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ton, Tenn., walking on the street, was seized AMERICAN NAT. INS. CO. v. BROWN. with an attack, the nature of which is not (Court of Appeals of Kentucky. March 12, clearly shown, and from the effects of which 1918.)
he fell upon the sidewalk and received se1. INSURANCE 138(2) REBATES LIA- vere injuries about his face that required BILITY OF COMPANY.
medical attention and kept him in Covington Where insured makes note covering premium for a few days, after which he returned to which is accepted by insurer and policy is exe- his home in Louisville. In the meantime the cuted and delivered, the insurance company is bound, although there was an agreement be application of Brown, together with the medtween the agent and the insured to a rebate in ical examination made at the time of the apviolation of Ky. St. 8 656.
plication, had been forwarded by Bohon to 2. INSURANCE 137(4) LIFE INSURANCE
the company at its home office in Galveston, PREMIUMS—“PAYMENT."
Where condition is that policy will not bind Tex., and on September 8, 1915, the policy, insurer until the premium is paid, acceptance in accordance with the application, was isof a note by the insurer constitutes payment. sued by the company and forwarded by it to
[Ed. Note.--For other definitions, see Words its agent, Bohon, who a few days thereafter and Phrases, First and Second Series, Pays delivered it to Brown. Brown died in June, ment.)
1916, from causes that are not disclosed in 3. INSURANCE 137(2)-LIFE INSURANCECHANGE IN STATE OF HEALTH BEFORE AC- the record, and thereafter, the company reCEPTANCE.
fusing to pay the insurance, this suit was A stipulation in an application for life in brought by the beneficiary, Mrs. Brown, with surance that “any policy issued hereon shall the result that there was a judgment in her not take effect until the first premium has been paid during my insurability" was not a continu- behalf for the full amount of the insurance, ing representation that applicant would remain less the amount of the note for $145.05 that in good health until the application was accept- had been executed, as stated, in part pay. ed, and, where premium accompanied applica- ment of the premium but had not been paid. tion, date of application is date of acceptance. 4. INSURANCE 141(1) DEFENSES Es
On this appeal by the insurance company
we will, for convenience, here set forth the Where, after date of application for life in- pertinent stipulations in the policy and apsurance and before acceptance, insurer learned plication before discussing the grounds rethat insured fell in the street and knocked out some teeth, the insurer had such notice as to re
lied on for reversal. In the application quire it to investigate, and it is estopped after Brown agreed "that any policy issued heredeath of insured a year later to defend on the on shall not take effect until the first premiground that insured had an attack of epilepsy um has been paid during my insurability,” which was unknown to it. 5. APPEAL AND ERROR Om 1068(1)HARMLESS
and in the policy contract, of which the apERROR-INSTRUCTIONS.
plication was a part, it was stipulated that Where the trial court should have directed "the consideration for this policy is the apthe verdict as returned, errors in instructions plication herefor, which is a part of this conwere immaterial.
tract, and a copy of which contract is atAppeal from Circuit Court, Jefferson Coun- tached hereto or indorsed hereon, and the ty, Common Pleas Branch, Fourth Division. payment in advance of an annual premium
Suit by Lula H. Brown against the Ameri- of $165.05 for term insurance for the year can National Insurance Company. Judgment ending on the 8th day of September, 1916." for plaintiff, and defendant appeals. Af- There was a further stipulation that "any firmed.
indebtedness to the company hereon will be Tyler Barnett and Dodd & Dodd, all of deducted in any settlement hereunder upon Louisville, for appellant. Grover G. Sales the death of the insured. and Selligman & Selligman, all of Louisville, The company on this appeal insists: (1) for appellee.
That the payment of the first premium was a
condition precedent to the policy becoming CARROLL, J. On August 18, 1915, Charles effective, and, as the first premium had not A. Brown, who at the time lived in Louisville been paid, the policy was void; (2) that Boand was a traveling salesman in the employ hon, the agent of the company, in soliciting of J. B. Speed & Co., was in Paducah on the application of Brown, and Brown, in conbusiness connected with his firm, and while senting to make the application, were guilty there was induced by G. C. Bohon, a solicit- of rebating in respect to the premium in viing agent of the appellant insurance com- olation of law, and consequently the contract pany, to take out a $5,000 policy upon his was void from the beginning; (3) that as the life for the benefit of his widow, Lula H. application was not accepted or the policy isBrown, the appellee. The first premium on sued until after the date of the attack sufthe policy was $165.05, and on the date of fered by Brown at Covington, Tenn., Brown the application Brown, in payment of this was under a duty to have given the company premium, gave to Bohon his check for $20 full information of the nature of this attack, and executed his note for $145.05, payable to and if he had done so it would not have isthe insurance company one year after date. sued or delivered to him the policy, or havOn August 28, 1915, Brown, while at Coving. ing delivered would have canceled it. Other
For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes
grounds are relied on, but we think the case | least so far as Bohon was concerned, was remay be disposed of upon a consideration of bating, within the meaning of section 656 of the ones we have mentioned.
