Opinion ID: 1221869
Heading Depth: 1
Heading Rank: 2

Heading: The Applicant's State of Mind

Text: Consistency in the articulation of principles governing the avoidance of insurance policies has been a troublesome task in this jurisdiction. [5] In Germania Life Insurance Co. v. Klein, 25 Colo.App. 326, 137 P. 73 (1913), the court held, on facts in which the misrepresentations were grossly false and in which a claim of ignorance was almost incredible, that: A false statement or declaration of a fact material to the risk, and upon which the policy is based, will avoid the policy, whether that misrepresentation be the result of intention or of mistake, and whether made in good faith or not so made. More recently, the court of appeals, in Gomogda v. Prudential Life Insurance Co., 31 Colo.App. 154, 501 P.2d 756 (1972), found that: . . . an insurance policy cannot be avoided on the basis of false statements or declarations of an applicant, unless such statements or declarations are material to the risk or form the basis on which the policy is issued, and unless they are made with knowledge on the part of the applicant of matters which make them false or misleading. Thus, the test is one of fraud or deceit. The Gomogda decision reviewed prior Colorado case law and concluded that an element of knowledge on the part of the applicant was required in order for an insurer to avoid the policy. We agree with that portion of the Gomogda analysis. While there exist some exceptions by virtue of case law and special statutes, the majority rule among other jurisdictions clearly appears to require proof of an element of knowledge, while dispensing with proof of an intent to deceive. See generally 17 J. Appleman, Insurance Law and Practice §§ 73-75, 9481-9503 (1945 and Supp.1976); 7 R. Anderson, Couch on Insurance 2d chap. 37 (1961 and Supp.1976). This is the rule in this jurisdiction. See Hollinger v. Mutual Benefit Life Insurance Co., Colo., 560 P.2d 824 (Supreme Court No. C-793, announced contemporaneously with this opinion). The nature of the disclosures required on insurance application forms such as the one in this case presents an additional problem. The pervasive, detailed, and often openended questions asked of the many insurance applicants increases the opportunity for innocent omission or misstatement of known, but seemingly trivial items. Moreover, the value-judgments inherent in defining such terms as heart trouble, physical or mental defect, alcoholism or other . . . ailment make evaluation of the state of mind required to avoid an insurance contract difficult. The legal concept of knowledge may be too imprecise if used alone. In the instant case, the applicant may have known that her answers to the questions were false in some literal sense, but the instructions by the agent that the insurer was interested only in serious matters may have disarmed any concern that these matters were important to the insurer. In order to protect innocent insurance applicants, an applicant must be reasonably chargeable with knowledge that the facts omitted or misrepresented were within the scope of questions asked on the application. A particular misrepresentation not only must be actually material to the insurer's risk, as demonstrated by customary underwriting procedures, it also must be such that a reasonable person would, under the circumstances, have understood that the question calls for disclosure of specific information. [6] See Colo. J.I. 19.4; [7] accord, Unger v. Metropolitan Life Insurance Co., 103 Ill.App.2d 150, 242 N.E.2d 907 (1968); W. Prosser, The Law of Torts, § 108 at 718 (4th ed. 1971). For example, an applicant may know that he or the prospective insured has had any physical injury in the sense of a bruise or sore muscle from some routine physical activity. Under the rule announced in this case, the trier of fact would look at the circumstances of the case, e.g., the bruise or soreness, and decide if a reasonable person would have perceived it as an item which, because of the nature of the questions asked and the type of insurance, the insurer would desire to know about in assessing the risks. [8] Contemporaneously with the announcement of this opinion, the elements which an insurer must prove in order to avoid an insurance policy for fraud were set out in Hollinger v. Mutual Benefit Life Insurance Co., Colo., 560 P.2d 824 (Supreme Court No. C-793). It appears that the trial court applied an erroneous (intent to deceive) test. Accordingly, we reverse the court of appeals and order that the case be remanded to the trial court for a redetermination in light of the principles articulated in this decision. HODGES, GROVES, CARRIGAN, JJ., concur. PRINGLE, C.J., concurs in the result. KELLEY, J., dissents.