Joseph METZINGER and Bertha Moskovitz and Bank of America National Trust & Savings Association, a Corporation, as Executors of the Estate of Albert Moskovitz, Deceased, Plaintiffs and Appellants, v. The MANHATTAN LIFE INSURANCE COMPANY, a Corporation, Defendant and Respondent.
For Opinion on Hearing, see 78 Cal.Rptr. 463, 455 P.2d 391.
This is an appeal by two beneficiaries (the executors representing the estate of the deceased beneficiary) named on a $15,000 policy of group life insurance from a judgment declaring the insurance contract null and void for fraud.
Appellants contend that the trial court erred in allowing the health application of the deceased Leo L. Cholodenko to be admitted at the trial for any purpose because it was not attached to the policy as required by California Insurance Code section 10113, and that the evidence that Cholodenko made fraudulent misrepresentations is insufficient to vitiate the policy of group life insurance as to him. These contentions are without merit.
The record discloses that on or about May 1, 1962, The Manhattan Life Insurance Company (hereinafter sometimes referred to as Manhattan), a New York corporation duly authorized to do business in California, issued to the Trustee of Food Processors & Wholesalers Group Insurance Trust its non-contributory Group Life Insurance Policy No. 2560 GL. The two named beneficiaries and the deceased were stockholders, officers and directors of The M & M Meat Co., Inc., which on or about April 17, 1963, made application to become and did so become a participating member in the described group insurance trust. On or about that same date the deceased Cholodenko filed out, signed and submitted to Manhattan a health application as required to obtain life insurance. Cholodenko in his own handwriting on the application represented, among other things, the following: The the best of his knowledge and belief he was in good health; he had never had an ulcer of the stomach or duodenum; he had never had cancer or any chronic disease; during the last two years he had not consulted with or been treated by any surgeon, doctor or practitioner except for regular medical checks by Dr. Joseph Fineberg.
On or about June 20, 1963, Manhattan approved Cholodenko's application and authorized the administrator for the Food Processors and Wholesalers Insurance Trust to issue, effective July 1, 1963, a certificate of insurance in the amount of $15,000 on the life of Cholodenko under and subject to the terms of Group Life Insurance Policy No. 2560 GL. The beneficiaries named thereon were Joseph Metzinger and Albert Moskovitz. Cholodenko died on April 25, 1964, within one year of the effective date of the life insurance. The beneficiaries complied with all conditions relating to notice and proof of death but Manhattan, which had discovered evidence that Cholodenko had made fraudulent misrepresentations on his application, denied insurance liability and so notified the beneficiaries. The beneficiaries thereupon brought this action to recover the value of the policy.
The trial court admitted evidence relating to Manhattan's regular business practices in handling health applications and the application of Cholodenko in particular with respect to the return of copies of such applications to the applicant, his company, or the beneficiaries. The Cholodenko application was then admitted in evidence. Ample evidence introduced at the trial demonstrated that Cholodenko made deliberate misrepresentations in his application. In fact, Cholodenko at the time he made the application had ulcers, cancer and other chronic diseases. He had received continuous treatment for these conditions for at least five years prior to the date of his application; he had been under the care of cancer specialist Dr. John B. Field since June 7, 1958, and had frequently visited that doctor; he had several times prior to the date of his application received nitrogen mustard therapy for the treatment of lymphosarcoma, and such therapy is classified as a surgical procedure; he had been treated for carcinoma of his lower lip by Drs. Wall and Katz; he had received radiation therapy from Dr. Zager; and he had suffered from various adverse clinical symptoms which he specifically denied on his application.
The trial court found that a copy of the Cholodenko health application was not attached to the certificate of insurance orignally issued by Manhattan, but that it was attached to the basic group policy; that Manhattan furnished copies of the application also to M & M Meat Co., Inc. on June 23, 1964, and to Joseph Metzinger and Albert Moskovitz on July 17, 1964. The court found further, upon substantial evidence, that Cholodenko intentionally concealed material facts concerning the state of his health from Manhattan; that he did so with deliberate intent to deceive Manhattan; that Manhattan in fact relief in good faith upon the fraudulent misrepresentations and concealments made by Cholodenko when it approved his health application; and that Manhattan would not have authorized the issuance of the insurance certificate had it known of the falsity of Cholodenko's representations. On this basis the trial court concluded that Manhattan had no liability and that the contract of insurance on Cholodenko's life was null and void.
