Opinion
November 29, 1963 —
January 3, 1964.
APPEAL from a judgment of the circuit court for Rock county: ARTHUR L. LUEBKE, Circuit Judge. Affirmed.
For the appellant there was a brief by Garrigan, Keithley, O'Neal, Dobson — Elliott and Roger D. O'Neal, all of Beloit, and oral argument by Roger D. O'Neal.
For the respondent there was a brief by Ela, Christianson, Ela, Esch, Hart — Clark, and Walter P. Ela and William F. Nelson, all of Madison, and oral argument by Mr. Nelson.
Plaintiff Shirley Wisch is the widow of Robert Wisch. She brings this action against Central Life Assurance Company to set aside releases, executed by Wisch, of three life insurance policies issued by defendant on Wisch's life, to reinstate the policies, and to compel payment of the amounts of the policies less the amounts paid for the releases. Plaintiff was beneficiary under the policies.
The issues were tried before the court, and findings of fact and conclusions of law were made and filed. Judgment dismissing the complaint was entered January 15, 1963. Plaintiff appealed.
The findings of fact included the following:
"(3) In the years 1956 and 1957 the defendant issued to one Robert Raymond Wisch three life insurance policies on his life; Policy No. 684909, dated August 17, 1956 with a face amount of $10,000.00; Policy No. 689421, dated January 17, 1957 with a face amount of $5,000.00 and; Policy No. 698035, dated August 19, 1957 with a face amount of $5,000.00. The plaintiff herein was the named beneficiary of the said policies: Each of the said life insurance policies contained provision as follows:
"`After this Policy shall have been in force during the lifetime of the Insured for two years from its date of issue as written on the face hereof it shall be incontestable except for non-payment of premiums and except as to liability under the "Supplemental Agreement for
Total and Permanent Disability Benefit" and "Supplemental Agreement for Accidental Death Benefit" provisions if such provisions be included herein or issued in connection with this Policy.'
"(4) Each of said policies included a `Supplemental Agreement for Total and Permanent Disability Benefit' which provided for waiving of payments of premiums on the policies during specified periods of total disability of the insured as therein defined resulting from bodily injury or disease as defined therein. Each of said Supplemental Agreements contained the following provision:
"`The Company does not assume the risk and shall in no event incur any liability under this Agreement if such total disability shall result directly or indirectly, wholly or partly, from any of the following causes: (1) intentional self-inflicted injury, or (2) bodily injury or disease occurring before the insurance under this Policy took effect, and known to be Insured but not disclosed in the application for insurance under the Principal Policy.'
"(5) Wisch signed a written application for each of the policies. In none of the applications did he state that he had suffered for several years from an ailment which had been diagnosed as `rheumatoid arthritis' for which he had been taking cortisone or similar steroids. Defendant relied on the applications in issuing the policies, only the first of which was issued after medical examination. Wisch's prior medical history was material to the risks assumed by defendant on the policies.
"(6) Late in the year 1958 Wisch became disabled and was hospitalized in Beloit, Wisconsin, where his ailment was diagnosed as rheumatoid arthritis and hypercortisonism. In mid-December 1958 he was transferred to the Veterans Hospital at Wood, Wisconsin. On admission to the hospital at Wood the diagnosis made there was rheumatoid disease with arthritis with a further notation that this probably was polyarteritis nodosa. Polyarteritis nodosa is also known as periarteritis nodosa.
"(7) In early 1959, Wisch made application to defendant for waiver of premiums on the policies above listed under the `Supplemental Agreement for Total and Permanent Disability Benefits' agreements in the policies. Wisch was then totally disabled by his ailment. Defendant company caused an investigation to be made of Wisch's claim and first learned of Wisch's previous medical history above referred to in Finding # (5). As a result thereof defendant decided it was not liable for the premium waiver benefits of any of the policies because of clause (2) of the provision set out in Finding (2) above, and that it was entitled to rescission of the policy less than two years old, being the policy dated August 19, 1957.
"(8) Defendant thereupon engaged Retail Credit Company, an independent organization, to confer with Wisch and to state its position to him and to consult with Wisch as to whether, in view of the defendant's contention, he might wish to cancel all of the policies in consideration of the payment to him of all of the premiums he had paid on the policies plus interest to date, plus an additional consideration.
"(9) As a result of these instructions a representative of Retail Credit Company conferred with Wisch. In the course of these conferences Wisch was not harrassed, badgered, threatened, cajoled or hurried by the representative of Retail Credit Company. At no time in the course of any of the conferences did anyone on behalf of Retail Credit Company or anyone else on behalf of defendant make any material misstatement of fact or opinion to Wisch.
