Hardy v. Integon Life Insurance Corp.

355 S.E.2d 241 (1987)

Mary M. HARDY, Individually; Mary M. Hardy, as Executrix of the Estate of Paul Harrison Hardy; and the Estate of Paul Harrison Hardy
v.
INTEGON LIFE INSURANCE CORPORATION.

No. 8617SC969.

Court of Appeals of North Carolina.

May 5, 1987.

Frazier, Frazier and Mahler by Harold C. Mahler and James D. McKinney, Greensboro, for defendant-appellant.

Max D. Ballinger, Greensboro, for plaintiff-appellee.

WELLS, Judge.

Defendant assigns error to the court's submission to the jury of the issue of materiality. We agree in principle.

It is settled in this State that an insurer may avoid his obligations under an insurance contract by showing that the insured made false representations in his application and that the misrepresentations were material. Tolbert v. Insurance Co., 236 N.C. 416, 72 S.E.2d 915 (1952); Pittman v. First Protection Life Ins. Co., 72 N.C.App. 428, 325 S.E.2d 287, cert. denied, 313 N.C. 509, 329 S.E.2d 393 (1985). However, misrepresentations in the form of written answers to written questions relating to health are deemed material as a matter of law. Sims v. Insurance Co., 257 N.C. 32, 125 S.E.2d 326 (1962); Rhinehardt v. Insurance Co., 254 N.C. 671, 119 S.E.2d 614 (1961); Eubanks v. Insurance Co., 44 N.C.App. 224, 261 S.E.2d 28 (1979), rev. denied, 299 N.C. 735, 267 S.E.2d 661 (1980). Whether the misrepresentations were made intentionally is not material. See Huffman v. State Capitol Life Ins. Co., 8 N.C.App. 186, 174 S.E.2d 17 (1970). Here, the questions and answers were written; although Mr. Hardy did not himself fill out the application, he did look over it and sign it. Under the facts of this case, while it was appropriate to submit the issue of materiality, the trial court should have instructed the jury that if they answered the first issue "yes," they should also answer the second issue "yes." Sims, supra; Eubanks, supra. However, that error does not, as defendant suggests in its second assignment of error, mandate reversal of the judgment for plaintiff. As indicated in our discussion infra, under the facts of this case, the issue of waiver and estoppel still remains.

Pursuant to Rule 10(d) of the N.C. Rules of Appellate Procedure, plaintiff cross-assigns error as alternative grounds for support of the judgment that, even if the court did err in submitting the issue of materiality to the jury, such error was not prejudicial to defendant since Integon had actual or constructive knowledge of the October 1981 procedure and that defendant therefore waived the condition in its application or was estopped to deny coverage. Plaintiff submits that the evidence is undisputed that:

1. Integon knew that Doctor Lawrence, not Doctor Grymes, had performed the surgical procedure disclosed on the application;

2. Integon had before it Plaintiff's Exhibit 5 (App. pp. 118-127) which disclosed, among other findings:

a. The diagnosis of the "mole" removed in March, 1981, was "Squamous cell Carcinoma;"

b. The "mole" and tissue removed was silver dollar size — too large to close — requiring skin grafting.

c. The "mole" or "lesion" extended to the margins of the tissue removed indicating incomplete excision of the tumor.

d. The "mole" or "lesion" was located on the scalp in an area where such tumors usually do not occur, thus indicating heightened probability of continuing problems.

e. The surgeon was of the opinion that Mr. Hardy would have "to be watched thoroughly."

f. That Mr. Hardy was to be followed by the surgeon for suture removal and after care.

Plaintiff also points out that Integon knew that Mr. Hardy had wrongly answered "no" to the question of whether he had ever had cancer; the reports received from Dr. Grymes clearly indicated that insured had squamous cell carcinoma. Because Integon — even with knowledge of these facts — never contacted Dr. Lawrence or the hospital until after Mr. Hardy's death, plaintiff contends that defendant has waived, as a matter of law, its right to avoid the contract. We disagree.

