Northwestern Life Insurance v. Montgomery

43 S.E. 79, 116 Ga. 799, 1902 Ga. LEXIS 277

• Court: Supreme Court of Georgia
• Decided: December 18, 1902
• Status: Published

Opinion

Simmons, C. J.

Suit was brought against the Northwestern Mutual Life Insurance Company on a policy of insurance issued on the life of Joseph R. Morton. The defendant in its answer set up certain alleged false and fraudulent statements made by the insured in his application for insurance, by which the company was induced to issue the policy. On the trial the case was submitted to the jury on the sole issue of fraud as affecting the policy under its terms. It appeared that Morton in his application stated that he had not since childhood had any mental derangement, nervous disease, dizziness, unconsciousness, fits, epilepsy, convulsions of any kind, or any disease of the heart, and had no reason to believe that he was not in good health at the time the application was made. By the terms of this application, which was signed by Morton, all the statements made therein were warranted to be true and were offered to the company as a consideration for the contract of insurance. The evidence showed, without question, that most of the statements just set out were false; that Morton had suffered from and was subject to frequent fits; that the physician he consulted ascribed these fits to the result of excessive smoking, telling Morton that he had “ tobacco heart;” that, under the treatment of this and several other physicians, Morton improved, and was apparently rid of the trouble at the time he applied to the defendant for insurance; but that subsequently the trouble returned, and Morton eventually died in an asylum for the insane. It was also shown that the company had relied largely upon the statements in the application in determining whether to issue the policy, and had acted upon the false statements to its injury. The plaintiffs relied upon the “incontestable clause” in the policy, which read as follows: “If the age has not been understated and death shall occur later than three years from the date hereof, the liability of the company shall not be disputed on account of any statement in the application, except in case of actual fraud.” It appeared that the death of the insured occurred more,than three years after the policy was issued, and that the premiums had been paid. The evidence failed to show any knowledge on the part of the officers and agents of the company, or any notice to them, when the policy was issued, that the statements iu the application were not true. The jury returned a verdict against the defendant for the full amount of the policy, and the defendant moved for a new trial. The motion was overruled by the court, and the movant excepted.

1, 2. The first question with which we are concerned is the meaning of the so-called incontestable clause of the policy. There was no contention that the age of the insured had been understated, or that his death had not occurred more than three years after the policy was issued. This being true, we think the effect of this clause was to limit the company, in denying liability on the ground of misstatement in the application, to such statements as were made with actual fraud. Where the fraud was constructive only, this clause barred the company’s right to set it up. That the exception, “in case of actual fraud,” applies to fraud in making statements in the application, seems clear when we consider that it is with 'these statements that the entire clause deals. Indeed, this is practically conceded in the briefs of counsel, and the argument is devoted to the question of proof of actual fraud. While a clause to the effect that an insurance policy shall from its date be absolutely incontestable is held to be an effort to condone fraud.and against public policy, such a clause as is contained in the present policy is-held good. A somewhat similar clause, making a policy incontestable after the lapse of three years, was held to be valid, as providing for a period of limitations or repose, in Massachusetts B. L. Asso. v. Robinson, 104 Ga. 256, 42 L. R. A. 261. In the absence of any such' clause, any misstatement in the application, whereby the nature or character or extent of the risk is changed, will, if the policy makes that the basis of the contract of assurance, avoid the policy, whether such misstatement is or is not fraudulently made. So. Life Ins. Co. v. Wilkinson, 53 Ga. 535. The clause in the policy dealt with in the Robinson case precluded the company from setting up misrepresentations in the application, whether made fraudulently or not. In the policy now under consideration, the clause extends only to constructive fraud, and excepts from its operation all cases in which the fraud is actual. “Fraud may be actual or constructive. Actual fraud consists in any kind of artifice by which another is deceived. Constructive fraud consists in any act of omission or commission, contrary to legal or equitable duty, trust or confidence justly reposed, which is contrary to good conscience and operates to the injury of another. The former implies moral guilt; the latter may be consistent with innocence.” Civil Code, §4025. Constructive or presumptive fraud could not be relied upon as a defense by the defendant in the present case, . and it contended that the insured had procured the policy oh insurance by means of actual fraud. The motion for new trial is based principally upon complaints of the charge of the court in regard to what is necessary to establish actual fraud. The court instructed the jury: “ When a false statement is made as to a material fact, which is known to be false by the party making it, the presumption is that it was made to deceive the other party. That would be the presumption, gentlemen, in the absence of anything to the contrary.” The jury were also instructed to find for the plaintiffs if the insured made the statements in good faith, without fraudulent intent, — that is, an intent to deceive the company and to procure it to issue, on the false statements, the policy of insurance.

