Metropolitan Life Insurance Company v. Lucille L. Fugate ( 1963 )

GEWIN, Circuit Judge.

Lucille L. Fugate sued Metropolitan Life Insurance Company, a New York corporation, in the Circuit Court of Lee County, Florida, because of the refusal of the company to pay her, as beneficiary and absolute owner, the proceeds of a policy issued by Metropolitan on August 25, 1959, in the amount of $100,000.00 upon the life of her husband, Fred J. Fugate, who died on May 24, 1960, while the policy was in force. She also claimed judgment for interest and attorneys’ fees, recoverable under Florida law, in addition to the full face amount of the policy. The cause was removed to the U. S. District Court for the Southern District of Florida and was tried by a jury. From a verdict and judgment in favor of Mrs. Fugate, Metropolitan has appealed.

Metropolitan admitted issuing the policy, the death of the insured during its continuance and its refusal to pay to Mrs. Fugate, the beneficiary, the proceeds of the policy; but denied the allegations that she and the insured had done and performed all and singular the matters and things required of them to entitle Mrs. Fugate to recover. In its second defense, an affirmative one, Metropolitan denied liability under the policy upon the grounds that the insured, Fred J. Fugate, had falsely answered “No” to the following 3 questions in the application for the policy:

“8(b) Have you ever used them (alcoholic beverages) to excess ? If so, when and for how long?”

“5(a) Have you ever been a patient in or visited a hospital, clinic, dispensary or sanatorium for observation, examination or treatment?”

“5(f) Have you consulted any physician, healer or other practitioner within the past 5 years for any reason not mentioned above ?”

As a matter of fact, it was proved at the trial by uncontradicted and unquestioned testimony that Mr. Fugate had been a patient at Lee Memorial Hospital from February 24,1958 to March 4,1958, and in White Cross Hospital from September 22, 1958 to October 2, 1958. He was treated for alcoholism or complaints resulting from drinking intoxicants in both hospitals.

Mrs. Fugate had applied for the policy as prospective owner and her husband as the prospective insured on April 30, 1959. The questions were answered in Part B of the application. Answers of the decedent in Part B 1 of the application were made to Dr. Vinson on May 1, 1959. The same answers were given by the decedent to Dr. Perez in Part B 2, containing the same questions, on July 6, 1959. A policy of the size in question requires two examinations. The policy was issued on August 25, 1959, and the decedent died on May 24, 1960. The policy had been in existence for a period of 9 months before death. Metropolitan alleged that when it denied liability under the policy, it tendered to Mrs. Fugate, as owner and beneficiary, the amount of $4,496.00 as reimbursement for the four quarterly premiums paid.

Dr. House testified that he saw the decedent for the first time as a patient on February 24, 1958, when he came to the physician’s office and complained of a cough, fever and sweats; and admittedly he had been drinking for several days and was intoxicated at the time. The decedent informed the physician that he was prone to drink daily for about 4 to 6 weeks at a time and then he would stop and return to normalcy until he started drinking again. The pretext used for drinking was a painful back. Mrs. Fugate accompanied her husband at the time of the visit to Dr. House, who informed them both that he could not treat the decedent unless he was admitted to a hospital so that he could be attended by nurses. Mr. Fugate resisted going to the hospital, but finally agreed to go that day and he was admitted.

Dr. House diagnosed the decedent’s condition as delirium tremens resulting from the fact that he was deprived of alcohol in the hospital, which produced a disturbed brain physiology resulting in hallucinations. During his stay in the hospital, the decedent was unconscious at times and thrashed about the bed in an effort to get up. He was restrained with a wide leather wristband which was fastened with a belt to the bed frame. Dr. House explained that the decedent, Mr. Fugate, thought he saw bulldozers and draglines. He was a contractor. After the delirium tremens subsided, Dr. House lectured the decedent about drinking and released him on March 4, 1958. He was in the hospital approximately 8 days on this occasion.

Dr. McEwan testified that he was the former owner of White Cross Hospital and served as its Administrator for approximately 24 years until it was closed in 1959. This hospital was used chiefly for the treatment of alcoholism. Although the hospital had closed, the records had been preserved. These records were produced and identified. They showed that the deceased, Mr. Fugate, was admitted to the hospital on September 22, 1958. On this occasion, the admission form was completed by the head nurse on duty at the time. Charts with respect to Mr. Fugate were kept by the-various nurses on duty. Nurse Cox was. night supervisor when the decedent was admitted and she completed the admittance history, which bore the signatures of Mr. Fugate and Dr. Holecek. Nurse-Cox testified that the information on the-admittance history was obtained from the-patient. She stated that when another accompanied the patient on admission, she made a notation to that effect and' there was no such notation on the records relating to the decedent. There was a. notation on the history admission sheet, reading as follows:

“Years of drinking, 30 years. Periodical, 20 years, every 304 months, Steady 304 wks.”

