(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued October 11, 1994 -- Decided January 5, 1995
POLLOCK, J., writing for a unanimous Court.
On March 15, 1990, William Penn Life Insurance issued a $140,000 life insurance policy to Steven
Ledley. One month after issuance of the policy, on April 14, 1990, Ledley died of heart failure. Janice Ledley,
the beneficiary, submitted a claim to William Penn Insurance. Because the death occurred within the period of
contestability, William Penn began an investigation that revealed Ledley's undisclosed extensive history of thyroid
problems. Consequently, William Penn disclaimed coverage on the ground of equitable fraud.
Mrs. Ledley sued William Penn Life Insurance Company, the insurer, and Penn Equities, its general
agent. She also sued Leonard Weissberger, an independent insurance agent, alleging that Weissberger had
negligently completed the insurance application. William Penn counterclaimed, seeking rescission because Mr.
Ledley had materially misrepresented his health in the application.
When completing the insurance application, Ledley misrepresented his health. He falsely answered that
he had a normal thyroid, when he had a history of thyroid problems. He also falsely answered that he had not
consulted "other physicians," when he had in fact consulted two other physicians in respect of his thyroid.
The Law Division granted defendants' motion for summary judgment. It found that Ledley had
materially misrepresented his thyroid condition and had failed to disclose the names of consulting physicians.
Consequently, Ledley's misrepresentations entitled William Penn to rescind the policy. The Law Division also
held that Weissberger had not negligently completed the insurance application because Ledley had provided him
with false information.
The Appellate Division, in an unreported opinion, affirmed the judgment of the trial court. The
Supreme Court granted Mrs. Ledley's petition for certification.
HELD: When an applicant for insurance 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 applicant's medical
history. Further, an agent is not liable for negligent completion of the insurance application when the applicant
knowingly misrepresented material facts relating to his health.
1. A court may order rescission of a life insurance policy for equitable fraud even after the death of the insured.
Equitable fraud allows the insurer to rescind a policy if it materially relied on the insured's misrepresentations.
(pp. 7-8)
2. Equitable fraud distinguishes between subjective and objective questions on the application. The insured misrepresented his health by supplying false responses to objective questions, specifically 8k and 8l. In response to 8k, which inquired about diagnostic tests within the past five years, the insured failed to reveal thyroid tests he had undergone the previous year. He also falsely responded that his test results had "come back ok" when, in reality, a thyroid-scan test had revealed nodules and the possibility of cancer in the thyroid gland. In response to question 8l, which asked for the names of other physicians consulted within the past five years, the insured falsely answered "no." The insured's medical records indicate that he had consulted two other physicians within three months of the date of the issuance of the policy. Because William Penn relied on the insured's
misrepresentations on objective questions, it may rescind the policy because of the insured's equitable fraud.
(pp. 8-12)
3. An insurer's duty to investigate the facts disclosed in an insurance application arises only when the
independent investigation discloses sufficient facts to impair the value of the application. Because nothing in the
insured's application suggested that he had a thyroid condition for which the insured had undergone extensive
diagnostic testing, the insurer had no reason to conduct a separate inquiry. (pp. 12-14)
4. Allegations that the insurance agent was negligent must be reviewed in light of the insured's
misrepresentations. The agent did not negligently complete the application; the insured affirmatively
misrepresented that he did not have a thyroid condition and that he had not consulted any other physicians within
the past five years. The agent cannot be held responsible when the insured's knowing misrepresentations caused
the insurer to issue the policy. (pp. 14-16)
The judgment of the Appellate Division is AFFIRMED.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, O'HERN, GARIBALDI and STEIN join in
JUSTICE POLLOCK'S opinion. JUSTICE CLIFFORD did not participate.
SUPREME COURT OF NEW JERSEY
A-
35 September Term 1994
JANICE LEDLEY,
Plaintiff-Appellant,
v.
WILLIAM PENN LIFE INSURANCE
CO., LEONARD C. WEISSBERGER,
and PENN EQUITIES CORP.,
Defendants-Respondents,
and
JOHN DOES 1-5, JOHN DOE BEING
A FICTITIOUS NAME,
Defendants.
