Company and entered into a Field Underwriter's Contract with the defendant on or about October 20, 1965. Under the terms of the contract, the plaintiff was charged with the duty of "giving the Company any information or knowledge of facts which may affect the insurability of the Proposed Insured. This would include notifying the Company, regardless of whether or not cash has been paid, of any change in the insurability that occurs prior to delivery of the policy." Agents Manual, K-19, incorporated by reference in the Field Underwriter's Contract. The plaintiff processed the application of his father-in-law, John Henry Loch, for a $ 50,000 life insurance policy. This application omitted medical history which included a coronary thrombosis requiring a month's hospitalization in 1970, and hypertension and gout. Coronary thrombosis was listed on Mr. Loch's death certificate as a contributing cause of death.
The defendant contends that the omissions were material misrepresentations of which the plaintiff was aware and that Mr. Strawbridge fraudulently concealed the omissions in violation of his fiduciary duty as defendant's agent. This contention is supported inferentially by the facts viewed in a light most favorable to the defendant. The plaintiff, who normally used a Dr. Levine for insurance physicals, took Mr. Loch to a different doctor for the medical examination. Dr. Levine was Mr. Loch's personal physician and was well acquainted with his medical history. It could certainly be inferred, therefore, that Mr. Strawbridge intentionally had Mr. Loch avoid Dr. Levine in order to facilitate omission of relevant medical history. Moreover, as Mr. Loch's son-in-law, Mr. Strawbridge may certainly be inferred to have had knowledge of Mr. Loch's month-long hospitalization for coronary thrombosis.
Because of my prior determination on the applicability of the incontestability clause, the defendant is liable on a policy which, it avers, it would never have written had it known the true facts. The defendant has, therefore, been damaged by Mr. Strawbridge's alleged acts. It is clear that, were the plaintiff not the beneficiary on the policy, the defendant would have a cause of action against him for breach of fiduciary duty. See Marchitto v. Central Railroad Co. of New Jersey, 9 N.J. 456, 88 A.2d 851 (1952); Bohlinger v. Ward & Co., 34 N.J.Super. 583, 113 A.2d 38 (App.Div.1955), aff'd, 20 N.J. 331, 120 A.2d 1 (1956). The question to be determined then is, if all of the above facts were proved by the preponderance of the credible evidence, would the New Jersey courts hold as a matter of law that the incontestability clause in the Loch policy bars New York Life from asserting a claim for breach of fiduciary duty against its agent, Mr. Strawbridge, who is also the beneficiary on that policy. The question pits the protective legislative policy embodied in the statutorily mandated incontestability clause against the time-honored principle of a fiduciary duty. It is with this conflict in mind that this case must be considered; but it must be decided in accordance with the applicable principles of law.
It is important to remember that there are two independent relationships present in this case: the relationship between the plaintiff and the defendant as beneficiary and insurer, and the relationship as agent and principal. Because the incontestability clause in the insurance contract governs the issues raised with respect to the beneficiary/insurer relationship, a counterclaim based on fraudulent behavior within that relationship would be barred. Lindsay v. U. S. Life Insurance Co., 80 N.J.Super. 465, 194 A.2d 31 (Law Div. 1963). However, we are not here concerned with a counterclaim of that nature. Rather, the counterclaim is based on an alleged breach of duties owed by the plaintiff in his capacity as defendant's agent. Because this relationship is different in kind from the beneficiary/insurer relationship, it is necessary to examine closely the policies underlying the statutorily mandated incontestability clause in order to decide whether the bar should be applied in the agent/principal relationship.
The insurance contract and applicable state law govern the relationship between the insurer, insured, and beneficiary. Applicants for insurance are bound to exercise good faith in making an application, otherwise the contract can be rescinded for misrepresentation. See e.g., Drews v. Metropolitan Life Ins. Co., 79 N.J.L. 398, 75 A. 167 (Sup.Ct.1910). In view of the unequal bargaining position of applicants and insurance companies, the state has enacted protective legislation to limit this power of rescission.
N.J.S.A. 17B:25-4 requires every insurance policy to contain a provision establishing a period of contestability not longer than two years. In the present case, New York Life's policy shortened this period to one year. Whatever the length of the period, the purpose of incontestability clauses is "to give the insured a sense of security after the stated period elapses." Johnson v. Metropolitan Life Insurance Co., 53 N.J. 423, 444, 251 A.2d 257 (1969). The clause does not condone fraud, but allows an adequate period for the insurer to discover fraud and protect its rights. Prudential Insurance Co. of America v. Connallon, 108 N.J.Eq. 316, 319, 154 A. 729 (E.&A.1930). The clause has the effect of encouraging insurers to be diligent and alert by prescribing a time period after which the insurer must relinquish its right to contest the validity of a policy.