This notation was interpreted as meaning-that the patient would engage in a period' of drinking every 3 or 4 months and that certain of the periods of drinking would', last 3 or 4 weeks. The history sheet further showed, “History of Delirium Tremens, 6 mos. ago”, and “Nightmares frequently”. Under “Remarks” on the first, sheet of the nurses’ chart is the notation, “Has been drinking one or two fifths, of whiskey a day when drinking.” The-succeeding pages of the chart show that the decedent was given one and a half ounces of whiskey 45 times during the-first 5 days of his 10 day stay in the hospital, exclusive of his first two drinks in the amount of one and a quarter ounces, each. According to Dr. McEwan, this, whiskey was given to the decedent to reduce the possibility of his having delirium tremens.

Neither of these episodes was mentioned in the application for insurance, although the last episode occurred only 7 months before the decedent gave his answers to Dr. Vinson stating that he had not been in a hospital, clinic, dispensary or sanatorium for observation, treatment or examination.¹ Approximately 9 months after the last hospital visit he made like statements to Dr. Perez in July 1959. Approximately 10 months elapsed between the last hospital visit and the issuance of the policy.

William Shafer, the chief underwriter for Metropolitan, testified that if the physicians who treated the decedent or the two hospitals which he had so recently attended had been mentioned in the application, even though the nature of the diagnosis or treatment had not been given, Metropolitan would have developed the details of the cause for hospital treatment and would have contacted the doctors in question to obtain full information as to the health of the decedent; all in accordance with the rules, policies and standards of the company. Witness Shafer further testified that if the company had been unable to obtain satisfactory details, it would have declined to issue the policy. He positively testified that it was the policy of the company not to issue insurance policies to people who had been under treatment for alcoholism or drinking unless 5 years had elapsed since a “cure” and there had been no relapse in the meantime. Mrs. Fugate presented a number of reputable witnesses who were friends and business associates of her deceased husband, who testified that they did not know of his drinking to excess.

After the testimony was in, Metropolitan moved for a directed verdict on the grounds that it had proved the substantial elements of its affirmative defense by a fair preponderance of the evidence; and that there was no evidence nor any inference which reasonably might be drawn from the evidence when viewed in the light most favorable to the plaintiff which could sustain a verdict in her favor. This motion was denied and the court charged the jury.

Metropolitan excepted to the court’s refusal to give its requested Instruction No. 3 ² which was, of course, requested after the motion for a directed verdict and which in substance instructed the jury that if it found from the evidence that the decedent knowingly concealed from the insurance company the fact that he had twice been hospitalized, as above mentioned, when application was made for the policy, their verdict should be returned for the defendant. Metropolitan then objected to the court’s instruction that if the jury found that the decedent did use intoxicating beverages, but not to such an extent as to constitute excessive use thereof as defined by the court,³ then the decedent’s answer in that respect would have been true and should not defeat recovery by the beneficiary. The jury found for Mrs. Fugate. Metropolitan then moved for a judgment N.O. V.; or in the alternative, for a new trial. The motion was denied. Metropolitan specifies as error the overruling of the several motions, the refusal to give Instruction No. 3, and the charge as given to the jury by the court.

Metropolitan contends that under a 1959 statute of the State of Florida, it is not necessary for an insurance company to prove that a false representation in an application was made with the conscious design to conceal, or to have been fraudulently made.⁴ Although not mentioned in the briefs, it was pointed out in oral argument that the policy in this case is dated August 25, 1959, and the statute did not become law until October 1, 1959. An insurance policy is a contract. The statute would only apply to insurance policies issued subsequent to the effective date of the statute, and hence we hold the statute not applicable in this case. This case must be decided according to the law of Florida as it existed prior to the effective date of the statute.

