Opinion
Rehearing Denied May 28, 1974. Opinion Superseded 325 N.E.2d 204.
William E. Harris and Ronald L. Sowers of Torborg, Miller, Moss, Harris s&sSowers, Fort Wayne, for plaintiff-appellant.
John C. Thrapp of Thrapps&sThrapp, Kendallville, Phil M. McNagny, Jr., of Gates, Gatess&sMcNagny, Columbia City, for defendant-appellee.
HOFFMAN, Chief Judge.
This is an appeal by plaintiff-appellant The Prudential Insurance Company of America (Company) for reversal of a judgment against the Company on its amended complaint and in favor of defendant-appellee Duane L. Winans (Winans) on his counterclaim. The Company sued to rescind and cancel an insurance policy issued to Winans alleging that the application for the insurance contained certain material misrepresentations of fact.
The facts and inferences most favorable to Winans to be drawn from the evidence presented at trial are that Winans applied for medical insurance with the Company. In response to questions on the Company's application form, and after consultation with its agent while filing out the form, Winans answered that he had a history of stomach problems, including ulcer surgery, but that he had made a 'complete recovery.' He wholly omitted reference to a hospitalization for diagnostic tests and consultations with doctors relating to stomach discomfort, because he had been advised that he was not ill.
After the Company issued the insurance to Winans, he was found to be suffering from an ulcer which required surgery. Due to the nature of this malady, it is not possible to ascertain when it developed, according to the testimony of one doctor.
After an investigation of the circumstances of Winans' ill health, the Company made tender of premiums paid by Winans, and sought to rescind the insurance contract and recover benefits paid thereunder. Winans counterclaimed alleging additional benefits were due under the contract which had not been paid.
At the close of the Company's evidence a motion for summary judgment was denied. Also, its oral motion for judgment on the evidence at the close of Winans' case was denied. The jury returned a verdict in favor of Winans on his counterclaim and against the Company on its amended complaint, and the trial court entered judgment on the verdict.
The Company asserts that the trial court erred in allowing Winans to testify about conversations with its agent concerning his answers to the questions on the insurance application.
The Company's motion to correct errors did not contain the questions, objections, ruling of the court, and answers which it contends violate the parol evidence rule. However, this is not required by Rule TR. 59(B), Indiana Rules of Procedure, and the case law interpreting it. The Company set out the substance of the testimony, objections and rulings in its motion to correct errors and the same are set fourth verbatim in its brief. Thus, the case at bar is clearly distinguishable from Daben Realty Co., Inc. v. Stewart (1972), Ind.App., 290 N.E.2d 809, 34 Ind.Dec. 505, where the court held an issue waived because neither the motion nor the brief contained even the substance of the question or the objection thereto. Here the matter in controversy was presented both in substance and verbatim, and so properly presents an issue for appeal.
Winans contends that the Company made fraud an issue in the case through its pleadings, and thus made the content of the conversations between himself and the agent during the completion of the application form an issue in the case.
Although this issue was raised by the Company's pleadings, it was not an issue at trial. The issues are crystalized in the pretrail order. Kruss v. Sinks&sEdwards, Inc. (1970), 148 Ind.App. 183, 195, 264 N.E.2d 320, 328. A careful examination of the pretrial order in the case at bar discloses no reference to any issue of fraud. Although such order included the issue as to whether Winans furnished all the information requested by the Company's agent, this is not tantamount to an issue of fraud since there is no contention that the omissions were knowingly made. Thus, there was no question of actual fraud.
There also was no issue of constructive fraud. Certainly the Company could have introduced the issue of constructive fraud into the litigation. However, it did not do so. Winans cannot assert his own constructive fraud to make his own parol evidence admissible. To allow him to do so would be to permit a defendant to control a plaintiff's theory of his case. And, Winans alleged neither actual nor constructive fraud on the part of the insurance company in inducing him to enter into the insurance contract. The issue was not before the trial court. Therefore, the testimony objected to could not have been properly admitted as neither actual nor constructive fraud was an issue for the jury.
