George Rose Smith, Justice.
On July 8, 1971, the appellee and her late husband, William R. People, bought a car from Chalmers Buick Company, executing a 36-month installment contract for the unpaid balance of $5,338.44. At the same time Mr. People applied for and obtained from the appellant a credit life insurance policy upon his own life for the amount of the debt. After People’s death on April 5, 1972, the appellee stopped making the payments on the installment contract. When the finance company holding the contract brought this action to recover the unpaid balance, Mrs. People filed a cross-complaint against the appellant upon the credit life policy. The insurer denied liability on the ground that People had obtained the policy by a false and fraudulent statement that he was in good health, when in fact he was not. The jury, in response to an interrogatory, found that People’s application for the policy contained no misrepresentations, omissions, concealment of facts, or incorrect statements. In appealing from the ensuing judgment for the appellee the insurance company contends that it was entitled either to a directed verdict or to a judgment notwithstanding the jury’s verdict, for want of any genuine issue of fact.
The application and the policy were combined in a single document. There was no medical examination nor any specific questions about People’s health. Instead, the application contained this sentence in the fine print above his signature: “I hereby apply for the insurance shown above and represent that I am now in good health, both mentally and physically, and free from any mental or physical impairment of any chronic disease, and am the age shown above.” Just above People’s signature, in larger capital letters, appeared the statement: “I AM NOW IN GOOD HEALTH.”
The policy became effective at once, being signed for the insurer by an employee of Chalmers Buick Company. It provided, however, that the insurer might reject the insurance within 30 days by mailing notice to its agent, with a return of the premium. There was also a one-year incontestable clause. An agent for the company testified that no investigation of credit life applications is ordinarily made. He stated that although there was no place on the application for any health questions to be answered, the applicant “could clip a note to it stating that he does have a health condition, and we would pass judgment on it.”
Although the jury might have found that People acted in good faith in signing the application, the undisputed proof shows that he was not in good health at that time. People’s own physician, Dr. Hayes, testified that he had treated People for diabetes and high blood pressure. Both conditions had existed for four years or more before the policy in question was issued.
There is, however, a substantial question of fact whether People’s existing ailments were contributing causes to his death. The death certificate listed the causes of death as uremia, chronic renal failure, and arteriolar nephrosclerosis, all of which pertain to the kidneys. Dr. Hayes testified that prior to February, 1972 (which was six months after the issuance of the insurance policy), repeated urinalyses done as early as 1964 were all negative as to any kidney ailment. The witness also stated that until March 3, 1972, there was no indication whatever that People would die of kidney infection or acute renal failure. Upon Dr. Hayes’ testimony the jury could have found that People’s death was not caused by either diabetes or high blood pressure, from which he was suffering when the policy was issued. (Dr. Hayes also said that People told him that he was drawing 100 per cent disability from the Veterans Administration for a nervous disorder, but there is no suggestion that the disorder was involved in People’s death.)
The appellant, in insisting that it was entitled to a directed verdict, takes the position that an absence of any connection between People’s death and the ailments from which he was suffering when the policy was issued is immaterial. The insurer’s position is clearly stated in its reply brief: “There is no necessity for showing a causal connection between a matter misrepresented in an application for insurance and the ultimate cause of death of an insured.”
We do not so interpret the statute upon which the appellant relies. That section of the Insurance Code reads in part:
“All statements in any application for a life or disability insurance policy or annuity contract, or in negotiations therefor, by or in behalf of the insured or annuitant, shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless either:
“(a) Fraudulent; or
“(b) Material either to the acceptance of the risk, or to the hazard assumed by the insurer; or
“(c) The insurer in good faith would either not have issued the policy or contract, or would not have issued a policy or contract in as large an amount or at the same premium or rate, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.” Ark. Stat. Ann. § 66-3208 (Repl. 1966).
