Sternaman v. . Metropolitan Life Ins. Co.

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The decision of this appeal turns substantially upon the following question: When an applicant for life insurance makes truthful answers to all questions asked by the medical examiner, who fails to record them as given and omits an important part, stating that it is unimportant, can the beneficiary show the answers actually given, in order to defeat a forfeiture claimed by the insurer on account of the falsity of the answers as recorded, even if it was agreed in the application that the medical examiner, employed and paid by the insurer only, should not be its agent, but solely the agent of the insured?

The power to contract is not unlimited. While as a general rule there is the utmost freedom of action in this regard, some restrictions are placed upon the right by legislation, by public policy and by the nature of things. Parties cannot make a binding contract in violation of law or of public policy. They cannot in the same instrument agree that a thing exists and that it does not exist, or provide that one is the agent of the other and at the same time and with reference to the same subject, that there is no relation of agency between them. They cannot bind themselves by agreeing that a loan, in fact void for usury, is not usurious, or that a copartnership, which actually exists between them, does not exist. They cannot by agreement change the laws of nature, or of logic, or create relations physical, legal or moral, which cannot be created. In other words, they cannot accomplish the impossible by contract.

The parties to the policy in question could agree that the person who filled out part A of the application was the agent of the insured and not of the company. There is a difference in the nature of the work of filling out the blank to be signed by the insured, and that of filling out the blank furnished for the use of the medical examiner. The former is the work of the insured and may be done as well by one person as by another. He may do it himself or appoint an agent to do it for him. It is quite different, however, with the work of the medical examiner, because that requires professional skill and experience and the insurer permits it to be done only by its own appointee. The insured can neither do that work himself, nor appoint a physician to do it, because the insurer very properly insists upon making the selection itself. The medical examiner was selected, employed and paid by the company. The insured had nothing to do with him, except to submit to an examination by him, as the expert of the company, and to answer the questions asked by him in behalf of the company. This he was forced to do in order to procure insurance, for the company required him to undergo a medical examination by an examiner selected and instructed by itself, before it would act upon his application for a policy. He could neither refuse to be examined nor select the examiner, and he was not responsible if the latter was negligent or unfit for the duty assigned to him. He could not direct or control him, but the company could and did, for it required him to make the examination, fill out part B of the application blank and report the facts with his opinion. The insured made no contract with the examiner and was under no obligation to pay him for his services. The company, however, made a contract with him to do certain work for it and agreed to pay him for the work when done.

As between the examiner and the insured, the relation of principal and agent did not exist, while, as between the examiner and the company, that relation did exist by operation of law, yet it is claimed that as between the insured and the company, the examiner was the agent of the former, only, because he had so agreed, not with the examiner, but with the company itself. Under the circumstances, an agreement that the physician was the agent of the insured was like an agreement that the company, or its president, was his agent. It was in contradiction of every act of the parties and of every fact known to either. The law when applied to the facts made the physician the agent of the company and not of the insured, and can it be held that, as the insured agreed that the physician was his agent, he became such in spite of the law and the facts? This is not a case of agency of one party for one purpose and of another party for a different purpose, for the physician was employed for a single purpose only and that was to make a physical examination of the insured, ask him the questions furnished by the company, record his answers and report the result. They were not the questions of the insured, put to himself, to elicit facts for his use. He knew the facts. He did not need to question himself to find out what he knew, nor to employ an agent for that purpose. The questions were those of the company, carefully prepared for it by skillful hands and furnished to its medical examiner to be asked so that it could learn what the insured knew about himself. It needed the facts for its use, and what was done by its own examiner to get the facts and report them to the company, was its work, done for its benefit, and in the course of its business. The answers were not volunteered, but were given in response to questions asked by the company, as much as if, impersonated, it had actually asked them as an individual. Whatever it told Dr. Langley to do for it, in the view of the law, it did itself. Qui facit per alium,facit per se. It appointed Dr. Langley its agent for the purpose named and he derived all his authority to act from the company, which could regulate his conduct by its rules and could provide for such security to protect its interests from the consequences of his neglect or default as it saw fit.

