Opinion
No. 76-054
Decided January 6, 1977. Opinion modified and as modified petition for rehearing denied February 3, 1977. Certiorari granted April 25, 1977.
In action to recover on life insurance policy, trial court submitted fraud issue to jury. From jury's verdict for insurance company, plaintiff appealed.
Affirmed
1. INSURANCE — Policy Application — Numerous Material Factual Omissions — Sufficient — Submit to Jury — Fraud Issue. In an action to recover under a life insurance policy, evidence of numerous material factual omissions from the policy application was sufficient to warrant submission of the issue of fraud to the jury.
2. Policy Application — Ambiguity of Answers — Construed In Favor of Insured — Apparent — Manifest Falsity — Intent to Deceive — Jury Question. Although the ambiguity of answers to questions contained in insurance application are to be construed in favor of the insured, a jury question is presented where a factfinder might well conclude that representations on such an application were manifestly false, and were made with an intent to deceive the insurance company.
3. Insurance Company — Knowledge — Intent — Reasonable Reliance — Issuance of Policy — Disputed Questions of Fact — Waiver of Legal Rights — Not Shown. Waiver of legal rights can occur when a known entitlement is voluntarily relinquished with the intent of abandonment, but in an action to recover under a life insurance policy, waiver was not established as a matter of law where both the extent of the insurance company's knowledge and the nature of its intent in issuing a certain policy presented disputed questions of fact; moreover, the case was properly submitted to a jury on the issue of whether such insurance company, without resorting to further inquiry, acted reasonably in issuing the policy in reliance on the statements contained in the policy application.
4. INSTRUCTIONS, CIVIL — Instruction on Presumption — Unrebutted — Contrary Evidence — Determination Made — Case-By-Case. The status and strength of a presumption varies according to the vitality of the policies which caused its creation and its potential use; and in the absence of guiding precedent, the jury's instruction on a presumption despite unrebutted evidence to the contrary is a matter which must be handled on a case-by-case basis.
5. INSURANCE — Policy — Discouraging Fraudulent Statements — Insurance Applications — Outweighs Presumption — Corporation Has Knowledge — Its Files and Records — Rejection of Instruction — Not Error — Pertinent Evidence — Waiver Issue. Where it was claimed that an insurance company waived any right to avoid liability on policy by virtue of its issuance of an insurance policy despite its possession of certain information regarding decedent's medical history, since the public policy of discouraging fraudulent statements on insurance applications is entitled to greater weight than the policy of preventing corporations from escaping liability by asserting ignorance of matters known to their employees, the trial court's rejection of a jury instruction that the insurance company was presumed to have knowledge of its own files and records does not warrant reversal; and although the existence of such information in the company's files was pertinent evidence to be considered, whether defendant was charged with such knowledge would not have been determinative of the waiver issue.
Appeal from the District Court of the County of Larimer, Honorable J. Robert Miller, Judge.
Jenkins Littlejohn, P.C., Joseph P. Jenkins, for plaintiff-appellant.
Anderson, Dressel Woodard, William F. Dressel, for defendant-appellee.
Plaintiff, Bill Murray, sued defendant seeking recovery under a life insurance policy issued by defendant insuring plaintiff's deceased wife, Betty. A jury found in favor of the defendant. We affirm.
The life insurance policy was issued under the following circumstances. In October 1972, Betty Murray fell from a horse, incurring serious skull and brain injuries. She underwent a series of surgical operations, a number of physicians taking part in her treatment. She was later moved to another hospital for further treatment and therapy. After her release from the second hospital in January 1973, she continued to receive physical therapy for treatment of numerous disabilities incurred as a result of the accident. These included the inability to talk, and difficulty in controlling her motor reflexes. She still suffered from these disabilities at death.
In February 1973, upon application by plaintiff, defendant issued a hospital income insurance policy to plaintiff covering him and his spouse. Betty Murray was subsequently hospitalized on several occasions, for a lung infection and for therapy and review of the original surgery. Claims under the hospital income policy were made by plaintiff and paid by defendant based upon these hospitalizations; information regarding decedent's head injury and physical condition was thereby submitted to defendant.