In the fifteen years that have intervened since our Insurance Code was adopted we have considered the foregoing section in many cases, but we have not passed upon the issue now presented — whether a misrepresentation will avoid the policy even though it had no bearing upon the insured’s death or disability. Nine of our cases might be considered to be pertinent. In seven of them the same ailment which was assertedly concealed by the applicant was also the cause of death or disability: Old Am. Life Ins. Co. v. McKenzie, 240 Ark. 984, 403 S.W. 2d 94 (1966) (back trouble stemming from spinal fusions); Dopson v. Metropolitan Life Ins. Co., 244 Ark. 659, 426 S.W. 2d 410 (1968) (recurrent back trouble); Life & Cas. Ins. Co. of Tenn. v. Smith, 245 Ark. 934, 436 S.W. 2d 97 (1969) (“serious physical ailments which proved to be fatal”); Union Life Ins. Co. v. Davis, 247 Ark. 1054, 449 S.W. 2d 192 (1970) (heart trouble); American Family Life Ass. Co. of Columbus v. Reeves, 248 Ark. 1303, 455 S.W. 2d 932 (1970) (cancer, which proved fatal); American Pioneer Life Ins. Co. v. Turman, 254 Ark. 456, 495 S.W. 2d 866 (1973) (cancer, which proved fatal); American Pioneer Life Ins. Co. v. Smith, 255 Ark. 949, 504 S.W. 2d 356 (1974) (heart trouble, which proved fatal). The eighth case, Old Republic Ins. Co. v. Alexander, 245 Ark. 1029, 436 S.W. 2d 829 (1969), was a chancery suit by the insurer to cancel the policy. We merely sustained the chancellor’s finding that there was no misrepresentation of heart trouble and that the insurer failed to prove that it would not have issued the policy had it known of the applicant’s prior surgery. Similarly, in the other case, Hartford Life Ins. Co. v. Catterson, 247 Ark. 263, 445 S.W. 2d 109 (1969), the insurer failed to present any evidence that it would not have issued the policy had a full disclosure been made by the applicant.
Thus the present issue of statutory construction is an open one.
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George Rose Smith, Justice.
On July 8, 1971, the appellee and her late husband, William R. People, bought a car from Chalmers Buick Company, executing a 36-month installment contract for the unpaid balance of $5,338.44. At the same time Mr. People applied for and obtained from the appellant a credit life insurance policy upon his own life for the amount of the debt. After People’s death on April 5, 1972, the appellee stopped making the payments on the installment contract. When the finance company holding the contract brought this action to recover the unpaid balance, Mrs. People filed a cross-complaint against the appellant upon the credit life policy. The insurer denied liability on the ground that People had obtained the policy by a false and fraudulent statement that he was in good health, when in fact he was not. The jury, in response to an interrogatory, found that People’s application for the policy contained no misrepresentations, omissions, concealment of facts, or incorrect statements. In appealing from the ensuing judgment for the appellee the insurance company contends that it was entitled either to a directed verdict or to a judgment notwithstanding the jury’s verdict, for want of any genuine issue of fact.
The application and the policy were combined in a single document. There was no medical examination nor any specific questions about People’s health. Instead, the application contained this sentence in the fine print above his signature: “I hereby apply for the insurance shown above and represent that I am now in good health, both mentally and physically, and free from any mental or physical impairment of any chronic disease, and am the age shown above.” Just above People’s signature, in larger capital letters, appeared the statement: “I AM NOW IN GOOD HEALTH.”
The policy became effective at once, being signed for the insurer by an employee of Chalmers Buick Company. It provided, however, that the insurer might reject the insurance within 30 days by mailing notice to its agent, with a return of the premium. There was also a one-year incontestable clause. An agent for the company testified that no investigation of credit life applications is ordinarily made. He stated that although there was no place on the application for any health questions to be answered, the applicant “could clip a note to it stating that he does have a health condition, and we would pass judgment on it.”
Although the jury might have found that People acted in good faith in signing the application, the undisputed proof shows that he was not in good health at that time. People’s own physician, Dr. Hayes, testified that he had treated People for diabetes and high blood pressure. Both conditions had existed for four years or more before the policy in question was issued.
There is, however, a substantial question of fact whether People’s existing ailments were contributing causes to his death. The death certificate listed the causes of death as uremia, chronic renal failure, and arteriolar nephrosclerosis, all of which pertain to the kidneys. Dr. Hayes testified that prior to February, 1972 (which was six months after the issuance of the insurance policy), repeated urinalyses done as early as 1964 were all negative as to any kidney ailment. The witness also stated that until March 3, 1972, there was no indication whatever that People would die of kidney infection or acute renal failure. Upon Dr. Hayes’ testimony the jury could have found that People’s death was not caused by either diabetes or high blood pressure, from which he was suffering when the policy was issued. (Dr. Hayes also said that People told him that he was drawing 100 per cent disability from the Veterans Administration for a nervous disorder, but there is no suggestion that the disorder was involved in People’s death.)
The appellant, in insisting that it was entitled to a directed verdict, takes the position that an absence of any connection between People’s death and the ailments from which he was suffering when the policy was issued is immaterial. The insurer’s position is clearly stated in its reply brief: “There is no necessity for showing a causal connection between a matter misrepresented in an application for insurance and the ultimate cause of death of an insured.”
We do not so interpret the statute upon which the appellant relies. That section of the Insurance Code reads in part:
“All statements in any application for a life or disability insurance policy or annuity contract, or in negotiations therefor, by or in behalf of the insured or annuitant, shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless either:
“(a) Fraudulent; or
“(b) Material either to the acceptance of the risk, or to the hazard assumed by the insurer; or
“(c) The insurer in good faith would either not have issued the policy or contract, or would not have issued a policy or contract in as large an amount or at the same premium or rate, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.” Ark. Stat. Ann. § 66-3208 (Repl. 1966).
