Planters' Insurance v. Myers ( 1877 )

Simrall, C. J.,

delivered the opinion of the court.

Wilson, the local agent of the Planters’ Insurance Company, in Bolivar County, solicited and procured Myers to effect the insurance in question in that company.

He had been regularly appointed in writing. His general duties were to solicit and procure customers, take applications for policies, collect the premiums, and forward both to the principal office at Jackson, and give binding receipts for insurance for fifteen days. To facilitate him in the business, he was furnished with printed blanks of applications, to be-filled up under his supervision, which were intended to inform the company of all circumstances material to the risk. It must be assumed that Wilson was selected on account of his supposed fitness for the employment. But he was also furnished with printed instructions respecting his duties. He was directed to publish the company as widely as possible, to canvass diligently for customers, to study carefully “the blanks and instructions, so that he would be able at once to make out and understand each form of application correctly.” In another place he is assured that “ a thorough study of the instructions and blanks will enable him to answer any question understandingly, as to the company’s manner of doing business,” “ and he will be able to fill out the blanks rapidly and correctly.” He must inform applicants that the concealment of any material fact renders the policy void.

In his deposition Wilson gave an interpretation of what he conceived to be his duty, which accords with the instructions, to wit: “It is my invariable rule to interrogate the appli-

cant, and upon his replies, if necessary, I instruct him how to frame his answers.”

The defendant below, the insurance company, contested the plaintiff’s right to recover, on the ground that untrue answers were given by Myers to the questions propounded in his application for insurance.

To that the insured replied that there are no misrepresentations or concealments, hut the answers are true, whether they shall be regarded as warranties, or representations of the facts pertaining to the condition, situation of the property, the incumbrances upon it, value, etc. And, however that may be, they were fully disclosed to Wilson and known to -him, and therefore the company are precluded from setting up that defense.

To that the company rejoins that the insured covenanted with them that, as to all such matters, Wilson should be his agent, and not the agent of the company.

The questions arise on the covenant in the application < that the foregoing, with the diagram thereon, is a full and true description and warranty of the condition, situation, risk, and value of the property on which the insurance is applied for ; and which shall form the basis of this policy. * * * And I, the applicant, do hereby further agree that the policy of which this application is the basis, and which will be issued thereon, shall be accepted by me, with the express understanding that, if the note or notes given for the premium * * * shall be unpaid at the time of any loss, the policy shall be considered null and void.” And, also, the fourteenth condition printed on the back of the policy, to wit: “ It is part of this contract that any person other than the assured, who may have procured this insurance to be taken by the company, shall be deemed to be the agent of the assured, * * * and not of this company, under any circumstances whatever, in any transaction relating to this insurance.”

The verbiage of this condition is not candid; it seems to have been used'with studied design to obscure the real purpose. It is a snare set in an obscure place, well calculated to escape notice. It is not written or printed on the face of the policy. It is not so much as alluded to in the application; nor is the agent, in his printed instructions, enjoined to inform those with whom he treats of it.

The average man of the community, the layman, interested in such a policy, after carefully reading it over, may well be supposed to hold this soliloquy :

“ What does this mean? Who is the other person referred to, who might have helped to procure the insurance? I called in no friend to aid me with advice. No one was engaged about it, except the agent and myself. Surely the allusion carr’t be to him, for he acted for and represented the company. If he were meant, the language would have pointed unmistakably to him.”

The covert meaning is that Wilson (and all others in his position), in anything done or said by him in procuring the insurance, “ shall not in any circumstances whatever, or in any transaction relating to the insurance,” be the agent of the company, but the agent of the assured.

Wilson was constituted agent for the company. 'The charter expressly authorized the Planters’ Insurance Company to appoint agents and define their duties. Acts 1874, p. 138. There is no pretense that' Wilson ever surrendered his trust, or that the power was ever revoked.

