GLICKMAN v. NEW YORK LIFE INS. CO.*
The plaintiff has appealed from a judgment which was rendered against him in a suit to rescind a written surrender of his twenty-year endowment insurance policy on the ground that the cancellation was procured by mistake and fraud. The policy contained a disability clause providing that the premiums would be waived by the company upon proof that the insured was permanently disabled. Upon application to the Los Angeles agent of the defendant for information regarding the privileges of the insured under his policy by means of which he might meet the payment of a premium which was about to become delinquent, the agent failed to inform him of his right to establish proof of disability and persuaded him to surrender his policy upon payment of $30. This is not a suit to establish disability benefits, but it is an equitable action to rescind the cancellation of the policy alleged to have been procured by constructive fraud or mistake.
February 23, 1923, the appellant, who was then twenty-one years of age, took out a twenty-year three thousand dollar endowment insurance policy with the New York Life Insurance Company. His semi-annual premiums of $78.48 were due February 23rd and August 23rd of each year with a provision for thirty days' grace in which to pay them. The policy contained a clause allowing the insured one per cent monthly upon proof of permanent disability, during the continuance of such disability, “effective upon receipt at the Company's Home Office, before default in the payment of premium”. That section of the policy also provided that all premiums “falling due after approval of such proof of disability and during such disability” would be waived. For ten years and to the spring of 1933 all premiums were paid.
The appellant was engaged in the business of upholstering furniture. He moved from New York to Los Angeles on account of serious affliction which he incurred several years after the policy was issued. He acquired a bad condition of chronic arthritis which completely disabled him from working for a year or more before his premium became due in February, 1933. He was a Russian with slight knowledge of the English language, although he later learned to read the language. He had never read his policy and did not actually know that it contained the disability clause entitling him to $30 per month during permanent disability and a waiver of premiums while he suffered that incapacity. He also held another twenty-year $12,000 endowment policy with the same company, containing a similar disability clause, which he took out in 1926. In 1932 and during the spring of 1933, he was totally disabled from working, he owed taxes and other pressing obligations. He had no income or means with which to meet those debts. The premiums on his two policies were about to become delinquent. The national moratorium was in effect and he was unable to borrow money from the banks. He visited the office of the defendant insurance company in Los Angeles in January, 1933, and talked with Miss Bush, a representative of the company about raising some money on his policies to pay the premiums. He obtained no satisfaction from her. He again returned to the office for the same purpose on March 22nd, which was only a day or two before his premium on the $3,000 policy would have become delinquent. He was introduced to Eagan Brantigan, an agent of the company, whose duties included the collection of premiums and the obtaining of surrenders of policies. The appellant explained his physical and his financial condition to the agent, and asked him for advice as to how he might raise some money on his policies to meet his pressing obligations. He told the agent he was disabled and sick and asked him to figure out some way for him to pay his premiums. He said: “I am disabled, not feeling well and I can't do anything, I am not working and I simply haven't got any money. Now, can you figure out a way I can borrow some money here to pay my premium up? * I have no means any more to borrow, * the banks are closed, * scarcely can't get enough to get by to eat on; * I don't know where I am going to borrow it.”
That evidence is not contradicted except by the presumption that he knew the contents of his policy. Mr. Brantigan testified at the trial that he talked with the appellant and took his written surrender of the $3,000 policy, but that he had no recollection of the conversation which then occurred between them. It was stipulated at the trial that the appellant was totally disabled for the period of time at least, since October 1, 1932.
We must assume the agent was familiar with the disability clause of the policy, yet he failed to suggest to the appellant that he might file proof of his disability and thereby procure $30 per month benefits, together with a waiver of premiums during such disability. He advised the appellant that the only thing he could do was to surrender his policy. He said, “If you will surrender the policy * you will get a few dollars out of it.” He added, “You can't get cash unless you sign certain papers, because we are not allowed to pay out cash.” Mr. Glickman then said if that was the only thing he could do he would have to surrender his policy. The agent thereupon wrote out a request on the part of the appellant for the surrender of the policy and another acknowledgment of request to cancel it, both of which he procured him to sign. The latter document contained the following language:
“Request is hereby made upon the special ground of extreme need, as herein below set forth, for a loan cash surrender value in connection with the policy indicated in the caption.
“(1) I am in need of the sum of $30.00.
“(2) The purpose for which I need such sum is to pay taxes—Bal. of surrender value to be applied in reduction of Loan on Pol. #9683352.
“I declare that the facts herein above set forth are true, to the best of my knowledge and belief.”
The $3,000 policy was delivered to the agent on the following day. The $30 check was sent to the appellant April 7, 1933.