Under the facts of the case, these instructions were erroneous. We are also of opinion that the evidence demanded a verdict for the defendant, except for a small sum which it tendered as a repayment of the premiums received by it on the policy. The evidence showed without contradiction that some of the most material statements in the application were false, were at the time known by the insured to be false, were not known to be false by the company or its agents, who were without notice of their falsity, were made in order to procure the insurance, and were acted upon by the company and relied upon by it in issuing the policy. The misrepresentations were also shown to relate to the physical and mental condition of the applicant for insurance, and to be, therefore, very material to the company’s decision as to whether the policy applied for should be issued. Indeed, they were made warranties and part of the consideration for the contract of insurance. The plaintiffs relied solely upon proof that the applicant had been a man ■of good character and not the kind of man to enter into a scheme to defraud an insurance company. This evidence of the plaintiffs -was admitted, so far as appears, without objection. Under the charge of the court, the jury was authorized to find for the plaintiffs if they believed that the insured did not intend to deceive and defraud the company, although he may have wilfully made false representations as to material matters in order to procure the policy. This we think is not the law. While an intent to mislead or deceive is one of the essential elements of fraud, an intent to defraud and prejudice the other party is not so. ^One who knowingly and wilfully makes false representations as to material facts, with intention thereby to induce the other to enter into a contract with him, and who does so induce the other to enter into the contract to his injury, is guilty of actual fraud, without regard to his intent as to injury to the other party. ^ There must be an immoral element in order to make a casé or fraud, but this essential is supplied by knowledge of the falsity of the statements of fact made and the intent by such statements to deceive the other party into changing his status with reference to his rights. “ An intention to deceive being a necessary element or ingredient of fraud, a false representation does not amount to a fraud in law unless it be made with a fraudulent intent. There is a fraudulent intent if a man, either with the view of benefiting himself or misleading another into a course of action which may be injurious to him, makes a representation which he knows to be false. . . The legal definition of fraud does not, however, include necessarily any degree of moral turpitude. There is fraud in law, if a man makes a representation which he knows to be false, . . with the view to induce another to act on the faith, who does so accordingly, and by so doing sustains damage, although he may have had no dishonest purpose in making the representation. If a man knowingly and wilfully makes a false representation whereby another is misled to his prejudice, it is immaterial that there may have been no intention on his part to benefit bimself or to injure the person to whom the representation was made. If a man says what is false within his knowledge, . . and makes the representation with the view to induce another to act upon it, who does so accordingly to his prejudice, the law imputes to him a fraudulent intent, although he may not have been in fact instigated by a morally bad motive. An intention to deceive, or a fraudulent intent in the legal acceptation of the term, depends upon the knowledge or belief respecting the falsehood of the statement, and not upon the actual dishonesty of purpose in making the statement.” Kerr, Fraud (Am. ed.), 55.