Argued October 11, 1994 - Decided January 5, 1995
On certification to Superior Court, Appellate
Division.
George F. Hendricks argued the cause for
appellant (Hendricks & Hendricks, attorneys;
Mr. Hendricks, of counsel; Patricia M. Love,
on the brief).
B. John Pendleton, Jr., argued the cause for
respondent William Penn Life Insurance Co.
(McCarter & English, attorneys; Mr. Pendleton
and Eugene M. Haring, of counsel; Mr. Haring
and Andrew O. Bunn, on the brief).
Carol A. Pisano argued the cause for
respondents Leonard C. Weissberger and Penn
Equities Corp. (Lambert & Weiss, attorneys;
Ms. Pisano, Monroe Weiss, and Evan H.
Stoller, of counsel; Ms. Pisano and Mr.
Stoller, on the brief).
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?
Answer: No.
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.
Answer: No.
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 found that the
insured's misrepresentations about a possible thyroid malignancy
entitled the insurer to rescind the policy.
In opposition to Weissberger's motion for summary judgment,
plaintiff submitted a report by an insurance expert who concluded
that Weissberger should have reported the insured's enlarged
thyroid to the insurer and should have advised the insured to
answer "yes" to question 8i concerning the existence of a thyroid
disorder. The trial court concluded that plaintiff had failed to
raise a factual issue whether Weissberger had led the insured to
believe the insurer would investigate his medical records.
The Appellate Division likewise found that the insured's failure to disclose his various thyroid tests and consultations with physicians other than Dr. Tillem constituted material misrepresentations. It concluded that William Penn was not under a duty to investigate the insured's medical history because it did not possess sufficient facts to prompt an independent inquiry. The court noted that the policy expressly states:
"[N]o information as to any matter made a subject of inquiry [in
the application] . . . shall be considered known by the Company
unless set out in writing on this application." Because the
application failed to disclose any information about the
insured's thyroid condition, William Penn had no reason to make
further inquiries.
The Appellate Division similarly determined that Weissberger
had not been negligent. Because the insured had provided false
information by concealing his various thyroid tests and
consultations with Dr. Berg, Weissberger was not guilty of
negligent completion of the insurance application.
Before us, plaintiff does not challenge the materiality or
falsity of the insured's answers on the application. Nor does
she contend that Weissberger's knowledge should be attributed to
William Penn. Instead, she claims that Weissberger negligently
completed the insurance application and that the insurer failed
to investigate the insured's medical condition.
We begin our review of the grant of defendants' motions for summary judgment by recognizing that we should consider the facts in the light most favorable to plaintiff. Judson v. Peoples Bank & Trust Co., 17 N.J. 67, 75 (1954).
A court may order rescission of a life insurance policy for
equitable fraud even after the death of the insured. Formosa v.
Equitable Life Assurance Soc'y,
166 N.J. Super. 8, 13 (App. Div.
1979), certif. denied,
81 N.J. 53 (1979). Within the statutory
two-year period of contestability, N.J.S.A. 17B:25-4, an insurer
may contest a policy for equitable fraud, whether the insured is
alive or dead. Ibid. Even after the expiration of the
contestability period, an insurer may deny a claim if the insured
committed fraud in the policy application. Paul Revere Life Ins.