If he could by stipulation be converted into an agent for the assured, he must be held as also the agent of the company; for in that capacity he professed to deal with Myers. It would be difficult for him to represent both parties as agent, touching the same subject-matter.

Ostensibly he acted for the company in soliciting risks to be taken by it, in receiving and transmitting premiums, and in delivering policies. He was supplied with the requisite forms, and, in effect, was instructed to aid applicants to fill them up. On well-settled principles, he was competent to bind his principal within the legitimate range of his employment. He appeared before the publicas their trusted and accredited attorney in fact. It is fair to presume that he had their confidence, and that they indorsed his skill and qualifications.

Surely, credulity cannot be imputed to the public if they accepted and treated with Wilson as the representative of the company within the pale of his employment, and believed (unless his authority was restricted) that he could well do all things within the line of his duties which the company themselves could do. If his powers were restricted within nai'rower limits than the nature of his business would indicate, it was incumbent on the company to give notice to those who negotiated with him. Therefore, the propriety of the enunciation in Insurance Company v. Mahone, 21 Wall. 156: “ That the acts and declarations of the agent are to be considered as the acts and declarations of the insurer, and the applicant was justified in so understanding them.”

Why justified in that conclusion? Because he purported so to act, and was held out to the public in that character by his principal; and the assured had no knowledge of private restrictions, if there were any. It is the suggestion of morality and reason that parties should deal with each other in the-characters which they assume.

The fourteenth condition under review is extraordinary; whilst holding on to Wilson as the company’s agent, it exacts a covenant from the assured'that in all things concerning procuring the insurance, and in all circumstances relating to the-insurance, he is the agent of the assured. The object is, plainly, to relieve the company from all responsibility for the acts and declarations of their agent, and to make the assured take the risk of his errors and mistakes.

We do not say that the company could not restrict the apparent and ostensible authority of its agents. It might be-altogether fair and reasonable to write or print in the applications, with which the agents were supplied, a notice that the company, in taking risks, would be governed exclusively by the surveys and answers to the written interrogatories, and not by any verbal answers given to the agents, or information imparted to him, unless written in the application. That would give notice to customers that the consequences of erroneous answers, or concealments of matters material to the risk, not disclosed in the written application, rested on them, and on them alone. In such circumstances, ordinarily prudent men wpuld seek the advice and assistance of those who were skilled in such matters.

Counsel for the respective parties have directed much of their arguments to the question whether the statements of Myers, as to the condition, situation, title, and incumbrance,, are warranties or representations.

A warranty extends to every matter which it embraces, whether material to the risk or not; and the assured commits himself to their literal truth. Representations do not affect-the contract if not willful, or if not material. They are collateral to the contract; and it will suffice if they .are equitably or substantially complied with.

It is sometimes difficult to determine whether the statements of the assured belong to the one class or the other. When they appear on the face of the policy, they do not necessarily become warranties. Their character must be gathered from the form of the expression, the purpose of the insertion, and by their relation to other parts of the instrument. It is an established maxim that warranties will not be created, or extended, by construction. Daniels v. Insurance Co., 12 Cush. 416; Miller's Case, 31 Iowa, 226; Forbish’s Case, 4 Gray, 337, 340.

Ordinarily, statements in the application are representations, unless converted into warranties because of a reference to them in the policy, and a clear, manifest purpose that the whole shall form one entire contract. If the reference to the application is for another purpose, or no purpose is indicated to make it part of the policy, it will be so treated. Campbell's Case, 98 Mass. 391; Snyder's Case, 13 Wend. 92.

Following the description of the property are these words : “ For a more particular description, and as forming a part of this policy by which the assured is to be bound, special reference being had to the assured’s application and survey.” In an anterior part of the policy is the declaration that the property is insured “subject to the conditions and stipulations indorsed thereon, which constitutes the basis of this insurance.” One of the stipulations referred to, and printed •on the back of the policy, is as follows : ‘ ‘ 1st, that the basis •of this contract is the ájjplication; * * * and if such application does not truly describe the property, this policy shall be null and void. And any false statements or representations of facts material to the risk shall be deemed fraudulent, and be an absolute voidanee of the policy.”

