Sternaman v. Metropolitan Life Insurance

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

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

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

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 con

What was the contract between the insured and the examit ner ? Hone whatever. The insured did not employ the examiner and the examiner did not agree to work for him. Heither 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 ip 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

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. (Rathlone 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 ivitli a blank and had invested him with power to take down the answers and, hence, with power to decide hoAV 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, Avho 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 ansAvers 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 Avas 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. (Van Schoick v. Niagara Fire Ins. Co., 68 N. Y. 434 ; O'Brien v. Home Benefit Society, 117 N. Y. 310 ; Kenyon v. Knights Templar & M. M. A. Association, 122 N. Y. 247 .)

The insured also agreed that “ no information or statement

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 accep'ted 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. Holland Purchase 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

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, Moble 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 com

The OF'arrell 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

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.

(dissenting). The decision about to be made is an unusually interesting one because it introduces a new feature into the law of contracts by which persons of sound and open minds and honest purposes are cut off in one direction from freedom of contract, in that they may not agree that an intermediary shall for all purposes of the contract be deemed the agent of one of the parties if some court be of the opinion that' he was the agent of the other; and this is to be held notwithstanding this court, in Allen v. German

The underlying- reason prompting this decision received both consideration and condemnation in Maier v. Fidelity Mut. Life Assn. ( 78 Fed. Rep. 566 ), by Mr. Justice Harlan, writing for the Circuit Court of Appeals of the sixth circuit, hip associates concurring. In that case an application blank was erroneously filled up by an agent of defendant, for whose neglect or Avrong plaintiff contended the defendant should not be advantaged, and the court said : “ But here the assured was distinctly notified by the application that he Avas the party held as warranting the truth of his statements, ‘ by whomsoever Avritten.’ Such Avas the contract between the parties, and there is no reason in lam or in public policy why its terms should not be respected and enforced in an action on the written contract. It is the impression with some that the courts may, in their discretion, relieve parties from the obligation of their contracts whenever it can be seen that they have acted heedlessly or carelessly in making them. But it is too often forgotten that in giving relief, under such circumstances, to one party, the courts make and enforce a contract which the other party did not make or intend to make.”

In the case" at bar the defendant proved a breach of warranty which forfeited the policy. The facts thus warranted are found in that part of the application signed by the medical examiner and the contention of the plaintiff is that Dr. Langley, the medical examiner, was the agent of the defendant, and hence it may be shown that the insured communicated to him certain facts about his life which the doctor did not write down and which were in conflict Avith those written down and that this may be done notwithstanding the application, which forms part of the contract, contains this provision :

“It is hereby declared, agreed and warranted by the undersigned that the answer and statements contained in the forego

ing application and those made to the medical examiner as recorded in parts ‘ A’ and ‘B’ of this sheet, together with this declaration, shall be the basis and become part of this contract of insurance with the Metropolitan Life Insurance Company; that they are full cmd t/rue and are correctly recorded, cmd no information not contained in this application and .in the statements made to the medical exa/rmner (‘ A ’ and ‘ B ’ respectively), received or acquired at any time by. any person shall be binding upon the company or shall modify or alter the declaration and warranties made therein; that the person who wrote in the answers and statements were cmd are our agents for the purpose cmd not the agents of the company / and that the compa'tvy is not to he taken to he responsible for its preparation or for anything contained therein or omitted therefrom ¡ that any false, incorrect or untrue answer, any suppression or concealment of facts in any of the answers, any violation of the covenants, conditions or restrictions of the policy, any neglect to pay the premium on or before the day it becomes due shall render the policy null and void and forfeit all payments made thereunder.” ■

At the close of the statements of the medical examiner which are to be found in Exhibit “ B ” is the following: “ I hereby declare that the application to the Metropolitan Life Insurance Company, on the reverse of this sheet, for an insurance on my life, was signed by me, and that I renew and confirm my agreement therein as to the answers given above to the medical examiner, and I hereby declare that said answers are correctly recorded.” This was followed by the signature of the applicant.

It appears, therefore, by the terms of the contract that the insured declared that the medical examiner had correctly recorded the answers given to the questions, and it would seem that in the absence of fraud, of which there is no pretense in this case, that the insured would be bound by the answers written out by the medical examiner although he were in fact the defendant’s agent and there was no agreement on the part of the insured and the company that the physician

Mow, notwithstanding his agreement renewed arid confirmed the answers as written out by the medical examiner, those answers were in fact untrue in important particulars, so important that it is quite likely that if the questions had been answered truly a policy would not have been issued. But that fact, if it be such, is one of no legal importance in the disposition of this case. By the terms of the application it was agreed that the insured warranted the truth of the answers as they appeared in the application and further that if untrue the policy should be null and void.

