Monahan v. Mutual Ins. Co.

This is an appeal from the Superior Court of Baltimore City. Suit was brought by the appellant against the appellee to recover the amount payable by the latter under an insurance policy issued by it on the life of one Mary J. Marion in favor of her daughter, the appellant on this record. The Mutual Life Insurance Company of Baltimore issues industrial insurance policies. On December the third, 1904, it wrote the policy which constitutes the cause of action in this case. The policy provides that "in consideration of the application for this policy and of the several statements and representations made therein, all of which are hereby made warranties and are hereby made a part of this contract," and in consideration of certain weekly payments and the performance of other conditions, the company will pay to the beneficiary upon due proof of the death of the insured a sum of money stipulated in a schedule annexed to the policy and marked "amount of insurance." By the fourth of the restrictions and conditions contained in or upon the policy it is declared: "This policy shall be void if * * * there is in force upon the life of the insured, a policy previously issued by this company, unless the policy first issued contains an indorsement signed by the president or secretary, authorizing this policy to be in force at the same time." The tenth condition states that "agents (which term includes superintendents and assistant superintendents) are not authorized to make, alter or discharge contracts, or waive forfeitures, c." The application signed by the appellant, Mary B. Monahan, contains this stipulation: "The undersigned hereby declares and warrants that the answers made below are strictly true; that they shall form the basis and become part of the contract of insurance; that any untrue answer will render the policy nulland void, c." The fifteenth question propounded to the beneficiary and to which the above quoted stipulation relates, was as follows: "15. Is life proposed now insured in this company? If so, state numbers and amounts of policies," and the answer given by the appellant was: "No." The appellant paid the weekly premiums until the death of her mother in September, 1905. She then made out in due form the proofs of death in compliance with the terms of the policy and delivered them to the company. When she asked the company to pay the amount to which she was entitled under the policy, she was informed for the first time of the now conceded fact that a prior policy had been issued on the life of her mother in 1899 in favor of the appellant's sister, and that there had not been indorsed on that policy a permission for the second policy to be issued. It is not pretended that the negative answer given by the appellant to the fifteenth question was knowingly false.

No question arises on the pleadings, and the only propositions presented for consideration by this Court are those which the rejected prayers of the appellant and the granted prayer of the appellee contain. Under an instruction given at the instance of the appellee company the trial Court ruled that the policy sued on was void because the first policy had not had written upon it an indorsement authorizing the second policy to be in force at the same time; and accordingly a verdict and judgment were entered in favor of the company. Hence this appeal.

Two grounds of defense were relied on below by the insurance company; viz.: that the statements contained in the application signed by the appellant were warranties and as the reply to the fifteenth interrogatory was in point of fact untrue, though innocently made and though believed to be true when made, the policy was, in consequence of the inaccuracy of that reply, rendered nugatory and inoperative; and secondly, that under the terms of the fourth condition or restriction the failure to have indorsed upon the first policy an authorization for the second one to be in force at the same time caused the policy sued on — the second one in date — to be void from the beginning. In answer to and in avoidance of those contentions, as respectively asserted in the appellee's first and second prayers, the appellant maintained by its third prayer, which was granted, that the statements made in the application was simply a representation and not a warranty; and by her first and second prayers — which were rejected — she asserted that the company was estopped to deny its liability on the second policy; and that its acceptance of the weekly premiums constituted a waiver of the cause of forfeiture relied on under the fourth condition.

There is a broad and material distinction between a warranty and a representation. A representation is not a part of the contract, but is collateral thereto, while a warranty is a part of the contract. In consequence of this, while the falsity of a representation is not a ground for avoiding the contract unless material to the risk, a warranty as to any fact will preclude any inquiry as to the materiality of that fact. 16 Am. Eng. Ency.of L., 932. The legislation of many of the States, including Maryland, has modified the harsh rule respecting warranties in this class of contracts, and has swept away a group of merely technical objections to a recovery on life insurance policies (Md. Cas. Co. v. Germann, 96 Md. 648), by declaring that "whenever the application for a policy of life insurance contains a clause of warranty of the truth of the answers therein contained, no misrepresentation or untrue statement in such application, made in good faith by the applicant, shall effect a forfeiture or be a ground of defense in any suit brought upon any policy of insurance issued upon the faith of such application, unless such misrepresentation or untrue statement relate to some matter material to the risk." Sec. 196, Art. 23, Code of 1904. What is a matter material to the risk is ordinarily and generally for the jury to determine. In the case now before us the Court below ruled, in granting the appellant's third prayer, that the statement contained in the application and relied on by the appellee to defeat a recovery was not a warranty but a mere representation; and as no appeal was taken from the ruling, it is not before us for review and finally settles the law of the case on this ground of defense.