"(10) At the final conference, on June 29, 1959, Wisch executed releases of each of said policies and delivered the policies to the representative of Retail Credit Company. In consideration therefor drafts on the defendant were delivered to Wisch in amounts which totalled all premiums paid on the policies, interest to date of payment and several hundred dollars additional consideration. The consideration paid to Wisch was not a mere nominal consideration, and was adequate. The drafts were paid to Wisch, or his order, before his death.
"(11) Before deciding to enter into the compromise settlement agreements consisting of the releases and consideration therefor above set forth, and before executing the releases, Wisch had discussed the matter with his wife, who is plaintiff herein, and with two experienced life insurance salesmen who did not represent defendant and who advised Wisch as to his rights under the various policies. In deciding to enter into the agreements and to execute the releases, Wisch did not rely on any representations or statements made by anyone on behalf of defendant. On June 29, 1959 and at all times prior thereto Wisch was mentally competent; the functioning of his brain had not been impaired by the disease from which he suffered, or otherwise.
"(12) At the time of making said compromise settlement agreements on June 29, 1959 and prior thereto, both Wisch and defendant were fully aware of the uncertainty as to the nature of the ailment or disease from which Wisch was suffering and of Wisch's prospective life expectancy. They both elected to waive further inquiry into said uncertainties; and Wisch bargained for and received extra consideration from defendant for assuming the risks in relation thereto.
"(13) Wisch died at the hospital at Wood on August 18, 1959. The provisional autopsy diagnosis of the cause of his death was cardiac insufficiency (terminal) due to polyarteritis nodosa (years)."
The court concluded that:
"1. The compromise settlement agreements of the policies entered into between Wisch and defendant on June 29, 1959 were made for an adequate consideration.
"2. Said agreements were not made under any mutual or unilateral mistake of fact.
"3. In securing said agreements no fraud, actual or constructive, was practiced by defendant, or by anyone on its behalf, on Wisch.
"4. Said agreements were valid in all respects and were binding upon Wisch and upon plaintiff herein. Plaintiff has no legal grounds to rescind the same or set them aside or to recover of defendant on any of the policies involved herein."
Additional facts will be referred to in the opinion.
At the time Mr. Wisch gave the releases to defendant, he was totally disabled and may well have thought that he would remain so for the rest of his life. Although we now know that he had less than two months to live, the doctors were uncertain at that time of the nature of his illness. It was possible that he might live a long time, though disabled.
Defendant had issued three policies on Wisch's life. He had purchased one policy on the life of his son, not directly involved in this action.
One policy on Wisch's life had not been in force for a full two years. Defendant claimed that it had been induced to issue the policy by material false representations, and that it was entitled to cancellation upon refund of the premiums paid, with interest. Wisch accepted such refund ($368.35) and surrendered the policy. The circuit court found that Wisch had signed an application in which he did not state he had suffered for several years from rheumatoid arthritis; and that defendant relied on the application. In view of the fact that Wisch had surrendered the policy in return for the refund, it was unnecessary for the court to determine the defendant's claim of its right to cancellation upon the merits, but it is clear that defendant had at least a debatable and plausible claim to that effect which it asserted in good faith.
Two policies on Wisch's life had been in force for more than two years. Defendant concedes that it had no right to cancel these policies for fraud. The difference of opinion as to these policies concerned a provision whereby the defendant must waive premiums during a period of total disability of the insured unless (among other things) the disability resulted from disease occurring before the policy took effect, known to the insured and not disclosed in the application Wisch had applied for waiver of premium; the defendant conceded his total disability, but refused to waive premiums because it claimed the disability resulted from the rheumatoid arthritis from which he had suffered for years before applying for the policies and which was not disclosed in his applications. Here again it is clear that defendant had at least a debatable and plausible claim which it asserted in good faith.
Thus the situation at the time of release was as follows: The two incontestable policies had a combined principal amount of $15,000. They appear to have had a combined cash value somewhat less than $544.25. That amount would appear to be the cash value after the payment of premiums for the third full year. The total annual premiums were $465.25. As a result of the release transaction, Wisch gave up the right to maintain the policies in force, relieved himself of the burden of doing so, and received $2,064.53, the amount of the premiums he had paid, plus interest, plus $634.90.
