Comer v. World Insurance Co. , 212 Or. 105 ( 1957 )

KESTEE, J.,

specially concurring.

I concur in the result, but I cannot agree with the reasoning by which the majority arrive at that result. In my opinion the result could be justified on either of two grounds:

(1) Plaintiff did not plead, either in the complaint or in the reply, any fraud or mistake on the part of defendant’s agent in making out the application, nor any facts to show that defendant waived or is estopped to rely on the falsity of the answers. When the case was on the equity side, plaintiff pleaded estoppel in his reply; but when the case was tried on the law side plaintiff withdrew the former reply and went to trial on a reply which was merely a general denial. Assuming that a plea of estoppel in the reply would have been sufficient, and not a departure from the complaint (compare Mercer v. Germania Ins. Co., 88 Or 410, 415, 171 P 412, with Walker v. Fireman’s Fund Ins. Co., 114 Or 545, 570-71, 284 P 542), it is still necessary that the estoppel be pleaded somewhere. Walker v. Fireman’s Fund Ins. Co., supra, 114 Or at 573. Defendant made timely objection to plaintiff’s testimony in rebuttal, on the ground that estoppel was not pleaded; so the plaintiff’s failure to plead estoppel cannot be aided by the verdict, even if the omission were otherwise curable.

(2) The testimony of plaintiff himself might well be treated as a judicial admission that he did give at least one false answer to the agent. As pointed out by the majority, plaintiff’s testimony was confusing and self-contradictory in many respects. However, it appears that at one point (when reference was made on cross-examination to his deposition prior to trial) he rather definitely said that he had answered “no” to the agent’s question as to whether he had seen a doctor within the past five years. The testimony was as follows:

“Q I am not asking you about what you say happened, but I am aslong you if you testified in your deposition that the reason you believed you might have answered no, in referring to that,— seeing a doctor within or receiving medical or surgical advice or treatment, or had had local or constitutional disease in the past five years, — the reason you believe you might have answered no was because you didn’t place any responsibility or importance on it; isn’t that right?

“A Yes.

“Q So then you did answer him no to that question, didn’t you?

“A Yes.”

If this be treated as a considered statement, and not a matter of confusion or uncertain memory, he should be bound by it, notwithstanding other evidence produced by him to the contrary. Morey v. Redifer, 204 Or 194, 214, 264 P2d 418, 282 P2d 1062; Anno. 169 ALR 798.

Notwithstanding the foregoing grounds which are available to support the result, the majority prefer to rest their decision upon a construction of ORS 736.305. Since I cannot agree with that construction, and the decision seems to depart from prior Oregon cases, without expressly overruling them, I feel compelled to record my reasons. In doing so it will be assumed, as in the majority opinion, that the issue of estoppel was properly raised by plaintiff.

It will also be assumed, as in the majority opinion, that the evidence made a jury question as to whether plaintiff gave deliberately false answers to defendant’s agent, or whether he answered truthfully and defendant’s agent inserted the false answers without plaintiff’s knowledge. The jury having resolved that question in favor of the plaintiff, we must begin with the factual premise that plaintiff made a full and true disclosure, and that defendant’s agent was guilty of fraud or mistake in filling in the application.

The question then is whether an insured, who is in fact free from fraud, is nevertheless to be barred from recovery as a matter of law because the application which, he signed contained false answers, which were inserted by defendant’s agent without plaintiff’s knowledge.

The majority states plaintiff’s contention to be that “defendant is estopped to resort to the truth in defending itself.” In view of the jury verdict I think plaintiff’s position, more accurately stated, is that defendant is estopped to rely on the written application, when that application did not state the truth because of the wrong of defendant’s own agent.

The policy considerations inherent in this problem have puzzled the courts for many years. Speaking broadly, there is on the one hand the rule upholding written instruments as against parol testimony, and on the other the rule against permitting one to take advantage of his own wrong. When these two principles have come into conflict in this type situation, the majority of courts have given greater weight to the latter. The editors of ALR state the general rule as follows:

“Apart from any question of the effect of any attempt on the part of an insurer to limit the authority of its agent by stipulations inserted in the application or policy, or provisions in its by-laws, or by statute, it may be asserted that the rule supported by the great weight of authority is that if an application for insurance is drawn by an agent of the insurer, who fills in false answers to the interrogations contained therein, which are truthfully answered by the insured, without fraud, collusion, or actual knowledge of the insured or the existence of circumstances from which constructive knowledge of such falsity might be imputed to him, the insurer cannot rely upon the falsity of such answers in seeking to avoid liability under the policy issued upon the application. The view generally taken is that the agent, in making out the application acts for the insurer, and the insurer is therefore estopped to assert the mistake; or, as has been said in some cases, the mistake is deemed to be waived by the insurer.” Annotations 81 ALR 833, 835-36; 117 ALR 790; 148 ALR 507, 508. See also Vance on Insurance (3d ed) p 523-24; 45 CJS 735, Insurance § 729.