In deciding this case, we must deal with Metropolitan Life Ins. Co. v. Madden, 5 Cir., 1941, 117 F.2d 446; Metropolitan Life Ins. Co. v. Poole, 147 Fla. 686, 3 So.2d 386 (1941) ; Madden v. Metropolitan Life Ins. Co., 5 Cir., 1943, 138 F.2d 708, 151 A.L.R. 984; and Prudential Insurance Company of America v. Whittington, (Fla.App.), 98 So.2d 382, as well as other applicable cases. When the Madden case was before this court the first time (117 F.2d 446), it was held that an untrue answer to a question seeking to elicit a fact as to matter material to the risk, prevented a recovery without regard to whether the answer was given with a conscious intent to deceive. In the second Madden appeal after the decision by the Supreme Court of Florida in the Poole case, this court felt that the law of Florida had been changed and it was then concluded that a representation, though false, did not void the policy unless it was made with conscious intent to defraud, and that the determination of such conscious intent was normally for the jury. The second Madden case however, further held that the case was not to be submitted to the jury in circumstances when “ * * * the evidence admits of no other conclusion than that there was an intent to deceive * * To the same effect are the cases of Rhodes v. Metropolitan Life Ins. Co., 5 Cir., 1949, 172 F.2d 183; and Roosth v. Lincoln National Life Insurance Co., 5 Cir., 1959, 269 F.2d 171.

In Prudential Insurance Company v. Whittington, (D.C.Ct. of Appeal Fla.2nd District 1957), 98 So.2d 382, essentially the same question was presented. In his opinion, Judge Pleus was critical of our decision in the second Madden case.. The two concurring Judges in the Whittington case found it unnecessary to express an opinion with respect to the-Poole case and the second Madden case.. They concurred “in judgment only”, but did conclude that the defendant insurance company:

“ * * * carried the burden of proving the materiality of the questions asked, the falsity of the same and the bad faith on the part of the deceased. Since no proof was adduced by the plaintiff from which the-jury could have concluded false answers in the policy were made in good faith, there was no issue of fact to go to the jury, and the Judge should have directed a verdict in favor of the defendant.”

From a reading of the foregoing cases,, including the second Madden case, we conclude and hold that a representation in an application for insurance, whether of fact or opinion, will not void the policy unless made with conscious intent to deceive, which is a matter for the jury to decide unless the evidence admits of no •other conclusion.

In the light of the foregoing, we must interpret the answers of the decedent to the questions involved here. We agree that the word “used” taken in context with question 8(b) (“Have you ever used them [alcoholic beverages] to excess?”), ■denotes more than an occasional excessive indulgence in alcohol. Provident Savings Life Assurance Society v. Exchange Bank of Macon, 5 Cir., 1903, 126 F. 360. It is contended that this question calls for the opinion of the applicant, and if the answer was made in good faith, the policy would not be vitiated. We are urged to conclude, as a matter of law, that the decedent’s “No” answer to question 8(b), especially in view of the fact that it calls for'an expression of opinion, and in the light of the evidence submitted, was not fraudulent as a matter of law; and that there was sufficient evidence on this question to submit the issue to the jury for decision as to whether the answer was made in good faith or not. Mrs. Fugate produced 12 friends and business associates, in addition to her own testimony, who testified to the effect that the decedent did not drink “to excess” to their knowledge. It is further asserted that the fact that the insured visited the two hospitals mentioned would not conclusively show, standing alone, that the insured ■“used” alcohol to excess; that such hospital visits would constitute evidence that the decedent did “use” alcohol to excess, but that the jury would not necessarily be bound by such evidence, in view of the other facts presented. In view of our decision as to the “No” answer to questions 5(a) and 5(f), it becomes unnecessary for us to decide whether the “No” answer to question 8(b) vitiated the policy as a matter of law.

With regard to the “No” answers to questions 5(a) and 5(f), the record contains clear, unequivocal, convincing and uncontradieted evidence that the decedent did visit the two hospitals mentioned and was treated for some form of alcoholism. On one occasion he did have delirium tremens. The answers to these two questions are undeniably false. As to the matter of reliance and detriment, it is our opinion that alcoholism or the drinking of intoxicants is highly relevant to the issuance of an insurance policy and to the degree and amount of risk that an insurance company is willing to take. Whether acute, chronic or some other degree of alcoholism was present, may be a question for the jury to decide in a given case. We hold it was a jury question here. Visits to hospitals for treatment of alcoholism or the drinking of intoxicants is very strong evidence on behalf of the insurance company for the proposition that a serious question as to the excessive use of alcohol is present. To say the least, the insurance company in this case was entitled to know the facts with reference to the hospital visits, they were material facts, and it was prejudiced by the concealment of these facts.