The application does, undoubtedly, contain a warranty, and is imported into the contract. But the policy qualifies the stipulation in the application, within much' narrower limits. The condition alluded to in the body of the policy is to this-effect: that the policy shall be avoided if the assured has not correctly described the property, and if he has made any false statements or misrepresentation in the application, of facts-material to the risk. In the face of the policy, the insurers-declare, in substance, that they assume the risk subject to this and the other conditions indorsed thereon, “ which constitute the basis of the contract.” When we come to look closely at-what that basis is, we find it to be the statements and representations of facts’ material to the risk. The falsity of any fact, however trivial and unimportant, the subject of a warranty, avoids the contract. But the underwriter assumes the risk, not on the warranty of the assured that his statements are absolutely and literally true, but on the faith that his statements and representations are true in all respects material to the risk. To avoid the policy the statements must be not only untrue, but such untruth must be predicated of a fact or facts material to the risk. If it be about an immaterial matter, no-such consequence would follow. A provision that the statements are to be regarded as warranties is controlled b}r a subsequent recital that the assured is responsible for their truth so-far as they are material to the risk. So, if the covenant is that the statements are true as to “condition, value, risk,” etc., but as to all other matters representations merely. Lindsay v. W. M. Ins. Co., 3 R. I. 157; May on Ins. 166, sec. 160.

This case is very much like one recently before Lord Cockburn, Fowkes v. Manchester & London Ins. Co., largely quoted in May on Insurance, section 168, wherein the Queen’s Bench held that, construing the declaration of the assured and the policy together, the fair import of the contract was “ that the assured agreed that his answers to the questions propounded by the company shall be the basis of the contract between them — that is to sajr, if he was guilty of any fraudulent concealment or designedly untrue statement in these answers, the policy shall be null and void,” etc.

So in this case ; the first condition refers to the application, and declares if the assured has made “ any false statements or misrepresentations.” Elliott v. Mutual Ins. Co., 13 Gray, 139, is, perhaps, more in point. Here, the words “misrepresentations or suppression of material facts” were held to control other expressions in the instruments, and to so far control them as to make it clear that the assured did not warrant. We think in this case that Myers is bound by his statements, as representations, and not as warranties. But whether the one or the other, is not material in the view we have taken of the questions contested.

There are two lines of decisions in the books, which pursue divergent lines. The one holds that parol testimony is inadmissible to show the participation of the agent in the preparation of the application — as, that correct responses were made to the interrogatories, but, on the suggestion of the agent, an incorrect result of such responses was written down by the agent, or the applicant at his dictation. These decisions rest on the idea that the object and effect of the testimony is to vary or contradict the written contract. Such were the earlier cases in New York and many other states. That doctrine is still adhered to in Massachusetts, Rhode Island, and Virginia, and perhaps in some other states.

The other class, of later origin, rapidly increasing in numbers and favor, declares that insurance companies constituting local agents to canvass for business, take and forward applications, collect premiums, and give binding contracts of insurance for fifteen days pending applications (such agents as Wilson), must be held responsible for the acts and declarations of the agents, within the scope of the employment, as if they proceeded from the principal.

The general rule, settled by many authorities, is that the insurers cannot take advantage of the omission or misstatement of any fact which it was their duty to state correctly; and this is true when the defect occurs in the application for insurance, prepared by themselves, or any one by them authorized, -with a knowledge of all the facts. Bonley v. Insurance Co., 36 N. Y. 550; Peck’s Case, 22 Conn. 575; Bebee’s Gase, 25 Conn. 51; Franklin’s Case, 42 Mo. 457; Beal’s Case, 16 Wis. 241.