Co. v. Haas,
137 N.J. 190 (1994). To rescind a policy, an
insurer need not show that the insured actually intended to
deceive. Massachusetts Mut. Life Ins. Co. v. Manzo,
122 N.J. 104, 114 (1991). Even an innocent misrepresentation can
constitute equitable fraud justifying rescission. Metropolitan
Life Ins. Co. v. Tarnowski,
130 N.J. Eq. 1, 3-4 (E. & A. 1941).
Equitable fraud, however, distinguishes between subjective and objective questions on the application. See Formosa, supra, 166 N.J. Super. at 18 (concluding that insured's knowingly false reply to subjective question whether insured had ever been treated for or had any known indication of diabetes constituted equitable fraud); Russ v. Metropolitan Life Ins. Co., 112 N.J. Super. 265, 271 (Law Div. 1970) (holding that questions relating to past physician consultations and intake of prescribed medication were objective questions); Colonial Life Ins. Co. of
America v. Mazur, 25 N.J. Super. 254, 259-61 (Ch. Div. 1953) (finding no claim for equitable fraud because defendant had provided truthful responses to subjective questions relating to whether proposed insured had any deformity or abnormal condition, to whether any doctor had ever expressed any unfavorable opinion concerning proposed insured's health, and to proposed insured's state of health). Objective questions call for information within the applicant's knowledge, "such as whether the applicant has been examined or treated by a physician." Formosa, supra, 166 N.J. Super. at 15. In contrast, subjective questions "seek to probe the applicant's state of mind." Ibid. They are concerned with more ambiguous issues, such as "what is the state of the applicant's health or whether the applicant has or has had a specified disease or illness." Ibid. Courts have been more lenient when reviewing an applicant's misrepresentation made in response to a subjective question than to an objective question. The rationale behind the distinction between objective and subjective questions is that the answer to a subjective question will not constitute equitable fraud if "the question is directed toward probing the knowledge of the applicant and determining the state of his mind and . . . the answer is a correct statement of the applicant's knowledge and belief . . . ." Ettelson v. Metropolitan Life Ins. Co., 164 F.2d 660, 665 (3d Cir. 1947); see also 1A John A. Appleman & Jean Appleman, Insurance Law and Practice § 246, at 129 (1981) (Appleman) (noting that in New
Jersey, "the applicant's knowledge of the falsity of his
representations is material only as respects `subjective
questions'").
We agree with the Appellate Division's characterization of
question 8i as subjective; the question inquired whether the
insured suffered from a thyroid "disorder." Plaintiff testified
on deposition that the insured had told Weissberger that he had a
"normal," albeit enlarged, thyroid. She further stated that the
insured's sister had informed him that his thyroid condition did
not affect any of his "normal thyroid functions" and could be
controlled by increasing his iodine intake. Giving the insured
the benefit of all favorable inferences, as we must, the insured
could have believed that his enlarged thyroid, which functioned
normally, was not a "disorder." So viewed, the insured merely
provided a response that reflected his own belief about his
thyroid condition.
The answers to questions 8k and l lead to a different conclusion. Question 8k required disclosure of any "diagnostic" tests performed in the last five years. Question 8l required disclosure of any "consultations" with physicians other than Dr. Tillem. Answers to those questions do not call for personal opinion. The questions merely requested the facts relating to diagnostic tests on the insured and to physicians he had
consulted. When a question is unambiguous and calls for a
statement of fact, misrepresentation or concealment is
inexcusable. Stango v. Metropolitan Life Ins. Co.,
10 N.J. Misc. 1128, 1129 (Sup. Ct. 1932) (holding that question asking "[w]hen
last sick" clearly asked for statement of fact). As Appleman
states: "Questions contained in an application for personal
insurance concerning past medical treatment, consultation and the
like ordinarily are of the gravest importance, and, within
reason, it is necessary that full, complete and truthful answers
be given by the applicant." § 271, at 216. Questions 8k and l
are therefore "objective" questions. Remaining is the
determination whether the insured's misrepresentations are
material.
In the lower courts, plaintiff questioned whether the
insured's misrepresentations were material. Although petitioner
has not specifically pressed the point before us, we conclude, as
did the lower courts, that the misrepresentations were material.
