Oster v. Riley

Frank T. Gallagher, Justice.

Certiorari to review a decision of the Industrial Commission affirming, as modified, the findings and determinations of its referee awarding the petitioner compensation and directing payment of medical, hospital, and funeral bills.

The petitioner, Margaret Oster, widow of James Oster, filed a petition with the Industrial Commission for compensation and benefits under the Workmen’s Compensation Law. It is conceded that the death of *275Oster resulted from a personal injury arising out of and in the course of his employment. The sole issue is whether the workmen’s compensation insurance policy under which the widow claims was in force at the time of her husband’s collapse.

The undisputed facts are these: On September 2, 1961, employer-respondent James Riley, who was about to undertake his first independent construction job, conferred with Murry Krug, an agent who had sold insurance to Riley’s family for many years. Riley applied at that time for manufacturers’ and contractors’ coverage, but declined to order workmen’s compensation insurance because he did not expect to have any employees for a long time. It was understood that as soon as he had someone on his payroll he would apply for a workmen’s compensation policy.

On the evening of Thursday, September 7, 1961, Riley made arrangements to hire Oster, who reported for work at 9 a. m. the following Monday, September 11, at a lot where Riley was building a house. Oster worked under Riley’s supervision until shortly after 10 o’clock that morning. At about 10:30 a. m. Riley found him lying on the ground and in distress. Riley and another man then took Oster to a nearby hospital, where his arrival was recorded at 11:10 a. m. Oster died 2 days later of an acute coronary thrombosis precipitated by the stress of physical work.

Riley reported Osier’s illness and hospitalization to Krug on September 12, 1961. On September 18, one week after the accident, Krug mailed to Riley a policy of workmen’s compensation insurance effective at 12:01 a. m., September 11. The policy had been sent to Krug by relator, Aetna Casualty & Surety Company.

I.

Much of the testimony at the Industrial Commission hearing concerned the time at which Riley called Krug’s insurance agency to order workmen’s compensation insurance. Aetna contends that Riley did not place the order until after he knew that Oster had collapsed on the job. Riley testified consistently that he made the call between 9:45 and 10 a. m., September 11, 30 to 45 minutes before he discovered Osier’s col*276lapse; that Krug was not in; that he told Krug’s secretary, Mary Elverhoy, that he wanted the insurance to take effect that day; and that Miss Elverhoy said she would talk to Krug. The latter testified that he called in to his office at about 12:15 p. m. that day and told Miss Elverhoy to order the policy Riley had requested from an underwriter at Aetna Casualty & Surety Company. Aetna was one of seven companies which Krug could bind for workmen’s compensation insurance. Miss Elverhoy testified that she called the underwriter at about 1:30 p. m. that day. She also stated that Riley did not call her at Krug’s office until 11 o’clock that morning at the earliest, which, if correct, would be half an hour after he discovered Osier’s collapse.

The determination of the factual issue depends on the credibility of the testimony of James Riley and Mary Elverhoy. The referee, whose findings were affirmed by the commission, accepted Riley’s version. Although the sequence of events related by Riley may raise some doubts, we cannot say that the commission’s conclusion finds no support in the record. 1 The other issues raised by Aetna must therefore be considered in the light of the finding that Riley called Krug’s office before discovering Osier’s collapse.

II.

By its terms, the policy under consideration here became effective at 12:01 a. m. on September 11, some 10 hours before the onset of Osier’s disability. If the policy did not cover the accident that morning, it must be for some reason to be found outside the four corners of the document. In the absence of fraud, the parol evidence rule precludes the introduction of evidence to show a variation in the written contract.2

Aetna cites Rommel v. New Brunswick Fire Ins. Co. 214 Minn. 251, 8 N. W. (2d) 28, for the proposition that “a binding contract of insurance does not become effective until one of the possible insurers is selected by the agent.” We held in that case (214 Minn. 252, 8 N. W. [2d] 30):

“* * * [W]here an application for insurance is made to an agent who *277represents several companies, no contract of insurance is engendered between the insured and any particular company until such company is designated by the agent * * (Italics supplied.)

In the instant case there was no contract until 12:15 p. m. on September 11, when Krug selected Aetna from among seven possible insurers. But when he did select Aetna, a binding contract resulted — a contract which by its terms became effective at 12:01 a. m. that day. The flaw in Aetna’s argument is its failure to distinguish between the time the policy went into existence and the time it went into effect. The first event is governed by the acts of the parties, the second by the terms of the policy.

