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District Court of Appeal, First District, Division 1, California.

Elizabeth R. COHEN, Plaintiff and Respondent, v. The PENN MUTUAL LIFE INSURANCE COMPANY, a corporation, Defendant and Appellant.

No. 16702.

Decided: September 14, 1956

Henry C. Clausen, Henry C. Clausen, Jr., Walker Lowry, San Francisco, McCutchen, Thomas, Matthew, Griffiths & Greene, San Francisco, of counsel, for appellant. Rockwell & Fulkerson, San Rafael, for respondent.

Judgment was rendered upon a verdict against the defendant in favor of plaintiff, the beneficiary of an insurance policy issued upon the life of her husband, Dr. Sidney J. Cohen. Defendant has appealed from the judgment and from an order denying its motion for judgment notwithstanding the verdict.

Defendant by its answer admitted the issuance of the policy and the payment of premiums but declared a rescission of the contract and tendered the return of premiums paid, predicated upon asserted false statements of Dr. Cohen concerning his medical history, made in writing upon an application form which became a part of the policy.

In support of its motion for judgment notwithstanding the verdict, defendant claims the evidence is overwhelmingly in its favor, leaving no question of fact for determination by the jury, particularly the issues of falsity and materiality of the representations and of waiver by the insurer. Plaintiff, upon the other hand, contends there was a conflict of evidence upon the several issues and that the verdict is amply supported.

We need only to consider one of those issues, the question whether Dr. Cohen made the alleged misrepresentations ‘with intent to deceive’ the defendant ‘or to induce’ defendant ‘to enter into the contract’, Civ.Code, § 1572. Our examination of the record convinces us that the evidence does not demonstrate, as a matter of law, the existence of such an intent. No extended review of it is necessary because defendant does not claim proof of such intent as a matter of law. Instead, it contends that Dr. Cohen's intent in making the representations is not an issue. In its opening brief, defendant says ‘All that the company need show is that the applicant concealed or misstated his medical history’ and ‘Whether or not he had an actual intent to deceive is beside the point.’ P. 27. Upon the same ground, defendant criticizes an instruction given by the court which treated actual fraud as an issue and listed the elements thereof which defendant must prove, including proof ‘that the applicant intended the insurance company to rely on the misrepresentation or concealment.’ Concerning this defendant says ‘The implication that the Company had to prove an intent to deceive is wrong’ and ‘the instruction is wrong too in suggesting that the Company had to prove that the applicant intended that the Company should rely on the misrepresentation or concealment.’ A.O.B., p. 32.

In support of this argument defendant invokes section 331 of the Insurance Code, which states that concealment, ‘whether intentional or unintentional,’ entitles the injured party to rescind insurance. But it pleaded and tried the case on the theory of ‘actual fraud.’

It alleged that in his written application for insurance Dr. Cohen represented that his then present condition of health was good, that he had never had a special heart study or an electrocardiogram, and that there had never been any suspicion of nor had he ever had or been treated for pains in the chest or any disease of the heart or blood vessels.

It then alleged that each of the representations was false and untrue, each was known to Dr. Cohen to be false and untrue at the time of making it, each was made by him for the purpose of inducing defendant to rely thereon and upon said reliance to issue to him said policy of insurance, defendant did rely upon each thereof, defendant had no knowledge of the falsity of any thereof until after his decease, and that each of the representations was material to the risk in that defendant would not have issued the policy had it known that they were false or untrue. These are averments essential to the pleading of a case of ‘actual fraud’ as defined in section 1572 of the Civil Code. See 23 Cal.Jur.2d 27 and 164, Fraud and Deceit, §§ 11 and 66.

Having thus tendered the issue of actual fraud, including the question of Dr. Cohen's intent, defendant tried the case on that theory. For example, during the course of the trial when considering an objection defendant had made to a certain question, the judge indicated that a proper ruling ‘would depend upon the precise nature of the claim of the defendant in this case,’ saying ‘there are two kinds of misrepresentation, one intentional and one not intentional’ and ‘now, if the insurance company here claims actual fraud—’ at which point defendant's counsel said, ‘that's what we do, your Honor,’ and in response to a further comment by the judge, ‘the claim is direct deception upon the contract * * *—in any event, to answer your Honor's question, frankly, the company does, of course, depend upon the answers and claims actual fraud.’ (Emphasis added.)

Having pleaded and tried the case upon the theory of actual fraud, defendant is in no position to invoke a different theory upon appeal. The order denying the motion for judgment notwithstanding the verdict must be affirmed.

Defendant challenges as prejudicially erroneous three instructions on materiality which told the jury that an incorrect answer on an insurance application (the concealment or the misrepresentation of a fact) is not material, does not give rise to the defense of fraud when the true fact, if known to the insurance company, ‘would not have made the contract less desirable to the insurer.’

