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Parker Precision Products Co. v. Metropolitan Life Ins. Co.

filed: February 28, 1969.


Hastie, Chief Judge, and Kalodner and Van Dusen, Circuit Judges.

Author: Van Dusen

VAN DUSEN, Circuit Judge:

Plaintiffs-appellants challenge a March 11, 1967, order of the District Court which (a) entered judgment for defendant Metropolitan on its counterclaim for rescission of a $20,000. insurance policy on the life of the corporate appellant's deceased President on the ground that such policy was void as procured by fraud,*fn1 (b) provided for cancellation of such policy upon repayment to the corporate appellant and to the United States of America of the premiums paid ($4,744.80) plus interest, (c) at the end of appellants' case against defendant Leeds dismissed the counts of the complaint against him, and (d) dismissed the balance of the claims of appellants and the United States against defendant Metropolitan.

Parker Precision Products Co. (the company), a New Jersey corporation, applied for an $85,000. loan from the Small Business Administration in 1962. As part of the collateal it was required to assign insurance to be procured on the lives of Parker and Lucarello, its President and Secretary-Treasurer, respectively. The company made application to the Metropolitan Life Insurance Co. for a $20,000. policy on Parker's life. In the medical questionnaire (Part B of the application), Parker answered negatively this question:

"Have you ever had, or been told that you had, or been treated for, or sought advice concerning: (a) Chest pain, disease of heart, arteries or other blood vessels?"

The following language appeared above his signature:

"I have read the foregoing answers before signing. They have been correctly written, as given by me, and are true and complete."

Also, Dr. Leeds, Parker's physician, in a separate report to Metropolitan, made no mention of any heart infirmity. According to Dr. Leeds' testimony at trial, however, Parker had visited him in 1957 complaining of chest pains. He diagnosed a posterior myocardial infarction, so informed Parker, and prescribed vasodilating drugs and hospital treatment. The hospitalization was refused.

The policy was duly issued and assigned and the loan consummated. Parker died in 1964. On receiving notice of death, Metropolitan again contacted Dr. Leeds, who revealed the 1957 heart attack. He stated later at trial that he had concealed it in his 1962 report at Parker's request.*fn2 It thereupon refused to pay and this action for the proceeds ensued, Metropolitan counterclaiming for rescission on grounds of fraud. In an amended complaint, the company added counts against Dr. Leeds based on alleged deceit and misrepresentation, as well as conspiracy with Parker. The United States was made a party defendant by Metropolitan, since it remained the assignee of the policy.

This case is governed by New Jersey law, under which material misrepresentations, even if innocent, will justify rescission of a life insurance policy under the doctrine of equitable fraud. Equitable Life Ass. Soc. v. New Horizons, Inc., 28 N.J. 307, 146 A.2d 466 (1958); Gallagher v. New England Mutual Life Ins. Co., 19 N.J. 14, 114 A.2d 857 (1955); Metropolitan Life Ins. Co. v. Tarnowski, 130 N.J. Eq. 1, 20 A. 2d 421 (1941). Furthermore, a misrepresentation is material as a matter of law where knowledge of the truth would naturally influence the judgment of the insurer in making the contract, estimating the risk, or fixing the premium. Gallagher v. New England Mutual Life Ins. Co., supra ; Urback v. Metropolitan Life Ins. Co., 127 N.J.L. 585, 23 A.2d 568 (1942); Kerpchak v. John Hancock Mut. Life Ins. Co., 97 N.J.L. 196, 117 A. 836 (1922). See Garman v. Metropolitan Life Ins. Co., 175 F.2d 24 (3rd Cir. 1949). Hence, the misrepresentation in Part B of the application, denying heart disease and chest pains, was clearly material.

Appellants urge, however, that they are not bound by the representations of Parker. He independently completed and signed Part B, the medical questionnaire, four days after the company had applied for the insurance and there was no evidence the appellants saw his statements until the policy, with a copy of the completed questionnaire attached, was issued. Nevertheless, we find that provisions in the application form require the rejection of this contention.

The owner application, signed on November 1, 1962 by Lucarello in his capacity as an officer of the company, contained the following language above his signature:

"It is understood and agreed that . . . the statements and answers subscribed to by the Life Proposed in the basic application which was signed by the Life Proposed on the 1st day of Nov., 1962, including the statements and answers referred to in Item 1 of the agreements therein and the statement below when signed by the Life Proposed, shall, together with this application, ...

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