In Malleable Iron Works v. Insurance Gompany, 25 Conn. 465, the court said of an agent (equipped for business as was Wilson), that he had an implied power to explain the questions and the answers required, and that his error or omission could not be given in evidence as a breach of warranty by his principals. Beal’s Case, 16 Wis. 241; Plumb’s Case, 18 N. Y. 392; Rowley’s Case, 36 N. Y. 550; Moleer’s Case, 5 Rawle, 342; Ayer’s Case, 21 Iowa.

In the American Leadiug Cases, the annotation to Carpenter’s case, after a collation and review of the authorities, states this result: “Where the business of the agent is to solicit for his principal, and procure customers, and he misleads the insured by a false or erroneous statement of what the application should contain, or, taking the preparation into his own hands, procure his signature by an assurance that it is properly drawn, the description of the risk, though nominally from the insured, ought to be regarded as proceeding from the company.” May’s Case, 25 Wis. 306; Schelliler’s Case, 38 Ill. 166; Wilkinson’s Case, 13 Wall. 236; Insurance Co. v. Mahone, 21 Wall.

If the insurers assume the preparation of the contract, they cannot take advantage of the failure of the instrument to express any fact or circumstance that has been duly communicated by the insured, and omitted by negligence, mistake, or design by their officers or agents. The principle equally applies when the error or misdescription is in the application, if it was prepared or dictated bv the agent. Beal’s Case, 16 Wis. 241.

These cases, and others that might be cited, deny the applicability of the rule excluding parol testimony which varies or contradicts a written instrument, and place its competency on another ground, namely, “ where one party has by his representations or conduct induced the other party to the transaction to give him an advantage which it would be against equity and go"od conscience for him to assert, he will not be permitted, in a court of justice, to avail of that advantage.” The courts apply the doctrine of equitable estoppel, so beneficial and just when properly used.

It would seem that, strictly, the more appropriate remedy would be a suit in chancery to reform the contract. Those courts that reject the parol evidence, in the great majority of cases, would relieve in that mode. But, as we have seen, the tendency is to attain the same result at law, by allowing the truth to be proved by parol, and giving to it the force of an estoppel in pais.

Whether the disclosures of the assured are made warranties or representations is immaterial. The testimony shows what answers were given to the interrogatories to the agent. They bring to his notice the actual facts. If the agent writes down or dictates an erroneous deduction or result, he assumes for his principal that it is true, or that it is the equivalent of the verbal disclosure. The assured would be regarded as declaring to -the insurer, “ if the answer, as written, is your understanding of the facts disclosed to your agent, then I am bound by them as ‘ warranties,’ or as representations, .as the case may be.” Mahone’s Gase, 21 Wall.

If this were a suit in chancery for reformation of the contract, that court would esteem the verbal statements of Myers, in answer to the interrogatories, as incorporated into the contract, and decree accordingly, if there were no other objections. A court of law would reach precisely the same end, by putting the insurer under an estoppel to insist on a breach of the warranty, or the untruth of the representation. It is but another addition to the numerous instances where courts of law have borrowed principles from the equity courts, and adopted and enforced them. Nor should any limitation be put upon the naturalization into the common law of equitable principles, when its methods of procedure and forms of action are adapted to render complete justice.

In Chase v. Insurance Company, 20 N. Y. 54, there was a stipulation in the application (which we have before characterized as reasonable) ; it was, “ that the company would not be bound by any act done, or statement made, to or by any agent, or other person, not contained in the application.”

In the later case of Rollback, 62 N. Y. (1875), literally the same covenant as in the case before" us was sustained. It had been condemned by the Supreme Court of New York.'

Its inevitable effect is to greatly weaken the indemnity on which the assured rely. It is inconsistent with the acts and conduct of the insurance companies in sending abroad all over the land their agents and representatives to canvass for risks. It is an effort by covenant to get the benefits and profits which these .agents bring them, and at the same time repudiate the relation they sustain to them ; and to set up that relationship with the assured, and that, too, without their knowledge and cousent. It is not a limitation or restriction of power, but the dissolution of the relationship -with themselves, and the establishment of it between other parties.