Aetna concedes that in the absence of fraud the legality of predating and antedating a policy of insurance is well established.3 We stated in Wales v. New York Bowery Fire Ins. Co. 37 Minn. 106, 109, 33 N. W. 322, 323, that if at the time the application for insurance was made both parties were ignorant of a prior loss, “it would have been competent for them, by antedating the policy, to have made it retroactive.” *278The application of this principle to workmen’s compensation is discussed in 2 Larson, Workmen’s Compensation Law, § 92.20:

“The only situation in which the insurance would be defeated for all purposes by act of the employer is that in which the insurance is absolutely void ab initio, rather than voidable; this would occur if the employer attempted to insure against an accident that had already occurred, by pre-dating the insurance and fraudulently concealing the known existence of an injury within the period so covered. But if the happening of the accident during the period covered by the antedated policy was unknown to both parties, the insurance carrier would be liable, since such liability does not offend the basic principle that there cannot be insurance against a known loss.” (Italics supplied.)

See, Matter of Weydman v. Niagara Boiler Works, 264 N. Y. 503, 191 N.E. 536.

The commission found Riley to have acted in good faith. Thus, the principal question in this appeal is whether Riley’s failure to notify Krug’s office at the first possible moment after his knowledge of Osier’s accident constituted as a matter of law a fraud upon the insurance company. It seems clear that it would not constitute a fraud if Riley thought, at least if he reasonably thought, that by that time he was already insured.

Riley could reasonably have understood that he would be insured, i. e., that the company would be “bound,” as soon as Krug’s secretary told him that Riley wanted insurance and Krug selected a company to carry such insurance.4 See, Nehring v. Bast, 258 Minn. 193, 103 N. W. (2d) 368, 85 A. L. R. (2d) 1400; Rommel v. New Brunswick Fire Ins. Co. 214 Minn. 251, 8 N. W. (2d) 28; Glens Falls Ind. Co. v. D. A. Swanstrom Co. 203 Minn. 68, 279 N. W. 845. In fact, this occurred about 12:15 p. m., but Riley could have expected, and reasonably *279so, that it would occur much sooner. There is nothing in the record to show that Riley should have suspected that Krug would not arrive at his office shortly after Riley’s call. He might have reasonably expected Krug was merely a little late in arriving on the Monday morning in question. His secretary testified that he did not come to the office at all that day and did not telephone until 12:15 p. m. Riley in no way could be charged with that knowledge.

It is clear that an applicant, even where he knows the insurance has not yet been effected, is held to no higher standard than that of reasonable care in notifying the insurer of a loss occurring before the insurance becomes binding. See, M’Lanahan v. The Universal Ins. Co. 26 U. S. (1 Peters) 170, 7 L. ed. 98. Thus, even if Riley should have anticipated the insurance was not yet effected, the commission could have found he had no duty to notify Krug until after 11:10 that morning when Riley had delivered Oster to the hospital. The commission could find that a reasonable man would attend to a sick employee first.

It was open to the commission to find that by 11:10, Riley justifiably thought he was covered by insurance. If such was the case, Riley was not obliged to notify Krug of the loss at the first reasonably possible moment. In Glens Falls Ind. Co. v. D. A. Swanstrom Co. 203 Minn. 68, 73, 279 N. W. 845, 847, this court stated:

“* * * Lack of disclosure of changed conditions coming into being after the application and before the release of the policy does not conclusively prove fraud. * * * The trial court finds no fraud or deceit exists. There is nothing in the record to warrant a reversal of this finding.”

That one is under no obligation to inform the insurer of a loss if, at the time he should otherwise notify, he reasonably thinks he is already insured, is clearly shown in Matter of Orto v. Poggioni, 245 App. Div. 782, 281 N. Y. S. 16, affirmed, 271 N. Y. 551, 2 N. E. (2d) 690. In that case, the employer talked to a broker about a workmen’s compensation policy several days prior to the accident. When the loss occurred, the employer thought he was covered. In fact, the binder was not made until some hours later (271 N. Y. 551, 2 N. E. [2d] 690). The court *280held the predated policy effective, emphasizing that the employer, having spoken to a broker several days before the accident, thought he was covered, and that his good faith was not questioned nor was fraud alleged.

It has been held that an insurer is protected from liability upon a predated insurance policy if it appears that the insured concealed his knowledge of a loss at a time he knew the insurance had not yet been effected. In Wales v. New York Bowery Fire Ins. Co. 37 Minn. 106, 33 N. W. 322, the applicant through an agent requested certain insurance of defendant’s agent. But the insurance requested was of a type such that defendant’s agent “could not accept the risk,” so he set the application aside and took no further action on the matter thinking he would hear further from the applicant’s agent about it. Since he did not, 3 days after the loss and applicant’s discovery thereof, defendant’s agent went to applicant’s office, whereupon it was agreed that insurance upon terms entirely different from those of the original application woúld be concluded. The applicant subsequently sued for the loss. This court reversed a verdict for the applicant, explicitly stating that the time of the agent’s visit to the applicant’s office must be taken as the date of the application, and that therefore the insurance did not cover because of the applicant’s fraudulent concealment of the loss at the time of application. The court stated that had defendant’s agent accepted the risk on the terms of the original application, and written up the policy accordingly, a different question would have been presented.

