Summary
In Reserve Life Ins. Co. v. Ayers, 1961, 217 Ga. 206, 121 S.E.2d 649, 655, the supreme court held that the actual knowledge of an insurance company's agent is imputable to the company.
Summary of this case from Starling v. Gulf Life Insurance CompanyOpinion
21291.
ARGUED JULY 11, 1961.
DECIDED SEPTEMBER 11, 1961. REHEARING DENIED SEPTEMBER 25, 1961.
Certiorari to the Court of Appeals of Georgia — 103 Ga. App. 576 ( 120 S.E.2d 165).
Eugene M. Kerr, Stonewall H. Dyer, Tyler, Burns Tyler, Houston White, Beryl Weimer, for plaintiff in error.
Randall Evans, Jr., contra.
1. This court will not review a ruling of the Court of Appeals to which no exception in taken in the application for writ of certiorari.
2. The testimony of an attorney that his fees are of a certain value authorizes, but does not demand, the finding of the jury that they are of that particular value.
3. An insurer who in an action on an insurance policy plead an affirmative defense has the burden of proving such defense.
(a) The actual knowledge of an insurance agent, like that of any other agent, pertaining to facts concerning matters within the scope of his agency is imputable as actual knowledge to his principal. What the agent knows within the scope of his agency, the principal knows.
ARGUED JULY 11, 1961 — DECIDED SEPTEMBER 11, 1961 — REHEARING DENIED SEPTEMBER 25, 1961.
On April 18, 1959, John W. Ayers filed a suit in Columbia Superior Court against Reserve Life Insurance Company for loss allegedly covered by a policy of hospital insurance issued to him by the company on May 17, 1956. The loss, according to the averments of the petition, arose out of and was caused by an illness of the plaintiff that occurred in November, 1958. The petition alleged that proof of loss and demand for payment of the principal amount of the loss, which was $565.10, were in writing and made upon the insurer; that more than sixty days had expired since the demand was made, that the defendant had failed and refused to pay the claim, and such refusal was in bad faith. The prayers of the petition were that the plaintiff recover of the defendant the principal amount sued for, together with twenty-five percent damages and reasonable attorney's fees. Later, in response to a demurrer, the petition was amended by attaching to the same a copy of the policy and the application made for the same, the latter signed in the plaintiff's name.
The policy contained the stipulation: "2. Time limit on certain defenses: (a) After two years from the date of issue of this policy no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy, shall be used to void the policy or to deny a claim for loss incurred after the expiration of such two-year period; (b) No claim for loss incurred after two years from the date of issue of this policy shall be reduced or denied on the ground that a disease or physical condition not excluded from coverage by name or specific description effective on the date of loss had existed prior to the effective date of coverage of this policy."
On May 18, 1959, the defendant filed an answer to the suit, and set up as a defense that the plaintiff was not entitled to recover because he had knowingly and wilfully made false answers to certain questions contained in the application which materially affected the risk assumed by the defendant under the terms of the policy.
The case came on for trial at the September term, 1959, and resulted in a verdict and judgment in favor of the plaintiff for the principal sum, penalty and attorney's fees. The Court of Appeals reversed the judgment, Reserve Life Ins. Co. v. Ayers, 101 Ga. App. 887 ( 115 S.E.2d 477). On September 26, 1960, the case again came on for trial. The plaintiff amended the petition by increasing the prayer for attorney's fees from $7,500 to $8,000 and by especially alleging that he was entitled to recover the attorney's fees and the statutory penalty because the defendant had acted in bad faith in negating his demand for payment of the benefits he was entitled to under the provisions of the policy, and the reasonable value of his attorney's services in filing and prosecuting his suit was the amount named. The defendant renewed all of its demurrers. The trial judge overruled all grounds of demurrer to the petition as amended.
The plaintiff introduced documentary evidence: the insurance policy; the application made out by the defendant's agent for the policy upon which the suit was brought; parts of the defendant's answer showing the grounds of the defense plead; and certain letters written by the executive of the defendant denying liability and refusing to pay the plaintiff's claim of loss.
