On certification to Superior Court, Appellate Division.
The opinion of the Court was delivered by Pollock, J. Chief Justice Wilentz and Justices Handler, O'hern, Garibaldi and Stein join in Justice Pollock's opinion. Justice Clifford did not participate.
The opinion of the Court was delivered by POLLOCK, J.
This appeal concerns the duties of an insurer and its agent when issuing a policy insuring the life of an insured who misrepresented his health in the policy application. In an unreported opinion, the Appellate Division affirmed the Law Division's grant of motions for summary judgment by defendants, William Penn Life Insurance Co. (William Penn or the insurer); Penn Equities, its general agent; and Leonard Weissberger, an independent insurance agent. We granted certification, 136 N.J. 296 (1994), and now affirm.
We hold that when the insured materially misrepresents his or her health, the insurer, in the absence of knowledge of conflicting facts, does not have a duty to investigate independently the insured's medical history. We further hold that the agent is not liable for negligent completion of the insurance application
when the insured knowingly misrepresents material facts relating to his health.
On March 15, 1990, William Penn issued a $140,000 life insurance policy to Steven Ledley (the insured), effective February 24, 1990. The policy contained a clause stating that it would be incontestable after two years from the date of issue. One month after issuance of the policy, on April 14, 1990, the insured died of heart failure. Plaintiff, Janice Ledley, the beneficiary, submitted a claim to William Penn. Because the death occurred within the period of contestability, William Penn began an investigation that revealed the insured's undisclosed extensive history of thyroid problems. Consequently, William Penn disclaimed coverage because of the insured's equitable fraud.
Plaintiff sued William Penn, Penn Equities, and Weissberger, alleging that Weissberger had negligently completed the application. William Penn counterclaimed, seeking rescission because the insured had materially misrepresented his health in the application.
When completing the application on February 24, 1990, the insured supplied the following answers to Weissberger, who recorded them on the application form:
8. HAS ANY PERSON PROPOSED FOR INSURANCE EVER HAD:
i. tumor, cancer, venereal disease, disorder of blood, skin, thyroid or other glands?
k. x-rays, electrocardiograms, blood studies or other diagnostic tests (past 5 years). When, why, by whom, with what results?
Answer: Yes. Blood studies done during physical M. Tillem. 65 East Northfield Road, Livingston N.J. Came back O.K. X-ray - Mountainside Hosp. Bay St. Montclair 1986. Auto accident - check up everything O.K.
l. treatment or consultations with any physician or practitioners, other than as stated above (past 5 years). Give details.
In an affidavit in support of his motion for summary judgment, Weissberger stated that the insured had related that his thyroid, although enlarged, was normal and did not impair any of his bodily functions. The insured also had told Weissberger that thyroid surgery had been suggested for cosmetic purposes only. According to plaintiff's affidavit filed in opposition to the motion for summary judgment, Weissberger then said: "Well, I'm not going to put it on [the application] because there is not a category there for it. But when they obtain your medical records from the doctor, that information will be included." Plaintiff concedes, however, that the insured responded negatively to questions 8k and l. She also concedes that the insured falsely answered "no" to question 8i, which inquired about the existence of venereal disease. Contrary to the insured's negative response, he had been treated for gonorrhea.
The insured also had an extensive history of thyroid problems. In 1989, he had been examined by an internist, Dr. Michael Tillem, who referred him to Dr. Dikengil for a series of thyroid-function tests: a thyroid-uptake study, thyroid scintigraphy, and thyroid ultrasound. The tests revealed probable nodules in the right and left lobe of the thyroid, which led Dr. Dikengil to suggest further evaluation. Dr. Tillem also referred the insured to Dr. Howard M. Berg, a specialist in otolaryngology, for consultation concerning the insured's thyroid goiter. In a January 23, 1990, letter from Dr. Tillem, he and Dr. Berg recommended "surgical removal of part of your thyroid so that the sections in question may be sent to the lab for analysis to rule out any cancerous growth." The letter also expresses the concern of both doctors that the "two nodules may represent bleeding into the goiter or quite possibly a thyroid cancer."
The insured, however, decided not to undergo the surgery on the advice of his sister, a pre-medical student. She advised the insured to control his thyroid condition by monitoring his intake of iodine. One month after receiving Dr. Berg's letter recommending
surgery, the insured met with Weissberger to complete the life insurance application.
In support of its motion for summary judgment to rescind the policy, William Penn submitted an affidavit by Derek Rice, a senior life underwriter. Rice concluded that if the insured had disclosed his thyroid goiter and "cold," or possibly malignant, nodules, William Penn would not have issued the policy. The Law Division found that the insured had materially misrepresented his thyroid condition and had failed to disclose the names of consulting physicians. Further, the court ...