Woodall Industries, Inc., a Delaware Corporation v. Massachusetts Mutual Life Insurance Company, a Massachusetts Corporation

KENT, Circuit Judge.

This is an appeal from a judgment for the plaintiff-appellee in a suit upon a “key man” life insurance policy in the face amount of $75,000. The parties will be described as in the court below.

Plaintiff instituted a suit upon the policy and the defendant filed a counterclaim for recission of the policy. The jury returned a verdict in favor of the plaintiff. During the course of the trial and after judgment, the defendant made appropriate motions for a directed verdict, for judgment notwithstanding the verdict and for a new trial, all of which were denied.

On this appeal defendant claims that the trial court should have entered a judgment for the defendant because of alleged material misrepresentations on the application for the insurance policy in question. The defendant also challenges the instructions given by the trial court, but because of the disposition we make of the first issue presented we do not reach this issue.

The policy in question was a “key man” life insurance policy on the life of John H. Vye, an employee of the plaintiff. The record discloses that Vye consulted a Dr. Paul M. Becker in November, 1966. During the course of his examination Dr. Becker detected a diastolic heart murmur. Dr. Becker informed Vye that “he had a significant heart murmur which I considered secondary to a defective aortic valve.” Vye was informed that he had no overt symptoms as a result of this condition but that he should inform his family physician of the condition which Dr. Becker had diagnosed. Vye was further informed that x-rays would be required. The x-rays were taken and were compatible with Becker’s diagnosis. This fact was communicated to Mr. Vye.

One year later, and on November 20, 1967, Vye signed an application for the insurance policy in suit. During the course of the physical examination certain questions were presented to Vye by Dr. J. Kenner Bell, who examined him for the defendant insurance company, and the answers given by Vye were recorded. Question 3 included:

“3.A. Have you had a physical or health examination within three years? Yes.

Give names of physicians and date of latest examination. 1967. Dr. M. D. MacQueen, M.D. 1654 1st Nat. Bldg., Detroit, Mich.

B. Did symptoms or complaints prompt examination? No.

C. Were you given treatment, prescription or advice? No.”

Question 4 included the following:

“4. During the past ten years have you had

A. Advice from or attendance or treatment by physicians, other practitioners or psychologist ? Yes.

* * * -X- * *

D. X-ray, electrocardiographic or blood examinations? Yes.”

Question 6 included:

“6. At any time have you had any known indication of or %een told that you had

A. Any disorder of the heart or blood vessels? No.” (Emphasis added.)

In explanation of the answers given the following statement was made:

“3.A.-4.A. & D. Had an executive type of exam a short time ago by Dr. MacQueen. This included E.K.G., Chest X-Ray, Bl. Chemistry & Sig-moidoscopy. All reports normal. No treatment.”

It thus appears that the insurance company was never informed of Dr. Becker’s examination, of Dr. Becker’s findings, of the x-ray report to Dr. Becker, or of the information which he had given to the applicant for insurance, John Vye, relative to the “significant heart murmur which [Dr. Becker told Vye] was secondary to a defective aortic valve.”

Vye died on December 2, 1968, of a heart condition, and interestingly enough, after Vye had the original heart attack in a drug store, Dr. Becker was called to attend him and continued to attend him until his death a few days later.

It is conceded by all counsel that Michigan law is controlling in this diversity of citizenship case. The applicable Michigan statute, which was last amended in 1957, provides as follows: M.C.L.A. 500.2218, M.S.A. 24.12218:

[§ 24.12218 Disability insurance; false statements in application; material misrepresentation, definition, effect.] Sec. 2218. The falsity of any statement in the application for any disability insurance policy covered by chapter 34 of this code may not bar the right to recovery thereunder unless such false statement materially affected either the acceptance of the risk or the hazard assumed by the insurer.

(1) No misrepresentation shall avoid any contract of insurance or defeat recovery thereunder unless the misrepresentation was material. No misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make the contract.

(2) A representation is a statement as to past or present fact, made to the insurer by or by the authority of the applicant for insurance or the prospective insured, at or before the making of the insurance contract as an inducement to the making thereof. A misrepresentation is a false representation, and the facts misrepresented are those facts which make the representation false.

(3) In determining the question of materiality evidence of the practice of the insurer which made the contract with respect to the acceptance or rejection of similar risks shall be admissible.

(4) A misrepresentation that an applicant for life, accident or health insurance has not had previous medical treatment, consultation or observation, or has not had previous treatment or care in a hospital or other like institution, shall be deemed, for the purpose of determining its materiality, a misrepresentation that the applicant has not had the disease, ailment or other medical impairment for which such treatment or care was given or which was discovered by any licensed medical practitioner as a result of such consultation or observation. If in any action to rescind any contract or to recover thereon, any misrepresentation is proved by the insurer, and the insured or any other person having or claiming a right under the contract, shall prevent full disclosure and proof of the nature of the medical impairment, the misrepresentation shall be presumed to have been material.”

