Opinion
June 29, 1967
Appeal by plaintiff from (1) an order of the Supreme Court, Kings County, dated July 29, 1966, which (a) granted defendants' motion for summary judgment and (b) denied plaintiff's cross application for summary judgment; and (2) a judgment of said court, entered August 10, 1966 pursuant to said order, in favor of defendants. Order and judgment affirmed, with a single bill of $10 costs and disbursements. On December 16, 1964 plaintiff's intestate, Julius Cutler, applied to Crosby Plans Corporation for the purchase and the ultimate issuance of shares of Fidelity Trend Investment Plan under an agreement whereby he was to pay $100 monthly for a period of 15 years, with credit for an initial payment of $1,300, aggregating in all an investment of $18,000. The purchase of the shares was accompanied, under the agreement, by the application by the decedent for insurance to be issued by the defendant insurance companies on his life in the unpaid balance due under the agreement as payments were made. The insurance application contained false representations by the decedent that he was actively at work full time, that he had no ailment within the last 5 years which kept him from work more than 10 consecutive days and that he had never had any disease or disorder of the heart. In fact, he had suffered three heart attacks in 1958 and 1959 which had permanently disabled him. He further misrepresented his age in his application to be less than 55 years, whereas, if he had correctly stated it as over 55 years, he would have had to be medically examined before the life insurance policies could have been issued. Based on the decedent's application, defendants issued a certificate of insurance. The decedent also executed a form designating plaintiff, his wife, as a beneficiary under the agreement of purchase of the shares. Under that agreement, on the decedent's death within the period of 15 years the balance of the purchase price then unpaid would become due, the insurance proceeds would be used to pay Crosby that balance, and the beneficiary would thereafter receive the shares thus paid for. On December 24, 1964 the life insurance became effective. On April 7, 1965 the decedent died. Plaintiff sues for the recovery of the proceeds of the insurance and defendants contest the recovery on the ground of the decedent's misrepresentations in his application. No doubt, the misrepresentations were material to the risk and, absent other considerations, would avoid the insurance ( Geer v. Union Mut. Life Ins. Co., 273 N.Y. 261; Jenkins v. Hancock Mut. Life Ins. Co., 257 N.Y. 289; Wageman v. Metropolitan Life Ins. Co., 24 A.D.2d 67). However, plaintiff contends that the misrepresentations are meaningless, because the statute provides that no application shall be admissible in evidence, unless a true copy thereof was attached to the policy when issued (Insurance Law, § 142), and it is conceded here that the application was not attached to the policy. Since the decedent received merely a certificate of insurance under what is in effect a group life insurance plan (the master policy being held by Crosby), it is obvious that this provision is inapplicable both literally and under the historical purpose of the statute (cf. Axelroad v. Metropolitan Life Ins. Co., 267 N.Y. 437; Bible v. Hancock Mut. Life Ins. Co., 256 N.Y. 458; and see Layman v. Continental Assur. Co., 416 Pa. 155). The application was not in existence at the time of the issuance of the master policy; and the statute does not refer to a certificate. Plaintiff, in addition, contends that the statute provides that no statement made by an insured relating to his insurability shall be used in contesting insurance under a group life insurance policy unless it is in a written instrument signed by him and a copy of it is or has been furnished to the insured or to his beneficiary (Insurance Law, § 161). But it is plain on this record that Crosby received and retained the decedent's application at the time of the issuance of the certificate and that plaintiff received a copy of the application subsequent to the decedent's death and prior to this litigation. Moreover, the record is clear that the decedent at the time of the purchase of the shares was a sales representative for North American Planning Corporation, the dealer which negotiated the purchase. We think that in the context of these facts Crosby was a beneficiary under the policy and that, as Crosby had been furnished with a copy of the application (indeed, the original) ( Robins v. Hancock Mut. Life Ins. Co., 27 A.D.2d 188), defendants may assert the decedent's misrepresentations as a defense. The life insurance protection afforded