The actual purpose and effect of this testimony is revealed by a review of its content. Winans testified that he conferred with the agent in filling out the application, and volunteered all information requested by the agent. He further testified that this included information about his previous operation and the surgeon who performed it, the name of his family doctor, and that the agent made no other inquiries about his ulcer problems. Further, he was told he would be the tenth employee on the policy, which would lower the rates for the employer and the other nine employees. Winans also testified that he told the agent he already had medical insurance, and that the agent replied that the Company's insurance was 'a better coverage.'
The cumulative effect of this testimony was to improperly indicate to the jury that the Company, through its agent, had induced Winans to apply for insurance by encouraging him to change to their Company and by accepting less than the full and complete answers requested on its application form. Winans' testimony of this apparent alteration of the terms of the form by the agent amounts to an attempted variation of the terms of the written agreement by parol evidence. This evidence could have been introduced for no other purpose.
It is elementary that parol evidence is inadmissible in Indiana where, as here, it varies basic, easily understandable terms of a written instrument which becomes part of an insurance contract. Vernon Fires&sCasualty Insurance Co. v. Thatcher (1972), Ind.App., 285 N.E.2d 660, 32 Ind.Dec. 112 (transfer denied), 292 N.E.2d 606; Wells v. Vermont Life Ins. Co. (1902), 28 Ind.App. 620, 62 N.E. 501, 63 N.E. 578.
Furthermore, Indiana provides by statute that an insurance contract and the application form must state that they alone 'constitute the entire contract between the parties.' IC 1971, 27-8-5-10, § 39-4260(B)(1), (Burns Cum.Supp. 1973). This requirement, coupled with the parol evidence rule, eliminates the evils caused by verbal representations by informing all applicants that they may rely only upon statements printed in the application form and insurance contract presented to them.
The application form which Winans signed stated immediately above his signature, 'I * agree that no agent has authority to waive the answer to any question in this application, * * * to modify this application or to bind the Company by making any promise or representation or by giving or receiving any information.' This statement is so explicit as to inform an ordinary man that the agent with whom he is dealing has no power or authority to vary the type or scope of information requested by the application.
Under the law of this State and the explicit terms of the insurance application he signed, Winans cannot be allowed to vary the terms of his insurance contract by testifying to the agent's representations. The admission of this testimony was, therefore, prejudicial error. The effect of its admission was so detrimental to appellant's case as to constitute reversible error.
Reversed and remanded for a new trial not inconsistent with this opinion.
LYBROOK, J., concurs.
STATON, J., dissents with opinion.
STATON, Judge (dissenting).
I dissent from the majority opinion for two reasons:
REASON ONE: Constructive Fraud is an Issue:
Constructive fraud is inherent in the issue of whether a material representation was made on the insurance application. The parol evidence rule has no application here. The majority opinion is incorrect in applying the parol evidence rule to Winan's testimony.
The pre-trial order clearly indicates at page 157 of the transcript that a material misrepresentation by omission was in issue. The pre-trial order states:
'G. The Contested Issues of Fact Are:
'Those implicit in the pleadings and in the statements of claims submitted by each of the parties, including, but not limited to the following:
1. Whether Plaintiff issued Policy No. GF8-924-013 in reliance on Defendant's written application.
2. Whether the answers contained in Part II 3a of Defendant's written application were material misrepresentation. SUBJECT TO INDIANA LAW ON MATERIAL MISREPRESENTATION WHICH PLAINTIFF BELIEVES WILL REMOVE THIS ISSUE FROM FACTUAL DETERMINATION AS A MATTER OF LAW.'
Again at page 159 of the transcript under subsection 'H' the parties considered the evidentiary problems involved. Item 2 is as follows:
'2. What is a material misrepresentation as a matter of law?'
It is abundantly clear from the pre-trial order that a material misrepresentation by omission was an issue of fact. Duane L. Winans had not stated on his insurance or underwriters application that he had a negative test and examination regarding stomach symptoms that he had experienced since his ulcer operation. Constructive fraud does not require that the omission be made knowingly. This Court in Coffey v. Wininger (1973), Ind.App., 296 N.E.2d 154, 159 set out the difference between actual fraud and constructive fraud.
'Fraud may be actual or constructive. Budd v. Bd. of Co. Comrs. of St. Joseph Co. (1930), 216 Ind. 35, 22 N.E.2d 973. Actual fraud is intentional deception. The presence or absence of the intent to deceive distinguishes actual from constructive fraud. Daly v. Showers (1937), 104 Ind.App. 480, 486, 8 N.E.2d 139 (transfer denied.)