With the advantage of hindsight we know that the bargain as to the two incontestable policies turned out badly for Mr. Wisch's family. Had he paid whatever monthly instalments were required to keep the policies in force until his death, about fifty days after the release transaction, his widow would have received $15,000. Wisch was, however, thirty-five years of age, and viewing the situation at the time of the release, it might have required the payment of a great many annual premiums to keep the policies in force until his death.
At the outset, plaintiff concedes that upon appeal the findings of the trial court must be sustained unless contrary to the great weight and clear preponderance of the evidence; and that in order to establish fraud plaintiff must prove her case by clear and satisfactory evidence.
Plaintiff asserts that defendant had no legal right to surrender of the two incontestable policies. This is conceded, but does not exclude the proposition that Mr. Wisch might advisedly decide to surrender them for a present consideration rather than shoulder the burden of paying premiums without earnings over what might prove to be a long period of time.
Plaintiff contends that defendant's denial of liability on the contestable policy was debatable under the law. This may perhaps be true, but its denial was on plausible grounds, apparently asserted in good faith. In response, Wisch surrendered the policy and accepted the refund of premiums.
Plaintiff's principal attacks on the findings of the circuit court are (1) that defendant's representative in the negotiations, a Mr. Berner, had a duty to disclose to Wisch the incontestable status of the two older policies, but failed to do so, and (2) that the releases were negotiated under a mutual mistake of fact as to the nature of the disease from which Wisch was suffering. Two rulings on evidence in connection with the fraud issue are attacked.
1. Nondisclosure by Berner of the incontestability of the two older policies. Berner's first interview with Wisch occurred May 27, 1959, at the hospital. This was in the course of defendant's investigation of Wisch's claim for waiver of premiums because of disability.
On June 12, 1959, after completing its evaluation of the investigation, defendant wrote to Retail Credit Company requesting service with respect to making settlement. Defendant stated that the two newer policies were contestable and should be picked up and canceled. Defendant conceded that it had no legal basis on which to insist on cancellation of the two older policies, but stated that it was not liable on the waiver-of-premium provisions. It pointed out that because it would not waive premiums on the older policies, "Mr. Wisch may feel that it would be to his best interest to dispose of these policies," and authority was given to make settlement. Defendant authorized Retail Credit to pay $1,865.10, the amount of premiums paid, plus interest, on all four policies. In order to provide latitude in negotiation, Retail Credit was authorized to increase the total amount to $2,500 for all four policies.
Berner saw Wisch on June 23d 24th, 25th, and 29th, Wisch was at home for the weekend between June 25th and 29th and on the 29th agreed to surrender all four policies for $2,500, the sum in excess of premiums paid, with interest, being allocated to the settlement of the two older policies. The releases signed by Wisch indicated with respect to the newer policies that the defendant claimed the right to cancel for fraud. The releases with respect to the older policies made no reference to a claim of right to cancel, but recited the defendant's claim that it was not liable under the provisions for waiver of premiums.
It is clear that defendant advised Berner that the two older policies were incontestable. Berner did not recall saying anything to Wisch about the two older policies being incontestable, but testified that Wisch told Berner that they were.
The testimony of Edward Johnson shows that Wisch did know they were incontestable. Johnson was formerly an agent for defendant, and sold Wisch his policies. When Wisch was at home on leave from the hospital, he asked Johnson to come over to discuss his life insurance. They talked about the fact that the two older policies were incontestable. Plaintiff testified that she heard this.
The circuit court found that Berner did not make any material misstatement of fact or opinion; that Wisch had independent advice as to his rights; that he did not rely on any representations made by Berner. These findings are not against the great weight and clear preponderance of the evidence.
2. Plaintiff's testimony as to statement by Wisch. The court ruled that Mrs. Wisch was competent to testify concerning the conversation between Mr. Wisch and Johnson, which she overheard, but in which she did not participate. She testified that Wisch told Johnson that defendant sent Berner "to see him about the three policies that Johnson had sold him, and that they wanted him to surrender the three policies." Defendant's objection that this was hearsay was sustained, although the testimony was not stricken. Plaintiff claims that the testimony was admissible to show Wisch's state of mind, i.e., that he was thinking of all three policies without distinguishing the contestable from the two incontestable ones, and that he did not understand he had a clear legal right to retain the older policies. We are unable, however, to ascribe this significance to the statement just quoted. The ruling of the court was correct.
