Prudential Insurance Co. of America v. Kudoba

Argued April 14, 1936. On October 10, 1932, plaintiff issued two insurance policies on the life of John Bury, each in the sum of $1,000. He died on October 23, 1932. Catherine Bury, his widow, the beneficiary of the policies, died on May 6, 1933, and defendants are the administratrices of her estate.

The present proceeding is a bill in equity praying for the cancellation of the policies on the ground that the insured was not in sound health when they were issued and that therefore they never went into effect. This contention rests upon a clause in the policies providing that "This policy shall not take effect if on the date hereof the Insured be not in sound health . . ." The learned chancellor entered a decree in favor of plaintiff and on appeal to the Superior Court the decree was affirmed. On petition of defendants an appeal to this court was allowed.

The policy by its terms was incontestable after one year from its date of issue, and, no suit having been brought thereon by defendants, plaintiff was justified in applying within that period to a court of equity for relief from possible assertion of liability: Equitable Life Assurance Society v. Klein,315 Pa. 156; New York Life Ins. Co. v. W. Bodek Corporation,320 Pa. 347.

Defendants contend that the evidence did not justify a finding that the insured was not in sound health on the date of the policy, but the testimony of Dr. Simpson that at the time of his examination of the insured on August 26, 1932, the latter was suffering from tuberculosis, and, in his opinion, could not have been cured of this condition by October 10, 1932, was sufficient upon which to base the conclusion that the insured was not in sound health at the time the policy was issued.

A sound-health clause phrased as in the present policies ordinarily operates as a condition precedent upon which the contract is dependent: Youngblood v. Prudential InsuranceCompany of America, 109 Pa. Super. 20; Benzinger v.Prudential Insurance Company of America, 317 Pa. 561. Defendants, however, assert that in the present case the insurance company by its medical representative made an examination of the applicant and that under such circumstances the sound-health clause is a condition only to the extent of protecting the company against a material change in the physical condition of the applicant between the time of the examination and the issuance of the policy.

This question was not decided by either the learned chancellor or the Superior Court, for the reason that there was no direct testimony in the case showing that a medical examination by plaintiff had actually been made. In defendant's answer to the bill in equity the fact of such an examination was alleged, but the physician was not called to testify by either of the parties. It appears, however, that at the bar of the Superior Court counsel for plaintiff, with commendable frankness, admitted that the insured had been examined by a representative of plaintiff, and this admission has become a matter of record in this court because, in the answer filed by plaintiff to defendants' petition for the allowance of an appeal from the Superior Court, there appears the following paragraph: "In answer to Paragraph 4 of the Petition, Respondent frankly admits, as it did at the Bar of the Superior Court, . . . that there was an examination by a physician representing the Insurance Company prior to the issuance of the Policies of Insurance here involved and that the Insurance Company did not go into this question on the trial of the case for the reason that counsel for the Insurance Company expected the Defendants to go into this question inasmuch as it was pleaded in Paragraph 7 of the Answer to Plaintiff's Bill in Equity, and the physician who had examined the Insured on behalf of the Insurance Company was the Insured's family physician and was the same Doctor who had sent the Insured to have his sputum examined by Doctor Simpson, and at the time of examining the Insured for the Insurance Company, said physician was false to his trust. The Insurance Company naturally did not want to call him as its witness on the trial and fully expected that he would be called as a witness by the Defendants. All of this was stated in Oral Argument to the Judges of the Superior Court."

As far as the research of counsel and our own investigation have disclosed there is no decision in Pennsylvania as to whether the effect of the sound-health clause is less comprehensive in cases where a medical examination has been made on behalf of the insurance company. There is no dearth of authorities, however, in other jurisdictions. Some of these¹ hold that, since there is no ambiguity in the wording of the clause, it must be given a literal interpretation and is not affected by facts or circumstances antecedent to the delivery of the policy. The weight of authority² upholds a contrary doctrine, based upon the theory that presumably the medical examination was satisfactory to the company or the policy would not have issued, that by making such examination the company waived all future contentions as to the health of the insured at or prior to that time, and that the sound-health clause was to be construed as safeguarding the company against only such impairment of the health of the insured as may have arisen in the interval between the time the medical examination was made and the time when the policy was issued.