On the trial the plaintiff after introducing the policy of insurance and the letter from the insurer denying his claim of loss, and under oath, related the circumstances under which the application for the insurance was made. He testified, in part, that the defendant's agent, a Mrs. Dixon, came to his home on the night of May 14, 1956, and solicited his application for the insurance; that Mrs. Dixon, his wife and he were seated on the back porch of his home, his wife between him and Mrs. Dixon; that there was an electric light on the porch. He recalled Mrs. Dixon having asked him questions contained in the application concerning his previous state of health and previous hospitalization on account of gall bladder trouble. He positively swore that to each of the questions he made truthful answers, and fully disclosed that he had formerly suffered with a gall bladder ailment and had been hospitalized in the treatment of the same; that he answered the questions the agent, Mrs. Dixon, made in the application blank. He testified that he understood she was filling in truthful answers to the questions as he was giving them to her, and that she so informed him — in his words: "I did understand that that was an application being signed, and that the questions she had been asking me were supposed to be on that paper. I took her word for it." He further testified that he did not see the application, that Mrs. Dixon said either he or his wife could sign it and "everything will be all right." At his behest, his wife signed the application. He received the policy later and attached to it was a photostatic copy of the application, along with a letter from the insurer. He said he did not recall that the letter requested him to examine the application to ascertain its correctness, and in the event of error in the same he was directed to notify the company. However, he thought that was in the policy. He testified that the copy of the application was illegible; that he could not read it without a magnifying glass and that he could not see it. He further related, in this connection, that he was never informed of the contents of the application until the claim of loss was refused, and he employed a lawyer who, by aid of a magnifying glass, read the same. He was positive that until that time he did not know the application contained answers contrary to those given to the agent who filled it out, and that the answers written by her in the application, not his own, were not accurate or correct.
He related that the agent of the defendant, one Ringer, visited him in the hospital and that he freely informed Ringer of his previous illnesses and willingly gave him permission to examine his hospital record.
The defendant introduced the application for the insurance, but offered no evidence to dispute or explain the plaintiff's testimony. In fact, the defendant offered no evidence except the application and in no way disclosed that any investigation was made in reference to the circumstances under which the application for insurance was made, or as to whether the answers of the plaintiff to the questions contained in the application were, in fact, made in good faith.
The plaintiff's attorney testified, in substance, that he had expended great effort in the preparation of the plaintiff's claim of loss, the preparation of the petition and the several amendments to the same, in previously trying the case, in appearing for the plaintiff in the Court of Appeals, and in the second trial of this case. He explained in detail his labors in these matters and recounted numerous trips that he had been required to make in connection with the case, which trips, he testified, entailed considerable expense. The estimates he gave of the value of his services was $9,293.62. In connection with his estimate for the value of his services, he exhibited his file to the jury and related that he had prepared about half of the documents contained in the same. The attorney also gave evidence as to the contents of the proof of loss and demand for payment that he had prepared on behalf of the plaintiff and made upon the defendant. He related that his copies of these documents were lost. Upon cross-examination, the witness could not definitely state whether the application for insurance was attached to the policy. The defendant offered no oral evidence, except the testimony of the clerk of the superior court, that tended to prove the application had, at the former trial of the case, been attached to the policy.
The jury returned a verdict in favor of the plaintiff for the several sums of $565.10 principal, $141.28 penalty, and $8,000 attorney's fees. The defendant moved for a new trial on general grounds and amended the motion by adding several special grounds. The judge overruled the motion, the defendant excepted and in the bill of exceptions assigned error on the overruling of its demurrer to the amended petition.
The Court of Appeals affirmed the judgment of the trial court. The defendant made a motion for rehearing on the ground that the Court of Appeals erred in affirming the judgment overruling its demurrer and in overruling the several grounds of its motion for a new trial. The motion for rehearing was denied. The defendant applied to this court for writ of certiorari, and the application was granted.
