Sovereign Camp. W. O. W. v. Hutchinson , 214 Ala. 540 ( 1926 )

In Ala. Gold Life Ins. Co. v. Johnston, 80 Ala. 467, 470,2 So. 125, 128 (59 Am. Rep. 816), in discussing the nature and effect of warranties and representations in contracts of insurance, it was said:

"As a general rule it has been laid down, that a warranty must be a part and parcel of the contract of insurance, so as to appear, as it were, upon the face of the policy itself, and is in the nature of a condition precedent. It may be affirmative of some fact, or only promissory. It must be strictly complied with, or literally fulfilled, before the assured is entitled to recover on the policy. It need not be material to the risk, for whether material or not, its falsity or untruth will bar the assured of any recovery on the contract, because the warranty itself is an implied stipulation that the thing warranted is material. It further differs from a representation in creating on the part of the assured an absolute liability whether made in good faith or not.

"A representation is not, strictly speaking, a part of the contract of insurance, or of the essence of it, but rather something collateral or preliminary, and in the nature of an inducement to it. A false representation, unlike a false warranty, will not operate to vitiate the contract, or avoid the policy, unless it relates to a fact actually material, or clearly intended to be made material by the agreement of the parties. It is sufficient if representations be substantially true. They need not be strictly, or literally so. A misrepresentation renders the policy void on the ground of fraud; while a noncompliance with a warranty operates as an express breach of the contract."

And in Hunt v. Preferred Acc. Ins. Co. of N.Y., 172 Ala. 442,446, 55 So. 201, 203, in discussing the effect of a warranty, it was said:

"It is not alleged in terms that the statement complained of as untrue was material to the contract; but it is alleged that the assured warranted the statement to be true, and that it was made the basis of the contract into which the defendant entered on consideration of the warranty and the premium. When the assured warranted the statement to be true, he by necessary implication agreed that it was material. Its falsity would therefore, under the law, bar him of any recovery on the contract."

The distinction is noted, also, in the recent case of Brotherhood, etc., v. Riggins, ante, p. 79, 107 So. 44.

On the other hand, it was held (1) that "any untrue statement or suppression of fact, material to the risk assured, will vitiate the policy, and thus bar a recovery, whether intentional, or within the knowledge of the assured or not"; and (2) that, "if immaterial, such statement, to avoid the policy, must have been untrue within the knowledge of the assured — that is, he must either have known it, or have been negligently ignorant of it." Ala. Gold Life Ins. Co. v. Johnston, 80 Ala. 467, 475, 2 So. 125, 131 (59 Am. Rep. 816).

This is in harmony with the general principles of the law, now reflected in section 8049, Code 1923 (section 4298, Code 1907), declaring that "misrepresentations of a material fact * * * [though] made by mistake and innocently, and acted on by the opposite party, constitute legal fraud."

But the foregoing principles, as applicable to insurance policies in general, were qualified by section 4572, Code 1907 (section 8364, Code 1923); and the same statute was separately applied to fraternal benefit policies by the Act of February 17, 1919 (Gen. Acts 1919, p. 118), now section 8507, Code 1923. Its provision is that:

"No written or oral misrepresentation, or warranty in any contract of insurance, * * * or in the negotiation of such a contract of insurance, or in the application therefor, or proof of loss thereunder, shall defeat or avoid the contract of insurance, or prevent its attaching, unless such misrepresentation is made with actual intent to deceive, or unless the matter misrepresented increase the risk of loss."

This statute changes former governing principles no further than its terms plainly import. As to misrepresentations in the form of warranties, with which we are here chiefly concerned, it is immaterial whether the assured knew of their falsity, or believed them to be true, or intended them to deceive, or to truly inform. They are sufficient to vitiate the policy if they were in fact false, and the matter misrepresented increased the risk of loss to the insurer. See Brotherhood, etc., v. Riggins, ante, p. 79, 107 So. 44.

The terms of this statute were in effect construed in the case of Mutual Life Ins. Co. v. Allen, 174 Ala. 511,56 So. 568, under section 4572, Code 1907, where it was said:

"If the misrepresentation is made 'with actual intent to deceive,' then it need not 'increase the risk of loss' in order to be a good defense. If it 'increase the risk of loss,' then it is not necessary that it be 'made with actual intent to deceive.' Of course, both alternatives may exist in the same case, and, if so, they may be averred, but it is not necessary; either is sufficient."

See, also, Mass. Mut. Life Ins. Co. v. Crenshaw, 186 Ala. 460,467, 65 So. 65, and Met. Life Ins. Co. v. Goodman,196 Ala. 304, 71 So. 409.

The same statute was construed in the case of Empire Life Ins. Co. v. Gee, 171 Ala. 435, 55 So. 166, as affecting misrepresentations of fact made as inducement merely, and not amounting to warranties. Quoting from the opinion in that case:

"Where fraudulent representations are pleaded in defense to an action on a policy of insurance, it must be shown that false statements have been made with intent to deceive, that they related to matters intrinsically material to the risk, and that the insurer relied on them."

In order to constitute a warranty, the subject-matter must either be incorporated in the body of the policy, or in some other paper adopted by reference therein as a part of the policy, or it must be embodied in the constitution or by-laws of the association. Therefore a plea setting up misrepresentation, not shown to have been made a warranty by such incorporation or reference, is governed by the principles applicable to cases of deceit, and must allege, not only the falsity and materiality of the matter, but also that it was relied upon as true by the defendant. Empire Life Ins. Co. v. Gee, supra.

Tested by the rules above stated, each of the first eleven pleas were deficient and subject to some of the grounds of demurrer, and their deficiencies (or, at least one or more of them) were not cured by the several amendments filed. The demurrers were properly sustained as to the original pleas and also as to the same pleas as amended.

Plea 12 sets up a warranty, but fails to aver that the falsity of the matter warranted increased the risk of loss to the insurer.

Plea 13 sets up a misrepresentation merely, and does not allege that it was relied upon as true by defendant.

Plea 15 sets up a misrepresentation merely, but fails to show that the matter was material, and does not aver that the assured actually had any disease or injury. Plea 16 is subject to the same criticism.

Pleas 17 and 19 set up a misrepresentation merely, but fail to aver that it was relied on by defendant as true.

Apt grounds of demurrer pointed out the several defects of these pleas, and the demurrer was properly sustained as to each of them.

But pleas 14, 18, 20, and 21 meet all requirements and were not subject to any of the grounds of demurrer.

Pleas 14, 18, and 21 set up warranties, and allege one or the other of the alternatives prescribed as necessary by the statute. Plea 20 sets up a misrepresentation merely, but it avers that it was made with actual intent to deceive, and that defendant did not know the truth and was deceived thereby.

The demurrers were erroneously sustained as to these four pleas.

For these errors the judgment will be reversed and the cause remanded for another trial.

Reversed and remanded.

ANDERSON, C. J., and THOMAS and BOULDIN, JJ., concur.