W.e must now decide the question as to whether the concealment of this information as to the hospital visits by the decedent constituted fraud as a matter of law so as to void the policy in question under the reasoning of the second Madden case and the other cases herein mentioned. Black’s Law Dictionary, 4th Ed., 1951, defines fraud as:

“An intentional perversion of the truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right ; a false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury.”

Further definitions of fraud may be found in Vol. 17A Words and Phrases, pp. 5-140. In Robbins v. Gould, 5 Cir., 1960, 278 F.2d 116, the necessary elements of fraud are categorized as follows:

“(1) a false statement concerning a specific material fact; (2) the representer’s knowledge that the representation is false; (3) an intention that the representation induce another to act upon it; and (4) consequent injury by the other party acting in reliance upon the representation.”

In the Roosth case, 269 F.2d 171, 178, substantially the same elements are outlined :

“(1) A false representation; (2) in reference to a material fact; (3) made with knowledge of its falsity; (4) and with intent to deceive; (5) with action taken in reliance upon the representation.”

Viewing the evidence as favorable to the plaintiff as the record will permit, it is clear that the answers to questions 5(a) and 5(f) were false; the answers related to a material fact; certainly the decedent knew the facts which had so recently transpired; and he knew that his answers were not correct; and the policy was issued in reliance upon the answers. We cannot escape the conclusion that the information required by the answers was intentionally withheld. When the questions were first answered, the decedent had been in the White Cross Hospital for a period of 10 days only 7 months before. His answers disclosed an operation on his back several years prior to the issuance of the policy. In his own mind, the decedent may have thought that he was not suffering from, alcoholism. There is no room for opinion about the hospital visits. With information as to the hospital visits in hand, the insurance company would have had a right to decide whether it disagreed with decedent or not, at least to the extent of deciding whether he should be considered too great a risk for a life insurance policy in the amount of $100,000.00. We conclude that the representations in answers to questions 5(a) and 5(f) in the application constituted sufficient fraud within the meaning of the word “fraud” to vitiate the policy. In the language of the second Madden case, “ * * * the evidence admits of no other conclusion than that there was an intent to deceive * * Rhodes v. Metropolitan Life Ins. Co., supra, 5 Cir., 1949, 172 F.2d 183; Dana-her v. United States, 8 Cir., 1950, 184 F.2d 673, 675; Meadors v. United States, (D.C.E.D.Ky., 1954), 118 F.Supp. 277, 280 (Affirmed 6 Cir., 219 F.2d 438); Mutual Life Ins. Co. of New York v. L. Hilton-Green, (1916), 241 U.S. 613, 36 S.Ct. 676, 60 L.Ed. 1202; Pence v. United States, (1942), 316 U.S. 332, 62 S.Ct. 1080, 86 L.Ed. 1510.⁵

In addition to the issues above mentioned, Mrs. Fugate most urgently contends that the falsity of the answers to questions 5(a) and 5(f) cannot be raised because the same was not alleged in the affirmative defense of the insurance company, Rule 8(a) F.R.Civ.P. In support of this argument, the following excerpt from the answer of Metropolitan is cited:

“If the true facts of Fred J. Fugate’s use of alcoholic beverages to excess had been made known to the defendant as required by the application for the policy sued upon, defendant in good faith would not have issued the policy, and it would not have issued such a policy at the same premium rate as the policy provides, and it would not have issued such a policy in as large an amount as $100,000.-00.” (Emphasis supplied)

It is contended that Metropolitan affirmatively raised only the issue of the “use •of alcoholic beverages to excess” and no other; that there is no allegation in the answer to the effect that if the true facts •regarding the hospitalization of the decedent were known, that Metropolitan would not have issued the policy. She •claims that the answers to questions 5 (a) •and 5(f) were admitted in evidence and •considered by the court and jury only insofar as they related to the only defense pleaded by Metropolitan, that is, the decedent’s “use” of alcoholic beverages to excess which was the information sought by question 8(b).

The spirit of the Federal Rules •of Civil Procedure requires us to construe the pleadings in any given case most strongly in favor of the pleader. The second defense of the answer was the affirmative one, and when construed most strongly in favor of the pleader, clearly •shows that the mentioned issue was raised. The answer states that the company denies recovery on “the following grounds”, followed by a statement of the answers given to question 8(b), a statement relative to the two hospital visits for treatment from the use of alcohol and then the following allegation is made:

“The facts stated above render false the answers “No” to Questions 5(a) and 5(f) in Part BI and in Part BII of the application.”