Counterpoised against this legislative policy is the need to preserve the principles of a fiduciary relationship which impose a higher duty on one occupying a confidential position. See Konsuvo v. Netzke, 91 N.J.Super. 353, 220 A.2d 424 (Ch. 1966). It is clear that New Jersey regards an insurance agent as occupying a fiduciary position with his insurance company. See N.J.S.A. 17:22-6.1; Bohlinger v. Ward & Co., 34 N.J.Super. 583, 591, 113 A.2d 38 (App.Div.1955), aff'd, 20 N.J. 331, 120 A.2d 1 (1956). Moreover, New Jersey law regards fiduciary duty with some reverence. "No principle of law is more firmly established than that which forbids an agent to take an unfair personal advantage of the opportunities of his position in the use of things entrusted to him in the capacity of a fiduciary." Id. As Judge Cardozo so eloquently stated in this oft-quoted passage:
Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the "disintegrating erosion of particular exceptions". Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.
Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928) quoted in Konsuvo v. Netzke, 91 N.J.Super. 353, 369, 220 A.2d 424 (Ch. 1966).
Allowing the counterclaim for breach of fiduciary duties would certainly deprive the present plaintiff of the protection generally afforded beneficiaries under incontestability clauses. It would not, however, significantly interfere with the legislative intent underlying such clauses. As I mentioned before, such legislation was intended for the protection of insureds and beneficiaries who occupy an unequal bargaining position vis a vis insurers. In this case, the beneficiary in question was not in an inferior position, but a superior position by virtue of the confidential relationship he held with the insurer as its agent. In contrast, to deny the counterclaim would seriously violate principles relating to a fiduciary's duty without significantly advancing the legislative policies embodied in the incontestability clause. The purpose of encouraging an insurer to be diligent in discovering fraud and acting on the discovery is not served if the agent-the very person in whom it places its trust and on whom it relies to make the discovery-is shielded from liability when he is the perpetrator of the fraud.
In view of the high regard with which New Jersey courts treat a fiduciary's duty, and the fact that allowing the counterclaim to proceed would not contravene the purposes of incontestability clauses, it is my judgment that a New Jersey court, if confronted with the issue, would find that the incontestability clause does not bar a suit for breach of fiduciary duty where the agent is also the beneficiary under the policy. The New York Court of Appeals has come to the same conclusion in an analogous circumstance. Cutler v. Hartford Life Insurance Co., 22 N.Y.2d 245, 292 N.Y.S.2d 430, 438, 239 N.E.2d 361, 367 (N.Y.Ct.App.1968).
To sum up, I have granted the plaintiff's motion for summary judgment on his claim for death benefits under the insurance policy, but am denying the plaintiff's motion for summary judgment on the defendant's counterclaim for breach of fiduciary duty and breach of the Field Underwriter's Contract.
ON MOTION FOR RECONSIDERATION
On October 16, 1980, I granted the plaintiff's motion for summary judgment on his claim for death benefits under a life insurance policy on the basis of the statutorily mandated incontestability clause. However I denied the plaintiff's motion for summary judgment on the defendant's counterclaim for breach of fiduciary duty and breach of the Field Underwriters Contract, holding that the policy's incontestability clause did not bar these independent causes of action. The case is before me today on the defendant's motion for reconsideration of the order granting summary judgment.
In support of this motion, the defendant has brought to my attention evidence that, when every favorable inference is drawn, suggests that an imposter, not the named insured Mr. Loch, showed up at the medical examinaton. Although the New Jersey cases have never dealt with the issue of whether the incontestability clause bars proof of imposture, it is a well established principle of insurance law that the clause does not bar such proof. See, e.g., Maslin v. Columbian National Life Insurance Co., 3 F. Supp. 368 (S.D.N.Y.1932), Petaccio v. New York Life Insurance Co., 125 Pa.Super. 15, 189 A. 697 (1937), 12 Appleman, Insurance Law and Practice § 7123. The court in Maslin, supra, the leading case on the issue, stated:
It is a rule applicable to contracts generally that where a man, pretending to be some one else, goes in person to another and induces him to make a contract, the resulting contract is with the person actually seen and dealt with and not with the person whose name was used ....
So here, if the defendant can prove that a healthy man impersonated a diseased Samuel Maslin and took the medical examination under the name of Samuel Maslin, then the diseased Samuel Maslin who was the plaintiff's son did not become a policyholder .... The defendant's only contract was with the man who made the application and took the examination.