An insured may rescind a policy for equitable fraud when the
false statements "materially affected either the acceptance of
the risk or the hazard assumed by the insurer." N.J.S.A. 17B:24-3(d). A misrepresentation is material if it "'naturally and
reasonably influence[d] the judgment of the underwriter in making
the contract at all, or in estimating the degree or character of
the risk, or in fixing the rate of premium.'" Manzo, supra, 122
N.J. at 115 (quoting Kerpchak v. John Hancock Mut. Ins. Co.,
97 N.J.L. 196, 198 (E. & A. 1922)).
In this case, the insured misrepresented his health by
supplying false responses to 8k and l. In response to 8k, which
inquired about diagnostic tests within the past five years, the
insured failed to reveal the battery of thyroid tests he had
undergone the previous year. Moreover, he falsely responded that
his test results from Dr. Tillem had "come back ok" when, in
reality, the thyroid-scan test had revealed nodules and the
possibility of cancer in the thyroid gland.
The insured also falsely answered "no" in response to
question 8l, which asked for the names of other physicians
consulted within the past five years. Although the insured
represented that he had not consulted physicians other than Dr.
Tillem, the insured's medical records indicate that he had
consulted two other physicians within three months of the date of
the issuance of the policy. Moreover, both Dr. Tillem and Dr.
Berg, fearing that the insured's thyroid condition might be
cancerous, had recommended surgery. Indeed, Dr. Tillem sent his
letter recommending surgery just one month before the insured
applied for insurance.
Based on the insured's application and the results of his
blood-chemistry and urinalysis tests, William Penn decided not to
order an attending physician's statement. If William Penn had
ordered such a statement from Dr. Tillem, the insured's personal
physician, it would have obtained information revealing the
insured's thyroid condition. Instead, William Penn relied on the
insured's misrepresentations. According to senior underwriter
Rice, William Penn would not have issued the policy if it had
known of the insured's thyroid and cold nodules. Because William
Penn materially relied on the insured's misrepresentations, it
may rescind the policy because of the insured's equitable fraud.
Plaintiff also argues that if William Penn had investigated
the insured's medical history, it would have learned of his
thyroid condition. Specifically, plaintiff asserts that William
Penn should have inquired further about the insured's blood-test
results and that it should have requested an attending
physician's statement from Dr. Tillem. We disagree.
An insurer's duty to investigate further arises "only when
the independent investigation . . . discloses sufficient facts to
seriously impair the value" of the application. Gallagher v. New
Eng. Mut. Life Ins. Co.,
19 N.J. 14, 22 (1955). Moreover,
[t]he mere fact that an insurer makes an investigation does not absolve the applicant
from speaking the truth nor lessen the right
of the insurer to rely upon his statements,
unless the investigation discloses facts
sufficient to expose the falsity of the
representations of the applicant or which are
of such a nature as to place upon the insurer
the duty of further inquiry.
[John Hancock Mut. Life Ins. Co. of Boston v.
Cronin,
139 N.J. Eq. 392, 398 (E. & A. 1946).
Consequently, the Cronin court concluded that an insurer's duty
to investigate is limited.
Here, the insured's blood and urine tests did not reveal any
information that contradicted or even hinted at the falsity of
his representations. The tests merely confirmed the insured's
misrepresentations. Moreover, the policy expressly provided that
"no information as to any matter made a subject of inquiry [in
the application] . . . shall be considered known by the Company
unless set out in writing on this application." That clause
precludes imputing to William Penn any information told to
Weissberger, but not included in the application. Nothing in the
application suggested that the insured had a thyroid condition
for which he had undergone extensive diagnostic testing.
Consequently, William Penn had no reason to conduct a separate
inquiry.
An insurance agent should exercise good faith and
reasonable skill in advising an insured. Weinisch v. Sawyer,
123 N.J. 333, 340 (1991). Similarly, the insured should "disclose
all facts relating to his general health in the application when
such information is requested. It is he and he alone who has the
necessary complete knowledge of such facts . . . ." Gallagher,
supra, 19 N.J. at 22.
Plaintiff contends that Weissberger negligently advised the
insured by failing to record on the application the insured's
thyroid was enlarged, by neglecting to advise the insured that he
should have answered "yes" to the question about whether he had a
thyroid disorder, and by improperly telling the insured that
William Penn would obtain his medical records from his doctor.