Defendant claims such an instruction is incomplete, failing as it does to include the element of the probable and reasonable influence of the true facts upon the insurer ‘in making his inquiries'; that it should not be confined, as each of these instructions was confined, to the influence of such facts upon the insurer ‘in forming his estimate of the disadvantages of the proposed contract,’ quoting from section 3341 of the Insurance Code.

This point seems well taken. The expression ‘would not have made the contract less desirable to the insurer’ directs attention only to the insurer's ‘estimate of the disadvantages of the proposed contract’ and, by its failure to mention, withholds from the jury consideration and determination of ‘the probable and reasonable influence of the facts' upon the insurer ‘in making his inquiries', in conducting his investigation of the applicant's medical history.

Plaintiff counters with the statement that the questioned instructions are based upon and use the very words of a statement recently made by our Supreme Court in Ransom v. Penn Mutual Life Ins. Co., 43 Cal.2d 420, 427, 274 P.2d 633, 637: ‘An incorrect answer on an insurance application does not give rise to the defense of fraud where the true facts, if known, would not have made the contract less desirable to the insurer. [Citations.]’ But there, it would appear, the sole question was the probable effect of the true facts upon the desirability of the proposed contract to the insurer, not the probable influence thereof upon the ‘inquiries' the insurer would have made if it had known those facts. This is reflected in the statement which immediately follows the statement above quoted: ‘The electrocardiogram showed that Ransom's heart was ‘essentially normal,’ and defendant does not claim that this part of the medical history, if known, would have influenced it to consider the risk less desirable.' 43 Cal.2d at page 427, 274 P.2d at page 637.

In our case, however, the ‘probable and reasonable influence’ of the true facts upon the insurer in determining the desirability of the contract was not the sole question. Equally in issue was the probable influence of such facts upon the insurer ‘in making his inquiries.’ Clearly, the questioned instructions were erroneous.

Were they prejudically erroneous? It would seem so.

Dr. Cohen failed to mention certain physical examinations given him by the Army in 1943 and 1946 and an electrocardiogram taken in 1943; nor did he state what any of the Army reports of such examinations indicated. Plaintiff concedes that there is a conflict in the evidence concerning the significance of the Army findings (for example, whether they indicated an organic disease or a functional disorder, arteriosclerosis or mere emotional tension), saying in part: ‘There is a direct conflict in the evidence on the question of whether there was a connection between the findings of the cause of death as reported in the autopsy and the findings of the Army physical examinations. Appellant had the burden of proving such connection * * * and whether it succeeded was a pure question of fact to be determined by the jury.’ R.B., pp. 33–34. That bears directly upon the question: What would have been ‘the probable and reasonable influence’ of those examinations and the nature of those findings upon the defendant ‘in making his inquiries'? There is evidence that knowledge of the fact that an applicant had taken an Army physical and had been accepted for induction, commissioning or honorable discharge without indication of waiver or other limitation, would not influence the defendant, would not stimulate it to investigate further. Because of the difficulty and the time consumed in obtaining military records of physical examinations of an applicant, the company customarily did not seek to obtain them unless the applicant's answer provided a reason for so doing. If those answers indicated a service connected disability or an examination which showed defects covered by the questions asked of the applicant, defendant's underwriting department would request the applicant to produce his health record from the Army before processing the application. Specifically, electrocardiograms, abnormal pulse records, and abnormal blood pressure readings are referred to home office doctors to review. Here, for example, asked if he ever had a health or physical examination, Dr. Cohen answered ‘U. S. Army induction 1944.’ He had in addition been examined by Army doctors several times in 1943 and again in 1946. Asked if he ever had a special heart study or an electrocardiogram, he said ‘No.’ Instead, he had had a heart study by X-ray and an electrocardiogram. The latter, according to one of the experts, was ‘definitely abnormal’ pointing to the coronary arteriosclerosis found at the autopsy; according to another expert it was suggestive of heart disease. Asked if there had been suspicion of abnormal pulse, any disease of the heart or blood vessels or a high blood pressure, he said ‘No.’ Yet, there is evidence that he was examined several times in 1943 for high blood pressure and abnormal pulse, and that in 1944 he accepted an Army commission stating ‘Waiver is granted for unstable blood pressure, tachycardia, systolic apical murmur.’ The 1944 Army report stated ‘blood pressure this examination is of the same order as previously.’

There is evidence that if Dr. Cohen had answered the application questions truthfully, a full investigation would have been made by the defendant.

We conclude, therefore, that the instructions in question were prejudicially erroneous.

The judgment is reversed and the order denying the motion for judgment notwithstanding the verdict is affirmed.


FN1. Section 334 applies to concealments. Section 360 of the same code makes section 334 applicable to representations..  FN1. Section 334 applies to concealments. Section 360 of the same code makes section 334 applicable to representations.

FRED B. WOOD, Justice.

PETERS, P. J., and BRAY, J., concur.

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