Can parties agree that facts, which the law declares establish a certain relation, not only do not establish that relation but establish directly the opposite? Can A appoint B his agent for a definite purpose and then agree with C that B is not the agent of A, but is the agent of C for that purpose, there being no agreement whatever between B and C?

An agency is created by contract, express or implied. It "is a legal relation by virtue of which one party, the agent, is employed and authorized to represent and act for the other, the principal, in business dealings with third persons. The distinguishing features of the agent are his representative character and his derivative authority." (Mechem on Agency, sec. 1; Story on Agency, sec. 3.) "To constitute agency there must be consent both of principal and of agent." (Wharton on Agency, sec. 1.) What was the contract between the company and the examiner? The defendant, being a corporation, could act only through agents. Having some work to do in the form of a medical examination, it requested Dr. Langley to do it. It created the relation of agency between him and itself by employing him, paying him, etc. It alone could discharge him and to it alone was he responsible for disobedience or negligence. It could control his conduct by any reasonable instructions, and hold him liable if he violated them. It prescribed certain questions that he should ask and required him to take down the answers in a blank prepared by itself. It could sue him if he did not do it properly, and he could sue the company if it did not pay him for doing it. Thus we have an agency between the company and the examiner established by mutual agreement, with the right on the one hand to instruct, to discharge and to hold liable for default, and on the other to compel payment for services rendered. Hence what the examiner did in the course of his employment the company did, and wha-he knew from discovery while acting for it, the company knew.

What was the contract between the insured and the examit ner? None whatever. The insured did not employ the examiner and the examiner did not agree to work for him. Neither was under any legal obligation or liability to the other. The insured could not instruct the doctor, nor discharge him, nor sue him for negligence, and the doctor could not sue the insured for compensation. The relation of principal and agent did not exist between them, either by virtue of any contract or by operation of law.

What was the contract between the insured and the insurer? With the relations above described as existing between the insurer and the examiner in full force, and in the absence of any legal relation between the examiner and the insured, an attempt was made by the insurer, by an agreement imposed upon the insured, to subvert the relation of its own examiner to itself and establish a relation between him and the insured, without the consent of either given to the other. There was no tripartite contract. While the contract between the doctor and the company was still in existence, the latter agreed with a third party only, that that contract did not in fact exist between the two parties who made it, but did exist between two parties who did not make it. This was not possible by any form of words, any more than to make black white, or truth falsehood. We think that the medical examiner was the agent of the defendant in making the examination of the insured, recording his answers and reporting them to the company.

Sound public policy prohibits the company from stipulating for immunity from the consequences of its own negligence, or what is the same thing, the negligence of its agent. (Rathbone v.N.Y.C. H.R.R.R. Co., 140 N.Y. 48.) The manner of conducting the examination was, of necessity, intrusted to the judgment of the medical examiner to a great extent. His judgment might influence him to take down the answers in a general or in a particular way. In exercising his judgment he determined that certain answers were too trivial to be recorded. In making that determination he was not acting for the insured, but for the company, for it had furnished him with a blank and had invested him with power to take down the answers and, hence, with power to decide how they should be taken down. If he was negligent, or failed to do his duty in this regard, the company could not by an agreement, made in advance, cast the burden upon the insured, who did not select or employ him. His negligence was its own negligence, and it could not by contract make it the negligence of the insured, or relieve itself from the legal consequences thereof.

But, it is insisted, the insured warranted that the answers were true, and that they were correctly recorded. When the company issued the policy, however, it knew, through its medical examiner, that the answers as recorded were not literally true; that the answers as given were not correctly recorded, and that this occurred through no fault of the insured. It could not take the money of the insured while he lived and, when he was dead, claim a forfeiture on account of what it knew at the time it made the contract of insurance, for that would be a fraud. (VanSchoick v. Niagara Fire Ins. Co., 68 N.Y. 434; O'Brien v.Home Benefit Society, 117 N.Y. 310; Kenyon v. KnightsTemplar M.M.A. Association, 122 N.Y. 247.)

