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Martinez v. John Hancock Mutual Life Insurance Co.

Decided: December 6, 1976.


Bischoff, Morgan and Collester. The opinion of the court was delivered by Morgan, J.A.D.


At issue in this appeal is the sum of $100,000 representing accidental death benefits (hereinafter ADB)*fn1 under a policy of life insurance admittedly not affording coverage therefor and for which no premium had ever been paid. The trial judge sitting as the trier of the facts, awarded plaintiff the claimed ADB with simple interest at 6% calculated from July 15, 1971. Defendant John Hancock Mutual Life Insurance Company, appeals and plaintiff cross-appeals with respect to those issues concerning the rate and type of interest and denial of his application for counsel fees.

Many of the essential facts are undisputed. In 1968 plaintiff Luis M. Martinez, a native Cuban and United States resident since 1965, and Joseph Gallagher formed a partnership in a small fence company. Martinez ran the company's Edison office; Gallagher operated out of the partnership's Pennsauken office.

Early in the history of the partnership a buy-sell agreement was entered into whereby at the death of one of them the surviving partner would purchase the deceased partner's share for $45,000. The agreement was funded by life insurance policies on the partners' lives, each partner being the beneficiary of the policy on the other's life. The $45,000 policies were issued by defendant and neither contained ADB. They had been purchased through one of defendant's agents, who had subsequently left its employ.

In the spring of 1970 Joseph Gallagher, realizing that the existing buy-sell agreement no longer reflected the increased value of the business, and that the $45,000 policies were

similarly inadequate, suggested to plaintiff that new agreements be executed increasing the purchase price of their shares and additional coverage be procured to fund this new agreement. Plaintiff agreed and left it to Gallagher to arrange for the insurance.

Accordingly, Gallagher consulted Muller, the agent who obtained the prior policies, erroneously assuming that he still represented defendant insurance company. Muller, failing to dispel this incorrect assumption, submitted to his new employer, Intercontinental Life Insurance Company, applications for life insurance which did not request ADB. While these applications were being processed Gallagher, through Thomas F. Mullen, became aware that the applications were being made to a company other than defendant. Mullen did represent defendant, and when Gallagher realized this, and desiring to do business only with defendant, he apparently withdrew his application to Intercontinental, and a meeting was arranged with Mullen and plaintiff for the execution by the partners of applications to defendant for the new life insurance policies.

The meeting at Gallagher's home was held on July 7, 1970. It was Mullen who suggested that the applications include a request for ADB; both partners agreed and the applications were drawn, each requesting $100,000 term life insurance, ADB and a waiver of premium upon disability. A check for the first premium, in the amount of $102.97, was delivered to Mullen the following day.

Upon receipt of the applications at defendant's home office in Boston, the underwriting department rejected the request for ADB in accordance with their policy of refusing ADB in connection with policies procured to fund buy-sell agreements, the value of the business not being dependent upon the manner of the owner's death. Policies without ADB were issued, at a lower premium, with their corresponding applications attached thereto. Also attached, in duplicate, were defendant's Forms 174R, "Amendment to Application," for the

purpose of obtaining the insureds' signed acknowledgment of the denial of the requested ADB. The original copy of the "Amendment to Application" was to remain attached to the policy; the copy was to be returned to Boston.

In due course Mullen received the policies, without ADB, and with Forms 174R attached. He testified that on the outside of each policy appeared a slip of paper advising him, as agent, that the policies were not as applied for and that Forms 174R were attached for execution by the owners to ...

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