'The essential elements of fraud are a material representation of past or existing facts, made with knowledge (scienter) or reckless ignorance of this falsity, which cause a reliance upon these representations, to the detriment of the person so relying. Middlekamp v. Hanewich (1970), 147 Ind.App. 561, 263 N.E.2d 189, 23 Ind.Dec. 187. See also: Gladis v. Melloh (1971), Ind.App., 273 N.E.2d 767, 27 Ind.Dec. 131 (transfer denied).
'Constructive fraud has been defined as 'a breach of legal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the law declares fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure public interests.' Budd v. Bd. of Co. Comrs. of St. Joseph Co., supra, at 39 of 216 Ind., at 975 of 22 N.E.2d.'
For a discussion of the application of constructive fraud see Smarts&sPerry Ford Sales, Inc. v. Weaver (1971), Ind.App., 274 N.E.2d 718. In Vernon Fires&sCasualty Insurance Co. v. Thatcher (1972), Ind.App., 285 N.E.2d 660, 665, Judge White, writing for the Second District of this Court, stated:
'. . . The parol evidence rule has never operated to merge or integrate actionable misrepresentations.'
(Also see footnote 7 of Vernon Fires&sCasualty Insurance Co. v. Thatcher, supra.)
The parol evidence rule does not apply to constructive fraud issues. A material misrepresentation by omission was an issue of fact in the present case, and therefore, the parol evidence rule would not apply to Duane L. Winans' testimony. The majority opinion's application of the parol evidence rule to the misrepresentation issue is a misapplication of the law.
REASON TWO: Effect of the Parol Evidence.
I do not agree that the effect of the parol evidence was to vary the terms of the written agreement. The effect of the parol evidence was to show the omission's lack of materiality to the acceptance of the risk by the insurer. In New York Life Insurance Company v. Kuhlenschmidt (1938), 213 Ind. 212, 217, 11 N.E.2d 673, our Supreme Court quoting from Mutual Benefit Life Insurance Co. v. Miller (1872), 39 Ind. 475, 486, stated:
The majority opinion states:
". . . . A fact is to be deemed material, if a knowledge of it would have induced the insurer to have refused the risk or to have charged a higher rate of premium for taking it. . . ."
Our Indiana Supreme Court further set out the test of materiality in New York Life Insurance Company v. Kuhlenschmidt, supra, 213 Ind. at 220, 11 N.E.2d at 676:
'The test of materiality, then, is not found by answering whether the information withheld was concerning an illness that affected the risk, but in answering whether it was of such a character that it might reasonably have influenced the insurer in accepting the risk or fixing its terms.'
Admittedly, such a determination can be a question of law. Equitable Life Assurance Society v. Strasberg (1938), 214 Ind. 212, 14 N.E.2d 703; Automobile Underwriters, Inc. v. Stover (1971), Ind.App., 268 N.E.2d 114. Here, the question of materiality was one of fact. It was a question of fact upon which reasonable men may differ. Brunnemer v. Metropolitan Life Insurance Co. (1938), 213 Ind. 650, 14 N.E.2d 97; Prudential Insurance Co. v. Hettmansperger (1944), 114 Ind.App. 453, 52 N.E.2d 847. The trial court recognized the factual nature of the materiality by denying Prudential Insurance Company's motion for judgment on the evidence. The materiality of the omission and the duty of Duane L. Winans to disclose the negative medical examination was properly a question of fact for the jury.
The majority misapplied the parol evidence rule to a material misrepresentation issue. The materiality of the omission was factual and one upon which reasonable men may differ. The jury's verdict and the court's judgment for Duane L. Winans should be affirmed.
'The cumulative effect of this testimony was to improperly indicate to the jury that the Company, through its agent, had induced Winans to apply for insurance by encouraging him to change to their Company and by accepting less than the full and complete answers requested on its application form. Winans' testimony of this apparent alteration of the terms of the form by the agent amounts to an attempted variation of the terms of the written agreement by parol evidence. This evidence could have been introduced for no other purpose.'