Later, during the fall of 1973, plaintiff received in the mail a life insurance application from defendant, which was completed and sent to defendant with decedent as the named insured. This application was purportedly prepared and signed by decedent with plaintiff's help; however, the authenticity of decedent's signature and the extent of her participation in the preparation of the application were questioned by defendant at trial. The application bore a negative response to a question concerning the occurrence of any "disease or disorder" of the lungs. To another question concerning whether any family member had consulted or been examined by any physician or had undergone x-rays, an affirmative answer was indicated as to deceased, "x-rays" being circled and the date of the fall indicated. The name and address of the principal treating physician was written in a space for "Name and Address of Each Physician, Hospital, Etc." No hospitals were listed, and no other doctors were shown. As the reason and results of treatment, the application stated: "Head injury from fall-recovered."
The life insurance policy under which plaintiff claims was thereafter issued in January 1974. Decedent was rehospitalized in February 1974 for installation of an acrylic plate in her skull at the situs of her earlier injury. As a result of this operation, an infection developed ultimately causing her death in April 1974.
Plaintiff filed a claim which defendant refused to pay, offering return of the single premium paid. This litigation followed.
Plaintiff's principal contentions are that the trial court erred in denying plaintiff's motion for a directed verdict, and in refusing to enter judgment in his favor notwithstanding the jury verdict. He premises these contentions on defendant's alleged failure to establish the legal prerequisites for rescission grounded on fraudulent misrepresentations. In the alternative, plaintiff contends that, even if defendant's evidence on fraud was sufficient to warrant submission of that issue to the jury, the issuance of the policy, as a matter of law, constituted waiver by defendant of the fraud defense. None of these contentions is persuasive.
[1] The evidence established that numerous factual matters were omitted from the application. It was undisputed that these omissions were actually material to the insurer's risk, and were fully within the scope of questions contained in the application. Wade v. Olinger Life Insurance Co., 192 Colo. 401, 560 P.2d 446 (1977). Hence, these omissions alone warranted submission of the fraud issue to the jury. See Fallis v. Zurich Insurance Co., 28 Colo. App. 235, 472 P.2d 174 (1970).
[2] However, a jury question was also presented with regard to plaintiff's misleading characterization of decedent's treatment as "x-rays" and her present condition as "recovered." We agreed with plaintiff that the ambiguity of answers to questions contained in insurance applications are to be construed in favor of the insured. See Olinger Mutual Benefit Ass'n v. Christy, 139 Colo. 425, 342 P.2d 1000 (1959). Nevertheless, a factfinder might well conclude here that the application contained knowingly false statements which materially affected the insurer's risk. Hollinger v. Mutual Benefit Life Insurance Co., 192 Colo. 377, 560 P.2d 824 (1977); Wade v. Olinger Life Insurance Co., supra. See also Gomogda v. Prudential Insurance Co., 31 Colo. App. 154, 501 P.2d 756 (1972). Thus, the trial court acted properly both in submitting the fraud issue to the jury and refusing to set aside the resulting verdict.
Plaintiff further contends that defendant waived its right to avoid liability due to the issuance of the policy despite its possession of information regarding decedent's medical history which it received from the claims filed under the hospitalization policy. We do not agree.
Testimony established that the life insurance policy was issued solely in reliance on the statements contained in the application, in ignorance of the omissions and misrepresentations therein, and would not have been issued had the true facts been known. Although both policies were billed to plaintiff's account, only the hospitalization policy was issued to the plaintiff. His wife was the named insured under the life insurance policy. It was further established that defendant had no cross-index system which would have put the issuing company employees on notice as to the misrepresentations in the life insurance application.
[3] Waiver of legal rights can occur when a known entitlement is voluntarily relinquished with the intent of abandonment. Millage v. Spahn, 115 Colo. 444, 175 P.2d 982 (1946). See also Zimbelman v. Hartford Fire Insurance Co., 92 Colo. 536, 22 P.2d 866 (1933). However, the evidence in this case did not establish waiver as a matter of law. Both the extent to which defendant was chargeable with knowledge of the truth and the nature of its intent in issuing the policy presented disputed questions of fact. The case was properly submitted to the jury, without objection by plaintiff, solely on the issue of whether defendant, without resorting to further inquiry, acted reasonably in issuing the policy in reliance on the statements contained in the application. Hollinger v. Mutual Benefit Life Insurance Co., supra. See also Benson v. Bankers Life Casualty Co., 147 Colo. 175, 362 P.2d 1039 (1961); Williams v. Woodruff, 35 Colo. 28, 85 P. 90 (1905).