Appellants contend that Manhattan should have been precluded from using Cholodenko's health application to establish his fraud because no copy of his health application was attached to the certificate of insurance issued for Cholodenko and no copy thereof was furnished either to Cholodenko or his beneficiaries before his death. Appellants rely upon Insurance Code section 10113 which provides: “Policy as entire contract. Every policy of life, disability, or life and disability insurance issued or delivered within this State on or after the first day of January, 1936, by any insurer doing such business within this State shall contain and be deemed to constitute the entire contract between the parties and nothing shall be incorporated therein by reference to any constitution, by-laws, rules, application or other writings, of either of the parties thereto or of any other person, unless the same are indorsed upon or attached to the policy; and all statements purporting to be made by the insured shall, in the absence of fraud, be representations and not warranties. Any waiver of the provisions of this section shall be void.” The trial court ruled that Cholodenko's health application was competent, admissible evidence the use of which by Manhattan to contest the validity of the insurance was not prohibited by the foregoing statute. We conclude from our review of the record and the applicable law that the court properly admitted Cholodenko's written health application relative to the issue of fraud.
We seriously doubt that Section 10113 was intended to apply to group life insurance transactions. Such transactions differ materially from those relating to individual life insurance and as a consequence each is accorded separate treatment in the Insurance Code. By its terms Section 10113 refers to the “policy” rather than to the insurance certificate which evidences individual insurance under a group policy. (Cal.Ins.Code, § 10209.) Sections 10206 and 10207 of the California Insurance Code, which were enacted in the same year as Section 10113, cover similar subject matter but relate specifically to group life insurance policies. Neither of these sections requires that the individual employee's health application be attached either to the basic group policy or to the individual certificate of insurance issued pursuant thereto.
Moreover, even assuming that Section 10113 properly applies to group life insurance, the requirements thereof appear to have been fulfilled in the present case. The trial court made a specific finding, adequately supported by the evidence, that a copy of the written application “relative to Cholodenko” was attached to the basic group policy. Section 10113 clearly requires that the application be attached to the policy, but it does not purport to be concerned with the individual insurance certificates which are issued subject to the terms of the group policy and which are clearly distinguished under the California Insurance Code. (Cal.Ins.Code, § 10209.) The decisions relied upon by appellants indeed declare that the certificate of individual insurance constitutes a part of the contract under a group policy (John Hancock Mut. Life Ins. Co. v. Dorman, 9 Cir., 108 F.2d 220; Humphrey v. Equitable Life Assur. Soc., 67 Cal.2d 527, 63 Cal.Rptr. 50, 432 P.2d 746) but they do not purport to determine that Section 10113 does or does not apply to individual certificates or insurance, and we are persuaded by its terms that it does not.
Finally, our attention has been directed to no authority which would prohibit the introduction of evidence of negotiations preliminary to the formation of the insurance contract to demonstrate that the insurer was induced to issue insurance by the fraudulent misrepresentations of the applicant. The only express limitation thereon in relation to group life insurance is that under California law both the policy issued to the group policyholder and the certificate issued to the individual insured become incontestable after they have been in force two years from the date of issue. (Cal.Ins.Code, § 10206.) Cholodenko's death ensued within one year from date of issue and the misrepresentations on his application were material declarations of fact. Section 10113 recapitulates a distinction between representations and warranties which is of fundamental significance under California insurance law. Every warranty made at or before the execution of the policy must be contained or referred to in the policy itself and hence becomes a term of the contract. (Cal.Ins.Code, § 443.) However, representations may be written or oral, need not be contained in the policy itself and do not become terms of the contract. § (Cal.Ins.Code, § 350.) The rule of Section 10113 renders parol evidence inadmissible to vary the terms of a contract, but it does not render inadmissible fraudulent misrepresentations and concealments of the insured prior to the execution thereof. “Parol evidence is always admissible to prove fraud, and it was never intended that the parol evidence rule should be used as a shield to prevent the proof of fraud. * * * And this is true even though the contract recites that all conditions and representations are embodies therein [Citations.] There is no such sanctity surrounding a writing that parties may not be permitted to go back of it and show that there was such fraud practiced in the procurement of the same as to vitiate the writing. The law never countenanced a rule which would deny to one the right to prove that fraud had been practiced upon him.” (Ferguson v. Koch, 204 Cal. 342, 347, 268 P. 342, 345, 58 A.L.R. 1176; see also Vai v. Bank of America, Nat. Trust and Savings Ass'n., 56 Cal.2d 329, 344, 15 Cal.Rptr. 71, 364 P.2d 247.)
The judgment is affirmed.