In 1 Joyce on Insurance 632, § 505, quoted with approval in Simmons v. Washington Fid. Nat. Ins. Co., 136 Or 400, 406, 299 P 294, it is stated:

“It may be considered as a well-settled rule that parol evidence is admissible to show that the agent of the company at the time, when acting within the apparent scope of his authority in filling out the application, has been truly and fully informed by the applicant of the facts, or that he had actual knowledge thereof, and that he had nevertheless, without the authority, consent, or knowledge of the applicant misstated the facts in the application, or that he had omitted to insert certain facts therein. Such evidence is not admitted to vary or contradict the writing, but is based upon the principle that the writing was procured under such circumstances that it can not lawfully be used against the party whose name is signed to it. It is not his instrument, so far as the claimed erroneous statements are concerned. * * * The writing in such case is not the applicant’s statement, although signed by him, and the insurance company is estopped to claim that the representation is that of the insured. The error is chargeable to the insurer and not to the insured.”

Notwithstanding the distinctions suggested in the majority opinion, the prior decisions of this court have been rather definitely aligned with the general rule. Lindstrom v. National Life Ins. Co., 84 Or 588, 592, 165 P 675; Williams v. Pacific States Fire Ins. Co., 120 Or 1, 12-13, 251 P 258; Dolan v. Continental Cas. Co., 131 Or 327, 344, 279 P 855, 281 P 182, 283 P 15; Simmons v. Washington Fid. Nat. Ins. Co., 136 Or 400, 406, 299 P 294, 140 Or 164, 13 P2d 366.

Our statutory parol evidence rule, by its terms, does not exclude evidence to show fraud or mistake, where the issue is properly raised (OPS 41.740). And in any event such evidence is admissible in refutation of defendant’s claim that the answers were knowingly false. It seems self-evident that a statement in the application cannot be knowingly false if the insured at the time the application is signed, does not know what answer has been inserted by the agent.

The present majority opinion does not hold outright that parol evidence is not admissible to show what actually transpired when the application was taken. Nor does it reject completely the rule that the insurer is estopped to rely on the wrong of its own agent. But because the insured failed to speak up and advise the company of the erroneous answers after he received the policy with a copy of the application attached, the majority erect a sort of “counterestoppel” against him. That is, the insured’s silence estops him from asserting an estoppel based on the active wrong of the company.

This conclusion is predicated on the “entire contract” statute, which provides:

“(1) Every contract of insurance shall be construed according to the terms and conditions of the policy, except where the contract is made pursuant to a written application therefor, and such written application is intended to be made a part of the insurance contract. In that case, if the company delivers a copy of such application to the assured, thereupon such application shall become a part of the insurance contract. If the application is not so delivered to the assured, it shall not be made a part of the insurance contract.

“(2) Matters stated in an application shall he deemed to be representations and not warranties.” (ORS 736.305.)

In my opinion the foregoing statute does not lead to such a result. The difference between a warranty and a representation, in insurance matters, is well settled. A warranty must be strictly true, regardless of intent or materiality; whereas a representation, in order to afford the insurer a defense, must not only be false and material, but it must be knowingly false— i.e., made with intent to deceive. Mutual Life v. Chandler, 120 Or 694, 697, 252 P 559; Eaid v. National Cas. Co., 122 Or 547, 555, 259 P 902; Mutual Life v. Muckler, 143 Or 327, 331, 21 P2d 804.

If paragraph (1) of ORS 736.305 is construed, as in the majority opinion, to make the statements in the application irrefutable by the insured after delivery of the policy, the effect is to make them warranties, despite paragraph (2) of the same section which says that they shall be only representations. No violence would be done to paragraph (1) by holding that, notwithstanding the integration of application and policy, the insurer may be estopped to rely on its agent’s wrong.

In Mercer v. Germania Ins. Co., supra, in speaking of the statutory form of fire insurance policy, this court said:

“It was not the intention of the legislature when it enacted the statute defining the form of an insurance policy to relieve insurance companies from those estoppels in pais which are essential to fair dealing in the business world. Notwithstanding this legislation an insurer may still estop itself from relying on one or more of the defenses reserved to it in the standard policy: * * (88 Or at 413.)

In the Eaid case, snpra, the insurer sought to avoid the policy on the ground, among others, that the application misrepresented the insured’s occupation; and the insured contended that he had correctly advised the agent, and that the error was that of the agent in making out the application. The statute required standard provisions in a health and accident policy as follows (§ 6459, Oregon Laws 1920):

“(a) Contract of Insurance. A provision that such policy, with a copy of the application therefor, if any, and of such other papers as may be attached to or indorsed thereon shall constitute the entire contract of insurance except as the same may be affected by any table of rates or classifications of risks filed by the corporation with the insurance commissioner;

“(b) Statement not Incorporated in Policy. A provision that no statement made by the applicant for insurance, which statement is not incorporated in or indorsed on the policy issued to such applicant, shall avoid the policy or be used in evidence, % * ??