Nippolt v. Firemen’s Ins. Co. 57 Minn. 275, 59 N. W. 191, also involved an application made with knowledge of the loss.

Cases decided by the courts of other states to the effect that there is no liability under a predated insurance policy if the insured or his agent concealed knowledge of a loss at a time he knew the insurance had not yet been effected are likewise not in point. In the following cases the applicant himself knew of the loss or change of material facts before his application: Matlock v. Hollis, 153 Kan. 227, 109 P. (2d) 119, 132 A. L. R. 1316; Hare & Chase, Inc. v. National Surety Co. (2 Cir.) 60 F. (2d) 909 (concealment during applicant’s negotiations with in*281surer as to rates and deductible amount, thus before applicant’s final application).

In the following cases the failure to disclose preceded application by one who the court emphasized was applicant’s, and not the insurer’s, agent: Hansen v. Continental Cas. Co. 156 Wash. 691, 287 P. 894 (both agent and applicant knew of loss); Century Ind. Co. v. Jameson, 333 Mass. 503, 131 N. E. (2d) 767 (only applicant knew, but court stated that by agency principles it was same as if applicant himself had ordered the policy after knowledge of the loss).

In the following cases failure to disclose occurred at a time when the applicant knew or must have known the insurance had not yet been effected: Millar v. New Amsterdam Cas. Co. 248 App. Div. 272, 289 N. Y. S. 599 (loss known within hours of application to broker who made it clear to applicant he had no power to bind the company); Carroll v. Preferred Risk Ins. Co. 34 Ill. (2d) 310, 215 N. E. (2d) 801 (application at 5 p. m., loss known at 10 p. m.).

In brief, if there was no fraud, and the insurance policy, by its terms, took effect at 12:01 a. m. on September 11, the fact that it was not applied for until 9:45 or 10 that morning and that the agent did not select the company in which to place it until 12:15 that afternoon is no bar to recovery for a loss arising out of an accident which took place at 10:30 a. m. For the same reasons, the commission was correct in rejecting relator’s argument that Riley should be held liable jointly as a self-insurer because at least part of the work which led to the employee’s injury was performed before the insurance was ordered. It is not the time of the application that governs; it is the time printed on relator’s own insurance policy.

IH.

The commission’s opinion refers to Aetna’s issuance of the written policy as “in effect a ratification of the oral binder made by the insurer’s agent for coverage commencing at 12:01 a. m. September 11, 1961.” We do not find it necessary to reach this question. If there was no fraud, no other breach has been suggested, and there was nothing for the company to waive, by failure to return premiums or assessments or otherwise. See, 7 Appleman, Insurance Law and Practice, § 4266; Glens *282Falls Ind. Co. v. D. A. Swanstrom Co. 203 Minn. 68, 279 N. W. 845; Seavey v. Erickson, 244 Minn. 232, 69 N. W. (2d) 889, 52 A. L. R. (2d) 1144.

It is our opinion that the decision of the Industrial Commission should be affirmed. Petitioner is allowed $250 attorney’s fees on this appeal.

Affirmed.

Hommerding v. Clarence Landwehr Heavy Moving, 273 Minn. 40, 139 N. W. (2d) 482.

7 Dunnell, Dig. (3 ed.) § 3368, and cases cited under note 73.

7 Appleman, Insurance Law and Practice, § 4266. The author criticizes a Federal case applying California law, Strangio v. Consolidated Ind. & Ins. Co. (9 Cir.) 66 F. (2d) 330, which held that the insurer was entitled to cancel a predated policy where the insured’s broker failed to timely notify the insurer of a loss occurring at a time when said broker knew the insurance could not yet have been effected. The facts of Strangio are unusual: The applicant applied to a broker (whom the court emphasized was his, not the insurer’s, agent) on a Saturday. On Sunday morning, the broker mailed to Insurer A an application for a predated policy. At 2:30 that afternoon the loss occurred, and the applicant notified his broker an hour later. On Monday Insurer A received the application but, because it did not write the type of insurance requested, telephoned Insurer B, requesting that it issue the policy, which Insurer B did on Tuesday. The applicant’s broker did not mail any notice of the loss until Tuesday. Insurer A received said notice Wednesday. The court held in favor of Insurer B on the ground that no disclosure was made to it. It held that Insurer A was not Insurer B’s agent. It will be noted that the applicant’s and his broker’s knowledge of the loss came at a time when they must have known no insurance had yet been effected and before any application had been made to Insurer B.

According to Riley’s testimony it had been his and his father’s experience, based upon numerous house, boat, and car policies placed with Krug, that to obtain insurance, they would merely call Krug’s office and give the information to Krug, or if he wasn’t there, to whoever was there. When Riley had talked to Krug on September 2, Krug told him that whenever he needed the workmen’s compensation insurance, he should “just call in.”