In our opinion the law of Pennsylvania should conform to that of the jurisdictions holding the latter view. While it is true that ordinarily a contract conditioned upon the existence of a certain fact is unenforceable if the condition is unfulfilled, even though the covenantee may have knowledge at the time of the making of the contract that the fact is otherwise and that the condition cannot be complied with, this principle is not fairly applicable to life insurance policies, where regard must be had to the fundamental social and economic factors underlying the whole fabric of the business of life insurance as practically conducted. If an applicant for such insurance is examined by a medical representative of the company, and is "passed," and a policy thereupon issues, he is certainly justified in assuming, in the absence of any fraud or misrepresentation on his part, that the company has satisfied itself as to his state of health, and that he can rest confident in the belief that he has obtained a valid policy of insurance upon his life. For the company later to be allowed successfully to contend that the policy never became effective because the applicant breached the sound-health clause in that he suffered from disease or bodily impairment when the policy was delivered to him, in a case where the same condition existed when the company examined him, would be to give countenance to a practice that, while perhaps not fairly to be characterized as fraudulent, would be unreasonably destructive of the protection which life insurance is aimed to secure. It would result, as argued in appellant's brief, that "no one would ever know if he were insured or not, even though he has passed a medical examination and received a policy." The insertion of a sound-health clause in the policy is justified only on the theory intimated by the court inYoungblood v. Prudential Insurance Company of America, supra, where it is said (page 21): "The company, waiving any health examination, or any warranty by the insured in an application, had the right to protect itself by incorporating such a condition [sound-health clause] into the contract." If an examination is made and the company, either with knowledge of an illness of the applicant thereby disclosed or without discovery of a pathological condition which in fact existed, thereupon issues a policy, it should not be allowed to repudiate liability by reason of any defective status of the health of the insured at that time, in the absence of any misrepresentations or fraudulent statements on his part. We conclude, therefore, that the sound-health clause has no application to such diseases as the insured may have had at the time of the medical examination, but that its legal scope must be restricted to mean only that the applicant did not contract any new disease impairing his health nor suffer any material change in his physical condition between the time of such examination and the date of the policy.

In the present case there was no proof by plaintiff of any change in health of the insured after he was examined by the medical representative of the company and before the issuance of the policies. Accordingly, the decree of the court below, affirmed by the Superior Court, is reversed, and the bill dismissed; costs to be paid by appellee.

¹ Gallant v. Metropolitan Life Insurance Co., 167 Mass. 79 (44 N.E. 1073); Barker v. Metropolitan Life Insurance Co.,188 Mass. 542 (74 N.E. 945); Murphy v. Metropolitan Life InsuranceCo., 106 Minn. 112 (118 N.W. 355); Metropolitan Life InsuranceCo. v. Betz, 44 Tex. Civ. App. 557 (99 S.W. 1140); Logan v. NewYork Life Insurance Co., 107 Wash. 253 (181 P. 906);Greenbaum v. Columbian National Life Insurance Co., 62 Fed. 2d 56.

² Metropolitan Life Insurance Co. v. Moore, 117 Ky. 651 (79 S.W. 219); Western Southern Life Insurance Co. v. Davis, 141 Ky. 358 (132 S.W. 410); Modern Woodmen of America v. Atkinson,153 Ky. 527 (155 S.W. 1135); Metropolitan Life Insurance Co. v.Walters, 215 Ky. 379 (285 S.W. 252); National Life and AccidentInsurance Co. v. Wallace, 217 Ky. 160 (289 S.W. 219); Websterv. Columbian National Life Insurance Co., 116 N.Y. Supp. 404;Chinery v. Metropolitan Life Insurance Co., 182 N.Y. Supp. 555;Johnson v. Royal Neighbors of America, 253 Ill. 570 (97 N.E. 1084); Fairfield v. Union Life Insurance Co., 196 Ill. App. 7;James v. National Life and Accident Insurance Co., 265 Ill. App. 436; Mutual Life Insurance Co. of New York v. Hoffman,77 Ind. App. 209 (133 N.E. 405); Fidelity Mutual Life InsuranceCo. v. Elmore, 111 Miss. 137 (71 So. 305); New York LifeInsurance Co. v. Smith, 129 Miss. 544 (91 So. 456); Priest v.Kansas City Life Insurance Co., 116 Kan. 421 (227 P. 538);Interstate Life and Accident Insurance Co. v. McMahon,50 Ga. App. 543 (179 S.E. 132); Mid Continent Life Insurance Co. v.House, 156 Okla. 285 (10 Pac. (2) 718); National Life andAccident Insurance Co. v. Ware, 169 Okla. 618 (37 Pac. (2) 905); Mutual Life Insurance Co. of New York v. Frey, 71 Fed. 2d 259.