party to, or connived at the fraud, and rebut the supposed equitable estoppel. We do not-see how the rates could, in any proper way, have such effect. There is no testimony proving, that by the laws of Massachusetts, its charter, bylaws, or regulations, the company was restricted to the insurance of a particular class of lives; that it could have but one rate, nor that Betz had knowledge ftiat the company was, in any way, restricted to the insuring of sound lives and no others. We think the testimony was properly rejected.
The testimony sought by four other questions put to Price, and the three asked Smith, was objectionable. The questions were of this character:
" State to what extent during the last twenty years you have been engaged in the insurability of lives, and the questions relating to the business of life insurance."
" Please state whether or not the application of Leonard Betz would have been approved and a policy issued upon it, if it had disclosed the fact that Betz had the consumption, or the asthma, bronchitis or scrofula, or had spitting of blood or chronic cough from throat affection."
" State whether or not, if the application of Leonard Betz had disclosed that he was afflicted with either of the diseases mentioned in the last two questions, it would have been approved by you, as medical examiner of the company, of whether you would have recommended the issuing of a policy thereon."
The issues in the case, were clearly issues of fact to be-determined by established facts' and the natural presumptions arising from them. No testimony was introduced on the trial, requiring the testimony of experts. If the testimony was inadmissible as the opinion of that class of witnesses, we recognize no legal principle within the scope of which the proposed testimony could be admissible. In-cases involving questions of science, skill, trade, and matters of that kind, persons of learning and skill, in the particular department, are allowed to give opinions. This rule,, however, is confined mostly to cases, in which, from the very nature of the case, the facts, disconnected from such opinions, can not be so clearly presented to the jury, as to enable them to pass upon the question with the requisite knowledge, and informed judgment. We find no question in this case with such conditions; nor other conditions that render the proposed testimony competent. 5 Barn. & Adol. 840 ; 7 Wend. 72; 1 Greenliefs Evidence, paragraph 441.
2. Is the company liable for the acts of its agent, Goodwin, done within the scope of his employment? And was Ms knowledge of the condition of the life insured notice to the company of that condition?
That Goodwin was its agent is not distinctly admitted by the company. That, he was a sub-agent, appointed by the general agent of the company for Northern Ohio, with authority to solicit and to take applications for and in the name of the defendant, is clearly shown by the proofs in the case. It was within the scope of Ms employment not only to take applications for insurance, but to receive the-premium money, premium notes, and give receipts therefor, in the name of the company, for which it allowed and paid him a compensation of twenty-five per cent, on the money and notes taken by him. The work done by Goodwin in the course of his employment* the acceptance of such work, and the policies issued on the applications taken by)him, clearly show an acceptance of Mm by the company as its agent.
We do not understand defendant below, as controverting; the general rule, that the knowledge of the agent is the knowledge of the principal, but as denying the application of the rule to this case; and claiming that, if Goodwin, while acting as the soliciting agent of the company, forged an application in the name of Betz, such act was beyond and outside the scope of his employment, and hence the company is not bound to make1 good the policy, the fruit of the fraud of its agent.
We think this view of the ease not sound, and will endeavor to determine what, in cases like this, is the true relation of principal and agent, and extent'of the principal's-liability.
Where a general agent, in the due prosecution of the-business of his principal, employs a sub-agent to discharge-the duties of a branch of the business, the acts of the sub-agent, or notice coming to him in the due course of his-employment, have the same effect as if done, or received by the principal. 1 Otto, 310, and cases cited; 10 Eoster, 245. In such case the sub-agent becomes the agent arid direct representative of the principal. 2 Phil, on Insurance, ¿>23. Insurance corporations act and speak only by and through agents, so that the principle, that the knowledge-of the agent is notice to the employer, applies to corporations as well as to individuals. 53 Penn. St. 353.
In 4 Paige, the Chancellor, in speaking on this subject at-pa-ge 137, says : " It is well settled that notice to an agent of a party, whose duty it is, as such agent, to act upon the-notice or communicate the information to. his principal, in the proper discharge of his trust as such agent, is legal, notice to Ms principal." See also 53 Mo. 456; 31 Conn. 517; Bliss on Life Ins. 105 ; Story on Agency, par. 53 b, etc.
Many foreign life insurance companies have established, agencies in this state, having general and sub-agents in great number soliciting patronage from the people. Such corporations must not be surprised if they are held to strict accountability for the conduct of their agents here while acting in. what appears to be the scope of their employment.
Story on Agency, as the results of the authorities, in sec. 452, says the principal "is held liable to third persons in a •civil suit for' the frauds, deceits, concealments, misrepresentations, torts, negligences, and other malfeasances, or misfeasances, and omissions of duty of his agent in the course of his employment, although the principal did not authorize, or justify, or participate in, or indeed know of .•such misconduct, or even forbade the act, or disapproved of them."
Defendant says : My agent was not authorized, in taking .applications for insurance, to perpetrate a fraud upon his principal, and hence he was not acting within the scope of his authority or employment, and I am not legally liable for any evil cousequences arising from his fraudulent acts. If the fraudulent act was within the apparent limits of the agent's employment, although not within the actual authority conferred upon him, the principal will be liable. The company did not authorize Goodwin to do the wrong, but it accredited him as its trusted agent, and invited the public to trusj and confide in his acts in relation to a branch of its business. So long as the agent is transacting that branch of the business intrusted to him by his employer, and within its apparent scope, the law will hold the principal liable for his acts, and charge it with his knowledge, whether the fraud is upon itself or third persons, to the extent the tort < affects third persons.