Unless the right of insurance companies and individuals to contract with each other as they will may be abridged by the courts this judgment must be affirmed. That the legislature may provide a standard form for life insurance policies is unquestioned, but the power is legislative and. no attempt should be made indirectly to exercise it by the courts, which would best discharge their duty in the end, as experience proves, by giving full force and effect to the contracts of all parties.

The method by which the plaintiff sought to relieve the contract from the effect of the several untrue answers in the application upon which the defendant acted, was to prove that the insured made very different answers to Dr. Langley, the physician.who undertook to write down the replies, to prove, in fact, that the insured told Dr. Langley everything which the defendant has now proved about his physical condition, and then to ask the court to hold, notwithstanding the insured had contracted to the contrary, that Dr. Langley was the defendant’s agent, and hence that the defendant is estopped from denying that it knew the whole truth about the insured’s prior state of life.

The defendant’s counsel contended, and so far the courts have sustained him, that his client had issued its policy in reliance on the truth of the statements contained in the application, and that Sternaman, the applicant, had in terms

The reasons presented in support of defendant’s contention are briefly stated in the language of Mr. Justice Williams in Bernard v. United Life Ins. Assn. ( 14 App. Div. 142 ), in which all his associates concurred. The aim of the defendant is “ to protect itself in two respects by its policy: First. Against any attempt by the agent and the insured conspiring together to defraud the company, by presenting to it an application containing false statements and answers, and securing a policy thereon, which would not have been issued had the truth been known to the company. Second. Against any attempt by the beneficiary, after the death of the assured, by parol evidence, to avoid the effect of false statements and answers in an application upon which a policy was actually issued.” These reasons seem to be well grounded, for it is not in the public interest that frauds should be permitted for the benefit of individuals, however needy they may be.

But it matters not whether the reasons be sound or not, the defendant has a right to issue policies of insurance to such persons and upon such terms as it chooses, so long as it violates no provision of law, and he who would be insured must accept its contracts upon its own terms or go elsewhere for his insurance.

These parties agreed that for the purposes of the application for the policy of insurance the medical examiner who wrote down the'answers was to be regarded by both parties as the agent of the applicant, and one of thé objects of that stipulation was to assure the defendant that it could rely upon the truth of the answers contained in the application and that it

But in any event the defendant has the right to insist as a condition of its issuing the policy that an applicant shall agree that for the purposes of the application and the issuance of the policy whoever fills up the blanks, whether he be in the employ of the defendant, or a soliciting agent, or one occasionally paid by it for making a medical examination, shall for that purpose be deemed the agent of the applicant. If the applicant does not care to so agree he need not make the application. But if ho does make it and incorporates that agreement into his application and upon the strength of it the policy is issued, he is bound by it and the defendant is entitled to the full protection of it, and so this court and the Supreme Court of the United States have unvaryingly held.

Rohrbach v. Germania, Fire Ins. Co. ( 62 N. Y. 47 ) was an action on a policy issued for insurance against fire. The facts stated in the application were by its terms made warranties as stated therein. They proved to be untrue and it was held that a recovery could not be had, although the applicant had truly stated the facts to the agent who filled up the application, and the reason for it was, as in this case, that the policy provided in effect that the agent should be deemed the agent of the insured, and not of the company, and it was held that the knowledge of the agent was immaterial and could not affect the warranty. In the course of the opinion the court said: “ It is hereupon urged by the plaintiff that the errors and omissions were those of the defendant. But the plaintiff and defendant have in the policy, the contract between them, expressly agreed that Brand should be deemed the agent of

The Rohrbach case was followed by the Alexander Case ( 66 N. Y. 464 ). That contract contained the following clause: “ It is a part of this contract that any person other than the assured who may have procured this insurance to be taken by this company shall be deemed to be the agent of the assured named in this policy and not of this company under any circumstances whatever or in any transaction relating to this insurance.” The court (Judge BapAllo writing) on the assumption, as he said, that the agent, Brewster, was the agent of the company for the purposes of the application, said: “ But the policy now in question contains an express agreement that any person other than the assured who may have procured the insurance to be taken by' the company shall be deemed to be the agent of the assured, and not of the company under any circumstances whatever, or in any transaction relating to the insurance. In Rohrbach v. Germania Fire Ins. Co. ( 62 N. Y. 47 , supra) this court decided that such a clause was operative and precluded the insured from claiming that the company was bound by the knowledge of a similar agent through whom the policy had been procured.”

The last utterance on the subject in this court is to be found in the Allen Case ( 123 N. Y. 6 , supra). In that case,

The parties were competent to make that stipulation, said this court in that case, but they are not competent to make the stipulation in this case, it is now said. Ho attempt, however, is made to give a reason for holding that the parties are competent to make one but not the other. Hone can be given, I assume, that will persuade any mind.

A reversal in this case will, as a matter of fact, overrule Allen's case, and it would seem as if the court’s assertion in that case of competency on the part of the parties to contract as they did should be opposed with something more than a contrary assertion in this case; that, at least, the court should point out what it is that prevents two men of sound mind, dealing with each other honestly, from agreeing that for all the purposes of a particular contract a person who shall act as the agent for one shall be deemed the agent of the other.