This fourteenth condition attempts a logical and legal impossibility. It converts the agent of one into the agent of both. He deals with the subject-matter for both contracting parties. He is instructed by the company to study his documents and papers, so that he can “ readily fill up the blanks he can negotiate for the company for high rates of insurance, and at the same time his duty to his other principals is to cheapen the rates. It places the agent in an inconsistent and antagonistic position. On the one hand, he must ply the people to insure, extend and increase the business and the profits of the company, and thereby put money in his own purse. But, in doing all this, if he blunders and makes mistakes, for these he is the agent of his customers, and with them is the responsibility.

If he waives a forfeiture by extending the time for the payment of a premium note, it would be a grave question whether he represented the company or the assured. If the latter, there would be no waiver at all. The complications would be intricate, and almost inexplicable.

Whilst we cannot sustain this condition, we repeat that it is entirely legitimate for this corporation to limit the powers of its local agents. But if they choose to do so, those with whom they do business ought to be informed of it.

We adopt the doctrine of those cases which hold that, if the agent takes charge of the preparation of the application, or suggests or advises what shall Be answered, or what will be a sufficient answer, the company shall not avoid the policy because thejr are false or untrue, if full disclosures were made by the applicant to him.

We come now to consider whether there are any false representations or concealments that should avoid the policy.

The underwriter was entitled to full disclosures, not merely to know the truth, but the whole truth —a withholding of any facts material to the risk is tantamount to a false representation, and visited with the same penalty.

No serious objection is made to the answer to the interrogatory about the title.

It is said, with great force of reason, that the response to the inquiry about incumbrances lacks fullness, and does not accord with the truth. It Avas very material to the company to know the extent of the assured’s interest in the property, and its value. If he had onty au equity of redemption, how much was it Avorth? The fact Avas that the incumbrance was for a principal debt of $40,000, Avith large arrears of interest. It Avas in litigation, and there had been a decree of the Chancery Court reducing the apparent debt to $10,000, which had been appealed from, and was undecided in the Supreme Court.. These circumstances were important, both in determining Avhether the risk Avould be taken and in fixing the rate of insurance.

It is also objected that the answers to the questions as to the value of the plantation, and the gin-house, gin-stands, press, etc., and appurtenances, are untrue in this: that the valuation is excessive.

Every overvaluation will not avoid the contract. There must be some element of fraud, or intention to deceive with a view to obtain insurance thereon for a greater sum than could otherwise be obtained. The rule approved by the Supreme Court, in Franklin Insurance Company v. Vaughan, 92 U. S. 519, is that if the assured put a value on his property greatly in excess of its cash value in the market, yet if he did so in the honest belief that the property was worth the valuation put upon it, and the excessive valuation was made in good faith, and not intended to mislead or defraud the insurance company, then such overvaluation will not defeat a recovery on the policy.

In that case the “ goods ” were valued in the application at $12,000; the actual worth, as found by the jury, was $7,804. Yet, there being no fraud meditated, or intention to mislead, the contract was not avoided.

The Planters’ Insurance Company gave notice in their blank application, and also stipulated in the policy, that they would only pay, if a loss occurred, two-thirds of the value of the property at the time of the loss — thereby giving themselves a wide margin of safety, and not trusting to the accuracy of valuations.

At best, the value of real estate and • structures thereon- is uncertain. It is a matter very much of opinion, about which there will be great difference. Myers was asked his opinion, and if it was in excess of others, he should not suffer by it, if he meant no fraud or deceit.

