Court Opinion

ID: 3884047
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:14:33.526096+00
Date Added: 2024-06-11T09:18:29.894026
License: Public Domain

Action was brought by the plaintiff as the beneficiary of a policy of insurance issued by defendant company, March 26, 1918, for $1,000, on the life of her husband, John F. Livingston, who died February 23, 1919. The appeal is from the judgment of the Richland County Court, upon verdict for the plaintiff directed by the trial Judge.
The defense set up in the answer was that the policy was invalid and void, in that the application of the insured. *Page 96 
forming a part of the policy contract, contained false answers to certain inquiries. But, as conceded by the appellant, "although it was charged that the answers were false and were misrepresentations of material facts, the defendant did not allege fraud or attempt to prove fraud."
The term "fraud," as used in that connection by appellant and as it will be used throughout this opinion, is understood to mean actual fraud, imputing bad faith and conscious deceit, as distinguished from constructive or legal fraud. The plaintiff moved the Court to direct a verdict in favor of the plaintiff upon three grounds, which will be stated and considered in the following order: First, because the erroneous answers, alleged to be material misrepresentations, were not material; second, because there is no allegation or evidence of fraud on the part of the insured in making alleged erroneous answers in the application and that in the absence of fraud such alleged misrepresentations constitute no defense; and, third, that the defendant company did not elect to rescind or tender the premium within a reasonable time.
The trial Judge based the direction of verdict upon the first ground, expressly predicting his conclusion upon the decision of this Court in Livingston v. Insurance Company,115 S.C. 128, 104 S.E., 538, which was an action between the same parties involving a similar contract. In that case this Court said:
"But we are satisfied that there is no testimony tending reasonably to prove that the instant answer was material to the risk, and that a verdict ought to have been directed for the plaintiff."
As to the testimony upon the issue of materiality, the Court further says:
"The only testimony thereabout is that of the medical director, Dr. Muhlberg. He testified: `If any applicant states that he has consulted a physician within five years, *Page 97 
our practice is to find out why he consulted a physician. That is all."
In the case at bar the additional testimony directed to this issue, as developed by the examination of defendant's witnesses, Dr. M.B. Heyward, Dr. William O. Paull, Dr. William Muhlberg, and Mr. F.G. Querry, tended to establish that, if insured's answer to a particular interrogatory in the application had been true and not false, an investigation would have been undertaken which would have led to a rejection of the applicant for insurance. The testimony referred to is fully reviewed and analyzed in the dissenting opinion of MR. JUSTICE COTHRAN. The testimony differs both in quantity and quality from that produced in the other case of Livingston v. Insurance Co.,supra. The decision in that case, therefore, does not control the determination of the question here presented. I am clearly of the opinion that the testimony directed to the issue of the materiality of the alleged false representation was sufficient, in the case at bar, to warrant the submission of that issue to the jury.
Respondent, having served due notice of intention to ask that the judgment be affirmed upon the additional grounds urged in support of the motion to direct a verdict in the Court below, it becomes necessary to pass upon the contentions thus made. The second ground upon which that motion was based squarely presents the question whether the defendant is entitled to avoid the policy by reason of a material misrepresentation on the part of the insured, constituting a part of the contract, in the absence of actual fraud.
The first consideration is a clear understanding and sound construction of the terms of the contract itself. At the foot of the application the insured signed the following certificate:
"I hereby declare that my answers to the questions in part I and part II, which together constitute my application *Page 98 
to the Union Central Life Insurance Company for life insurance are complete and true, and I agree that they shall form a part of the contract issued by the said company on my life."
Part II of the application, containing report of the medical examiner, Dr. Heyward, was in the handwriting of Dr. Heyward, the signature only being that of the applicant, Mr. Livingston. The application contained a large number of questions with numerous subdivisions. Question 26 made inquiry as to whether the applicant had ever had symptoms of almost every disease that "flesh is heir to." Question 27 was: "Have you had any illness or have you consulted any physician in the last 5 years? Answer Yes or No." To this question the applicant answered "No."
In case the answer was "Yes," the applicant was asked to specify the illness, giving the month, year, duration, result, and the physician's name and address. It is upon the answer of the applicant to question 27 that defendant contests the validity of the policy. Section 20 of the contract is as follows:
"This policy, together with application, a copy of which is endorsed hereon or attached hereto, shall constitute and contain the insurance contract. All statements shall, in the absence of fraud, be deemed representations and not warranties. No such statement shall avoid this policy or be used in defense of a claim thereunder, unless it is contained in the written application, and unless a copy of such application is endorsed or attached to the policy when issued."
