Case Name: Mutual of Omaha Insurance Company, Appellant, v. Bosses
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1968-01-09
Citations: 428 Pa. 250
Docket Number: Appeal, No. 464
Parties: Mutual of Omaha Insurance Company, Appellant, v. Bosses.
Judges: Before Bell, C. J., Musmanno, Jones, Cohen, Eagen, O’Brien and Roberts, JJ.
Reporter: Pennsylvania State Reports
Volume: 428
Pages: 250–260

Head Matter:
Mutual of Omaha Insurance Company, Appellant, v. Bosses.
Argued November 15, 1967.
Before Bell, C. J., Musmanno, Jones, Cohen, Eagen, O’Brien and Roberts, JJ.
William J. Toy, with him George A. Spohrer and Walter B. Gibbons, for appellant.
Perry J. ¡Shorts, with him Rosenn, Jenlcins & Greenwald, for appellee.
January 9, 1968:

Opinion:
Opinion by
Mr. Justice Musmanno,
On August 1, 1964, Fred F. Bosses, member of the B'nai B'rith, executed an application form for certain insurance benefits under a Major Medical Plan offered by the Mutual of Omaha Insurance Company to members of B'nai B'rith, and, in due course, a certificate of insurance was issued to him. Within the two-year period provided under the policy, the insurance company filed an action in equity to rescind the insurance policy on the basis that Bosses had withheld from his answers on the application form certain medical history which indicated he had suffered in the past from a subtotal gastrectomy and a ventral hernia, also arthritis, fibrositis of the left arm, prostatic hypertrophy and disc trouble to his back, none of which medical information the Company alleged had been disclosed by Bosses in his application.
The defendant filed preliminary objections in the nature of a demurrer, contending that, by the terms of the master policy, under which the certificate was issued by the plaintiff, right of rescission was excluded. The Court of Common Pleas of Luzerne County sustained the preliminary objections and dismissed the complaint. The plaintiff appealed.
Paragraph 2 of Part C of the policy states: "Sicknesses for which the Member has received medical treatment or advice prior to the date of application will not be covered unless full disclosure of such medical treatment or advice was made on the application, and the Company issued a Certificate."
If the applicant misrepresented himself in the application the most the insurance company can exact is refusal to pay benefit for the sicknesses in controversy, i.e., the arthritis, fibrositis, etc. The insurance company, however, does not stop with merely denying coverage for the indicated infirmities. It seeks to cancel the entire policy. For a broken finger it wishes to saw off an arm. This it cannot do because the clear language of the policy does not permit it. If failure to disclose certain medical information was to work a forfeiture of the entire policy, that contingency could have been, and should have been, so stated. The fact that it was not so declared is evidence that such a drastic termination of the policy was never intended.
When, in Part C, paragraph 2, the insurer declared that undisclosed sicknesses would not be covered by the policy, it excluded rescission. Expressio unius est ex-clusio alterius. Fazio v. Pittsburgh Railways Company, 321 Pa. 7, 11
Part J2 of the policy reads: "If, under the terms of the preceding paragraphs, evidence of individual in surability is required, an eligible Member shall become an insured Member on the date his application is accepted by the Company. If evidence of insurability is waived, an eligible Member shall become an insured Member on the later of (a) the effective date of this policy or (b) the date his application is received by the Company."
The company contends that since "evidence of individual insurability" was not waived, it has the right to cancel the policy. Nowhere in the policy is the phrase "evidence of individual insurability" defined. However, accepting the face meaning of the words, the only possible interpretation is that, should the company question insurability of the applicant, he will be required to demonstrate that he is insurable under the terms of the application. Should he fail to submit that proof, his application will be rejected unless the insurance company waives evidence of insurability.
How is the applicant to know whether he is required to submit proof of individual insurability? Obviously, by notice from the company. But the company here directed no communication to the applicant after he had signed his application. But, the company argues, the application itself is "evidence of individual insurability" and, since that evidence was allegedly false, there was no insurability, and no waiver of the requirement. This argument ignores language, logic, and lucidity. The first sentence in paragraph 2, Part J of the master policy states: "The Company reserves the right to require each Member to furnish, at no expense to the Company, evidence of individual insurability satisfactory to the Company."