the Kentucky Statutes, and subjected Bohon  In considering the defense that the ap- to the penalties therein provided. So much plication was made and the policy contract of this section as is pertinent reads as folissued pursuant to an agreement or arrange- lows: ment between Bohon, the agent, and Brown, “No life insurance company doing business in the insured, in violation of law, and so the Kentucky shall make or permit any distinction contract was an illegal transaction and void tween insurants of the same class and equal
or discrimination in favor of individuals befrom the beginning, it will aid in understand- expectation of life in the amount or payment ing the issue to state clearly the evidence of of premiums or rates charged for the policies the agent, Bohon, who was the only witness of life or endowment insurance, or in the divi
dends or other benefit payable thereon, or in any who testified concerning this matter.
other of the terms and conditions of the conBohon testified that he solicited Brown to tracts it makes;
nor shall any such take the insurance, and that after Brown company or agent pay or allow, or offer to pay agreed to do so he was submitted to an ex. bate of premium payable on the policy, or any
or allow, as inducement to insurance, any reamination by the local medical examiner of special favor or advantage in the dividends or the company, and after his examination was other benefit to accrue thereon, or any valuable made on August 18, 1915, Brown gave him a
consideration or inducement whatever not speci
fied in the policy contract of insurance. Every check for $20, which was paid, and a note company, or officer or agent thereof, who shall for $145.05, payable on or before August 18, violate the provisions of this section, shall be 1916; that the note and the check were de- fined in any sum not exceeding five hundred dol livered to him by Brown at the same time; lars, to be recovered by action in the name of
the commonwealth, and on collection, paid into that the note was delivered by him to L. G. the state treasury.” Borschneck, the general agent of the com
In support of the argument that the rebatpany; that the check for $20 and the note for ing feature of this arrangement invalidated $145.05 constituted the full amount of the the policy, counsel for the insurance compremium on the policy for one year, the note pany rely upon the case of National Life Ins. being accepted in part payment of the pre- Co. v. Anderson, 122 Ky. 794, 92 S. W. 976, mium; that he forwarded the application to 29 Ky. Law Rep. 361, but that case, which the company's home office and received from it has no pertinency here, grew out of a controthe policy which, upon receiving, he mailed versy between the insurance company and its to Brown; that when he solicited Brown to agent, Anderson, and in the course of the take the insurance he told him he would take opinion the court said that as between them $20 in cash and a note for the balance of any contracts in which it appeared that rethe premium, and further told him that he bating was done in violation of the statute did not think he would have to pay the note, could not be enforced for the benefit of either but that if he died before the end of the of the parties. year the amount of the note would be de
But here the controversy is not between ducted from the insurance; that under his the insurance company and its agent who contract with the general agent he was to
was guilty of rebating, but between the insurhave all of the first premium except $10 or
ance company and an insured who was in$12 as commission, and if Brown died before duced to take out insurance by an agent who the year was out the amount of the note was himself guilty of rebating. And so the would be deducted from the amount of the precise question is, Did the unlawful conduct insurance, if it was paid, and he would be of the insurance company's soliciting agent, entitled to the amount of the note; that at although consented to by Brown, render the the time he mailed the policy to Brown he contract of insurance void? We think not. knew of the attack Brown had suffered at
It is true that Bohon, the soliciting agent, Covington, Tenn., as Brown told him that he did practice rebating in the solicitation of the bad stumbled over a step on the sidewalk insurance, but after this verbal rebating arand fallen and knocked out several of his rangement had been entered into between teeth; that he did not know that he had him and Brown, the contract of insurance, fallen as a result of an attack of epilepsy, which consisted of the application and the but that if he had known that he had had policy contract, was consummated by the isan epileptic attack, or fallen as the result sual and delivery of the policy, and this writof a fainting spell, he would not have deliv- ten contract between the insurance company ered the policy to him.
and Brown was fair on its face, showed no It thus appears that the insurance com- violation of the statute or that any vice expany out of this first premium was entitled isted in the contract, and by the terms of this to only a few dollars, and that was paid out written contract the insurance company, as of the $20 paid in cash. And it further ap- well as Brown, was bound. The note was pears that, under the arrangement between made payable to the insurance company, was Brown and Bohon, Brown was really getting delivered by Bohon, its soliciting agent, to the insurance for a cash premium of $20, un the general agent of the company, and thereless he should die within the year; and so fore it may be said was accepted by the comit may be said that this arrangement, at pany in part payment of the first annual pre
mium, in consideration of which the insur-, the full amount of the premium, and the ance policy was issued. Under these circum- agent or company guilty of the rebating be stances Brown, if he had lived, could not punished under the statute, while the validihave defeated a suit by the insurance com- ty of the policy will be upheld, the purpose of pany upon the note on the ground that the the law will be carried out and the ends of agent, Bohon, agreed with him before its ex- justice subserved. ecution that he need not pay it.