The wrong done by the servant is regarded in law as the wrong of the master. And it is settled that no one shall be allowed -to take advantage of his own wrong, 1 Black. Com. 431, 4 D. & E. 39. This legal unity of principal and agent, in respect to the wrongful, or tortious, as well as the rightful acts of the agent, is an incident which the law wisely attached to the relation from its earliest history. 40 Miss. 453. The rule is founded in public policy, the just responsibilities of persons or corporations acting through agents, and the needs of society. This is to secure .and insure safety to third persons in their dealings, either directly with the principal, or indirectly with him through the instrumentality of agents. In every such case the principal holds out his ageut as competent, honest, faitlifulj and fit to be trusted, and thereby, in effect, warrants his fidelity and good conduct in all matters within the limits of his agency. He engages to abide by and discharge the •obligations arising from his agent's acts and judgment, when traced to his employment.
In the ease of The New York Life Ins. Co. v. McGowen, decided by the Supreme Court of Kansas at its January term, 1877, it was held, "An insurance company is liable to a third person, in a civil action, for the frauds, deceits, and misrepresentations of its general agent, when the acts so committed are apparently within the general scope of his authority, although not so in fact, on the grounds that such general agent was employed in that character of business, and held out by the company as a person authorized by it and fully to be trusted." 6 American Law Record, 190. This doctrine, as applied to life insurance companies, is founded in principles of common justice and sound morality. It is but a practical application of the well-recognized principle, that where one of two parties must suffer loss by reason of the fraud of an unfaithful ageut, it must be the company, and not the innocent assured. In 68 Penn. St. 87, it was held, " where one of two innocent parties must suffer by the fraud or negligence of a third, whichever has accredited him must bear the loss." This rule is too well settled in principles of justice to require .the support of authorities. 1 Salk. 288.
As a question of fact, it is quite manifest that the agent, Goodwin, when he took the application of Betz, preparatory to the issuance of the policy, received the premium money and note and gave a receipt to Betz in the name of the company, .was acting within the scope of his employment, as agent of the company exclusively. It is also clear that he suppressed the genuine application of. Betz and sent to his employer a spurious application, a copy of which is Exhibit "A," attached to the answer; that the genuine-application was suppressed by him and the forged one substituted in its place, without the knowledge or connivance-of Betz; that the genuine application was known to Goodwin, who had it and-the examining surgeon's certificate in his possession, as representing the true condition of the-health of Betz.
There is no proof showing, as claimed by the company, that Betz made- his application upon one of the company'sprinted blanks, and by that was informed that the company could only insure persons in sound health. Nor is there proof, that the laws, charter, by-laws and regulations under which the company was organized, restricted the company in any way. The reply specifically denies that Exhibit "A" is a true copy of Betz' original and genuine application, but charges that it was wholly and essentially different.
In this state of the case on the facts, and applying to-them the principles of law, as we have found them to be in such cases, we find that a valid contract was entered into. This, because the minds of the parties, through the instrumentality used, in legal contemplation, met, so far as was-necessary for them to meet, in this case to consummate a-valid contract. Betz made a genuine application, placed it,, with the surgeon's certificate, in the hands of the agent,, paid the premium required óf him for such application,, and the company issued a policy on the representations of its agent, which was accepted by the assured. By reason, of the fraud of its agent, the mind of the company, asa. fact, did not meet that of Betz upon a certain inducement to the contract. This does not vitiate the contract. This •'view of the question is supported by authority. See The Mutual Benefit Life Ins. Co., 31 Iowa, 317 ; New York Life Ins. Co. v. McGowen (Kansas), 6 American Law Reporter, 190; 13 Wall. 223; Bliss on Life Ins., par. 82.
The defendant below, in substance, requested the court to instruct the jury, that the diseased condition of Betz,, as alleged in the answer and not denied, rendered his application " wholly ineffectual and incapable of obtaining a- policy from the company." As we look at the whole case, the diseased condition of Betz can not avail defendant as a •defense. The allegations of disease are immaterial. The true condition of the life insured is not a material issue. "When the agent took the application he knew the true •condition of Betz as to health, and his knowledge of the true condition of the life was notice to the company. It was no fault of the assured that his genuine application did .not reach the home office. This satisfies the demands of fair dealing on the part of the assured, and the company is estopped from showing the fraud of its agent upon itself, to defeat the just expectations of the beneficiary in the policy.
The fifth charge asked by defendant rests upon no facts proven, or presumptions implied. As an abstract proposition, it.was properly refused. Without particularizing further, we think the instructions given to the jury, at the request of the plaintiff' below, were the law of the case, and the charges requested by defendant below were properly rejected.
The examination of the case has brought us to the conclusion that Betz was without fault in procuring the policy ; and hence, no case is made by the insurance company warranting a rescission of the contract. If the company made a mistake in issuing the policy on a spurious application, made out by its agent, the innocent policy-holder should not suffer, and such mistake, induced by'the fraud of its agent upon the company, affords no ground for a rescission. The tender, by the company, of the premium paid, with interest, and premium note, after the death of Betz, to the executors, on discovering the fraud, does not .authorize a cancellation of the policy. Betz was dead at the time of the alleged tender, and in such case the parties could not, we think, by such tender, be placed in statu quo.
Other questions of minor importance are discussed in the briefs of counsel, but none requiring separate consideration.
Judgment of the district court, affirming the judgment of the court of common pleas, is affirmed.