This brings us to the proposition upon which the case was decided adversely to the appellant; and that proposition is, as already indicated, that the failure to have indorsed on the first policy an authorization permitting the second policy to be in force at the same time in the same company, avoided the second policy. Like kindred clauses imposing forfeitures for other collateral causes, condition or restriction four, which is relied on to annul the policy in suit, should be strictly construed against the insurer and should be confined in its application within the narrowest limits possible; especially as it exacts from the beneficiary, at the risk of a drastic penalty, the disclosure of a fact which the company itself knows, or is at least bound to know, whilst the applicant, in perfect good faith and without culpability, may be wholly in ignorance of it. This Court, inSchlosser v. Grand Lodge, 94 Md. 368, had occasion to quote with approval the strictures of the Supreme Court of the United States upon the so-called "agency clause" in life insurance contracts, and we reproduce again the observations of that high tribunal, because, although they refer to a different provision, they are none the less, applicable to the clause we are now considering, and to other similar grounds of forfeiture. "In some jurisdictions," said the Supreme Court, the agency clause, "is held to be practically void and of no effect; in others, it is looked upon as a species of wild animal, lying in wait and ready to spring upon the unwary policy holder, and in all, it is eyed with suspicion and construed with great strictness. We think it should not be given effect when manifestly contrary to the facts of the case, or opposed to the interests of justice." Sup. LodgeK. of Py. v. Withers, 177 U.S. 268. Whilst a misrepresentation of facts which are material to the risk and which, from their very nature, must have been known, or which may reasonably be presumed to have been known by the applicant, but not by the insurer, will render a policy issued upon the faith of their verity, invalid, because the insurer had been induced to write a liability which it would not have assumed if the truth had been frankly disclosed to it; a very different situation is presented when the misstatement concerns a fact peculiarly within the knowledge of the company and not within the knowledge of the applicant. To exonerate an insurer from responsibility on its contract merely because the applicant has misstated a fact which the insurer's own records disclose, or ought to disclose, and which the applicant has no knowledge of at all, would convert this forfeiture clause into a provision, not for the protection of the insurer against deception, but for the infliction of gross injustice upon a confiding and innocent beneficiary. All the cases which hold the contract of insurance to be vitiated by the mere misrepresentation of a material fact, when no warranty is involved, have relation to facts which were, or which ought to have been, peculiarly within the knowledge of the applicant and which were not within the knowledge of the insurer. It would be a tedious task to review those cases and it is not necessary that it should be done.

