The opinion of the court was delivered by: NEALON
Plaintiffs, as co-executors of the estate of the decedent Louis C. Kneidinger, brought this action against the insurer for the proceeds of three insurance policies with death benefits totalling $ 125,000. After trial the jury found for plaintiffs and awarded the total policy amounts. Defendant timely filed a motion for judgment notwithstanding the verdict, or in the alternative for a new trial, on several grounds, two of which were mentioned and argued in its supporting brief.
First, it is contended that the court erred in admitting into evidence statements made by plaintiffs' decedent shortly after a meeting with his insurance agent. Secondly, it is contended that the court's instructions to the jury did not correctly state the Pennsylvania law governing an insurer's avoidance of payment on grounds of fraud. The motion became ripe on January 17, 1978. Defendant's motion will be denied.
Plaintiffs made out a prima facie case for recovery under the policies by showing the existence of the contracts, the payment of premiums, and the death of the insured. Defendant's evidence indicated that plaintiffs' decedent was under a doctor's care for diabetes mellitus from December 8, 1971 through November 9, 1974, but that, in answers to questions posed to plaintiffs' decedent during examinations by a paramedic, plaintiffs' decedent stated that he had no knowledge of, and had never been treated for "diabetes, or anemia, or other blood disorder." The medical examinations occurred on April 16, 1974, and January 9, 1975, shortly after meetings (held April 15, 1974, and January 6, 1975, respectively) that plaintiffs' decedent had with the insurance agent, Herbert Rittenberg, for the purpose of taking the decedent's applications. It was plaintiffs' position that the agent had, at those meetings, assured decedent that his diabetes would not have to be reported at the examinations because decedent was being treated by dietary control and not insulin and that only if insulin were involved did defendant insurer require a reporting of the medical condition and of the doctor's treatment for it.
As evidence of those assurances, plaintiffs introduced into evidence the testimony of decedent's business partner, Nelson Snyder, who testified that he overheard the agent make the assurance, and the testimony of the business partner and decedent's spouse that they heard decedent report, immediately after the meetings with the agent, that the assurances had been made. First, over defendant's objection on hearsay grounds, decedent's spouse (a co-plaintiff here) testified that, when the January 6 meeting terminated and immediately after the insurance agent had departed, decedent stated to her and the business partner that the agent had again assured him that he need not list the condition and the treatment since no insulin was involved. She also noted that the decedent made a statement of a similar assurance in 1974. N.T. 167-70. On cross-examination defendant elicited the information that the 1974 statement by decedent had been made several hours after the April 15 meeting with the agent. N.T. 177. Secondly, plaintiffs sought to introduce the testimony of decedent's business partner. Again over defendant's hearsay objections, it was his testimony that the decedent reported the assurance immediately after the January 6 meeting broke up, and that he actually overheard the insurance agent make the assurance to the decedent.
N.T. 191-98. The proffered testimony was admitted under exceptions to the hearsay rule.
The insurance agent, as a witness for defendant, flatly contradicted the testimony of decedent's spouse and business partner. It was the agent's testimony that he had no knowledge of decedent's diabetes and related medical treatment, that decedent had never informed him of the condition or treatment, and that he had never given decedent assurances that the medical questions regarding diabetes could be answered negatively.
Instructions on the Issue of Fraud in Obtaining the Insurance Policies
Defendant contends that the instructions to the jury on the crucial question of whether plaintiff's decedent obtained the policy fraudulently were erroneous. Defendant requested that the court charge the jury that if decedent "knew, at the time he filled out the (medical questionnaire), that representations contained (therein) were false, you must find for the defendant," and also requested a charge that if the insurance agent advised decedent "to make misrepresentations on the (medical questionnaire), you must nevertheless find for the defendant if you find that (decedent) made the statements, knowing that they were false." Under the circumstances of this case, the giving of the requested instructions would, without further clarification, have been a misstatement of Pennsylvania law.
To sustain its burden of showing that plaintiffs' decedent fraudulently obtained the insurance policies, defendant was required to show that material statements were false and the statements were knowingly false with a fraudulent, i. e. bad faith, intention. See Evans v. Penn Mutual Life Ins. Co. of Philadelphia, 322 Pa. 547, 550-52, 186 A. 133 (1936); Underwood v. Prudential Ins. Co., 241 Pa.Super. 27, 359 A.2d 422 (1976); Bremmer v. Protected Home Mutual Life Ins. Co., 218 Pa.Super. 364, 365-66, 280 A.2d 664 (1971). See also Woods v. National Life and Accident Ins. Co., 347 F.2d 760, 767 (3d Cir. 1965).
While knowing "falsity" is presumptively fraudulent, Evans, 322 Pa. at 553, 186 A. 133; Underwood, 359 A.2d at 425, when there is a "serious dispute" as to the insured's knowledge of a material "falsity," the central question then is the intention to deceive and that question is for the jury. Lotman v. Security Mutual Life Ins. Co. of New York, 478 F.2d 868, 871 (3d Cir. 1973).
See also Allstate Ins. Co. v. Stinger, 400 Pa. 533, 540, 163 A.2d 74 (1960).
The facts of this case warranted an instruction on bad faith. If the jury believed plaintiffs' version of the conversations between decedent and the insurance agent, it would appear to the jury that decedent had some basis for giving the medical question an interpretation different from its literal interpretation.
The jury would then be in the difficult position of trying to decide whether decedent's answers were "knowingly false" without guidance as to the broader principles involved.
In Evans the Pennsylvania Supreme Court distinguished between a warranty of a material fact by an insured (which, if merely false, results in an avoidance of the policy) and a representation of a material fact (which results in an avoidance only when the false representation is fraudulently made). 322 Pa. at 550-53, 186 A. 133. Decedent's answers to the medical question were, of course, representations. The danger to be avoided in the circumstances of this case was the risk that the jury would in effect apply the standard for a warranty. Consequently, it had to be made clear to the jury that defendant could prevail only if it demonstrated that a false representation was made fraudulently. Id. at 553, 186 A. 133. Thus, the jury was charged that defendant had to prove that decedent "not only knew that the representation was false," i. e. false in a strict sense, "but that he made the representation in bad faith. . . ."
The circumstances of this case required, in light of the central principle that a policy can be avoided only if false representations are made fraudulently, the use of a bad-faith instruction.
I need not decide that such an instruction is always appropriate in these cases but only that the instruction was appropriate here. See Lotman, 478 F.2d at 871.
Admission of Hearsay Statements on the Issue of Decedent's Good Faith
Defendant argues that the testimony of decedent's spouse and business partner regarding statements allegedly made to and by decedent should have been excluded as hearsay not within any exception. See generally Fed.R.Evid. 801 Et seq.; 4 J. Weinstein & M. Berger, Weinstein's Evidence PP 800(03) & 801(c)(01) (1977). As discussed in more detail supra, decedent's spouse testified that decedent had made statements, to the effect that assurances had been given him by the insurance agent, (1) several hours after he met with the agent on April 15, 1974, and (2) immediately after the meeting January 6, 1975. Decedent's business partner testified (3) that he overheard the agent at the January 6 meeting give an assurance and (4) that he also heard the statement made by decedent immediately after the meeting.
The question is whether the four distinct items of testimony are each hearsay, and, if so, whether they are within ...