Although an insurance company may avoid liability where there has been a material misrepresentation on the part of insured, it cannot avoid liability on a policy on the basis of facts known to it at the inception of the policy. Cox v. Assurance Society, 209 N.C. 778, 185 S.E. 12 (1936). Absent fraud or collusion, knowledge acquired by an agent while acting within the scope of his authority is imputed to the principal. Thomas-Yelverton Co. v. State Cap. Life Ins. Co., 238 N.C. 278, 77 S.E.2d 692 (1953).

In Gouldin v. Ins. Co., 248 N.C. 161, 102 S.E.2d 846 (1958), our Supreme Court further defined the law of waiver and estoppel as it applies to insurance contracts as follows:

"In general, any act, declaration, or course of dealing by the insurer, with knowledge of the facts constituting a cause of forfeiture ... which recognizes and treats the policy as still in force and leads the person insured to regard himself as still protected thereby will amount to a waiver of the forfeiture ... and will estop the insurer from insisting on the forfeiture or setting up the same as a defense when sued for a subsequent loss. Such waiver may be inferred from acts as well as from words. Acts of an insurance company in recognizing a policy as a valid and subsisting contract, and inducing the insured to act in that belief and incur trouble or expense, is a waiver of the condition under which the forfeiture arose." 29 Am.Jur. Insurance, Sec. 832.

Id. In that case, the insured obtained policies of health and accident insurance without disclosing previous hospitalizations for barbiturate intoxication. After the policy was issued, insured was hospitalized again for reasons including barbiturate intoxication. Insured filed a claim, and in answer to the question whether he had had this disease before, stated, "Yes ... 1952(?). Check claim records with your company." This claim was processed and paid. Plaintiff was later severely injured by a self-inflicted shotgun wound, and plaintiff's guardian filed a claim. The insurance company sought to avoid payment, first on grounds that plaintiff had attempted suicide and later on the basis that plaintiff had misrepresented the state of his health in his original application. Plaintiff brought suit, and the matter went to trial. The jury reached a verdict for defendant, finding that the shotgun wound was accidental, but that plaintiff misrepresented material facts in his application and that defendant did not waive its right of forfeiture.

On appeal, plaintiff argued the court should have allowed his motion for a peremptory instruction on the issue of waiver because the evidence showed as a matter of law that the company had knowledge of the misrepresentations before the gunshot incident took place and indeed had paid a claim, thus treating the policies as still in effect. Defendant contended that the answers were misleading and were not reasonably calculated to put defendant on notice as to the former hospitalization.

In its discussion of the notice aspects of waiver, the Court adopted the following rule:

"Knowledge of facts which the insurer has or should have had constitutes notice of whatever an inquiry would have disclosed and is binding on the insurer. The rule applies to insurance companies that whatever puts a person on inquiry amounts in law to ``notice' of such facts as an inquiry pursued with ordinary diligence and understanding would have disclosed." 16 Appleman, Insurance Law and Practice, p. 817.

Id. The court did not, however, find plaintiff's argument persuasive:

Upon consideration of the foregoing arguments of the parties, we are constrained to the view that the relevant evidence, if believed, is sufficient to justify, though not to require, an affirmative answer, favorable to the plaintiff, on the issue of waiver. This being so, we conclude that the presiding Judge properly denied the plaintiff's motion for a peremptory instruction and submitted the issue of waiver as being controlled by open issues of fact to be determined by the jury. The rule is that where the evidence bearing upon an issue is susceptible of diverse inferences, it is improper for the presiding judge to give the jury a peremptory instruction. (Citations omitted).

Id. We now apply these principles to the case at bar. Defendant knew that Mr. Hardy had squamous cell carcinoma and that it was a very large lesion; defendant also knew that Mr. Hardy did not reveal that condition on his application. These facts "constitute notice of whatever an inquiry... pursued with ordinary diligence and understanding would have disclosed." However, whether defendant should have further pursued its inquiry and discovered the second operation and the pathologist's diagnosis of metastasis, or whether the efforts it made constituted a reasonable inquiry, is a question for the jury.

Plaintiff's remaining "cross-assignments" of error do not present alternative bases in support of the judgment, but assert errors in the trial not properly brought forward under Rule 10(d) and we therefore do not address them.

For the reasons stated above, there must be a

New trial.

HEDRICK, C.J., and BECTON, J., concur.