In the fifteen years that have intervened since our Insurance Code was adopted we have considered the foregoing section in many cases, but we have not passed upon the issue now presented — whether a misrepresentation will avoid the policy even though it had no bearing upon the insured’s death or disability. Nine of our cases might be considered to be pertinent. In seven of them the same ailment which was assertedly concealed by the applicant was also the cause of death or disability: Old Am. Life Ins. Co. v. McKenzie, 240 Ark. 984, 403 S.W. 2d 94 (1966) (back trouble stemming from spinal fusions); Dopson v. Metropolitan Life Ins. Co., 244 Ark. 659, 426 S.W. 2d 410 (1968) (recurrent back trouble); Life & Cas. Ins. Co. of Tenn. v. Smith, 245 Ark. 934, 436 S.W. 2d 97 (1969) (“serious physical ailments which proved to be fatal”); Union Life Ins. Co. v. Davis, 247 Ark. 1054, 449 S.W. 2d 192 (1970) (heart trouble); American Family Life Ass. Co. of Columbus v. Reeves, 248 Ark. 1303, 455 S.W. 2d 932 (1970) (cancer, which proved fatal); American Pioneer Life Ins. Co. v. Turman, 254 Ark. 456, 495 S.W. 2d 866 (1973) (cancer, which proved fatal); American Pioneer Life Ins. Co. v. Smith, 255 Ark. 949, 504 S.W. 2d 356 (1974) (heart trouble, which proved fatal). The eighth case, Old Republic Ins. Co. v. Alexander, 245 Ark. 1029, 436 S.W. 2d 829 (1969), was a chancery suit by the insurer to cancel the policy. We merely sustained the chancellor’s finding that there was no misrepresentation of heart trouble and that the insurer failed to prove that it would not have issued the policy had it known of the applicant’s prior surgery. Similarly, in the other case, Hartford Life Ins. Co. v. Catterson, 247 Ark. 263, 445 S.W. 2d 109 (1969), the insurer failed to present any evidence that it would not have issued the policy had a full disclosure been made by the applicant.
Thus the present issue of statutory construction is an open one. We are aware, of course, that at common law there was a split of authority on the question whether an insurer could avoid liability where the misrepresentation that induced the issuance of the policy had no causal connection with the loss. Appleman, Insurance Law and Practice, § 215 (1965). The Insurance Code, however, was a comprehensive revision of our law in that field and is to be interpreted according to the usual principles of statutory construction.
It is our conclusion that, under the Code, the insurer must show a causal relation between the applicant’s misrepresentation and the eventual loss. Subsection (c) of § 66-3208 to some extent carries that implication, by this language: “The insurer in good faith . . . would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known.” Thus it would be a defense to the insurer, in a back injury case, to show that if the applicant had disclosed a history of back trouble it would have excepted that hazard from the policy. In fact, that was precisely the insurer’s proof in the Dopson case, supra, where the insurer prevailed by offering proof that “it would not have issued the rider without an exclusion relative to Mrs. Dopson’s back.” Yet if Mrs. Dopson’s claim had been for a broken leg, an exclusion of coverage with respect to her back would not have afforded the insurer a defense to the claim.
Fairness and reason support the view that a causal connection should be essential. Otherwise, when the insured is killed by a stroke of lightning or by being run over by a car, the insurance company could successfully deny liability by showing that the insured was suffering from diabetes when he stated that he was in good health.
Such considerations of fairness are especially pertinent to a credit life insurance policy like the one before us. This was a short-term policy, to remain in force for only three years. The company made no medical examination of the applicant, relying upon him either to refuse to sign the application if he was not in good health, in which case the policy would never be issued, or to “clip a note” to the application, explaining his health condition. The appellant had the burden of proving its affirmative defense, but it made no effort to show that the automobile salesman who took People’s application made any explanation of the printed form or of the significance of the representation of good health. If People had lived for three years the insurer would have sustained no loss. In the circumstances it is plainly unjust to permit the company to deny liability on the basis of a misrepresentation that had no connection with People’s death (or so the jury might have found) and that would have provided no defense to the insurer if the policy had excluded coverage for loss resulting from the undisclosed ailments. We are therefore of the opinion that the appellant was not entitled to a directed verdict or to judgment notwithstanding the verdict.
The appellant also contends that Mrs. People should not have been allowed to testify that the automobile salesman who took the application merely asked People if he had been in the hospital within the preceding three months. We find no error, not only because the salesman was apparently acting for the insurer in taking the application but also because the evidence had no relevant bearing upon the insurer’s contention that it was entitled to judgment as a matter of law. Hence the court’s ruling, if erroneous, was harmless.
Affirmed.
FoglemanJ., not participating. Harris, C.J., and Holt, J., concur. Byrd.J., dissents.