The insured also agreed that "no information or statement not contained in this application, and in the statements made to the medical examiner, received or acquired at any time by any person, shall be binding upon the company, or shall modify or alter the declarations and warranties made therein." The facts sought to be proved were contained in the oral statements made to the medical examiner, but assuming that recorded statements only were meant, the result would be an agreement that the company might perpetrate a fraud upon the insured by issuing a policy and accepting premiums thereon, knowing all the time that the contract was void, or voidable at its election. The law does not permit this, for it declares that the company is estopped from taking advantage of such a contract, because it would be against equity and opposed to public policy. We adopt, as expressing our own views upon the subject, the following language used by the Supreme Court of the United States in a case somewhat analogous: "If, however, we suppose the party making the insurance to have been an individual, and to have been present when the application was signed, and soliciting the assured to make the contract of insurance, and that the insurer himself wrote out all these representations and was told by the plaintiff and his wife that they knew nothing at all of this particular subject of inquiry, and that they refused to make any statement about it, and yet knowing all this, wrote the representation to suit himself, it is equally clear that for the insurer to insist that the policy is void because it contains this statement, would be an act of bad faith and of the grossest injustice and dishonesty. And the reason for this is that the representation was not the statement of the plaintiff, and that the defendant knew it was not when he made the contract, and that it was made by the defendant, who procured the plaintiff's signature thereto. It is precisely in such cases as this that courts of law in modern times have introduced the doctrine of equitable estoppel, or as it is sometimes called, estoppel in pais. * * * Indeed the doctrine is so well understood and so often enforced that, if in the transaction we are now considering, Ball, the insurance agent, who made out the application, had been in fact the underwriter of the policy, no one would doubt its applicability to the present case. Yet the proposition admits of as little doubt that if Ball was the agent of the insurance company, and not of the plaintiff, in what he did in filling up the application, the company must be held to stand just as he would if he were the principal. * * * This principle does not admit oral testimony to vary or contradict that which is in writing, but it goes upon the idea that the writing offered in evidence was not the instrument of the party whose name is signed to it; that it was procured under such circumstances by the other side as estops that side from using it or relying on its contents; not that it may be contradicted by oral testimony, but that it may be shown by such testimony that it cannot be lawfully used against the party whose name is signed to it." (Insurance Co. v.Wilkinson, 13 Wall. 222.)

We think it is established by the weight of authority in this state that the medical examiner is the agent of the insurer in making the examination, taking down the answers and reporting them to the company; that his knowledge, thus acquired, his interpretation of the answers given and his errors in recording them, are the knowledge, interpretation and errors of the company itself, which is estopped from taking advantage of what it thus knew and what it had thus done when it issued the policy and accepted the premiums. (O'Farrell v. Metropolitan Life Ins.Co., 22 App. Div. 495; 44 App. Div. 554; 168 N.Y. 592; O'Brien v. Home Benefit Society, 117 N.Y. 310, 318; Grattan v.Metropolitan Life Ins. Co., 92 N.Y. 274; Grattan v.Metropolitan Life Insurance Co., 80 N.Y. 281; Flynn v.Equitable Life Insurance Co., 78 N.Y. 568; Whited v.Germania Fire Insurance Co., 76 N.Y. 415; Sprague v. HollandPurchase Ins. Co., 69 N.Y. 128.)

The earlier cases of Rohrbach v. Germania Fire Ins. Co. (62 N.Y. 47) and Alexander v. The Same (66 N.Y. 464) involved the authority of a fire insurance broker or solicitor only, and were distinguished in Whited v. Germania Fire Ins. Co. (supra, pp. 419, 420), where the court said: "If the procurer of the insurance is to be deemed the agent of the insured, and Harmon is to be deemed such procurer, he may not be taken into the service of the insurer as its agent also; or, if he is so taken, the insurer must be bound by his acts and words when he stands in its place and moves and speaks as one having authority from it, and pro hac vice, at least, he does then rightfully put off his agency for the insured and put on that for the insurer."