Foster v. Charles, 6 Bing. 396, 19 E. C. L. 183, was a suit for deceit, wherein it was necessary to prove actual fraud to entitle the plaintiff to a recovery. It was there held that where one is injured by false representations knowingly made by another; the latter is liable in damages as for actual fraud, without regard to the real motive which actuated him. In that case Tindal, C. J., said: “ The law will infer an improper motive if what the defendant says is false within his own knowledge and is the occasion of damage to the plaintiff.” Upon the retrial of the same case the jury found for the plaintiff, but added: “We consider there was no actual fraud on the part of the defendant, and that he had no fraudulent intention, although what'he has done constituted a fraud in the legal acceptation of the term.” The verdict for the plaintiff was upheld, Tindal, C. J., saying: “ It is fraud in law if a party makes representations which he knows to be false and injury ensues, although the motive from which the representations proceeded may not have been bad : the person who makes such representations is responsible for the consequences.” 7 Bing. 105, 20 E. C. L. 55. In the same case Gasalee, J., said: “What the jury meant by actual fraud was a sordid regard to self-interest; but the legal fraud, which is sufficient to sustain the action, was complete when the intention to mislead was followed by actual injury.” And Bosanquet, J., said: “ If a person tells a falsehood the natural and obvious consequence of which, if acted on, is injury to another, that is fraud in law. Coupling that with what the Chief Justice addressed to the jury, their verdict only means that the defendant did not propose to benefit himself, perhaps intended to benefit another; but that what he said, intending to benefit another, was false within his own knowledge, injurious to the party who received the communication, and, consequently, a fraud in the legal acceptation of the term.” In Polhill v. Walter, 3 B. & A. 114, 23 E. C. L. 38, the defendant accepted a bill as by procuration of the drawee, when in fact he had no such authority. It was there held that he was chargeable in an action for deceit; if he knew of his want of authority and yet'wrote the acceptance, thereby representing that he had authority, although he had no actual intention to defraud or injure the plaintiff, and believed that the drawee would ratify the unauthorized acceptance and the bill be paid' when due. So, in an action for deceit by false representations as to the quality of wool sold, the Supreme Court of Illinois held that where it was established that the defendant 1¿ook the wool to market, bound up in fleeces so'that its quality could not be readily ascertained, and sold it to the plaintiff, representing that it was in good condition, when as matter of fact it had much extraneous matter in it in “ ball form,” and the plaintiff bought it relying upon defendant’s representations, nothing more was required to entitle plaintiff to recover than that defendant knew the false representations were false. The judgment of the trial court was reversed for error in instructing the jury that the plaintiff could not recover “unless the representations were made fraudulently, with the design to injure the plaintiff.” Case v. Ayers, 65 Ill. 142. Woods, J., in an exhaustive opinion in the case of Hanson v. Edgerly, 29 N. H. (9 Foster) 343, said : “ If [material] facts are known to the vendor and there is an intentional concealment or suppression of them in making a contract, such concealment must be understood as intended for no other purpose than to deceive and mislead the vendee; and where in such case the vendee has not equal means of information, he must be regarded as deceived and defrauded.” See also Murray v. Mann, 17 L. J. (Exch.) 256; Claflin v. Ins. Co., 110 U. S. 96; Endsley v. Johns, 120 Ill. 469, 60 Am. R. 572; Clopton v. Cozart, 13 Smed. & M. 362; Bank of Atchison County v. Byers, 139 Mo. 627; Boyd’s Executors v. Browne, 6 Pa. St. 310; Sellar v. Clelland, 2 Colo. 532.

Of course intention is generally a question for the determination of the jury, and the conduct of the parties as showing a fraudulent intent is generally for their consideration. But in the present case the facts were such that they could properly have made but one finding. The applicant for insurance made in his application a false statement with reference to a material matter of fact; this statement was false within his knowledge; it was made with a view to procuring the' insurance, was made deliberately and with an agreement that it should be regarded as a warranty and as a part of the consideration of the contract of insurance; the company had no notice of its falsity, and acted upon it to its injury. Purposely misstating this material fact in order to induce the company relying upon it to enter into a contract which might prejudice its rights would be consistent with no other intention than one to deceive the company. The intention to deceive, coupled with the other facts in the case, conclusively showed fraud in the legal acceptation of the term. What the applicant thought or intended with reference to the consequences of his falsehood can not be material. He is presumed to have intended the natural consequence of what he purposely and knowingly did. We are therefore of opinion that the company completely made out its defense, and that the evidence of the plaintiffs was insufficient to overcome it. We are also of opinion that the court erred, under the evidence adduced, in leaving the jury free to find that there was no bad faith or intent to deceive on the part of the insured and that a verdict for the plaintiffs would be authorized.

3. The policy in this case was in part assigned, with the assent of the company, as collateral security for a debt, and it was argued that the company could not set up as against the assignee fraud in the application. This seems to be the rule in fire-insurance, where the original policy is not void, the consent to the assignment operating as a reissuance of the policy. 3 Joyce, Ins. § 2308. With regard to policies of life-insurance this is not the rule, and the assignee takes such a policy subject to such defenses (Ibid. § 2326) where it does not appear that the company, at the time of the assent to the assignment, had notice of the existence of such defenses.

Judgment reversed.

All the Justices concurring, except Lumpkin, P. J., absent.