It thus appears, by the express terms of Section 20 of the contract quoted, that "all statements, shall, in the absence of fraud, be deemed representations and not warranties." The clear intendment of this provision was to make any statement contained in the application a mere representation and not a warranty, if there was no fraud. With fraud, a warranty; without fraud, a representation. Applicant was thus expressly invited to enter upon this contract with *Page 99 
the assurance that no statement made by him should be deemed a "warranty" in the absence of fraud. It is significant that even his certificate, to the effect that the answers given "are complete and true," does not in terms "warrant" or guarantee the completeness and truth thereof. In conformity with the provisions of Section 20 of the contract, the language used is: "I hereby declare." Since, in the law of insurance, all statements which are not express warranties are representations, the only possible effect of this provision would be to convert a representation fraudulently made into a technical warranty, entitling the insurer to void the policy for its breach, regardless of its materiality. Was the applicant, Livingston, bound at his peril so to construe and understand the language of the policy? The inquiry is to be answered in the light of certain fundamental principles of law. Thus, conditions providing for disabilities and working forfeitures are to receive, when the intent is doubtful, strict construction against those for whose benefit they are introduced.
"This rule, applicable to all contracts, has peculiar force in cases like the present, where the attempt is to seize upon words introduced as a safeguard against fraud, and make them available to defeat the claim of the assured on the theory of a technical forfeiture without fault." Hoffmanv. Aetna Fire Ins. Co., 32 N.Y. 405, 88 Am. Dec. 345,
Another principal of law, as well as of ethics, is that, where the language of a promisor may be understood in more senses than one, it is to be interpreted in the sense in which he had reason to suppose it was understood by the promisee. Barlow v. Scott, 24 N.Y., 40 Hoffman v. Ins.Co., supra. It is also a familiar rule of law that, if it be left in doubt, in view of the general tenor of the instrument and the relations of the contracting parties, whether given words were used in an enlarged or restricted sense, other things being equal, that construction should be adopted which is most beneficial to the promisee. Co. Lit., 183, *Page 100 
Bacon's Law Maxims, Reg. 3; Doe v. Dixon 9 East., 16;Martin v. Stone, 2 Cow. (N.Y.), 806.
"This rule has been very uniformly applied to conditions and provisos in policies of insurance, on the ground that, though they are inserted for the benefit of the underwriters, their office is to limit the force of the principal obligation.Yeaton v. Fry, 5 Cranch, 341; Palmer v. Western Ins. Co., 1 Story, 364, 365; Petty v. Royal Exchange Ins. Co., 1 Burr. 349." Hoffman v. Ins. Co., supra:
14 R.C.L., 926; Sample v. Ins. Co., 46 S.C. 491, 24 S.E., 334, 47 R.L.A., 696, 56 Am. St. Rep., 701; Powell v. Ins. Co.,97 S.C. 379, 81 S.E., 654; Hartford Ins. Co. v. Unsell,114 U.S. 439, 12 Sup. Ct., 671, 36 L.Ed., 496; Logan v.Prov. Life Assur. Soc., 57 Va., 384, 50 S.E., 529.
In the light of these principles, I think it clear that, in interpreting the provisions of this contract, the insured is entitled to the benefit of the rule of construction adopted by the Supreme Court of the United States in construing the policy involved in the case of Moulor v. American LifeIns. Co., 111 U.S. 335, 4 Sup. Ct., 466, 28, L.Ed., 447, as follows:
"What was meant by `true' and `untrue' answers? In one sense, that only is true which is conformable to the actual state of things. In that sense, a statement is untrue which does not express things exactly as they are. But in another and broader sense, the word `true,' is often used as a synonym of honest, sincere, not fraudulent."
So construing the provisions of the contract herein, we are of the opinion that the company required, "as a condition precedent" to valid contract nothing more than that the insured "would observe the utmost good faith towards it, and make full, direct and honest answers to all questions without evasion or fraud." Obviously, if the insured in the case at bar, by the terms of the contract fairly construed, was held to no other standard than that of good faith, it follows that a defense based upon the making of *Page 101 
untrue answers must of necessity charge and establish bad faith or actual fraud.
But meeting defendant's contention squarely upon the ground upon which it is rested, that the only effect of the said provisions of the policy was to make the answers of the applicant representations and not warranties, in the sense these terms are used and understood in the law of insurance, is defendant's position tenable?
"A warranty is a statement of the contract with reference to the conditions on which it is predicated, the truth of which is made a condition precedent to its validity; while a representation is a statement made as an inducement to a proposed contract of insurance and collateral to the contract." 25 Cyc., 798.