Finally, plaintiff contends that error occurred when the trial court refused to submit an instruction that defendant was presumed to have knowledge of its own files and records. Rejection of this instruction does not warrant reversal.
An analysis of the use of presumptions in civil cases in Colorado reveals a wide variety of treatment. See e.g., Weiss v. Axler, 137 Colo. 544, 328 P.2d 88 (1958). Particular presumptions have been described as having evidentiary weight, requiring instruction even in the presence of uncontroverted rebuttal evidence. Other presumptions have been accorded mere inferential effect, losing their effectiveness when unrebutted evidence to the contrary is presented. Compare Weiss v. Axler, supra, with May Stores Shopping Centers, Inc. v. Shoemaker, 151 Colo. 100, 376 P.2d 679 (1962) and American Insurance Co. v. Naylor, 101 Colo. 34, 70 P. 349 (1937). See also Neighbors of Woodcraft v. Hildebrandt, 98 Colo. 231, 54 P.2d 889 (1936).
[4] The status and strength of a presumption varies according to the vitality of the policies which caused its creation and its potential use. In the absence of guiding precedent, the jury's instruction on a presumption despite unrebutted evidence to the contrary is a matter which must be handled on a case-to-case basis. Cline v. Boulder, 35 Colo. App. 349, 532 P.2d 770 (1975). Here, the trial court's decision not to instruct on the presumption was correct.
We appreciate the policy considerations involved in attempting, by presumption, to prevent a corporation from escaping liability by asserting ignorance of matters known to its employees. See Denver South Park Pacific R.R. v. Conway, 8 Colo. 1, 5 P. 142 (1884); United States v. T.I.M.E.-D.C., Inc., 381 F. Supp. 730 (W.D. Va. 1974). See also Farmers Bankers Life Insurance Co. v. Allingham, 457 F.2d 21 (10th Cir. 1972); Mike Occhiato Mercantile Co. v. Allemannia Fire Insurance Co., 98 F. Supp. 888 (D. Colo. 1951).
[5] Similarly, we are cognizant of the possible abuses which may be inherent in mass mailing solicitation of insurance, including the probability of minimal investigation by the soliciting company. However, this technique of solicitation does not excuse fraudulent misrepresentation in an application for insurance pursuant to such solicitation, and plaintiff's allegation of defendant's negligence in investigation was submitted to the jury and resolved in favor of defendant. Therefore, the issue upon which this controversy was submitted to the jury did not warrant the instruction offered. See Belisimo v. Ceresa, 80 Colo. 325, 251 P.2d 531 (1926).
Moreover, another countervailing policy consideration is also present in this case: that of discouraging fraudulent statements on insurance applicants. This factor alters the character of the analysis, and supports the result reached here. See French v. Patriotic Insurance Co., 107 Colo. 275, 111 P.2d 893 (1941); Bankers Trust Co. v. International Trust Co., 108 Colo. 15, 113 P.2d 656 (1941).
Finally, we acknowledge that the existence of information in defendant's files pertaining to decedent's health was pertinent evidence to be considered by the jury in evaluating plaintiff's claim of waiver. See Hollinger v. Mutual Benefit Life Insurance Co., supra. However, the giving of the tendered instruction would have foreclosed the jury from considering all the pertinent factors necessary to resolve the issue. See Bankers Trust Co. v. International Trust Co., supra. See also May Stores v. Shoemaker, supra; American Insurance Co. v. Naylor, supra; Morgan, Instructing the Jury Upon Presumptions and Burdens of Proof, 47 Harv. L. Rev. 59 (1933).
Judgment affirmed.
JUDGE VAN CISE and JUDGE KELLY concur.