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Gallagher v. New England Mutual Life Insurance Co.

Decided: November 19, 1954.


Eastwood, Goldmann and Schettino. The opinion of the court was delivered by Schettino, J.s.c. (temporarily assigned).


Plaintiff appeals from a judgment of the Law Division, sitting without a jury, granting defendant insurance company on its counterclaim rescission of two insurance policies, each for $25,000, on the life of plaintiff's decedent.

Plaintiff instituted suit to recover the proceeds of the policies and defendant counterclaimed asserting that the insured committed equitable fraud by misrepresenting material facts. The misrepresentations in his application were: (1) decedent had suffered from indigestion a number of times; his answer, he had not; (2) decedent had suffered from palpitation of the heart and shortness of breath; his

answer, he had not; (3) the insured indicated that he never had been advised that he had high or low blood pressure, whereas he had so been advised; (4) decedent failed to include reference to several long confinements at hospitals and the number of times he had been treated at hospitals; (5) decedent stated that he had never been on a diet; actually he had been on a diet for several years; (6) decedent stated that he had not consulted or been treated by a physician within the past five years, whereas in fact he had been treated numerous times; (7) decedent indicated that he had never had electrocardiograms or X-rays taken although, in fact, several had been taken. During the course of the trial defendant requested permission to withdraw, as a ground for rescission, the statement respecting the electrocardiogram. No contention is made that the application questions were not material to the risk. Locicero v. John Hancock Life Ins. Co. , 32 N.J. Super. 300, 306 (App. Div. 1954).

At the time the policies were issued defendant had before it the insured's application, a medical examiner's report which did not include an electrocardiogram, X-ray or a fluoroscope, the insurance agent's certificate, a retail credit report, and the Medical Information Bureau (hereafter referred to as M.I.B.) report indicating an electrocardiogram had been taken. This M.I.B. report was in code, showing that the insured had a left axis deviation, marked, which is a deviation from a normal heart.

Plaintiff admitted on oral argument that the answers in the application were false but seeks to avoid their effect by claiming defendant had knowledge of the false statements and was therefore under a duty to make further inquiries and that, since it did not do so, rescission should not be allowed. The trial court found that the representations were material, that the defendant relied upon them, and that defendant was not put into a position to make further inquiry by the M.I.B. report, and granted rescission.

The plaintiff first argues that the defendant had knowledge of the falsity of the representations.

It is undisputed that defendant had in its possession at the time it was considering the application for insurance the M.I.B. report indicating an electrocardiogram had been taken and that it disclosed a left axis deviation of the heart. Dr. Hendrix, defendant's witness, testified that persons with such a deviation would have no heart pathology in 25 to 30% of the cases. Dr. Bernstein, plaintiff's witness, testified that, in spite of a negative history given in the application and a negative physical examination, the presence of the deviation at age 47 (insured's age) showed more probably the presence of a heart disease.

Plaintiff argues that since in 70% of the cases such a report would indicate a disease of the heart defendant knew or should have known that decedent had falsely answered the question concerning the electrocardiogram and that therefore defendant was under a duty to make further inquiry. It would seem that plaintiff's entire case depends upon John Hancock Mutual Life Ins. Co. of Boston, Mass. v. Cronin , 139 N.J. Eq. 392 (E. & A. 1947). The court there stated (139 N.J. Eq. at pages 397-398) that the fact an insurer makes an investigation does not absolve the applicant from speaking the truth nor lessen the right of the insurer to rely upon his statements, "unless the investigation discloses facts sufficient to expose the falsity of the representations of the applicant or which are of such a nature as to place upon the insurer the duty of further inquiry." (Italics supplied.)

If plaintiff is to succeed in this action, plaintiff must establish that duty to inquire. The court in the Cronin case was addressing itself to a situation where an independent investigation was made, but should the principle apply where the fact putting defendant on notice is the M.I.B. report involved in this case?

Dr. Frost, who approved the policy from the medical angle, saw the M.I.B. report. This report was forwarded from the insurance companies' clearing house for medical impairments and Dr. Frost knew it was based on an application for life insurance by the insured (or an inquiry by ...

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