In Allen v. German American Ins. Co. (123 N.Y. 6) the intermediary was also a mere broker and not the agent of the company, as distinctly appears on page 15, where the court said: "So far as it appears, Noble had no relations whatever with the defendant other than that he forwarded this paper-writing, which contained statements of the amount of insurance proposed for and of the privileges desired. He certainly appears to have been nothing more than an insurance broker, soliciting insurance business, and when, upon the acceptance of the risk, he received back a policy of the company for the plaintiff, his sole office was simply to deliver it for the company and to collect the premium. That is certainly not enough to constitute him an agent for the company with authority to bind it retroactively or presently in transactions relating to the insurance. Circumstances are wholly wanting from which we may presume the authority of an agent."

In the earlier Grattan case the medical examiner was instructed by the defendant to report the answers to the questions in the certificate in his own handwriting, but he failed to report one of the answers as given by the applicant. In an action on the policy the falsity of the answer, as recorded, was insisted upon as a defense, although the answer as given was absolutely true. The court, referring to the medical examiner, said: "He was, as medical examiner, charged with certain duties by the defendant and was acting in concert with the soliciting agent of the company. On the part of the life insured was entire good faith and truthfulness, and there is no reason to suspect any intentional unfairness on the part of the examiner. The omission was inadvertent. Is the company thereby released from its obligation? Many decisions in this court show that it is not. (Mowry v. Rosendale, 74 N.Y. 360, and cases there cited.) Within the principles therein recognized as well established, the erroneous answers must be taken as the declaration of the defendant and in any controversy depending upon it, must, between the parties, be taken to be true. In this case the physician was not the agent to solicit insurance, but he had an act to perform in regard to it as the agent of the company. His written instructions were to write out the answers. In this instance he failed to do it correctly. The principle upon which it has been held that the company, and not the insured, is responsible for the error of the soliciting agent is equally applicable here. This question has been repeatedly considered by this court, and in the recent case of Flynn v. Equitable LifeAssurance Socy. (9 N.Y. Wkly. Dig. 324; 78 N.Y. 568) was again before us. The point presented was similar to the one now under review. The decision was in conformity with the views above expressed, and the doctrine referred to must be deemed settled."

The O'Farrell case was strikingly like the one before us, so far as the point now involved is concerned. In that case the insured agreed that his application was "made, prepared and written" by himself, "or by his own proper agent," and that the company was "not to be held responsible for its preparation, or for anything contained therein, or omitted therefrom." He warranted that the answers made to the questions in both parts of the application, including that provided for the use of the medical examiner, were "strictly correct and wholly true;" that they should "form the basis and become part of the contract of insurance," and that "any untrue answers" should "render the policy null and void." The policy itself referred to the application and declared that the statements therein contained were warranties and a part of the contract. Among the printed questions to be put by the medical examiner to the insured was the following: "Did any of the parents, grandparents, brothers or sisters of the life proposed ever have consumption, or any pulmonary or scrofulous diseases?" To this question he answered that he did not know, but the physician recorded the answer as "No." A recovery, at first denied, was finally had upon the policy and it was sustained in both appellate courts. We divided in judgment and filed no opinion, but the following extract from the opinion of the Supreme Court upon the last appeal suggests the view that finally prevailed: "If it be accepted as a fact that the insured made answer to this question by stating that he did not know, then such fact became one known to the company, as it was known to its agent, and if it thereafter chose to deliver the policy and accept the payment of premiums thereon, it became bound according to the tenor of its terms." In that case, as an examination of the appeal book on the files of this court shows, the answer, as made to the medical examiner by the insured, was received upon the trial, notwithstanding the strenuous objections of the defendant, and without that evidence there could have been no recovery on the policy. The affirmance of the judgment by this court necessarily involved an adjudication that such evidence was properly received.

Upon the trial of the case in hand, the defendant's objection to similar evidence on similar grounds was sustained, but both upon principle and authority we think it should have been received. This conclusion requires a reversal of the judgment and the award of a new trial, with costs to abide the event.