The underlying principle involved in Sternaman v.Metropolitan Life Ins. Co. (170 N.Y. 13) was that it constituted a fraud on the insured to permit the company to avail itself, as a defense, of false answers written in an application by a medical examiner for the company, when the insured was himself free from fraud.
It was common knowledge that agents of life insurance companies, for the purpose of securing the issuance of policies and thereby earning their commissions, prepared applications for policies in such a way that they would pass and receive the approval of the home office, regardless of the facts stated to them by applicants.
An insured paid his premiums believing he had a valid policy and the beneficiary was often met by the defense of false statements in the application which avoided the policy. Such was the well-known situation when the Sternaman case was decided and the opinion was written with that knowledge in mind.
Exactly the same situation exists in this case in a lesser degree. Here the agent is anxious to retain the insured as a policyholder and possibly to receive renewal commissions. His volume of business depends to a certain *Page 452 extent upon doing so. The jury has found, and we are bound by the findings, that the insured was free from fraud, that he signed the blank form of application before it was filled out at the direction of the agent and that the agent filled in the answers now alleged to be false, without his knowledge or consent. That was the exact evil which existed before the Sternaman case. Concededly, section 58 of the Insurance Law does not apply. What law does apply? It seems to me that the law of the Sternaman case must apply. If that law applies, as I think it does, then the act of the agent was the act of the company and the defense is not established as a matter of law but a question of fact was presented. The provisions of the policy quoted by Judge LEHMAN contain nothing to the contrary. He states in his opinion that the applicant knew that "the reinstatement would be made only upon his signed application."
The policy contains no such provision. It does provide that the policy may be reinstated "upon the production of evidence of insurability satisfactory to the company."
What that should consist of is not stated. There is no claim here that the assured made any false statement and the proposed decision rests upon the assertion that in filling in the answers the company's agent became the insured's agent, which is contrary to our decisions; also that in signing the form in blank he relied upon the agent to fill it out properly.
What the agent did the company did. What the agent knew the company knew, and with that knowledge it issued the reinstatement agreement and is bound by it.
Unless we are prepared to overrule the Sternaman case andMiller v. Phoenix Mut. Life Ins. Co. (107 N.Y. 292), and adopt the United States rule, the judgment of the Appellate Division should be reversed.
CRANE, Ch. J., O'BRIEN and LOUGHRAN, JJ., concur with LEHMAN, J.; HUBBS, J., dissents in opinion, in which CROUCH and FINCH, JJ., concur.
Judgment affirmed. *Page 453