And so we think there may well be applied Insurance companies are engaged in a pub- to transactions like this the principle anlic business, and upon grounds of public pol-nounced by the Supreme Court of the United icy insurance contracts that may, in prelimi- States in Texas & Pacific Ry. Co. v. Mugg & nary verbal arrangements between the so- Dryden, 202 U. S. 242, 26 Sup. Ct. 628, 50 L. liciting agent and the insured, have been Ed. 1011. In that case Mugg & Dryden containted with the vice of rebating, should, tracted with the railway company to ship when fully executed and reduced to writing, certain freight for a specified sum, which was be held valid as between the insured and the less than its published rates filed with and insurance company, neither of them being al. approved by the Interstate Commerce Comlowed to defeat the contract in any part up- mission. The railway company required on the ground that it was secured in the Mugg & Dryden to pay the rate they should manner stated in violation of the statute. have paid, and afterwards they brought suit Laun v. Pacific Mutual Life Ins. Co., 131 against the company to recover the difference Wis. 555, 111 N. W. 660, 9 L. R. A. (N. S.) between the rate they contracted with an 1204; Quigg v. Coffy, 18 R, I. 757, 30 Atl. agent of the railway company to pay and the 794; Rideout v. Mars, 99 Miss. 199, 54 South. rate they were required to pay; but the court 801; Security Life & Annuity Co. v. Costner, denied their right to recover upon the ground 149 N. C. 293, 63 S. E. 304; Interstate Life that no arrangement between the shipper and Assurance Co. v. Dalton, 165 Fed. 176, 91 c. the agent by which the shipper obtained an C. A. 210, 23 L, R. A. (N. S.) 722.
advantage or preference over other shippers Nor is this rule in conflict with the princi- could interfere with the right of the railway ple laid down in Oliver v. Louisville Realty company to collect its lawful and uniform Co., 156 Ky. 628, 161 S. W. 570, 51 L. R. A. charges. The same rule was announced by (N. S.) 293, Ann. Cas. 1915C, 565, in which this court in C. & 0. Ry. Co. v. Maysville we held that a contract entered into in this Brick Co., 132 Ky. 613, 116 S. W. 1183; C. & state by a foreign corporation that had not O. Ry, v. Morton, 143 Ky. 201, 136 S. W. 158; complied with section 571 of the Kentucky L. & N. R. R. Co. v. Allen, 152 Ky. 145, 153 S. Statutes could not be enforced by it. In that W. 198; L. & N. R. R. Co. v. Coquillard Wagcase the prohibition and penalty of the stat- on Works' Assignees, 147 Ky. 530, 144 S. W. ute was aimed at corporations doing business
1080. in this state without having observed the re
Further supporting the views we have exquirements of the statute, and was intended pressed is the case of Commonwealth Life for the protection of members of the public Ins. Co. v. Bowling, 114 S. W. 327. In that who might have dealings with such corpora
case the insurance company delivered tions; while the statute here in question was
Bowling a policy of insurance for $5,000, for intended for the protection of the insuring which it received from him the full annual public, and this purpose would often be de- premium of $277.85. After this Bowling infeated if rebating contracts destroyed the va
stituted an action to recover the premium on lidity of policies issued under such contracts, the ground that, as the arrangement by because many persons who want and get in which he secured the insurance amounted to surance do not know or consider that there rebating under the statute, the policy was is any impropriety or illegality in the agent's void and he was entitled to recover the pregiving to them any part of his commission
mium he had paid. But the court, in holdthat he sees proper to donate, and it would ing that the rebating arrangement did not work a great wrong if after the death of such
affect the validity of the policy or note, said: an insured person the company should be al- is whether the policy issued by appellant to ap
"The only question necessary to be determined lowed to defeat the collection of the insur- pellee for $5,000 was binding upon and enance money by the defense that the agent forceable against appellant in the event appellee and the insured were guilty of rebating in had died within the 12 months for which the violation of the statute.
premium was paid. The policy which was is.
