Court Opinion

ID: 9677328
Source: CourtListenerOpinion
Date Created: 2023-08-24 05:49:30.248568+00
Date Added: 2024-06-11T18:16:55.299040
License: Public Domain

Otis, Justice
(dissenting).
Because in my opinion the commission’s decision is contrary both to public policy and to the great weight of authority, I would reverse. Even accepting the employer’s version of the facts, as we must, I do not agree that the commission should be sustained.1
The majority’s decision is based on the premise that both the insured and the insurer were ignorant of the loss at the time the policy became effective. Authority is cited for upholding policies written under these conditions. However, in the instant case the facts are otherwise. The commission’s findings adopt Riley’s testimony that the accident occurred about 10:30 a. m. on September 11. There is no claim that Krug bound Aetna before 12:15 p. m. when he called his office and received Riley’s message. At that moment Krug was wholly unaware that the loss had already occurred, while Riley, the employer, not only was present at the time of the employee’s illness but personally transported him to the hospital.
Cases which permit retroactive coverage where both the insured and insurer are ignorant of an antecedent loss have no application. In neither Matter of Orto v. Poggioni, 245 App. Div. 782, 281 N. Y. S. 16, nor *283Matter of Weydman v. Niagara Boiler Works, 264 N. Y. 503, 191 N. E. 536, cited by the majority, does it appear that the employer knew of the loss after it occurred but before the contract was entered.
The issue then is whether or not, where there is no coverage at the time of an accident, an oral binder imposes liability retroactively if made when neither the agent nor the insurance company had knowledge of the loss but the insured was fully aware of it and failed to disclose it between the time of the application and the time the binder became effective.
The case of Wales v. New York Bowery Fire Ins. Co. 37 Minn. 106, 33 N. W. 322, is virtually identical on the facts.2 There the insured first had knowledge of the loss after he had applied for insurance but before it was accepted. The court speaking through Mr. Justice Mitchell held (37 Minn. 109, 33 N. W. 323):
“If at that time both parties had been ignorant of the loss, it would have been competent for them, by antedating the policy, to have made it retroactive. But in fact the plaintiff then knew that the. property had been destroyed, but did not communicate that fact to defendant’s agent, who, in ignorance of the loss, accepted the risk, and issued the policy. Under these circumstances, the policy is void, and does not cover the loss.” (Italics supplied in part.)
The Wales case is in harmony with a long line of authority adopted in both state and Federal courts dating as far back as M’Lanahan v. The Universal Ins. Co. 26 U. S. (1 Peters) 170, 184, 7 L. ed. 98, 105. In M’Lanahan the United States Supreme Court observed that contracts of insurance are “uberrimae fidei”3 and held that where a party orders insurance and afterwards has knowledge of the loss he must communicate that information to the agent as soon as due and reasonable diligence permits in order to countermand it or lay the facts before the insurer. Failure to communicate the information where it can be done with reasonable diligence renders the policy void, the court there held. *284Stipcich v. Metropolitan Life Ins. Co. 277 U. S. 311, 316, 48 S. Ct. 512, 513, 72 L. ed. 895, 898, a leading case decided one hundred years later, held as follows:
“Insurance policies are traditionally contracts uberrimae fidei and a failure by the insured to disclose conditions affecting the risk, of which he is aware, makes the contract voidable at the insurer’s option. * * *
“* * * If, while the company deliberates, he discovers facts which make portions of his application no longer true, the most elementary spirit of fair dealing would seem to require him to make a full disclosure. If he fails to do so the company may, despite its acceptance of the application, decliné to issue a policy, * * * or if a policy has been issued, it has a valid defense to a suit upon it.” (Italics supplied.)
While we noted by way of dictum in Glens Falls Ind. Co. v. D. A. Swanstrom Co. 203 Minn. 68, 279 N. W. 845, that failure to disclose a loss, after the application and before the issuance of the policy, did not conclusively constitute fraud, we had no occasion in that case to actually decide the issue. There the matter was disposed of on the narrow grounds' that there was an oral binder which gave coverage prior to the loss.
A number of other Federal courts as well as appellate courts in Kansas, New York, Massachusetts, Washington, and Illinois have passed on the same or similar questions.4 They have without exception declined to give coverage. In Matlock v. Hollis, 153 Kan. 227, 233, 109 P. (2d) 119, 123, 132 A. L. R. 1316, 1321, the court held that antedated contracts of insurance are valid provided neither party knows of the loss “at the time the contract is made.” There the court said (153 Kan. 235, 109 P. [2d] 124, 132 A. L. R. 1322):
*285“* * ■ * If the employer conceals the fact of an injury to an employee which would be covered by an antedated policy which he accepts, he is taking no chance — the contingency, the risk is not mutual. He is seeking indemnity under a contract predicated on an uncertain event, when as to him the event has ceased to be uncertain. We have found no authority which would make such a contract merely voidable. It is void ab initio.” (Italics supplied.)
In the Matlock case the knowledge of loss did not come to the insured between the time of application and the time the contract became effective. Nevertheless, it did announce a principle followed in other jurisdictions that the policy is void where ignorance of the loss is not mutual when the contract is entered.
A leading Federal case is Strangio v. Consolidated Ind. & Ins. Co. (9 Cir.) 66 F. (2d) 330. The court was there dealing with an automobile liability policy where the insured learned of the loss after the application was made but before it was accepted. The Court of Appeals for the Ninth Circuit held that an antedated policy subsequently issued was properly canceled since the insured was under a continuing duty to disclose the loss before the policy was furnished.