Two physicians testified that the appellant was physically disabled from performing work after May, 1931. The respondent conceded that he was totally disabled during the entire period following October 1, 1932. Six months after the appellant was induced by the agent of the company to surrender his $3,000 policy, his chronic arthritis became so bad that on October 9, 1933, he consulted with Doctor Fred J. Barnet who was on the medical staff of the Jenkins Clinic in Los Angeles. After an examination the doctor told him “that his entire system was permeated with a chronic disease of erythema multiforma * scattered throughout his body, including his shoulders, arms, fingers, hands, feet and other parts of his anatomy, the same being due to a rheumatic condition”. The doctor told him he should undergo “a series of diathermic treatments”, which would cost a considerable sum. The appellant told him he was in straitened financial circumstances and could not pay for the treatments. Doctor Barnet asked him if he did not have life or health insurance providing for disability. He replied that he did not know. At the request of the doctor, the appellant brought to him his $12,000 insurance policy, which was examined. The appellant was then advised by the doctor, and for the first time learned, that his policy provided for one per cent of the principal sum during his disability and a waiver of all premiums during that period. He then consulted an attorney and after making demand upon the company, which was refused, separate suits were brought upon the two policies. The suit for disability benefits under the $12,000 policy was subsequently compromised. This suit to rescind the cancellation and surrender of the $3,000 policy was tried and judgment was rendered against the insured. The court found that the policy was voluntarily surrendered in consideration of a cash payment, with knowledge on the part of the insured that it contained the disability clause; and upon the contrary that he did not surrender it relying on the advice of the agent to the effect that there was no other course for him to pursue; that the agent was not guilty of fraud or concealment with relation to the procuring of the cancellation of the policy. The court failed to find that the insured was disabled at the time of and subsequent to the surrender of his policy. Since that fact was stipulated it was not necessary for the court to so find.
Numerous authorities support the rule that an insurance company is estopped from asserting that its policy has lapsed for default in the payment of premiums which the insured fails to meet on account of false or fraudulent representations of its agent which the insured is entitled to rely upon. Rice v. California–Western States Life Ins. Co., 21 Cal.App.2d 660, 70 P.2d 516, and cases cited. On page 665 of 21 Cal.App.2d, on page 519 of 70 P.2d, of the opinion in the last-mentioned case it is said: “It is well settled that where an insurance carrier, through its duly authorized representative, by means of false and fraudulent representations made under such circumstances that the insured might, and actually did believe and rely upon them, deceived the insured and thereby caused him to default in the payment of a premium, an estoppel would arise which would prevent the insurance carrier from asserting or enforcing a claim that the policies had lapsed.”
We are persuaded that when an agent of an insurance company, who possesses the authority to bind the company, in response to a direct inquiry by an insured person takes advantage of known ignorance of his rights under the policy and deliberately deceives him by false statements or concealment, and the insured is without means of reasonably informing himself of the falsity of such statements, the company may be estopped from asserting that the premiums have been waived.
Under the circumstances of this case we are of the opinion the appellant did not have a legal right to rely on the false statement of the defendant's agent to the effect that the only way he could prevent default in the payment of the premium on his policy which would become delinquent in two days from the time of his interview was to surrender his policy, for the reason that he was in possession of that instrument which refuted the agent's statement and provides in plain and unambiguous terms that the future premiums would be waived upon proof of his disability. There is no doubt the insured was then disabled and that he would have been entitled to disability benefits of $30 a month and relief from paying premiums while that disability lasted upon satisfactory proof of his physical condition. It may be true the agent's attention was not directly called to the claim that the petitioner was then disabled, although the inquiry contained a declaration to that effect. The record is undisputed that appellant was actually ignorant of the fact that he was entitled to disability benefits. In justice, a policy holder should have a right to rely on definite and positive statements of an authorized agent of an insurance company regarding the provisions of his policy, for the reason that representatives of the company which executes the instrument should be deemed to be experts in that regard and better qualified to interpret the terms of the document than an unskilled policy holder. There are circumstances under which a company will be estopped from denying that premiums have been waived by false declarations or conduct of its agents. For instance, where actual fraud is exercised which prevents an insured person from reading the document which is involved, the instrument should be rescinded. Simmons v. Ratterree Land Co., 217 Cal. 201, 17 P.2d 727; 12 Cal.Jur. 751; secs. 30, 31; 12 R.C.L. 359, sec. 113; 23 Am.Jur. 857, sec. 80. Actual reliance upon false statements is not enough upon which to base rescission of a document. The injured party must have also had a legal right to rely on the statements. That rule is based on the doctrine that negligence and inattention to one's own interest waives his right to complain of the fraud or misstatements of another person. It is often difficult to determine on particular facts whether fraudulent statements on one hand or foolish neglect upon the other should control the decision of a court. In the text which appears in 12 Ruling Case Law at page 360 it is said in that regard: “The policy of the courts is, on the one hand, to suppress fraud, and, on the other, not to encourage negligence and inattention to one's own interests. The rule of law is one of policy Is it better to encourage negligence in the foolish, or fraud in the deceitful? * The courts, however, are not entirely in accord as to the circumstances under which fraudulent representations may be relied on, although it cannot perhaps be denied that negligence as a defense in cases of fraud has been in danger of being pushed too far. There would seem to be no doubt that while, in the ordinary business transactions of life, men are expected to exercise reasonable prudence, and not to rely upon others, with whom they deal, to care for and protect their interests, this requirement is not to be carried so far that the law shall ignore or protect positive, intentional fraud successfully practiced upon the simple minded or unwary. Again, where the means of obtaining information are not equal, the positive representations of the person who is supposed to possess superior means of information may be relied on. According to some decisions, the fact that a party who does not actually know the representations to be false has means of ascertaining their truth or falsity does not preclude him from relying on such representations. * According to others the party to whom a representation is made must exercise reasonable diligence to detect the truth or falsity thereof where the parties stand on an equal footing and the matter is equally open to the inquiries of both parties.”