The policy contained the following provision:

“No statement made by the applicant for insurance not included herein shall avoid the policy or be used in any legal proceedings hereunder. No agent has authority to change this policy or to waive any of its provisions. No change in this policy shall be valid unless approved by an executive officer of the company and such approval be endorsed hereon.”

Defendant contended — much as the majority opinion now holds — that because of the quoted statutory and policy provisions the insured was prevented from showing the conversations at the time the application was signed. This court rejected that contention and held that notwithstanding those provisions the evidence was admissible to show the insured’s good faith and that he had no intent to deceive. (In the Eaid case plaintiff pleaded estoppel both in the complaint and in the reply.)

The majority seek to distinguish the Dolan case, supra, on the ground that it involved merely a question of classification by the company, and that a reading of the application would not have revealed any falsity. But surely the statement that the insured’s work was “office duties only” was a statement of fact within the insured’s own knowledge, and the falsity would have been as apparent on the face of the application as the answers in the present case.

In the Dolan case the policy by its express terms incorporated the attached application. So far as the effect of the parol evidence rule is concerned, it can make no difference whether the application is integrated with the policy by express language or by the terms of the statute. Hence the fact that the court did not discuss the effect of § 6351, Oregon Laws 1920 (the predecessor of ORS 736.305) is of little significance. In my opinion the present decision is irreconcilable with the Dolan case.

It also departs from the doctrine, previously announced by this court, that an insured is not legally bound to read his policy after it has been delivered. In Williams v. Pacific States Fire Ins. Co., supra, the court said:

“* * *. The law does not impose an absolute duty upon the applicant to read his policy when he receives it, in anticipation of a fraud or mistake on the part of the agent: Kister v. Lebanon Mut. Ins. Co., 128 Pa. 553 (18 Atl. 447, 15 Am. St. Rep. 696, 5 L.R.A. 646). ‘The mere failure of the insured to inform himself of the insertion of false answers in the application which has been filled ont by the agent of the insurer, does not convict him of a lack of good faith.’ 3 Cooley’s Briefs on Insurance, p. 2572.”

It is apparent that ORS 736.305, which appears in the general insurance code, was intended to serve essentially the same purpose as the standard provisions requirement of Oregon Laws, § 6459, which was discussed in the Eaid ease. At the time the policy in this case was issued, the standard provisions for health and accident policies were set forth in § 101-803, OCLA, which in these respects was identical with Oregon Laws, § 6459. The standard provisions law was enacted in 1911, and the predecessor of ORS 736.305 was enacted in 1917. Although they were both in effect when several of the prior Oregon cases were decided, the present construction has never before been adopted in this state.^①

The purpose of these statutes was not to benefit the insurer by abolishing the rule that it is estopped to rely on the wrong of its own agent. On the contrary, the statutes restricted the insurer’s defenses by: (1) excluding entirely any evidence of the insured’s statements unless contained in a written application, a copy of which is attached to the policy; and (2) making all statements in the application representations and not warranties — in other words, requiring proof of fraud in order to afford a defense.

The majority opinion holds, in effect, that the insured’s retention of the policy, with the incorrect application attached, amounts to “legal fraud,” notwithstanding that he was not guilty of fraud in fact. To my mind such a construction is not only unwarranted by the statute, but it tends to emasculate the statute by eliminating the requirement that actual fraud be proved.

It must be remembered that the insured is charged with fraud in making the application; but the facts from which the majority find such fraud as a matter of law all occurred after the policy had been delivered and was in effect. Similarly, the majority apparently attach some importance to the limitation on the agent’s authority, which appeared in the policy but not in the application. How can such a limitation be binding on the insured, or have any effect on the taldng of the application, when the insured has no way of knowing of it until the policy has been delivered and is already in effect?

Because the insured has signed the application, he should have the burden of proving (and pleading) that the statements in it are not his own but are those of the insurer’s agent. But having proved that, to the satisfaction of the trier of fact, fraud in the inducement of the contract should not be imputed to him solely because he fails to observe the error and speak up after the contract is in effect.

Justices Warner and McAllister concur in this opinion.

① In Morford v. Calif.-West. States Life Co., 166 Or 575, 582, 113 P2d 629, the "entire-contract” portion of the standard life insurance provisions (§ 101-506, OCLA, now ORS 739.320) was held to exclude parol evidence of conversations between the insured and the local agent; but there was no claim that the application did not correctly reflect the insured’s answers.