The New York case of Millar v. New Amsterdam Cas. Co. 248 App. Div. 272, 289 N. Y. S. 599, is also squarely in point. There, as here, the insured had notice of a loss after the application but before the policy became binding. Applying the principles announced in the M’Lanahan case, the New York court held (248 App. Div. 277, 289 N. Y. S. 605):
“* * * The applicant had full knowledge of the accident when it occurred, as he participated in it. Under such circumstances it was the express duty of Kauffman to notify the defendant at once of the substantial increase in hazard resulting from the accident. He could easily have done this not only by communicating with New York by telegraph or telephone, but also by communicating with the Hudson-Mohawk Brokerage, Inc. He made no attempt to do this. In fact, he even concealed the fact of the accident from the insurance agency in the interview of January twenty-second. His failure to notify the defendant vitiates the acceptance of his application by the defendant when it acted in com*286píete ignorance of the changed condition of the risk covered.” (Italics supplied.)
Finally, the problem was dealt with by the Supreme Court of Illinois recently in Carroll v. Preferred Risk Ins. Co. 34 Ill. (2d) 310, 215 N. E. (2d) 801. The issue there was whether the provisions of an uninsured-motorist policy obtained. In that case coverage was claimed for a loss which occurred before automobile liability insurance was retroactively written but after the application was made. The insured had knowledge of the loss during the interval but the insurer did not. The Illinois court held that the relationship between an applicant and an insurer requires good faith on the part of the applicant and imposes on him the obligation to notify the insurer of any changed condition materially affecting the risk during the pendency of the application. The court said that the application constitutes a continuing representation that there are no intervening material changes in the risk from the date of the application to the time the policy is issued. The court noted that it was reasonable to infer the insurer would not have issued the policy had it been aware of the loss. In holding that even had there been acceptance of a premium for a period not covered by the policy it would not be enough to render the insurance valid, the court reiterated the principle that “[i]nsurance policies have traditionally called for good faith, openness and candor on the prospective insured’s part, and to reduce this standard would seriously alter and disrupt the purpose of insurance.” 5 34 Ill. (2d) 314, 215 N. E. (2d) 803.
Applying these principles to the instant case, it is undisputed that 12:15 p. m., September 11, 1961, was the earliest time the compensation policy could have been binding.6 At that moment Krug, the agent *287for Aetna, had no knowledge that the loss he was about to insure had already occurred. However, Riley, the insured, had been aware of it for at least an hour and a half. It is obvious that neither Krug nor Aetna would have written the policy if they had been apprised of the facts when Krug called his office and agreed to an oral binder. Any agent or insurer who at the time of assuming the risk knows that the loss has already occurred but undertakes coverage notwithstanding that fact would be subject not only to liability to stockholders or other policyholders for violating the basic principles of insurance underwriting, but would as well be in serious difficulty with the public authorities who supervise and regulate the insurance industry. In short, it is absurd to assume that a company can legally bind itself to a loss which at the time of the initial undertaking it knows has already taken place.
In an age of easy access to telephones, as demonstrated by the calls which Riley made that morning, in my opinion it was not only entirely feasible but as a matter of law mandatory that Riley promptly communicate with Krug’s office upon learning of Mr. Oster’s illness. He had ample time to do so after the employee was taken to the hospital. His bad faith is underscored by the uncontradicted testimony of Krug’s secretary that Riley again called the afternoon of the accident without at that time disclosing the loss. In the face of this unequivocal testimony, Riley’s failure to deny the call is conclusive on that issue.7
While the majority opinion suggests that coverage must be afforded *288because the policy was issued with retroactive provisions after notice of the loss, our decision in Seavey v. Erickson, 244 Minn. 232, 69 N. W. (2d) 889, 52 A. L. R. (2d) 1144, clearly indicates that there is no waiver or ratification if the policy is intended to cover risks beyond the loss which is the subject of litigation. There we said (244 Minn. 246, 69 N. W. [2d] 898):
“* * * While the authorities are not in agreement, we believe that the rule to which we are committed is that acceptance and retention of a premium on a policy of insurance after knowledge of a loss is a waiver of a forfeiture, at least unless the insurance can have some application to the property which remains after the loss.” (Italics supplied.)
There was nothing inconsistent with issuing this workmen’s compensation policy and denying liability for Mr. Oster’s illness where obviously Riley was in the process of a project which would necessarily require other and additional employees to carry on the work. The policy was still in effect at the time of the trial. Therefore, cases which involve only a single risk and single loss, such as the total destruction of the insured property, are not in point.
To recapitulate, had Riley discharged his moral and legal responsibility by giving timely notice to Krug, clearly the policy would not have been written. His phone call the same afternoon in which he made no mention of the loss confirms an intention to withhold information which he believed would be fatal to the binder. In my opinion he should not now be permitted to profit by conduct calculated to mislead and to conceal the truth in a transaction which the law requires the parties to enter with the utmost good faith and candor.
I would therefore reverse.