According to plaintiff, the insured did not disclose his
diagnostic tests and other physician consultations because he
believed William Penn would otherwise learn the full details of
his medical history. Furthermore, plaintiff asserts that if
William Penn had requested the insured's medical records, it
would have either rejected the application or accepted it at a
higher premium. Consequently, plaintiff concludes that
Weissberger breached a duty he owed to the insured.
We conclude, however, that Weissberger did not breach any
such duty. Weissberger accurately recorded the insured's answers
on the application. As plaintiff testified on deposition:
Q. Do you remember Mr. Weissberger asking
your husband question number 8,
"Has any person proposed for
insurance ever had shortness of
breath, chronic hoarseness or
coughed blood, spitting?" and your
husband replying "No."
A. I remember whatever is on there. I
remember him asking the questions
and then he would have said yes or
no if it applied to him.
Q. And Mr. Weissberger put down yes or no?
A. Whatever my husband's response.
Q. Whatever your husband's response?
A. Yes.
Moreover, we must consider Weissberger's alleged statement that
William Penn would review the insured's medical history in light
of the insured's misrepresentations. The insured misrepresented
that he did not have a thyroid condition and that he had not
consulted any other physicians within the past five years.
Knowing that he might have cancer, the insured nonetheless told
Weissberger that his diagnostic tests were "O.K." Plaintiff's
deposition reveals that the insured knew that his thyroid
condition was serious:
Q. Now, tell me, Miss Ledley, you said that
Mr. Weissberger asked you some questions and
you discussed at that time this thyroid bump
that your husband had on his neck. Prior to
that meeting with Mr. Weissberger had you
ever discussed with your husband his thyroid
bump?
A. Yes, I have.
Q. And how long prior to that meeting had
you discussed it with him?
A. After he came back from his tests with
the second physician we discussed it at that
time.
Q. And what did he say to you and what did
you say to him?
A. He told me that he had that thyroid
function and they would like to have surgery
done for the tests to make sure it's not
cancerous, that lump. And he asked me how I
felt about it.
The uncontroverted affidavit of William Penn's underwriter
states that had William Penn known of the insured's thyroid
history, it would not have issued the policy. In that setting,
we find no issue of material fact supporting plaintiff's argument
that Weissberger's negligence, rather than the insured's
misrepresentations, caused William Penn to issue the policy. We
cannot hold Weissberger responsible when the insured's knowing
misrepresentations caused William Penn to issue the policy.
The lower courts correctly recognized that this case is ripe
for summary judgment. As Justice Brennan wrote forty years ago,
[Summary judgment] is designed to provide a
prompt, businesslike and inexpensive method
of disposing of any cause which a
discriminating search of the merits in the
pleadings, depositions and admissions on
file, together with the affidavits submitted
on the motion clearly shows not to present
any genuine issue of material fact requiring
disposition at a trial.
See also Report to the Governor on the Subject of Tort Reform at
8 (Sept. 13, 1994) (advocating "the use of the summary judgment
process for disposing of meritless cases"). Here, the insured's
false statements established his equitable fraud. Both the
insurer and the agent relied on those statements in issuing the
policy. A misrepresentation about the applicant's state of
health is material as a matter of law, and proof of the falsity
of the misrepresentation will allow the defrauded party to void
the contract. Appleman, supra, § 244 at 119.
The judgment of the Appellate Division is affirmed.
Chief Justice Wilentz and Justices Handler O'Hern, Garibaldi, and Stein join in this opinion. Justice Clifford did not participate.
NO. A-35 SEPTEMBER TERM 1994
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
JANICE LEDLEY,
Plaintiff-Appellant,
v.
WILLIAM PENN LIFE INSURANCE
CO., LEONARD C. WEISSBERGER,
and PENN EQUITIES CORP.,
Defendants-Respondents,
and
JOHN DOES 1-5, JOHN DOE BEING
A FICTITIOUS NAME,
Defendants.
DECIDED January 5, 1995
Chief Justice Wilentz PRESIDING
OPINION BY Justice Pollock
CONCURRING OPINION BY
DISSENTING OPINION BY