If the application is the evidence of individual insurability, why would the policy state that the company reserves the right to require, etc.? "To require" means to ask for something later. The Company failed to ask for anything later, or at any time.
Paragraph 2, subparagraph 3 states: "If and when evidence of insurability is waived, the company may still require an applicant to answer all questions on the application for insurance."
If the application is the evidence of insurability, the modifying phrase, "if and when evidence of insurability is waived," would obviously be without meaning or significance.
Paragraph 6, Part J, says, inter alia: "All statements made by the Policyholder and the Member shall be deemed representations and not warranties. No such statement by the Policyholder shall avoid this policy unless it is contained in the Policyholder's written application, and no such statement shall avoid the individual Member's insurance under this policy unless it is contained in the Member's written application. No such statement shall avoid the individual Member's insurance if evidence of individual insurability has been waived by the Company."
To regard the application itself as evidence of insurability would be to regard other portions of the contract as meaningless surplusage which construction would violate the cardinal principle of interpretation that an insurance policy must be construed in such a manner as to give effect to all of its provisions. Galvin v. Occidental Life Insurance Co., 206 Pa. Superior Ct. 61. Nor may it be construed in such a way as to render any part of it useless and unnecessary. Quigley v. Western and Southern Life Insurance Co., 136 Pa. Superior Ct. 27.
The lower court properly said: "The plaintiff did not at any time require evidence of the defendant's individual insurability, and, therefore, insofar as the master policy is concerned, because of the waiver of insurability, the statements would not avoid the individual Member's insurance."
It is clear from all that has been presented that the insurance company waived compliance with its requirement of evidence of individual insurability since its failure to ask the applicant to submit such evidence is practically conclusive of the issue. "Waivers need not be express; they may be inferred from acts which recognize a liability or a condition existing contrary to a statement made in the policy which, to them, appears not of sufficient importance to deter them from issuing the policy. The company does not consider such requirement as a hazard in view of many circumstances." Hoffman v. Mut. F. Ins. Co., 274 Pa. 292, 300.
It is a matter of common knowledge that, in the competitive business of selling insurance, companies often endeavor to woo prospective buyers by offering inducements in the way of waiver of stringent physical examinations, proofs of insurability, and assurances that statements in the applications will be considered representations and not warranties. They should not he allowed, then, later on, to rescind their contract because they conclude that they have insured a bad risk. The company here was dealing not with an individual insurance policy, but with an international men's service organization with a potential of tens of thousands of individual certificates of insurance, which involved the prospect of hundreds of thousands of dollars of insurance premiums. In order to obtain this lucrative business, the company made offers, it assured waivers, it cannot now throw off the ship of insurability those who cannot swim when they announced that swimming was not a requirement for insurability.
In Metropolitan Life Insurance Company v. Cleveland, 11 S.W. 2d 434, the Court said: "If, in order to secure business, the company is willing to forego some of the grounds of forfeiture allowed by Statute within the limits above indicated, effect should he given to its agreement, as it may contract for less, but not for more, than the statute allows it." Judge McCandless, speaking for the Court, said further: "It is clear that this stipulation was an inducement to procure the insurance, and that it was intended by the parties to be the ground of forfeiture upon which the company could rely, and being specifically stated, must exclude all other grounds of a general nature, and should be construed as being insérted in lieu of all others."
As far back as 1848, this Court said: "It was always law, that parties might contract to renounce privileges allowed them by law; and such renunciation is binding on them." (North Western Insurance Co. v. Phoenix Oil and Candle Co., 81 Pa. 449-450).
In conclusion, the insurance company must be held bound to the terms of the policy it has written. When the Company issued its certificate of insurance to the insured without requiring or receiving from him anything other than his application for insurance, the Company waived evidence of his individual insurability.- By no stretch of logic or the terms of the policy can the application be construed as a demand for evidence. The lower court properly found that there was no ground for rescission and that the complaint in equity had to be dismissed.
Decree affirmed; costs to be borne by appellant.
Although in this case the reference was to a statute, the rule of construction indicated is equally applicable to the construction of contracts.