to the decedent was integrated with the purchase agreement. Crosby was to be paid from the proceeds of the insurance on death; and the designation of plaintiff as beneficiary by the decedent did no more than to indicate where the shares which thus became fully purchased under the plan were to be delivered, and the nature of the interest of the plaintiff upon delivery. Insurance terms may sometimes be construed in a colloquial sense, as would be understood by the general public ( Tonkin v. California Ins. Co., 294 N.Y. 326; Brown v. Hearthstone Ins. Co., 19 A.D.2d 578; Vito v. General Mut. Ins. Co., 15 A.D.2d 289). In this sense, Crosby was the beneficiary, as the person who the decedent intended and expected would receive the insurance proceeds and thus free the shares for delivery to plaintiff. In legal terms, that relationship may be described as a creditor beneficiary on the part of Crosby (cf. Wargo v. Wargo, 48 Misc.2d 349, 355). Even if the status of plaintiff may be considered as beneficiary under a liberal construction of that term, her rights are secondary and subordinate to Crosby (cf. Friedlander v. Scheer, 1 Misc.2d 899, affd. 281 App. Div. 808) and she may not recover the proceeds if Crosby cannot. We hold that Crosby as a beneficiary was furnished a copy of the decedent's statement by which the decedent had obtained the certificate of insurance, that defendants may therefore validly interpose the false representations and that plaintiff may not recover under the agreement and certificate. To hold otherwise rewards plaintiff with a benefit to which neither she nor the decedent was entitled. Ughetta, Acting P.J., Brennan and Hopkins, JJ., concur; Christ, J., dissents in part and votes to (1) modify the order so as to deny defendants' motion for summary judgment and (2) to reverse the judgment, with the following memorandum, in which Rabin, J. concurs: This is an action by the administratrix of the estate of Julius Cutler, plaintiff's deceased husband, to recover upon an insurance certificate on his life which the three defendant insurers had issued on the basis of a group policy they had given to Crosby Plans Corporation. Crosby is a seller of mutual fund shares and it had procured the policy so as to arrange for insuring the lives of its installment-plan share purchasers. Cutler was one of such share purchasers and he procured such insurance, represented by this certificate. Under the terms of the insurance contract, the amount payable progressively declined so as to remain equal to the declining balance of the amount owed by the purchaser on his fund shares; and the proceeds were payable to Crosby's agent, against the purchaser's remaining indebtedness on the fund shares. At Cutler's death, he owed $16,700 upon an $18,000 purchase. In a joint answer, the insurers have set forth a defense that Cutler, in applying for his insurance, misrepresented the state of his health in his written application or statement of insurability. In their papers on their motion for summary judgment they have set forth facts to substantiate this defense. In opposition, appellant submitted an affidavit by her attorney in which it is contended that a copy of Cutler's written statement was not attached to the certificate and that, therefore, subdivision 1 of section 142 Ins. of the Insurance Law rendered the statement inadmissible in evidence. On this appeal appellant also relies on section 161 (subd. 1, par. [a]) of the Insurance Law. Section 142 applies to all insurance policies and provides that, if the policyholder's application is not "attached to such policy when issued", it is not admissible in evidence (subd. 1). Section 161 applies specifically to group life insurance policies and requires every policy to provide that "no statement made by any person insured under the policy relating to his insurability shall be used in contesting the validity of the insurance * * * unless it is in a written instrument signed by him copy of which is or has been furnished to such person or to his beneficiary" (subd. 1, par. [a]). Such provision must be read into every such policy which does not contain it (Insurance Law, § 143, subds. 