sued to appellee was in the usual form, and if The statute provides a punishment for the appellee had died within the year for which the insurance company and the agent who is guil- premium was paid, and appellant had been sued ty of rebating, but does not prescribe any it would not have been permitted to defend and
for the amount of the policy by the beneficiary: penalty against the insured who may accept defeat the recovery on the policy by setting up a rebating proposition submitted by the agent this separate contract, even though it was iland the policy pursuant thereto. When, legal, for the reason that the policy contract was therefore, the insured will not be permitted
executed." to derive any benefit or advantage from the  Treating, for the reasons stated, the rebating scheme, but will be required to pay | policy contract and note as valid, the next
question is, was the premium paid in advance At this point it will be convenient to again within the meaning of the contract? There is set forth the stipulation in the application no requirement in the application or policy that "any policy issued hereon shall not take contract that premiums should be paid in effect until the first premium has been paid cash. The only condition is that the premium during my insurability," and this is the only must be paid annually in advance, and under clause in the contract upon which the comthis contract we see no reason why the execu- pany now relies to defeat the suit to recover tion of a note by the insured for part, or in the insurance, because it was not fully indeed the whole, of the premium should not be formed of the nature of the attack suffered treated as a payment of the premium within by Brown before it issued and delivered to the meaning of the policy. The note executed him the policy contract. for part of the premium was, as we have It will be observed that the stipulation we seen, made payable to the insurance company have quoted merely declares that any policy and was delivered to and accepted by its issued shall not take effect until the first pre agent, who presumably had authority to ac-mium has been paid during the insurability cept the note in part payment of the premi- of the applicant, and we have already deterum. Plainly, to permit an insurance company mined that the first premium was paid withto defeat the collection of the insurance upon in the meaning of the policy when the applithe ground that a note taken by its agent cation was made, and consequently paid at was not to be regarded as payment of the a time when there could be no doubt about premium would be to enable it to practice a the insurability of Brown. His lack of infraud upon an insured who believed that the surability did not arise, if at all, until after acceptance of the note was a satisfactory the first premium had been paid, and so, uncompliance with the requirements that the less the clause mentioned is to be considered annual premium should be paid in advance.
as a continuing representation that Brown We have gone much farther than this by would continue to remain in good health unholding that the acceptance of a note in part til the policy was issued and delivered, his payment of the premium will satisfy the con- illness subsequent to the payment of the predition in the contract that the premium must mium should not be allowed to affect the be paid in advance and in cash. This was de- validity of the policy. termined in New York Life Ins. Co. v. Evans,
According to its reading, the only condition 136 Ky. 391, 124 S. W. 376. In that case the that would defeat a policy issued on the apcourt said:
plication would be the failure of the appli“A number of cases have come before this cant to pay the premium. If he paid the court involving forfeiture features of insurance policies similar in many respects to this one. premium and his application was accepted, In those cases, as here, the insured had executed then, according to the terms of the applicapremium notes, in lieu of paying the premiums tion, the policy issued could not be affected in cash. The standard form of life policies pro- by his lack of insurability subsequent to the vides for the payment of premiums in cash in advance as condition precedent to the continua- date of the application. tion of the contract. Yet in each instance notes, But in behalf of the insurance company the conditioned as the one at bar, had been accepted argument is made that the representations by the insurers in lieu of the cash payments. It was once thought, and sometimes heid, that the as to the good health of Brown, contained in notes did not waive the stipulation for cash pay- his application and shown in the medical exment-that the insured carried the risk of dying amination, were continuing representations uninsured until the premium note was paid in until the acceptance of the application, and cash. That view was early abandoned. It is now universally held that the acceptance by the that if there was any material change in the insurer of the note is a waiver of the policy physical condition of the applicant before the provision for cash payment of the particular acceptance of the application, or if there was premium in advance."