1. The first exception of the application is that the Court of Appeals erred in not deciding that, as a matter of law, the verdict awarding $8,000 attorney's fees to the plaintiff was excessive. It must be remembered that the petition filed in the trial court, in addition to setting forth the right of the plaintiff to recover a loss alleged to be covered by the provisions of the policy sued upon, alleged that the defendant insurer acted in bad faith in refusing to pay the loss and for that reason was liable to the plaintiff for the statutory penalty and attorney's fees provided for by Code § 56-706. The petition set out in detail the services that the plaintiff's attorney had rendered and would render in filing and prosecuting the suit on the policy, and specifically alleged the value of the attorney's services to be $8,000.
The defendant filed a demurrer to the allegations of the petition respecting attorney's fees, in the following language: "That the prayer contained in the petition as amended for $8,000 attorney's fees is clearly excessive in view of the amount of principal sued for and the facts alleged by the plaintiff concerning the efforts required to prosecute the claim of the plaintiff." The trial judge overruled the demurrer, and the Court of Appeals affirmed the judgment.
The defendant made that ruling a ground of motion for rehearing, but did not except to the same in the application for writ of certiorari brought to his court. The judgment of the Court of Appeals became a final adjudication that the petition set forth the plaintiff's rights, if permitted to recover at all, to the attorney's fees in the amount prayed. The opinion of the Court of Appeals, unreversed, cannot be questioned. McEntire v. John Hancock Mut. Life Ins. Co., 174 Ga. 158 ( 162 S.E. 134); Lankford v. Milhollin, 201 Ga. 594 ( 40 S.E.2d 376); Clements v. Hollingsworth, 205 Ga. 153 ( 52 S.E.2d 465); Blake v. Williams, 208 Ga. 353 ( 66 S.E.2d 829). Similar are Sims v. Georgia Ry. Electric Co., 123 Ga. 643 ( 51 S.E. 573); and Brooks v. Rawlings, 138 Ga. 310 ( 75 S.E. 157).
The evidence of the plaintiff adduced upon the trial of the case furnished prima facie proof that the plaintiff's attorney rendered the services set out in the petition. The attorney himself testified to the value of the services and swore that it exceeded $8,000. The defendant submitted no evidence relevant to the issue.
The rule is here applicable that, though conflicting, some evidence is sufficient to sustain a verdict. A verdict supported by any competent evidence which has the approval of the trial judge will not be disturbed by this court unless errors of law appear. Greenway v. Sloan, 211 Ga. 775, 776 (1) ( 88 S.E.2d 366); Reed v. State, 195 Ga. 842 ( 25 S.E.2d 692).
The exception is without merit.
2. The second exception is that the Court of Appeals overlooked and failed to apply the principle pronounced in Baker v. Richmond City Mill Works, 105 Ga. 225 ( 31 S.E. 426). The only pronouncement of the case referred to applicable to this case was that, where the only evidence submitted as to the value of attorney's fees is the testimony of the attorney, the jury may weigh his evidence and consider whether his evaluation is correct. The ruling in the Baker case is sound, but the trial court followed and applied the principle therein announced by submitting to the jury the issue as to whether the plaintiff would be permitted to recover attorney's fees, and if so, in what amount.
The exception is without merit.
3. The final exception taken in the application for writ of certiorari is that the Court of Appeals erred in holding that there was evidence in the record to support the finding of the jury that the defendant's refusal to pay the plaintiff's claim of loss was in bad faith as contemplated by Code § 56-706. Bad faith within the meaning of the statute is any frivolous or unfounded refusal in law or in fact to pay a loss according to the insurance contract after legal demand. Cimarron Ins. Co. v. Pace, 212 Ga. 427 ( 93 S.E.2d 593).