Fair dealing inspires confidence. Large enterprises, which are constantly dealing with the frailties of credulous individuals, should be scrupulously careful to avoid taking an unfair advantage of their customers. We do not suggest that the agent in this case intended to deceive the appellant. But it is clear from the record that the appellant was actually deceived into surrendering his policy. It is possible that he could not have furnished satisfactory proof of his disability within the two days then remaining before the premium became delinquent. But that fact does not excuse the failure on the part of the agent to have made a full and fair statement upon direct inquiry of the insured, of his right to disability benefits. He was disabled and he was deceived. We are impelled to hold that the circumstances of this case do not afford relief from the cancellation of appellant's policy on account of his own neglect and delay.
Ordinarily, one is required to read a document in his possession or which he has signed affecting his own interests, before he may complain of having been deceived with respect to its clear and unambiguous terms. Rice v. California–Western States Life Ins. Co., supra; Dale v. Dale, 87 Cal.App. 359, 370, 262 P. 339. Sections 332 and 335 of the California Insurance Code, St.1935, p. 505, so infer. Section 335 provides in that regard:
“Each party to a contract of insurance is bound to know:
“(a) All the general causes which are open to his inquiry equally with that of the other, and which may affect either the political or material perils contemplated.”
Section 332 reads: “Each party to a contract of insurance shall communicate to the other, in good faith, all facts within his knowledge which are or which he believes to be material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.”
However close it may be to the distinguishing line in protecting one who has been negligent in informing himself of the clear terms of an instrument in his own possession, we are of the opinion the Rice case, supra, determines this appeal adversely to the appellant. In this case Mr. Glickman had the actual possession of his policy for nearly ten years; periodically he had been afflicted with total or partial disability for several years; he could read the English language, but he failed to read his policy which contains clear and unambiguous provisions for disability benefits, and he made no inquiry regarding his right under the policy until a few days before the premium would have become delinquent.
In the Rice case, under circumstances very similar to those of the present case, the insured held two twenty-year endowment life insurance policies upon each of which he had borrowed, pursuant to their terms, the sum of $1,582.24. The premiums were due and payable on October 23rd of each year, with the privilege of thirty days' grace for the payment thereof. All previous premiums and interest had been paid. November 13, 1933, about one year before the policies matured and ten days before the premiums became delinquent, he owed $94.93 interest on each loan and the sum of $100.80 premium on each policy. On the last-mentioned date he went to the local Fresno office of the company and tendered an amount sufficient to pay the premiums due on the policies, but insufficient to also pay the interest then due. The local agent, Mr. Terry, erroneously told the insured that he could not prevent the policies from lapsing without paying both the premiums and the interest then due. The insured left, relying on the advice of the agent, and attempted to raise the balance of the sum demanded. The premiums were not paid and the policies therefore lapsed. The insured died soon after his interview with the agent. Suit was brought to recover the value of the policies, less the amount of the loans and accumulated interest. The defendant set up the lapsing of the policies for default in payment of the premiums. The plaintiff contended that the default of payment of premiums was waived by the constructive fraud of the agent in misinforming the insured contrary to the plain terms of the policies. Judgment was rendered against the company. The judgment was reversed on appeal, and the Supreme Court denied a hearing. Regarding the issue of a waiver of the premiums by the alleged fraud of the agent, and the right of the insured to rely on his erroneous statement, the court said: “We note that it is admitted that Mr. Rice had possession of his insurance policies. These policies contained in clear and unequivocal language the statement that the insured might pay his premiums without paying his interest and thus continue his insurance in force for the periods we have already indicated. Under the rules just announced, Mr. Rice must be presumed to have known the contents of his policies, and, therefore, to have known that he had the right to pay his premiums without paying his interest. He could not have been deceived by the statement of Terry that it was necessary for him to pay about $400, the premiums and interest, in order to keep his policies in force. He is presumed to have known that such statement was false. Knowing it was false, he could neither have believed it to be true, relied upon it, nor have been deceived by it.”
For the foregoing reason we conclude that, since the appellant was in possession of his policy for nearly ten years, which policy declared his right to disability benefits in clear and unambiguous terms, and that he failed to read his policy, he was not entitled to rely on the incorrect statements of the agent, but on the contrary that he is bound by the terms of the instrument.
The judgment is affirmed.
Mr. Justice THOMPSON delivered the opinion of the court.
We concur: PULLEN, P.J.; TUTTLE, J.