such change as would probably have caused  The other defense relates to the effect the company to reject the application if it on the contract of the attack Brown suffered had known of the same, it was the duty of on August 28th, after his medical examina- Brown to have advised the company of such tion and application for the insurance, but change, and that his failure so to do was such before his application had been accepted by concealment as would avoid the policy. In the company. The company did not then or other words, the argument is that when and now find any fault with the application, be- at the time it issued the policy the company cause it accepted it in the due and ordinary had the right to assume that the applicant course of its business and issued the policy was in the same physical condition that he in conformity with it. But before the policy was when he applied for the insurance, and was actually issued on September 8th by the that as his physical condition had changed beinsurance company Brown had the attack tween the date of the application and the date mentioned, and it is now claimed that Brown of its acceptance and the issual of the policy, was under a duty to have fully advised the of which change the company had, as claimed, company of the nature of this attack, and no notice, the contract was not enforceable, that if it had been so advised it would not because it would not have been consummated hare issued to him the policy of insurance. by the issual of the policy if the condition of
the applicant had been made known. In sup-1 Tweddell on September 16th. Tweddell was port of this, our attention is directed to the then dangerously sick of a disorder which cases of Metropolitan Life Ins. Co. v. Moore, had come on him some days after the appli117 Ky. 651, 79 S. W. 219, 25 Ky. Law Rep. cation was made, and of which he died on 1613, Western & Southern Life Ins. Co. v. September 19th. The application contained Davis, 141 Ky. 358, 132 S. W. 410, and Mod- this stipulation: ern Woodmen of America v. Atkinson, 153 "This application shall be the basis of the Ky. 527, 155 S. W. 1135. But these cases contract for the insurance, and the contract apthrow no light upon the subject under inves- plied for in the application shall not take ef
fect until the first premium thereon shall be ac tigation, nor do they support the argument tually paid during the lifetime and good health of counsel. In these cases, it appears that of the assured.” the policy provided that “no obligation is assumed by this company upon this policy until
It might here be observed that the record the first premium has been paid and the in this case shows that Tweddell was stricken policy duly delivered, nor unless upon the with the illness from which he died on or bedate of the delivery the insured is alive and fore September 9th, the date of the issual of in sound health.” If the contract we are
the policy, and further observed that the considering had contained the provision found stipulation in the policy that it should not in the policies in those cases, it is very clear take effect until the first premium was paid that the company in this case, unless estop- during the lifetime and good health of the ped so to do, might have set up as a defense assured was almost identical with a similar the changed condition in the health of stipulation in the contract in this case. AnBrown, if any, between the date of the appli- other point of similarity consists in the fact cation and the date of the delivery of the that in the Tweddell Case part of the premipolicy to him.
um was paid in cash and part by note, as
in this case. But the policy in this case does not con
In other words, all of the detain such a provision or any provision indi- fenses made in this case were made in the cating that a change in the condition of Tweddell Case, but the court affirmed the Brown's health between the date of the ap- judgment of the lower court holding the complication and the date of the delivery of the pany liable. To the same effect is Connectipolicy would affect his right to the amount cut Indemnity Assn. v. Grogan's Adm'r, 52 of the policy, if the first premium was paid S. W. 959, 21 Ky. Law Rep. 717. during his insurability, and in this respect
Accordingly, we think that the clause in it differs in a material way from all the question was not a continuing representation standard policies that have come under our
that Brown would remain in good health unnotice.
til the application was accepted and the polThe application and policy contained the icy delivered, and that, as the premium was whole contract between the parties, and it paid when the application was made, the would reasonably appear that the company the date of its acceptance by the company,
date of the application should be treated as should not be allowed to defeat the agree, and the contract should be considered as if ments it had entered into unless the insured
fully executed on that date. committed some breach of the contract, or failed to perform some material condition tended by counsel for the insurance company,
 But if the application should, as conimposed upon him by the stipulations of the be treated as a continuing representation of contract, or the contract contained some pro- Brown's good health, the company is, we vision that, in view of the attack sustained think, estopped by its conduct to avail itself by Brown, would defeat the right to recover of the defense rested on the attack Brown the insurance; but we do not find in the con suffered in Covington, Tenn. There is no evitract any provisions upon which any of these dence in the record that Brown knew the atdefenses could be rested. Nor have we been tack there sustained was serious, or that it referred by counsel for the insurance com- was material to the risk, or that he practiced pany to any authority holding that under a any fraud or concealment in respect to it. policy contract substantially similar to this Bohon testified that at the time he delivered the representations in the application as to the policy to Brown he knew of this accident the good health of the applicant should be at Covington, Tenn. treated as continuing representations from "Q. Did you know that he had sustained a the date of the application to the date of the fall at that time? A. Yes, sir. Q. He told you
he had a fall? A. Yes, sir. Q. What did he delivery of the policy.
say about that?
A. Why, I can't remember In National Life Ins. Co. v. Tweddell, 58 s. just word for word, but I asked him how he W. 699, 22 Ky. Law Rep. 881, we had
was, and he said that he had had a fall at some ques
point in Tennessee, and stumbled over a step that tion like this. In that case Tweddell on Sep- was projecting from a doorway out on the sidetember 4, 1897, signed an application for a walk, and fell and knocked out several teeth. policy of insurance and delivered it to the Q. Did he tell you that he had fallen in a faint local agent of the company. The policy was Did you know anything about that? A. No,
or had an attack of epilepsy? A. No, sir. Q. issued on September 9th and delivered to sir."