Following the above quoted excerpt is the presentation of the defense upon which Mrs. Fugate relies to narrow the issue. In our view, even if it be argued that the false answers to questions 5(a) and 5(f) do not constitute a separate defense under the pleadings as framed, the fact remains that these false answers are before this court whether they relate to another issue or not, and such answers are deemed to be material to the risk of the insurance company. At the trial there was no objection to the introduction of evidence pertaining to the decedent’s answers to questions 5(a) and 5(f), nor was there any limitation placed upon the receipt of this evidence by way of stating that it related only to the representation made in answer to question 8(b). Rule 15(b) F.R.Civ.P. provides as follows:

“When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to so amend does not affect the result of the trial of these issues.”

Counsel for Mrs. Fugate insists that failure to object to the evidence pertaining to questions 5(a) and 5(f) cannot be construed to mean that these issues were tried by express or implied consent. We do not agree with such contentions. From the record before us, it appears clear that the insurance company was trying the case on the theory that false answers to questions 5(a) and 5(f) voided the policy. Such conclusion is supported by the fact that the point here pressed by Mrs. Fugate was not raised at any time until the case reached us on appeal. Vernon Lumber Company v. Harcen Construction Co., 2 Cir., 1946, 155 F.2d 348. It should be noted that Rule 15(b) is not permissive in its terms, but unequivocally states that issues tried by express or implied consent shall be treated as if raised by the pleadings. If there had been objection to such evidence; or if Mrs. Fugate had attempted to limit its receipt, it would have been the duty of the trial court to permit an amendment. Such an amendment would not have prejudiced the case of Mrs. Fugate. Watson v. Cannon Shoe Co., 5 Cir. 1948, 165 F.2d 311.

Rule 15(b) of course, is applicable to defenses as well as claims, and to the extent to which it is applicable, it operates as an exception to the rule that defenses not pleaded are waived. Moore’s Federal Practice, 2d Ed. p. 846. In a given case, the fact that a defense has not been pleaded formally is immaterial if the issue was tried by express or implied consent. Haskins v. Roseberry, 9 Cir., 1941, 119 F.2d 803. Consequently, we hold that the matter of the falsity of the answers to questions 5(a) and 5(f) were before the trial court.

For the foregoing reasons, the judgment of the lower court is Reversed and judgment is here Rendered in favor of appellant, Metropolitan Life Insurance Company.

Reversed and rendered.

1 . The application, in answer to another question, did disclose that the applicant had suffered from a ruptured inter-vertebral disk removed from the lower back in 1956.

2 . “The Court instructs you that both of the hospitalizations, in Lee Memorial Hospital and in White Cross Hospital, are shown in this case to have been material to the acceptance of the risk by the defendant insurance company, and that, if you find from the evidence that tbe applicant, Fred J. Rugate, knowingly concealed such hospitalizations, or either of them, from the defendant, when he applied for the policy sued upon, your verdict shall be returned for the defendant.”

3 . The definition of the word “used” was based on the opinion in Provident Savings Life Assurance Society v. Exchange Bank of Macon, 5 Cir., 1903, 126 F. 360.

4 . Appellant cites § 627.01081, Florida Statutes, F.S.A.

“Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless either:

“(1) Fraudulent; or

“(2) Material either to the acceptance of the risk, or to the hazard assumed by the insurer; or

“(3) The insurer in good faith would either not have issued the policy or contract, or would not have issued it at the same premium rate, or would not have issued a policy or contract in as-large an amount, or would not have provided coverage with respect to the hazard' resulting in the loss, if the true facts-had been made known to the insurer as required either by the application for th& policy or contract or otherwise.”

5 . The following is from the Hilton-Green case:

“Considered in most favorable light possible, the above quoted incorrect statements in the application are material representations; and, nothing else appearing, if known to be untrue by assured when made, invalidate the policy without further proof of actual conscious design to defraud. (Citing cases)”

The following is from the opinion by Mr. Justice Jackson in the Pence case:

“His admissions left no room for conjecture as to the falsity of the previous statements in the. application, and of his knowledge of such falsity. From these facts the requisite intent to defraud is presumed, and therefore need not be proven in the absence of countervailing evidence. Materiality and reliance were conclusively established by evidence introduced at the trial, if indeed such proof were needed.”