The policy of insurance sued upon contained the clause: "After two years from the date of issue of this policy no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy, shall be used to void the policy or to deny a claim of loss incurred after the expiration of such two-year period." The defendant's answer set up the affirmative defense that the plaintiff wilfully made false answers to questions contained in the application for the insurance, that the answers materially affected the risk covered by the policy and, for this reason, the plaintiff was not entitled to recover in the suit on the policy. Upon this same ground it had refused the plaintiff's demand for payment of the loss.
The Court of Appeals held that the burden was upon the defendant to prove the affirmative plea. This court has repeatedly held that the burden was upon the insurer to prove an affirmative defense, such as fraud on the part of the insured in obtaining the policy, or that a loss apparently covered by the policy came within an exclusionary clause contained in the policy. Watertown Fire Ins. Co. v. Grehan, 74 Ga. 642 (1); Lamb v. Empire Life Ins. Co., 143 Ga. 180 ( 84 S.E. 439); O'Connell v. Supreme Conclave Knights of Damon, 102 Ga. 143 (1, 2) ( 28 S.E. 282, 66 ASR 159).
It has also long been established as the rule that the complete failure of the insurer to prove any defense to an action on the policy is evidence of the bad faith contemplated by Code § 56-706, and subjects the insurer to a verdict for the statutory penalty and attorney's fees. Travelers Ins. Co. v. Sheppard, 85 Ga. 751 ( 12 S.E. 18); Traders Ins. Co. v. Mann, 118 Ga. 381 ( 45 S.E. 426). This is especially true where the insurer does not prove that reasonable investigation of the insured's claim was made within the sixty-day period after demand for payment, in terms of the statute, has been made. Cotton States Life Ins. Co. v. Edwards, 74 Ga. 220; Hull v. Alabama Gold Life Ins. Co., 79 Ga. 93 ( 3 S.E. 903).
The defendant contends that the facts learned by an agent in the discharge of his duties and within the scope of his authority are imputable to the principal as constructive notice. In this connection, it is insisted that the fact that Mrs. Dixon, the defendant's agent, authorized to solicit, prepare and transmit to the defendant the application for insurance, obtained from the plaintiff truthful answers to the questions contained in the application, but without his knowledge inserted false answers, was not imputable as actual knowledge to the defendant.
The point is important because if the defendant had, in a legal sense, actual knowledge that the plaintiff had not made untruthful answers to the questions propounded by the application, the refusal to pay the loss upon that ground was frivolous and unfounded.
This court held in Hillyer v. Brogden, 67 Ga. 24, 26, that actual knowledge of an agent of facts within the scope of his agency was vicariously the principal's knowledge, and has adhered to that ruling consistently ever since.
The rule is applicable to all agents alike, including insurance agents. This court has held that where an agent authorized to solicit and prepare an application for insurance has actual knowledge that the insured has not made false answers to questions contained in the application, knowledge, not mere notice of that fact, is imputable to the insurer and becomes the knowledge of the latter. Johnson v. Aetna Ins. Co., 123 Ga. 404, 410 ( 51 S.E. 339, 107 ASR 92); Globe Rutgers Fire Ins. Co. v. Walker, 150 Ga. 163 ( 103 S.E. 407). The rule is especially applicable where, as in the instant case, the agent receives from the insured truthful answers to questions propounded by the application, and without such insured's knowledge or consent inserts false answers in the application. Clubb v. American Accident Co., 97 Ga. 502 (1, 2) ( 25 S.E. 333). This is the majority rule in other jurisdictions of this country. 29A Am.Jur. 227, § 1060.
Under the principles discussed, it is apparent that the Court of Appeals correctly held that there was evidence in the record to support the finding that the insurer's refusal to pay the loss covered by the policy was frivolous and unfounded; hence, in the bad faith contemplated by the statute.
Judgment affirmed. All the Justices concur, except Almand, J., who dissents, and Mobley, J., who concurs in the result.
In my opinion the evidence is insufficient to show bad faith on the part of the insurer.