The answers to the questions, six, twelve, and fifteen, in relation to the title, the value of the plantation, and the incumbrance, relied upon by the insurance company to. defeat a recovery, were given under these circumstances :

Wilson, the agent, states that, at the time the application was filled up, and several years prior thereto, he was intimately acquainted with the Belmont plantation and gin-house, and appurtenances ; that he had specially examined the latter twice, and made two-surveys, for the inspection of insurance companies; and that his invariable custom was (followed in this case) to'explain the interrogatories in the printed blanks, and instruct the applicant how to make his answers ; that he knew that Myers owned two-thirds of the Belmont plantation, upon which the deed of trust in favor of Estill operated to secure a principal debt of $40,000 ; that he was trustee, and a party to the suit which resulted in the Chancery Court decreeing a balance in favor of Estill of $10,000, which was pending on appeal in the Supreme Court, and undecided. With all this knowledge, Wilson states : “ Knowing the proper answer to be made to question six, I did instruct Myers how to write down his answer. Of course I approved the same.”

He gives substantially this account of the answer to the twelfth interrogatory: A good deal of conversation occurred between Myers and himself as to the proper answer. The property produced $5,000 income, which would be ten per cent on a value of $50,000. It was finally settled to give that valuation ; and then added that although that might be more than the property would bring in the market, for cash down, ‘ ‘ yet it so greatly exceeded the amount of the lien or decree that it was not a matter of importance as to' the exact value.” “ He did not consider the valuation excessive.”

His explanation about the answer to the sixteenth question is to the effect that, knowing all about the matter inquired about, both Myers and himself knew that the incumbrance was $10,000, or thereabouts. Myers, in his deposition, states that he referred the question of the value of the plantation to Wilson, who, after discussion with him, concluded that the property fairly represented a cash capital of $50,000, “ and could fairly be put down at that price.”

Wilson also agreed that the answer to the sixth interrogatory should be as written.

Wilson, who was familiar with the deed in trust for Estill’s benefit to himself as trustee, the litigation, and the decree therein, agreed with Myers, after consultation, that the answer to the sixteenth question should be as written in the application. Myers further says that he consulted Wilson on all the points of difficulty.

Not to pursue the subject into further detail, it has been clearly proven that Wilson actively participated in the preparation of the application, dictated the most material answers complained of as erroneous, and approved and consented to all of them as statements of the truth, especially within 'the rule laid down in Insurance 'Qompany v. Mahbne, 21 Wall., and the other cases hereinbefore cited. The company is es-topped to deny the truth of the answers in the application, and cannot make the defense that the statements of the assured therein are misrepresentations, so as to avoid the policy.

Myers, in his application, gave notice that his factors had applied for insurance, to the extent of $4,500, in other companies. In the face of the policy the insurers consented that such a policy “concurrent” might be underwritten. That was sufficient notice, or waiver of further notice.

The company does not insist, in this court, on the point that the policy has been forfeited for non-payment of the premium.

The 6th section of the charter (Acts 1874, p. 238) does no more than require the applicant to state “ all the material facts and circumstances concerning the risk required by the company.” But it does not prohibit the parties to the contract from making warranties if they choose. It is not restrictive of the power of the corporation, but declaratory of the duty of the assured. Independent of this section, it would have been the duty of the assured to have made full and truthful disclosures. The provision is for the benefit of the company, and was not designed to circumscribe its power.

There is great force in the argument of the counsel for defendant in error that the first warranty clause of the application extends no further, and embraces no more, than the “condition, situation, risk, and value,” etc., of the property on which insurance is applied for, which property was the house, gin-stands, press, etc.; and, on familiar principles, all else not included in the enumeration is excluded. The very point was ruled in Insurance Company v. Cornick, 24 Ill. 461.

But, as hereinbefore said, construing all the instruments together, the application and the policy, as constituting the contract, the intent and purpose is reasonably clear that the risk was assumed on the faith that the property had been correctly described, and that no misrepresentations had been made of facts material to the risk; and that, although there -was the warranty, above referred to, in the application, that was qualified by the stipulations in the policy, which was made to depend for its validity on the statements of the application as “representations,” and not as warranties.

Judgment affirmed. '