Draper v. Charter Oak Fire Insurance , 84 Mass. 569 ( 1861 )

Merrick, J.

The defendants contend that the false representation of the plaintiffs, in their application for insurance, made in answer to a direct question proposed to them upon the subject, that there was no incumbrance upon the property, when in fact there were two valid outstanding mortgages upon it, both of which were known to them, avoids the policy. The plaintiffs deny that they are bound by the application, or responsible for or liable to be affected by anything contained in it, because it was never signed by them or by any one else, and also because it was never by their consent or permission delivered to or filed in the office of the defendants. They claim that Robley was their agent only for the limited purpose of procuring insurance upon their property, and that he was never authorized to make in their behalf any representations, or to answer any questions which might be proposed concerning it.

But they concede that Robley was authorized to procure insurance for them upon their property, and that, acting as their agent for this purpose, he did procure the policy which is declared on in this action, and that they accepted it, and now seek to enforce it against the defendants as a valid contract. And it is an admitted fact, that in procuring the policy he did file in the office of the defendants the application which contains the answer upon which the defendants rely as a false representation. In this policy it is distinctly stated and declared, that the parties agree that the policy is made and accepted upon and in reference to the said application. The plaintiffs having accepted this as a contract, to the benefits of which they are entitled, and insisting upon their right to enforce against the defendants the performance of all the stipulations it contains, they are concluded from denying, against the express statements in the policy itself, that the application upon which it issued was their application. This is not dissimilar in principle from the obligation upon the grantee which arises upon the acceptance of a deed poll containing reservation of duties to be performed by him, upon the breach of which an action of contract may be maintained. Goodwin v. Gilbert, 9 Mass. 510. Newell v. Hill, 2 Met. 180. Swasey v. Little, 7 Pick. 296. Felch v. Taylor, 13 Pick. 133. It makes no difference that for certain other purposes Robley was also the agent of the defendants. Lee v. Howard Ins. Co. 3 Gray, 583.

But the plaintiffs further contend, that even if they are to be considered as having made the application by their authorized agent, and to be responsible for all the representations contained in it, the mistake, or misstatement by'them as to incumbrances upon the property by outstanding mortgages, in answer to a direct question proposed to them, is insufficient to invalidate or avoid the policy, because the defendants are a stock corporation, and the representation was in relation to a matter not material to the risk. It is conceded that, if the policy had been made by a mutual insurance company, all its obligations would have been annulled by such a misrepresentation. This, in view of the numerous decisions upon the question, could not, of course, be denied. Bowditch Ins. Co. v. Winslow, 3 Gray, 431; S. C. 8 Gray, 44. There are peculiar reasons why such a rule should prevail in relation to companies formed under such an organization, where the insured unite for the protection of each other, and a lien upon their several estates is created for their mutual security. But it extends much beyond this, and determines the rights of parties under contracts of insurance entered into by an entirely different, or indeed by any, class of underwriters. It is stated as a general principle, which is recognized in all jurisprudence, that a misrepresentation by one party of a fact specifically inquired about by the other, though not material, will have the same effect in exonerating the latter from the contract as if the fact had been material, since by making the inquiry he implies that he considers it to be so. And this because in making a contract he has a right to his own judgment as to what is material, and to prescribe the terms upon which only he will treat. 1 Phil. Ins. § 542. And to the like effect it is said, that in all cases where this representation is made in reply to inquiries by the underwriter, touching points material to the risk, the representation will avoid the policy, if not substantially true; and that the test of materiality is the probable influence upon the mind of the underwriter. It is sufficient if the fact represented exerted, or may reasonably be presumed to have exerted an influence in inducing him to assume the responsibility. 1 Arnould on Ins. 515, 518. And the propounding of a specific inquiry, and requiring an answer thereto as a part of the basis upon which the' contract is to be entered into, and the risk assumed, shows that the underwriter seeks for information by which his judgment shall be guided, or at least affected and influenced in determining whether he will issue a policy. In the case of Strong v. Manuf. Ins. Co. 10 Pick. 40, the defendants had made a policy upon buildings which were subject to a mortgage of which no notice was given by the insured; for which reason, after a loss had occurred, the defendants claimed to be exonerated from their contract. But the court held otherwise, upon thé ground that, in the absence of any inquiry upon the subject, the insured were under no obligation to communicate information of that fact. But the court added that if it was, in the opinion of the underwriters, important and material to the risk to ascertain the nature of the interest intended to be protected by the policy, it must be presumed they would have inserted, in the form of their application, an interrogatory to elicit the desired information; thus distinctly implying that a misrepresentation under such circumstances, in relation to any matter concerning which information was sought, would be fatal to the validity of the contract. The same principle is suggested by the court in the case of Locke v. North Amer. Ins. Co. 13 Mass. 68, and is recognized in Richardson v. Maine Ins. Co. 46 Maine, 396.

In this case, it is explicitly stated in the policy that the parties expressly agree that it is made and accepted upon and in reference to the application filed in the office of the defendants, and to the terms and conditions of insurance which are annexed thereto, and which, among other things, provide that the application and statements contained in it shall be taken to be a part of the contract, and a warranty by the insured. It therefore appears that the defendants not only specifically asked for information concerning the condition of the property, in relation to its being free from, or subject to, incumbrances, but required that the information given in reply should be incorporated into and made part of the contract, and that the assured should bind himself by an absolute warranty that their statements were true. It would be difficult to suppose a case in which it would be more reasonable than in this to presume that the parties applied to sought for information as an important, if not an essential, preliminary to their determination whether they would enter into the contract and assume the risk proposed to them. And if it may be so presumed to have affected their judgment or influenced their action, then upon the principles already stated, and laid down in the authorities above cited, the matter, for the purpose of determining its effect upon the contract in question, must, as to the rights of the insurers, be deemed to be material, and a misrepresentation concerning it consequently avoids the policy.

This conclusion being decisive against the right of the plaintiffs to maintain their action, it is unnecessary to express an opinion in relation to any of the other questions which have been raised upon the statement of facts.

Judgment for defendant».