1, 3). The legislative policy underlying these provisions of sections 142 and 161 is to resolve the one-time controversy as to the efficacy of policy provisions that the insurer's agent's knowledge of the falsity of the insured's representations is not imputable to the insurer ( Axelroad v. Metropolitan Life Ins. Co., 267 N.Y. 437, 443-445; Robins v. Hancock Mut. Life Ins. Co., 49 Misc.2d 731, revd. on other grounds, 27 A.D.2d 188) and to permit the insured (or someone close to him with an interest in the insurance) to review his insurability statement and correct any misstatements which may have been made in it. ( Minsker v. Hancock Mut. Life Ins. Co., 254 N.Y. 333, 338-339; cf. Bible v. Hancock Mut. Life Ins. Co., 256 N.Y. 458). The provisions as to attachment in section 142 is referable to the application of the policyholder, Crosby, and not to the certificate covering Cutler's life; and, therefore, it is not applicable (cf. Robins v. Hancock Mut. Life Ins. Co., supra; Layman v. Continental Assur. Co., 416 Pa. 155). Cutler's statement was not in existence at the time the policy was issued and could not have been attached to the policy "when issued". There is no statutory requirement that such a statement be attached to a certificate. As to section 161, that section was also urged in Robins ( supra). The Special Term there held that its requirement that a copy of the statement be "furnished" was not satisfied by delivery to the insured's decedent's "estate" after his death or by the fact that the insured had retained a copy. On appeal, the Appellate Division, First Department, held that the insurance "beneficiary", one of the entities to whom the statement could be given, was the policyholder (who happened to be Crosby there as well as in the instant case), on the theory that the insurance proceeds were payable against the balance owing to the policyholder on the installment sale of the mutual shares in that case; and that therefore the statutory requirement was satisfied. I disagree with that holding for two reasons. First, section 204 (subd. 1, par. [c]) of the Insurance Law impliedly defines the insurance "beneficiary" of the very type of group life insurance here in question as someone other than the policyholder, by providing that any insurance proceeds in excess of the contract amount shall be paid by the policyholder to "a beneficiary named by the debtor" (the installment purchaser). Therefore, "policyholder" and "beneficiary" are not the same entities. Second, the purpose of furnishing the statement to the assured or his beneficiary, to review the statement and make any needed corrections, cannot be accomplished where the statement is furnished to the policyholder, who ordinarily would never have any personal knowledge sufficient to accomplish this purpose. Although I do not agree with all the reasoning in Helfaer v. Hancock Mut. Life Ins. Co. ( 51 Misc.2d 869), the result reached there is in accordance with the views herein stated. In the case at bar there was no insurance beneficiary named by Cutler. The form completed by him entitled "Designation of Beneficiary" and naming plaintiff as "beneficiary" pertained, at best, only to the disposition of the mutual shares. Neither is Cutler's estate the beneficiary. Respondents' use of different language in the policy than that required by (subd. 1, par. [a] section 161) substituting his [the insured's] "estate" for his "beneficiary" as one of the persons to whom the statement may be furnished, is not binding, because that nonconforming language is less favorable to the certificate holder (see, Insurance Law, § 161, subd. 1; Robins v. Hancock Mut. Life Ins. Co., 49 Misc.2d 731, 733, revd. on other grounds, 27 A.D.2d 188, supra). In my opinion, the only way respondents could have complied with section 161 was by furnishing a copy of Cutler's statement to him. Respondents may not avail themselves of subdivision 2 of section 161, which provides that none of the provisions of subdivision 1 (relating to a certificate issued under any group life insurance policy) are applicable to a policy issued "to a vendor or creditor * * * under the provisions of which no individual certificates are issued or are issuable." Under the terms of the policy issued to Crosby, certificates were required to be issued and they were issued. Similarly, there is no discretionary room for equitable considerations based on the fact that Cutler made no "errors" to be corrected, having only made a deliberate effort to defraud the insurers. Section 161 mandates a paramount doctrine, that is, incontestability if a copy of the statement is not furnished in accordance with its provisions. Although section 161 and not section 142 is applicable to the situation, summary judgment may not be given to plaintiff on the basis of section 161 since she has not offered any factual proof to show that respondents did not comply with the statutory mandate to furnish a copy of the statement to her husband. On the other hand, in the interests of justice, summary judgment should not be permitted to stand against her, because respondents have not contended that Cutler's insurability statement was actually furnished to him. [ 51 Misc.2d 286.]