Defendant contends that false representation, if material, will avoid the policy, irrespective of whether there was conscious knowledge of such falsity or whether there was any intent to deceive; that the legal aspects of the case would not be different if Livingston's untrue answer to the question propounded was due to loss of memory, accident, or some other innocent cause, since the Court must look to the effect of the untrue statements upon the insurance company rather than the corrupt motive of the one making them; and that if Livingston obtained this policy by means of untrue statements, though ignorant of their falsity, he must be held responsible as for a legal fraud.
It must be conceded that, where contracting parties stand upon equal footing and have, or in the exercise of ordinary care may acquire, equal knowledge of the subject-matter of the contract and of the force and effect of the representations and stipulations which determine the respective rights and obligations of the parties thereunder, the rule contended for is sound, both in law and in ethics. It has been applied by the Courts of many jurisdictions to life insurance contracts. But I think there is well-grounded reason for the application of a somewhat different rule to *Page 102 
such contracts. As is said by a distinguished text-writer:
"* * * The subject of insurance is a highly technical one and an intimate familiarity with it may fairly be imputed to an agent engaged in the business, but not to the average person dealing with him," etc. Black on Rescission and Cancellation, § 477; McCarty v. Ins. Co., 81 S.C. 152;62 S.E., 1, 18 L.R.A. (N.S.), 729.
It is a matter of common knowledge that the business of insurance in its various branches is largely carried on by strong corporate agencies, organized and operated upon the basis of expert knowledge of the nature of the risks underwritten; that while insurance contracts, particularly in the field of life insurance, are usually "sold" by skilled agents and not "bought" by the persons underwritten, the terms and stipulations of the contract are fixed and prepared by the insurers; and that, in all essential particulars of form and substance, the contract speaks the language of the insurer and not of the insured; and that the ordinary purchaser of a life insurance policy has neither the ability to formulate or the capacity to understand the more or less technical terms and conditions of the standardized forms of contract which embody the mutual obligations of the parties. Due in large measure to such considerations, insurance contracts have quite generally become the subject of statutory regulation. 14 R.C.L., p. 25. Thus in this State, by the provisions of Section 2719 of the Civil Code of 1912, the insurer is estopped, after the expiration of 60 days, from denying the truth of the statement in an application for fire insurance "except for fraud in making the application." Section 2733 provides that life insurance companies receiving the premium upon "any policy for the space of two years shall be deemed * * * to have waived any right they may have had to dispute the truth of the application for insurance, or that the assured person had made false representations, and the said application and representations shall be deemed and taken to be true." *Page 103 
Section 2723 authorizes life insurance companies "to institute proceedings on the ground of the falsity of the representations contained in the application" if commenced "within two years from the date of said policy." Section 2730 of the Code prohibits discrimination, etc., by any life insurance company and expressly provides:
"Nor shall any such company, or agent thereof, make any contract of insurance or agreement as to such contract other than as plainly expressed in the policy issued thereon."
In the light of the foregoing consideration, so pointedly recognized in the exercise of the legislative power of the State, I think there are salutary reasons, grounded in sound public policy, for not applying the rule that the erroneous or untrue but not fraudulent representation of a material fact by an application will avoid or forfeit a life insurance policy after a right of action has accrued thereon and the lips of one of the parties to the contract have been effectually sealed by death.
Proceeding next to the consideration of the proposition for which appellant contends, in the light of the decisions of this Court, I am of the opinion that the question has been substantially, if not expressly, decided against appellant's contention. In the early case of Walton v. Bethune, 2 Brev., 453, 4 Am. Dec., 597, the Court said:
"A warranty is to be strictly and literally complied with; a representation must be substantially complied with, or the policy may be avoided on the ground of fraud." (Emphasis added.)
No exhaustive review of the decisions in this jurisdiction can be attempted. The cases of Ingraham v. Ins. Co., 3 Brev., 522; Money v. Union Ins. Co., 4 McCord, 511;Himely v. S.C. Ins. Co., 1 Mill, Const. 154, 12 Am. Dec., 623, cited by appellant, were all marine insurance cases.
