The opinion of the court was delivered by: MASTERSON
Plaintiffs, co-beneficiaries of a life insurance policy issued by the defendant, Security Mutual Life Insurance Company of New York, on the life of their mother, Mrs. Minnie Glazer, brought an action for the proceeds after defendant denied the claim.
Security Mutual refused payment on two bases (1) that the decedent had made fraudulent misrepresentations which were relied upon by the defendant in issuing the policy, and (2) that the decedent had committed suicide, an event for which the policy expressly denied coverage. Before trial, defendant also asserted that by accepting a refund of premiums, plaintiffs had agreed to a mutual recision of the policy. The two questions of fraudulent misrepresentations and suicide were submitted to the jury which returned a verdict for the plaintiffs. Since the issue of mutual recision involves essentially a question of law, it was agreed that, if necessary, the court would decide that point based on the depositions, without a jury, after the trial.
In the spring of 1966, defendant's insurance agent, Robert Fainblatt, was looking for clients to whom he could sell life insurance policies and asked his friend, Charles Lotman, to approach his mother, the decedent, and ask if she had any interest in purchasing a policy. Charles Lotman arranged a meeting at his mother's apartment, and as a result, Mrs. Glazer made application for a $25,000.00 policy with the defendant.
On April 2, 1966, Mrs. Glazer was visited at her apartment by Dr. Kerman Snyder, an examining physician hired by the defendant. Dr. Snyder filled out a medical form, which was then signed by Mrs. Glazer. It contained many inaccuracies, including misinformation concerning Mrs. Glazer's prior history of mental illness, misstatements concerning the birth dates of both of her two sons, and misstatements concerning the number of sisters which she had alive.
On May 10, 1966, defendant issued the insurance policy on the life of Mrs. Glazer. The plaintiffs, Bernard and Charles Lotman were named as co-beneficiaries.
On May 31, 1966, Mrs. Glazer was admitted to the Institute of the Pennsylvania Hospital, a psychiatric institution, where she remained until June 27, 1966, a period of approximately four weeks. The diagnosis made on discharge was manic-depressive reaction, depressed type, and acute brain syndrome, probably due to barbiturate intoxication.
Dr. Philip Milstein, who was then the resident physician in charge of Mrs. Glazer stated that on admission she was confused, evasive and vague in her replies and was an unreliable historian. It was found that she had been suffering from a psychosis since 1954 when her first husband died. Moreover, the manic-depressive psychosis was chronic and of a recurrent nature.
A mental status examination administered by Dr. Milstein showed that Mrs. Glazer exhibited impairment of both recent and remote memory, in addition to impairment of her attention, concentration and judgment. Dr. Milstein was of the opinion that since March of 1965, Mrs. Glazer had suffered some impairment in her functioning on a daily basis and that it may have been worse on some days than others.
While at the institution it was also learned that Mrs. Glazer was a chronic user of barbiturates (sleeping pills). She had a grand mal seizure shortly after her admission, and Dr. Robert Jones, the associate medical director at the Institute, stated that the seizure was the result of withdrawal from a large amount of barbiturates which she had been taking for some time. Dr. Jones confirmed Dr. Milstein's testimony that Mrs. Glazer was an unreliable historian due to her psychosis and the use of barbiturates.
On April 11, 1967, approximately a year after she made application for the insurance policy, Mrs. Glazer died. The cause of her death was barbiturate poisoning. Shortly thereafter, Bernard Lotman and Abraham Glazer (the decedent's husband) qualified as co-administrators of her estate.
A claim was submitted by plaintiffs, Bernard Lotman and Charles Lotman, as beneficiaries of the life insurance policy, but defendant rejected it on the ground that Mrs. Glazer had committed suicide and made certain misrepresentations in her medical form. The policy provided in part that:
"If the death of the Insured shall result from suicide within two years from the Issue Date, the liability of the Company under this policy shall be limited to the amount of premiums paid. . . ."
Defendant subsequently decided to rescind the policy by means of a check in the amount of $1,483.50, the premiums paid under the policy, payable to the estate of Minnie Glazer. Apparently, the check was first delivered to Charles Lotman who turned it over to his brother. Bernard held onto the check for almost two years without cashing it, and then sent it back to Security Mutual and requested a new one because the old check had become stale. Accordingly, another check in the same amount was sent to Bernard Lotman. He endorsed this check -- "Estate of Minnie Glazer, Deceased, Bernard Lotman, Administrator C.T.A." -- and deposited it in a joint bank account which he maintained with his brother Charles, who was not an administrator of the estate.
I. FRAUDULENT MISREPRESENTATIONS
Under Pennsylvania law, an insured's statements in an application for life insurance will extinguish liability for the proceeds of the policy if the insurer can show: "(1) the statements made by the applicant-insured were false; (2) their subject matter was material to the risk; and (3) the applicant-insured must have known them to be false and made them in bad faith." Lynch v. Metropolitan L. Ins. Co., 427 Pa. 418, 424, 235 A.2d 406, 409 (1967). See also, Allstate Insurance Co. v. Stinger, 400 Pa. 533, 163 A.2d 74 (1960).
At trial, there was no dispute that when she executed the application for insurance on April 2, 1966, Mrs. Glazer made false and material misrepresentations as to her physical and mental history. Nor was there any dispute that had defendant been fully advised as to her history, no policy would have been issued. But the issue of Mrs. Glazer's knowledge of the falsity of the statements and her bad faith was vigorously contested. In connection with this issue, defendant raises two complaints.
First, Security Mutual asserts that the court erred in charging that the defendant had the burden to persuade the jury that these misstatements were made "in bad faith for the purpose of deceiving the insurance company." (Charge at p. 6). Specifically it is argued that an instruction requiring an insurance company to show an intent to deceive was improper under Pennsylvania law. Defendant relies upon Ostrov v. Metropolitan Life Insurance Company, 260 F. Supp. 152 (E.D. Pa. 1966), where the court stated that in order to prevail on the ground of fraudulent misrepresentation, the insurer need not show that the insured "'practiced a deception * * * with deliberate intent to deceive.'" Id. at 165. The court further indicated that Pennsylvania law was in accord with that stated in Stopper v. Manhattan Life Insurance Co. of New York, 241 F.2d 465 (3rd Cir. 1957), cert. denied, 355 U.S. 815, 78 S. Ct. 17, 2 L. Ed. 2d 32 (1957), where the court said:
" . . . the knowledge of the insured that he is making a false statement itself establishes the bad faith on the basis of which a verdict must be directed. This is such a case, since the documents in evidence make it clear that the insured must have known that he was withholding the more recent and significant part of the ...