Michigan Law further provides, M.C.L.A. 500.4016; M.S.A. 24.14016:

“Sec. 4016. There shall be a provision that all statements made by the insured, shall, in the absence of fraud, be deemed representations and not warranties, and that no such statement shall avoid the policy unless it is contained in a written application and a copy of such application shall be endorsed upon or attached to the policy when issued.”

There was much confusion in the Michigan Courts and in reality two lines of authority as to the effect of an innocent misrepresentation in a suit for recission of an insurance policy. This was resolved in an opinion by Judge McAllister in Franklin Life Insurance Co. v. William J. Champion & Co., 350 F.2d 115 (6th Cir. 1965), cert. denied 384 U.S. 928, 86 S.Ct. 1445, 16 L.Ed.2d 531 (1966). As stated by the Michigan Court of Appeals in Lipsky v. Washington National Insurance Co., 7 Mich.App. 632, 152 N.W.2d 702 (1967):

“Had it not been for the extensive and recent attention focused on this matter by Judge McAllister, senior circuit judge of the Federal 6th Circuit Court of Appeals, in Franklin Life Insurance Company v. William J. Champion & Company (CCA 6, 1965), 350 F.2d 115, cert. denied (1966), 384 U.S. 928, 86 S.Ct. 1445, 16 L.Ed.2d 531, this Court would have had little outside help in reconciling two diverse and strong lines of Michigan precedent.” 152 N.W.2d at 705.

Plaintiff relies upon the Franklin Life Insurance Company decision, but it appears to this Court that its reliance is misplaced. In that case the policyholder was asked in an application for reinstatement whether he was in good health, the answer was in the affirmative although in fact he was at the time afflicted with cancer from which he ultimately died. The existence of the cancer was unknown to the applicant. The Court in Franklin Life, in a very carefully considered and exhaustive opinion, held that under Michigan law the statement as to his good health made by the insured was an innocent representation and an honest answer to the question propounded. The Court said at page 126 of 350 F.2d:

‘‘If such statements, or representations, as to good health are made in good faith, they are to be understood by the insurer to be only bona fide representations that the applicant is in good health according to the best of his belief and without any reasonable cause on his part to believe that he is not in good health. In such a case, this kind of statement, or representation, is to be deemed not material to the assumption of the risk.”

The Michigan Court of Appeals has accepted without qualification Judge Mc-Allister’s interpretation of the law on the issue stated. Lipsky v. Washington National Insurance Co., 7 Mich.App. 632, 152 N.W.2d 702 (1967); Mutual Benefit Life Insurance Co. v. Abbott, 9 Mich. App. 547, 157 N.W.2d 806 (1968). But it appears without any question that in each of the cases cited the answer given by the insured was an honest answer to a question asking an opinion. Such is not the case here. Rather this case more clearly resembles Dedic v. Prudential Insurance Co., 14 Mich.App. 274, 165 N.W.2d 295 (1968). In Dedic the insured failed to disclose a number of consultations with physicians. The only issue before the court was whether this failure to disclose was material to the risk. The trial court granted a directed verdict in favor of the insurance company which was affirmed on appeal.

Judge McAllister in his dissent makes the following statement:

“Whether Mr. Vye, as a layman, was equipped to determine what facts were material to the acceptance of the risk was, in our opinion, a question for the jury.”

This is not a jury question, it is not for an applicant to determine that which is and that which is not material to an insurance company’s acceptance of a risk. The uncontradieted testimony of C. Paul Nay, Chief Medical Director of the defendant insurance company, was that the policy would not have issued if the company had been informed of Dr. Becker’s examination, findings, and advice to Mr. Vye. With that testimony the mistate-ments in the application were clearly material misrepresentations under the statute cited. No question on the application for insurance suggested to the insured that it was for him to determine what was material to the risk. At the time of the application Mr. Vye had one obligation and only one obligation, to make truthful answers, as the truth was known to him, to the questions asked of him. Obviously, he did not do this and, on this record, no court or jury would be justified in reaching the conclusion that the untruthful answers were made inadvertently or through lack of knowledge.

To summarize: There can be no question but what the insured knew that he had been examined by Dr. Paul Becker and from conversations at the time of his last illness, testified to by Dr. Becker, and undisputed, it is eminently clear that the insured continued to be aware of the heart difficulty which Dr. Becker had discovered and disclosed to the insured. It is undisputed on this record that had the defendant insurance company had knowledge of the facts misrepresented (by the untruthful answers to questions 3 and 4, particularly question 6) it would have refused to make the contract of insurance upon which the verdict depends. For the reasons herein stated we conclude that the answers given by the insured were misrepresentations which were material within the meaning of the Statute cited. M.C.L.A. 500.2218, M.S.A. 24.12218. Under these facts the motion for directed verdict made on behalf of the defendant should have been granted. Dick v. John Hancock Mutual Life Insurance Co., 434 F.2d 808 (6th Cir. 1970).

The judgment of the District Court is reversed and the case is remanded for entry of judgment for the defendant.