The Maier Case ( 78 Fed. Rep. 566 , supra) has already been briefly referred to, and other reference to it will not be had except to say that the contention of the plaintiff in that

This position is followed in a carefully considered opinion by the Appellate Division of the first department in Bernard v. United Life Ins. Assn. ( 14 App. Div. 142 , supra) and by the fourth department in Hamilton v. Fidelity Mutual Life Assn. ( 27 App. Div. 480 ), and there are no later authorities in this court or in the United States Supreme Court to which our attention has been called which are in conflict with the decisions to which reference has been made.

Appellant’s counsel cites Sprague v. Holland Purchase Assn., ( 09 N. Y. 128 ) and Whited v. Germania Fire Ins. Co. ( 76 N. Y. 415 ). The Sprague case, the opinion in which was written by Judge Folger, who also wrote in the Pohr-Icaclb case, is distinguishable from the latter in two respects, which will be sufficiently pointed out by taking extracts from tbe opinion. The first is : “Nor will the defendant’s position hold, that Bowers ivas the agent of the plaintiff therein. There is the clause, to be sure, in the policy, that he who procures the insurance from the defendants shall be held by contract to be the agent of the plaintiff. There is, however, the other condition hostile thereto, imposed Icy the defendants themselves, that the ajcpclication must Ice made out Icy an authorized agent of them. And the referee finds, and so is the proof, that Bowers was the agent of the defendant.” And the second extract is: “ This defense of the defendant rests entirely upon the statement in the paper called the application. There is no finding of fact which permits us to call that the application of the plaintiff, and hence his war

The opinion in the Whited case, Judge Folger again writing, distinctly approves of the Rorhbach case, which is controlling in the case at bar. After saying that it would be fatuous to deny that Harmon was the agent of the defendant were it not for a clause in the policy upon which the defendant builds, the opinion continues: “ The clause is in this wise : That any person other than the assured, who may have procured the insurance to be taken, shall be deemed to be the agent, of the assured, and not of the company, under any circumstances whatever, or in any transaction relating to this insurance. That clause we have held to be forceful, in Rohrbach v. Germania Fire Ins. Co. ( 62 N. Y. 47 ) and Alexander v. Same Defendant ( 66 N. Y. 464 ). We have not held it so, as yet, further than the scope of the facts in those cases. * * * That case [referring to the Rohrbaeh case] dealt with mattei's before the issue of the policy,” meaning thereby that the stipulation by which the plaintiff agreed that the answers were true and were made by him, and that if written out by another that other was his agent and not the agent of the company, was incorporated into the application upon which the company acted in determining whether to issue a policy, in the Rohrbaeh case, whereas in the Whited case the policy was not issued on the strength of a partly written and partly printed application, and the provision as to agency was merely incorporated in the policy which was procured through one Harmon, who countersigned it as defendant’s agent. That polic.y was renewed twice, each renewal receipt being signed by the defendant’s president and each containing this clause: “ Hot valid unless countersigned by the duly authorized agent of the company.” Each receipt was countersigned by Harmon, who received the premiums and forwarded them tó the defendant. On applying for a third renewal plaintiff informed Harmon that he had sold the premises and that his interest was as mortgagee. Harmon received the premium, gave

If there are any other authorities in this court which, even as a matter of ii rst impression, appear to militate against the position taken by this court and'the United States courts in the cases cited supra, they have not been brought to my attention. The Grattan Cases ( 80 N. Y. 281 and 92 N. Y. 274 ), and Flynn v. Equitable Life Lns. Co. ( 78 N. Y. 568 ), and O'Brien v. Home Benefit Society ( 117 N. Y. 310 ) certainly do not, for they have not even the merit of being in point. The question presented in this case was not raised in those cases, and could not have been because in none of them did the contract contain a stipulation that the medical examiner or other representative of the company should be deemed to be the agent of the insured.

Since the foregoing was written I have found the case of Northern Assurance Co. v. Grand View Buildg. Assn. ( 22 Sup. Ct. Rep. 133 ), decided by the U. S. Supreme Court less than two months ago, which contains an exhaustive review of the cases both in England and this country which have grown out of attempts through one device or another to break down the written contract by parol evidence. In that case the attempt was made to show knowledge in the company’s agent of a fact denied in the policy, and because of such agency to charge the company with knowledge. The court in repudiating the plaintiff’s contention pays critical attention to some of the authorities in this state and demonstrates, as I think, that both on principle and on the authority of nearly all jurisdictions in this country, as well as England, the stipulations of this contract should control.

The judgment should be affirmed, with costs.

O’Brien, Bartlett, Haight and Martin, JJ., concur with Vann, J.; Gray, J., concurs with Parker, Ch. J.

Judgment reversed, etc.