"Contracts of marine insurance are uberrimea fidei and are held to carry an implied warranty that both parties will disclose all facts material to the risk." 26 Cyc., 617. *Page 104 
In no case that has come to the writer's attention, in action upon a life insurance contract, has a defense based upon a misrepresentation of the insured been approved or sustained by this Court, except where the misrepresentation was alleged to be or was construed by the Court to amount to actual fraud. See Drakeford v. Knights ofDamon, 61 S.C. 338; 39 S.E., 523; Fludd v. AssuranceSociety, 75 S.C. 315; 55 S.E., 762; Hankinson v. Ins. Co.,80 S.C. 392; 61 S.E., 905; Gambrill v. Ins. Co., 83 S.C. 236;95 S.E., 231; Gamble v. Ins. Co., 92 S.C. 451;75 S.E., 788; 41 L.R.A. (N.S.), 1199; Id., 95 S.C. 200;78 S.E., 875; Huestess v. Ins. Co., 88 S.C. 33; 70 S.E., 403;Baker v. Insurance Co., 106 S.C. 419; 91 S.E., 324;Fowler v. Insurance Co., 107 S.C. 21; 91 S.C. 1043;Wingo v. Insurance Co., 112 S.C. 139; 99 S.E., 436;Floyd v. Insurance Co., 110 S.C. 384; 96 S.E., 912;Johnson v. Insurance Co., 111 S.C. 399; 98 S.E., 140;McLaurin v. Insurance Co., 115 S.C. 59; 104 S.E., 327;Livingston v. Ins. Co., 115 S.C. 128; 104 S.E., 538. The case of Gamble v. Ins. Co., 92 S.C. 451; 75 S.E., 788; 41 L.R.A. (N.S.), 1199, has been cited as tending to support the contention that a life policy may be avoided for a material misrepresentation innocently made by the appellant. Examination of the opinion of the Court will disclose that the decision was predicated upon the fact that the husband, the beneficiary, signed the application with his wife, the insured, and that he knew at the time of the making of the application that his wife had Bright's disease and an enlarged heart, a fact of which she was ignorant. The Court held that the husband could not have the benefit of his wife's lack of knowledge of her malady when it was "known to him," that he could not "be allowed to willfully conceal and then have the benefit of this concealment," etc. The answer in that case alleged fraud and the decision goes no further than to hold that the facts made an issue under the pleadings for the jury. On the second appeal in that *Page 105 
case (Gamble v. Ins. Co., 95 S.C. 196; 78 S.E., 875), a judgment in favor of the plaintiff was affirmed. The concurring opinion by Mr. Chief Justice Gary contains the following:
"One of the provisions in the policy is that `all statements made by the insured shall, in the absence of fraud, be deemed representations and not warranties.' Therefore, even if the statements contained in the application were not true, this fact alone was not sufficient to defeat the plaintiff's right of recovery. The burden of proof rested upon the defendant to prove, as alleged by it, that the policy of insurance was obtained by fraud, misrepresentation, and deceit, which unquestionably would render it null and void."
In the case of Fowler v. Insurance Co., supra, the defendant sought to avoid a life policy, upon the ground that the appellant had made false answers to certain questions as to the use of alcoholic liquors. The Court said:
"No question but that there was full proof that the company relied on Miles' answers in the application touching his use of liquor; but the real issue is, were such answers untrue, known to be so, and made to deceive the company?"
It is true that, in the Gamble and Fowler cases and in most of the other cases cited, fraud was expressly pleaded. In the case of Hankinson v. Ins. Co., supra, and Wingo v.Ins. Co., supra, while fraud does not seem to have been charged in terms, this Court held that the facts alleged amounted to fraud. Thus, in the Hankinson case where the Circuit Judge charged that it was incumbent upon defendant to prove fraud, this Court held there was no error, and said:
"The defendant had set up the defense of conscious failure of duty on the part of the plaintiff. * * * It is not necessary that a placard should be placed charging fraud when discussing fraudulent practices." *Page 106 
The case of Gambrill v. Insurance Co., 83 S.C. 236;65 S.E., 231, is not in point upon this question. In that case the false statement was construed to be a technical warranty and not a representation, and its falsity, which assured knew or was presumed to have known, was held sufficient to avoid the policy. But in the subsequent and very recent case of Sligh v. Sovereign Camp, W.O.W. (S.C.), 109; S.E., 279, where defendant sought to avoid a policy upon the ground of the falsity of the assured's statement that he had not had pleurisy and had not been examined by a physician within five years, which statements were expressly warranted to be true under penalty of avoiding the policy, this Court held that, in the absence of testimony tending to prove that the assured had knowledge of the falsity of his answers or should have had such knowledge, recovery could be had. Even then, if it be conceded, as appellant contends, that the point at issue has not been expressly decided in previous adjudications of this Court, I think it is entirely clear that the Court has uniformly proceeded upon the assumption that proof of fraud on the part of an applicant for life insurance, in the making of an incorrect representation, is essential to the avoidance of the contract by the insurer after death of the insured.
While, as has been noted, that rule is not universally approved by the Courts of other jurisdictions, it seems to be supported by a formidable array, if not by the greater weight, of authority. Thus, in Cooley, Vol. 3, Briefs on Law of Insurance, p. 1956 (f), it is said:
"The rule may indeed be regarded as well established that, to avoid a policy for misrepresentation, the false statement must have been made willfully and with intent to deceive, and must have been relied upon by the insurer."
