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Gallagher v. New England Mutual Life Insurance Co.

Decided: June 20, 1955.


On appeal from the Superior Court, Appellate Division.

For affirmance -- Chief Justice Vanderbilt, and Justices Heher, Oliphant, Wachenfeld, Burling, Jacobs and Brennan. For reversal -- None. The opinion of the court was delivered by Oliphant, J.


This is an appeal from a judgment of the Superior Court, Appellate Division, which affirmed a judgment of the Essex County Court, Law Division, granting the defendant-respondent rescission of two life insurance policies. On application we granted certification because there are important questions of law involved which should be settled by this court. R.R. 1:10-2(d).

The appellant sued to recover the proceeds of two term policies of life insurance aggregating $50,000 issued on the life of the decedent, Deegan, father of the infant plaintiffs. Both policies were issued on November 10, 1949 on the basis of the same application made and signed by the decedent. Part of the application in question, containing the questions and answers as to applicant's health and medical history, was signed by the insured-decedent on October 25, 1949. He died on October 6, 1950. The above action was instituted on December 17, 1951.

The respondent filed an answer disclaiming responsibility and a counterclaim seeking cancellation on the ground of equitable fraud in the misstatement of material facts in the

application for the policies. The appellant's answer to the counterclaim alleged that the defendant had actual knowledge of insured's physical condition prior to the issuance of the policies and therefore could not have been misled; that the defendant before issuing the policies had in its possession a report dated October 20, 1947 (a Medical Information Bureau report) indicating that an electrocardiogram of insured had been taken, and had knowledge of the falsity of two statements in the application; that the insured had the attendance of a physician at the time and that the defendant knew or could by reasonable diligence have learned the true nature of all the alleged misrepresentations; that the defendant was precluded from rescinding the contracts because it did not rely upon the misrepresentations in the application; that the defendant had unduly delayed rescission and was guilty of laches; that it had waived its rights and had elected to affirm the contracts of insurance.

In the application the decedent represented that he had never suffered from indigestion, palpitation of the heart or shortness of breath; that he had never had or been told that he might have had high or low blood pressure; that he had never been in a hospital except for an appendectomy and a broken right radius; that he had never dieted; that he had not consulted a physician within five years and he failed to include any reference to several long confinements at hospitals and the number of times he had been treated at hospitals. Although the application asked for such specific information the only reference to hospital treatment was that mentioned above.

As far back as 1937 the decedent had been treated for gastric distress and this treatment continued until 1942 when he was admitted to the Lahey Clinic in Boston, and the record there indicates rather consistent difficulty with digestion; and as to the palpitation, he complained of this on his first visit to a doctor in 1937 as being of several years' duration, and on June 20, 1945 he told Dr. DeGraff his heart had been irregular since 1929. In 1946 he was admitted to Doctors Hospital in New York and the history

there shows admissions by him that he had palpitation for several years. He had given a similar history to the Lahey Clinic in 1942. Various doctors who treated him testified they tested his blood pressure and it was elevated on each occasion; and there is a persistent history according to their various records of essential hypertension and arteriosclerotic heart disease. The Lahey Clinic records indicate that at the time he was under treatment there he was on a diabetic diet despite his denial of that in the application. As to his denial he ever consulted a physician or practitioner within five years, the record shows that he had seen a Dr. Twiss at least three times, a Dr. DeGraff 25 times, and at the same time he consulted with four or five other doctors, including treatment at the Lahey Clinic in 1947. The appellant admits all these specific representations in the application were in fact false.

We are in accord generally with the reasons stated in the opinion of the Appellate Division affirming the judgment of dismissal by the trial court, and the conclusion that the situation is controlled by the decision in John Hancock Mutual Life Ins. Co. of Boston, Mass. v. Cronin, 139 N.J. Eq. 392 (E. & A. 1947), but for the reasons stated above as to the important questions involved we certified the case.

The appellant argues the Appellate Division failed to correctly apply the rule of John Hancock Mutual Life Ins. Co. of Boston, Mass. v. Cronin, supra, because the insurance company, under the facts in this case, is chargeable with (1) knowledge of the falsity of material representations, and (2) information of such a nature as would require further inquiry; and that the rule is that actual knowledge by the insurance company of material facts before the issuance of policies would indisputably preclude rescission. Further, that when the known facts raise, or should raise, in the mind of a reasonable person, an inference that the offered representations of fact may not be true, a duty devolves upon the ...

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