Treating, then, this forfeiture clause — for that is what in effect it is — with the severe strictness which under the adjudged cases its harshness merits in such instances as this record exhibits, it is, a priori, obvious that evidence of much less probative value will be deemed sufficient to prove a waiver of this drastic provision than would be considered adequate to establish a waiver of some more reasonable or just restriction. From the date upon which the second policy was issued up to the day of the death of the insured — a period of forty-one weeks and some days — the appellant made forty-one payments of weekly premiums to the company, and the company received and retained those payments without a suggestion or an intimation that the policy under and on account of which the payments were made was in any way questioned or disputed by it. It could rightfully collect and receive those premiums from the appellant only in the event that it considered her the holder of a valid policy. If a condition of fact existed which vitiated that policy, or which precluded it from having had validity in its inception, by virtue of a term of the contract, and that condition of fact was known by the insurer, or ought to have been known by it, and wasnot known by the beneficiary, then the continuous receipt of the premiums by the insurer must be taken to indicate that the insurer did not rely on that condition of fact, but elected to waive the cause of forfeiture or invalidity, because upon no other hypothesis could it justify the collection of the premiums. It is undoubtedly true that a party cannot be said to have waived an objection of which he was not aware; and it has been insisted that the insurance company could not be held to have waived the provisions of clause or condition four, because it did not know when it issued the policy sued on; that it had previously written another policy on the same life. Evidence was adduced to show that the method pursued in keeping its records and its books prevented the company from actually knowing that there was a prior outstanding policy on the same life. But that is no answer to asserted waiver. When Courts come to deal with questions of waiver in cases like the one at bar, a rigid application of the general rule requiring that there shall be actual knowledge of the forfeiture or of the existence of the cause producing a forfeiture, before there can be a waiver, will not be insisted on. Balto. Life Ins. Co. v. Howard, 96 Md. 258. Thus in the case of Knights of Pythias v. Kalinski, 163 U.S. 289, it appeared that Kalinski had been in default in paying his lodge dues though he regularly paid his assessments on his benefit certificate. Under the laws of the order his delinquency in paying his lodge dues forfeited his insurance under the benefit certificate. After his death his beneficiary sued upon the certificate, and the suit was defended on the ground that his failure to pay his lodge dues forfeited his insurance under the benefit certificate. It was answered that by the receipt of his assessments the forfeiture was waived. In reply to this it was contended that the grand lodge had accepted the assessments — which is merely another term for premiums — without knowing that Kalinski was in default to the local lodge for dues, and that being ignorant of the default it could not be held to have waived it. The Supreme Court of the United States, speaking by MR. JUSTICE BROWN, said in dealing with that feature of the case: "Granting that the continued receipt of premiums or assessments after a forfeiture has occurred will only be construed as a waiver when the facts constituting a forfeiture are known to the company, (N.L.L. Ins. Co. v. Davis, 95 U.S. 427; Bennecke v. Conn. M.L. Ins. Co., 105 U.S. 355), this is true only of such facts as are peculiarly within the knowledge of the assured. If the company ought to have known of the facts, or with proper attention to its own business, would have been apprised of them, it has no right to set up its ignorance as an excuse." In Tobin v. West. Mut. Aid Soc., 72 Iowa 261, it was held that the defendant had waived a forfeiture for non-payment of assessments by receiving and retaining subsequent annual dues, though ignorant of the grounds of forfeiture. The Court said: "The fact that the company in receiving and retaining the money did not know of the previous grounds of forfeiture, or intend to waive the same, is not material * * * By the exercise of the slightest diligence the defendant could have ascertained the alleged failure of Mrs. Tobin to pay assessments, and, by the return of the money collected during the months intervening before her death, prevented her from being lulled into security by the misleading acts of the company."

It will not do to say that in order to avoid expense the company's books were kept in such a manner as not to disclose the names of the assured, and, therefore, that it could not know when the second policy was issued that there was a prior one of its own, outstanding on the same life. If the company, to serve its own purposes, saw fit to adopt an imperfect or incomplete system of recording its policies whereby its books failed to show what, if prudently and methodically kept, they would have revealed with respect to the names of the insured, it certainly should not be permitted to set up its own ignorance, resulting from its own negligence, as a valid reason for the non-application of the doctrine of waiver. It cannot be doubted that the company ought to have known the names of the persons upon whose lives it carried risks; and it is obvious that a proper attention to its business would have apprized its officers of those names, and consequently it has no right to set up its voluntary and censurable ignorance of those names as an excuse for not knowing that a prior policy had been issued by it on the life of Mary J. Marion. It ought to have known that it had issued the first policy, and it will not be heard to say that it did not know that fact, merely because it kept its records in such an imperfect way that they did not contain the names of the insured. It must be treated as knowing what it ought to have known. It did issue the first policy and it was in force when the second was written; and the company knew that fact because it was bound to know it, whether its books revealed it or not.

Waiver by the acceptance of a premium is not based upon contract, but on estoppel of the company to insist on conditions of the policy inconsistent with the acceptance or retention of the premium. With the first policy outstanding and without no indorsement thereon of an authorization for the issuance of a second one on the same life, the insurer being chargeable with the knowledge of those facts because it was bound to know them, it accepted forty-one premiums from the beneficiary named in the second policy, and that acceptance estops the company to insist on the fourth condition to vacate the later policy, because the act of accepting and retaining the premiums on the second policy was wholly inconsistent with the terms of that condition or restriction. The tender by the company to the appellant after the death of the insured, of the amount of the forty-one premiums paid in, cannot relieve the appellee from its liability under the policy sued on.

The first and second prayers presented by the appellant and rejected by the lower Court ought to have been granted because they correctly state the law on the subject of estoppel and waiver. In consequence of the error committed in rejecting those prayers and because of the further error which the Court fell into by granting the appellee's second prayer, the judgment must be reversed and a new trial will be awarded.

Judgment reversed, with costs above and below, and new trialawarded.

(Decided February 15th, 1906.)