Numerous cases from various jurisdictions are cited. In the recent supplement to Cooley's Briefs on the Law of Insurance, Vol. 6, p. 642, the rule is restated as follows: *Page 107 
"It is a general principle, subject, however, to some qualification, that to avoid a policy for misrepresentation, the false statement must have been made willfully and with intent to deceive."
Among decisions cited as tending to sustain the general principle enunciated are the following: Kettenbach v. OmahaLife Ass'n, 49 Neb. 842; 69 N.W., 135; Germania Ins.Co. v. Rudwig, 80 Ky., 223; Supreme Lodge Knights ofHonor v. Dickson, 102 Tenn., 255; 52 S.W. 862; Hunterv. International Fraternal Alliance, 7 Ohio Dec., 239; BaltimoreLife Ins. Co. v. Floyd, 5 Boyce (Del.), 431; 94 Atl., 515; Empire Life Ins. Co. v. Gee, 178 Ala., 492;60 South., 90; Globe Mut. Life Ins. Ass'n. v. March, 118 Ill. App. 261;Raymer v. Modern Brotherhood, 157 Ill. App. 510; MetropolitanLife Ins. Co. v. Johnson, 49 Ind. App. 233;94 N.E., 785; Pelican v. Mutual Life Ins. Co., 44 Mont., 277;119 Pac., 778; Bryant v. Modern Woodmen, 86 Neb. 372;125 N.W., 621; 27 L.R.A. (N.S.), 326; 21 Ann. Cas., 365; Diehl v. Mutual Life Ins. Co., 76 Ill. App. 462;Feeney v. Nat. Council Knights  Ladies of Security, 172 Ill. App.? 51; Nedved v. Court of Honor, 183 Ill. App. 390;Groffinger v. Metropolitan Life Ins. Co., 183 Ill. App. 618;New York Life Ins. Co. v. Moats, 207 Fed., 481; 125 C. C.A., 143; Prudential Ins. Co. of America v. Sellers,54 Ind. App. 326; 102 N.E., 894; Kasprzyk v. MetropolitanLife Ins. Co., 79 Misc. Rep., 263; 140 N.Y. Supp., 211;Sharrer v. Ins. Co., 102 Kan., 650; 171 Pac., 622; Logan v.Prov. Sav. L. Ass'n. Soc., 57 W. Va., 384; 50 S.E., 529;Reserve, etc., Co. v. Isom (Okla.Sup.) 173 Pac., 844; Am.Nat. Ins. Co. v. Anderson (Tex.Civ.App.),179 S.W., 66; American Bonding Co. v. Ballard, etc., 165 Ky., 63;176 S.W. 368.
I apprehended that the distinction, expressly or impliedly made in many decisions, between representations as to matters of opinion on judgment and matters within the knowledge of the applicant, does not affect the validity of *Page 108 
the principle that the representation relied upon to avoid the policy must embody the element of fraud. The authorities that recognize that distinction and hold that a representation of a material matter within the knowledge of the applicant will avoid a policy, whereas the representation of a material fact which is a matter of opinion will not avoid the contract, would seem clearly to proceed upon the assumption that the false representation of a material fact, absolutely within the knowledge of the insured, involves of necessity bad faith or actual fraud. Thus, the case ofMutual Ins. Co. v. Hilton Green, 241 U.S. 613;36 Sup. Ct., 676; 60 L.Ed., 1202, cited to sustain the rule contended for by appellant in the case at bar, was a case involving an application for life insurance, the statement of which the applicant "warranted to be true." The Court goes no further than to hold that a material incorrect statement warranted to be true, "nothing else appearing, if known tobe untrue by assured when made [will] invalidate the policy without further proof of actual conscious design to defraud." (Italics added.)
Manifestly a false statement of that character knowingly made involves the element of actual fraud. It has, in effect, been so held by this Court. Hankinson v. Ins. Co.,supra. In the case at bar the answer does not allege that the false statement of Livingston was "known to be untrue when made." On the contrary, upon the trial and in argument, it is expressly conceded that the untrue statement might have been due to "loss of memory, accident," or some other cause than fraud.
In the absence of allegation or proof of fraud on the part of Livingston in the making of the alleged false representation, which is relied upon to avoid the policy of insurance in the case at bar, the verdict for plaintiff was properly directed. That conclusion renders it unnecessary to consider the third ground upon which respondent seeks to sustain the judgment below. *Page 109 
For the reasons indicated, I concur in the result of the opinion of Mr. Justice Watts.