Court Opinion

ID: 6755433
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:26:36.312186+00
Date Added: 2024-06-11T16:02:24.985273
License: Public Domain

Stern, J.,
dissenting. The majority concludes that the General Assembly has made a policy decision favoring the onerousness of possible fraud by an insured to that of possible fraud by an insurer. I disagree with the implication of the majority that the courts must ratify a small miserable fraud in order to deter some greater fraud, and I find no clear legislative pronouncement which suggests any such ratification of an insured’s fraud.
An insurance policy is but a form of contract. The right of an injured party to withdraw from a contract which was fraudulently induced is well established, and as a matter of public policy this right may not be bargained away. 2 Restatement of Contracts, 1079, Section 573. Certainly, if the law will not permit waiver of the defense of fraud in a free bargain, it should be most reluctant to deprive a *219party of that defense under a statute the purpose of which is to prevent fraud.
R. 0. 3911.04 and similar statutes in other states were enacted to prevent fraud by an insurance company or its agent, and to protect also against errors and misunderstandings which might arise from the manner in which insurance is sold. Many applications for insurance — probably a majority — are actually filled out by an insurance agent, who forwards these applications to the insurer. Unless the insured is provided with a copy of this application, he is vulnerable to an agent’s fraud in falsely filling out the application, and is vulnerable as well to simple errors which might appear on an application through oversight or mistake, and which might affect the insured’s rights under the policy. Thus, Ohio is one of many states, which by statute requires an insurer to give to the policyholder copies of application forms and other documents which can affect an insured’s rights under his policy. Failure to deliver these documents is generally held to bar the insurer from raising the defense of misrepresentation, waiver of rights, or of other defenses derived from the language of the documents. Thus, if the insurance company or its agent errs or seeks to defraud an insured, that insured is protected. He will either receive copies of the documents themselves, or will be protected by the doctrine of estoppel from their use against him.
Although there is conflicting authority, the majority of the cases have not extended this protection of the insured so far as to provide the insured a shield for fraud. 43 American Jurisprudence 2d 358, Section 297. In some states, fraud is, by statute, excluded from the protection given to innocent misrepresentation in an application; in others, the courts have construed statutory provisions to be inapplicable to a defense of fraudulent inducement in the issuance of a policy. Annotation, 93 A. L. R. 374, 377.
Contrary to the conclusion of the majority, I do not find that Ohio’s statutes permit the setting up of a fraud by an insured, solely for failure to deliver a copy of an *220application to the policyholder. A comparison of the language of R. C. 3911.04 with that of R. 0. 3911.03 and 3911.-05 makes this clear. In R. C. 3911.03, the General Assembly has, in precise language, chosen to bar a defense of fraud where the insurance company has failed to furnish copies of applications and other documents upon demand by the policyholder.
R. C. 3911.03 provides in part:
“If * * * [an insurance company] neglects or fails for thirty days from the time of * * * demand to furnish to [a policyholder] a copy of all papers mentioned in this section, it thereafter is forever barred from setting up, by way of defense to a suit on the policy of insurance, any error or incorrectness, or fraud or misrepresentation of the person making such papers, or any mistake therein.” (Emphasis added.)
In R. C. 3911.05, the General Assembly has similarly chosen to hold as void applications and other documents taken “in cipher or by character of any sort other than ordinary written language.”
In the case of applications not returned to the policyholder, the General Assembly has taken a different path; it has not chosen to make such documents so conclusive as to forever bar the defense of fraud, as in R. C. 3911.03, nor has it held such documents to be “void as against any person claiming under a policy of insurance issued thereon,” as in R. C. 3911.05. Rather, the General Assembly adopted, in R. C. 3911.04, the equitable doctrine of estoppel:
“* * * A company which neglects to [return a copy of each application] is estopped from denying the truth of any such application or other document, so long as it is in default for such copy. # * *” (Emphasis added.)
It is fundamental that an equitable defense will not be allowed to set up a fraud, and I find in the statutory language no suggestion that the courts should do other than apply the same principles of equity to estoppel as to any other equitable defense. I do not find that this statutory language compels the courts to ignore the facts in a case and *221to allow a fraud to be set up under the protection of the doctrine of estoppel.
In his application for the $25,000 in supplemental benefits, Mr. Perkins stated that his only previous health difficulty was “appendicitis” in 1942. The application was dated August 20, 1970 by Perkins, and the supplemental insurance became effective as of December 1,1970. Perkins died on July 22, 1971, of stomach cancer. The insurance company claims that Perkins in fact was suffering, and had suffered for some time, from diabetes, hemorrhoids, digestive problems, and a malignancy in his stomach. The stomach cancer was diagnosed, in early September 1970, after a biopsy was performed, less than two weeks after the date of the insurance application. Perkins, in his application for insurance, answered “No” to questions of whether he had ever been hospitalized, consulted with, or treated by a physician for “stomach or intestinal disorders,” or for any other disease or disorder.
This court cannot undertake to make any finding that those answers were wilfully false, fraudulently made, material, or that they induced the company to issue the policy, within the meaning of the statutory definition of fraudulent inducement in E. C. 3911.06. I do conclude, however, that this sequence of events raises a question of fraud, sufficient to be decided by a trier of fact rather than be barred by an equitable rule of procedure.
I would reverse the judgment of the Court of Appeals and remand the cause to the trial court, with instructions to admit the application as evidence of fraudulent inducement under E. C. 3911.06.
CorrtgaN and P. Brown, JJ., concur in the foregoing dissenting opinion.