3. Testimony of Ludwig. Robert Ludwig was a patient in the same ward as Wisch for three months and later came in daily for treatment. He was a life insurance salesman representing a different company, and Wisch questioned him about the insurance and about the waiver-of-premium provisions. Ludwig advised Wisch not to surrender his policies; Wisch would seem to agree and later seem to go back to his own way of thinking. Plaintiff offered to prove by Ludwig that Wisch said "that someone from Central Life wanted him to surrender the policy, and that he was worried about it, and that he wouldn't get anything anyway, even if there was an incontestable clause in two of these policies." An objection was sustained. Plaintiff argues that the statement was admissible to show Wisch's state of mind.
Both Johnson and Mrs. Wisch were permitted to testify to a similar statement made by Wisch to Johnson. In response to Johnson's statement that the two older policies were incontestable and that nobody could take them away from him, Wisch "said if they could wiggle out of paying waiver of premium, that he felt if something should happen to him that Shirley would never get the insurance anyway; and that he would prefer to take the twenty-five hundred dollars and surrender the policy than to be sued for fraud."
Evidently Wisch was unwilling to rely on the clause which made the older policies incontestable, even though the two insurance men advised him to do so. There was, however, no evidence to show that his pessimism about the effectiveness of the incontestability clause stemmed from any statements made by Berner.
4. Claim of mutual mistake. Plaintiff asserts that both parties assumed that Wisch was suffering from rheumatoid arthritis, which involves a prolonged course, whereas in fact he was suffering from periarteritis nodosa, a disease almost always fatal within one year.
This point has some appeal because it seems that if 'both had considered it highly probable that Wisch would die within a year, Wisch would not have given up $15,000 for $2,000, and defendant would have been willing to pay more than $2,000 to avoid the policies. The circuit court, however, found that both parties were fully aware of the uncertainty of the nature of the ailment and elected to waive further inquiry. This finding is not against the great weight and clear preponderance of the evidence.
It was determined after Wisch's death that it was caused by periarteritis nodosa, with an interval of "years" between onset and death. A physician from the Veterans' Hospital testified that very little is known about periarteritis nodosa; that it is one of a group of diseases referred to as connective-tissue diseases; that rheumatoid disease has been considered part of the same group, but he had no knowledge of any closer connection between the two diseases; that he knew of one study of polyarteritis nodosa which showed a one-year death rate of practically all the patients in a nontreated group.
We are not told how much defendant knew about periarteritis nodosa, nor that Wisch was ever told the name of the disease. It is clear that defendant had been advised of at least the possibility that his disease was periarteritis nodosa, and that Wisch had been told the doctors were not sure about the nature of his ailment.
Defendant had a report from Retail Credit, dated March 12, 1959. It said, in part, "Present prospects are not known, but his wife states that a definite diagnosis has not been made. First a diagnosis of polyarthritis had been given at the veterans' hospital and, most recently, a diagnosis — tentative only — of rheumatoid arthritis was given. Prognosis guarded."
The hospital sent a report to defendant on April 24, 1959, stating the diagnosis was "Rheumatoid disease with arthritis."
A clinical record narrative summary was sent to defendant by the hospital on June 2d. It contained a reference to a "periarteritis nodosa-like picture" and said "A muscle biopsy was done to try to prove the diagnosis of periarteritis nodosa, but this was negative."
Berner reported that on May 27th, Wisch told him that,
". . . he had been photographed and his pictures sent to various other hospitals, and from appearance, it would seem to be arthritis, but that there has now come a difference of opinions from various doctors that have examined him, and through correspondence of doctors with other locations, that this is not arthritis, but some other condition. He stated that in the past, they have just jumped to conclusion that he had arthritis, without doing any tests, biopsy, etc. but now at Wood, they had given him the `works' and there is a difference of opinion."
A statement signed by Wisch that day contained the following:
"Since 1950 the various doctors have thought I had arthritis but now they are not sure. Tests have been negative, including biopsy for arthritis, both bone and muscle. I am being curtailed of cortisone and should be off of it shortly. They will run observation or tests. Some doctors disagree that this is arthritis."
This court has said:
"Where a party enters into a contract, ignorant of a fact, but meaning to waive all inquiry into it, or waives an investigation after his attention has been called to it, he is not in mistake, in the legal sense. These limitations are predicated upon common experience, that, if people contract under such circumstances, they usually intend to abide the resolution either way of the known uncertainty, and have insisted on and received consideration for taking that chance."
Kowalke v. Milwaukee E. R. — L. Co. (1899), 103 Wis. 472, 476, 79 N.W. 762. See Bryan v. Noble (1958), 5 Wis.2d 48, 52, 92 N.W.2d 226.
By the Court. — Judgment affirmed.