 I share the doubts expressed by the majority concerning Riley’s unconvincing explanation of the sequence of events. He testified that he was obliged to go 4 or 5 blocks to make the first phone call to Krug’s office and that when he returned about 10 o’clock he found Mr. Oster in some distress as though “the fumes of the tar were affecting him.” In 15 minutes Riley claims he again left for the same phone booth several blocks away to make a call to the lumber company. He offered no explanation for not having made the two calls on the same trip. Upon returning to the job the second time he says he found Oster suffering from the attack which subsequently caused his death.

 1 Joyce, Law of Insurance (2 ed.) § 107, note 8.

 “A phrase used to express the perfect good faith, concealing nothing, with which a contract must be made; * * *." Black, Law Dictionary (4 ed.) p. 1690.

 Hansen v. Continental Cas. Co. 156 Wash. 691, 696, 287 P. 894, 896; Hare & Chase, Inc. v. National Surety Co. (2 Cir.) 60 F. (2d) 909, 912. In Century Ind. Co. v. Jameson, 333 Mass. 503, 131 N. E. (2d) 767, the loss was known to the insured before his agent made application, and the court commented with approval on the insured’s duty to keep the insurer informed.

 These principles have the approval and support of textwriters and commentators, viz.: Restatement, Restitution, § 8, comment b: “So, too, if one who has made a statement which was true at the time of speaking discovers that it is untrue with reference to present facts or if he discovers that a statement which was immaterial when made has become material, he is under a duty, of disclosure”; 29 Am. Jur., Insurance, § 697; 9 Couch, Insurance (2 ed.) § 38:21.

 Olson v. American Central Life Ins. Co. 172 Minn. 511, 513, 216 N. *287W. 225, 226; Rommel v. New Brunswick Fire Ins. Co. 214 Minn. 251, 263, 8 N. W. (2d) 28, 35; 1 Cooley, Insurance (2 ed.) pp. 573, 575.

 “Q. * * * Now, the fact is that you called his office that very afternoon, isn’t it, Mr. Riley?
“A. I may have.
“Q. On September 11, 1961.
“A. I may have but I don’t remember.
“Q. And you talked to his office girl again, didn’t you? Well, the fact is that you called that office back that afternoon to ask again if you had workmen’s compensation insurance, didn’t you?
“A. I don’t recall it, I may have.
“Q. Do you deny—
“A. No, I don’t deny it.”