Opinion
Argued November 19, 1980
Decided December 22, 1980
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, DOROTHY E. KENT, J.
William E. Kelly and Gerald E. Singleton for appellant. John J. Donohue for respondent.
Inasmuch as the statute vests exclusive authority to approve the issuance of savings bank life insurance policies in the Savings Bank Life Insurance Fund, a defense to payment under such a policy based on a material misrepresentation as to the applicant's health made in the application is not vitiated by proof that an officer of the savings bank to which the application was addressed had knowledge of the true facts.
In this action on a savings bank life insurance policy the named beneficiary seeks to recover the benefits of that policy due on the death of the insured. Ten months prior to his death the decedent applied to Eastern Savings Bank for a $30,000 policy of insurance on his life. The application was completed and signed in the presence of an assistant vice-president of the bank, the manager of its life insurance department. In his application the decedent represented, among other things, that he had never been treated for high blood pressure and that he had not had a physical examination or consulted a physician within the preceding five years except for a premarital Wasserman test. On the basis of the evidence received at the trial the court found that in fact the decedent had suffered for years from hypertension, had consulted at least one physician and was under care for elevated blood pressure and that his response that he did not have high blood pressure was a material misrepresentation as a matter of law.
It was plaintiff's contention, nonetheless, that there had been a waiver of the misrepresentation inasmuch as the assistant vice-president of the bank and manager of its life insurance department had knowledge that the decedent suffered from high blood pressure. Over appropriate protest of the bank duly registered, the trial court instructed the jury to return a verdict for the bank unless they found that the bank had waived its defense because its officer at the time he filled out the application had knowledge of the applicant's high blood pressure. The jury returned a verdict for plaintiff, and the Appellate Division affirmed, two Justices dissenting. There must be a reversal.
The legal and financial arrangements for the issuance of savings bank life insurance are sui generis (Banking Law, art 6-A). While applications for policies of life insurance are made to the life insurance department of an individual savings bank and the policies are written in the name of individual banks, the Savings Bank Life Insurance Fund, a body corporate in the banking department (Banking Law, § 270) has authority and responsibility for supervising the issuance of all policies. It prepares the standard forms of applications and of policies and all forms for record keeping; it determines premium rates and fees and loan tables; it prescribes the standards of health or acceptability of the applicant for insurance. The fund is charged with responsibility for underwriting all policies of insurance issued by savings banks in New York State (Banking Law, §§ 270, 271). Beyond all that, and it is determinative for present purposes, the statute expressly provides that "no policy or contract shall be delivered or issued for delivery except with the approval of the fund" (§ 271). Thus, although the savings bank life insurance department of the individual savings bank is authorized to "decline particular classes of risks or reject any particular application" for life insurance (Banking Law, § 263) it has no authority or power to accept an application or to approve the issuance of a policy; no authority to waive requirements with respect to the issuance of a policy may be implied from the only authority vested in the bank with respect to applications, namely to reject them. Unlike other life insurance enterprises, neither the Savings Bank Life Insurance Fund nor the life insurance departments of the individual savings banks operate through soliciting agents. The statutory scheme is tight. There is no basis in law for the conclusion on which the majority at the Appellate Division grounded its determination, namely that defendant bank was functioning in this instance as agent of the Savings Bank Life Insurance Fund. The relationships among the life insurance department, the individual savings bank and the fund are prescribed by statute, and the distribution of authority and responsibility set forth in the statute is inconsistent with any principal-agent relationship. Nor is there evidentiary proof in this record to support a factual determination that such a relationship existed. In these circumstances, knowledge of an officer of the Eastern Savings Bank cannot be imputed to the fund, and no waiver by the fund can be erected on any knowledge of the manager of the life insurance department of the Eastern Savings Bank.
Accordingly, the order of the Appellate Division should be reversed, with costs. This case was submitted to the jury on an erroneous legal theory and its verdict must be set aside. Because the trial court concluded, and correctly, that the decedent's misrepresentation was material as a matter of law and because the record contains no proof on the basis of which there could be found to have been a waiver of that misrepresentation by the Savings Bank Life Insurance Fund, the complaint should be dismissed.
The majority creates a significant, and what I consider to be an unfounded exception to the law of life insurance. In general, written misrepresentations in an application for insurance will be waived by the insurer, and may not be a ground for denying coverage, if the correct information was orally conveyed to the insurer or its agent. However, in the instant case the majority circumvents that principle by holding that the bank officer with whom an insurance buyer deals is not an agent for the insurer within the framework of savings bank life insurance. This determination misconceives the fundamental importance of the relationship between the bank and the Savings Bank Life Insurance Fund in regard to the case before us, and opens a substantial gap in the law protecting the insurance buying public.
The majority's holding is grounded upon a determination that the distribution of authority and responsibility set forth in the Banking Law is inconsistent with any principal-agent relationship between the defendant bank and the Savings Bank Life Insurance Fund. Although it is clear that final approval of the applications rests with the fund, it is undisputed that the fund does not deal directly with the insurance buyer, but instead relies upon the bank and its officers to be its interface with the customer and also its spokesman. For purposes of this case, the relationship between the fund and the bank is indistinguishable from the relationship between an insurance company and its agent, because in both instances the insurance buyer communicates only with a spokesman for the insurer, and that spokesman in turn acts as a conduit for information flowing between the customer and the ultimate insurer. As the interface between the buyer and the fund, the bank must be expected to convey to the fund all pertinent information communicated by the buyer. Indeed, even the most sophisticated buyer could only expect that anything which he reveals to the bank will have a direct bearing on his prospects for securing insurance. This is particularly true in view of the fact that the application used in the instant case did not contain a clause informing the buyer that no information concerning any matter which is a subject of inquiry in the application shall be considered as known to the insurer unless stated within the application itself (see Wageman v Metropolitan Life Ins. Co., 24 A.D.2d 67, affd 18 N.Y.2d 777).
The error in the majority's analysis is that it permits savings banks to act as insurance agents without assuming the responsibility and liability of agents. The insurance buying public is seriously harmed by this development because a purchaser of savings bank life insurance may no longer rely upon the representations of the bank with whom he deals, or the bank's acquiescence in inaccurate information placed on the application where correct information is orally conveyed. In the present case it is not unlikely that plaintiff would have procured other coverage at a rate reflecting his medical condition if he had reason to suspect that his oral communication of his condition to the bank officer with whom he dealt would not be conveyed to the fund, and that the fund's lack of information would later serve as a basis for denying payment to plaintiff's intended beneficiary. Furthermore, because the majority has determined that the bank is not the agent of the fund, nor a conduit for information to it, a logical extension of the majority opinion compels the conclusion that even an express misrepresentation made by the bank to the buyer would be irrevelant in determining whether coverage must be provided. This also is an untenable result.
Accordingly, for the foregoing reasons, the order of the Appellate Division should be affirmed.
Judges JASEN, WACHTLER and MEYER concur with Judge JONES; Judge GABRIELLI dissents and votes to affirm in a separate opinion in which Chief Judge COOKE and Judge FUCHSBERG concur.
Order reversed, with costs, and the complaint dismissed.