Knepp v. Nationwide Insurance

WIEAND, Judge,

concurring:

I agree fully with the majority’s excellent analysis of the coverage issue and join its decision holding that the cost of performing surgery upon Dennis C. Knepp, Jr., to correct a congenital abnormality was not covered by a policy of insurance purchased after his birth and indemnifying his parents for hospital and surgical expenses incurred in order to treat sickness or disease contracted by him more than *487 fifteen days after the effective date of the policy. I also agree with the majority that the insurer may rescind the policy because the applicants, in this case the parents, failed to disclose their son’s congenital abnormality despite their knowledge of it and despite the fact that the insurer specifically requested such information. I reach that conclusion by a process of reasoning which differs only slightly from that of the majority.

With respect to this latter phase of the case, it is significant that the insurer is seeking to rescind the policy of insurance and not to avoid liability for hospital expenses already incurred by the insured. The contract of insurance which the insurer seeks to rescind is executory. Rescission of the policy will not necessarily prevent the insured from purchasing future medical coverage. In that event, however, the amount of the premiums to be paid for hospital and surgical coverage will be determined according to a correct assessment of the risk based upon an accurate statement of the physical condition of the person to be insured.

Because the contract of insurance sought to be rescinded is executory, “[f]alse representations operating to induce [the] contract are grounds for its rescission even though the person making them [was] unaware that they [were] false.” 8 P.L.E. Contracts § 314. See also: Adelman v. CGS Scientific Corp., 332 F.Supp. 137, 146 (E.D.Pa.1971), quoting General Finance Corp. v. Keystone Credit Corp., 50 F.2d 872, 878 (4th Cir.1931); Hunt v. Moore, 2 Pa. 105 (1845); Metropolitan Life Insurance Co. v. Sinett, 2 N.J. Super. 506 , 64 A.2d 639 (1949); Metropolitan Life Insurance Co. v. Lodzinski, 124 N.J.Eq. 328, 1 A.2d 856 , reversed on other grounds, 124 NJ.Eq. 357, 1 A.2d 859 (1938); 12 Williston on Contracts, § 1500 (3d ed.).

Even if we require a knowing misrepresentation, however, the facts of the instant case are such that rescission was properly granted. At the time the written application for insurance was made, the questions contained thereon were read to Mr. and Mrs. Knepp, the boy’s parents, and *488 their answers were recorded before they signed the application. They do not question the accuracy of their answers as they appear on the application. The following questions were asked and answers given:

“9. Have you or any person now proposed for coverage:

c. Ever had, been advised or have, or contemplated having, a surgical operation?

Yes No

10. To the best of your knowledge and belief, have you or any person now proposed for coverage ever had, or ever been medically treated for or advised by a doctor or other practitioner that you or they had (circle applicable impairment):

b. Paralysis, dizziness, fainting spells, high or low blood pressure, disease or disorder of genito-urinary tract or gall bladder?

Yes No

11. Within the last five years, have you or any person now proposed for coverage:

b. Any disease, disorder, injury or operation which has not been previously mentioned?

Yes No

(Emphasis supplied)

Paragraph 12 called for full details to each and every part of Questions 9, 10 and 11 to which the answer was Yes. The answer appearing to paragraph 12 listed only maternity on Mrs. Knepp’s part.

These answers were incorrect. Dennis C. Knepp, Jr. had been born three and a half years earlier with a congenital condition known as coronal hypospadias, a result of adros *489 terone deficiency during gestation. This condition arrested the development of the urethra in the boy’s penis. At birth it was observed that the opening or meatus in the penis was not at the end of the penis but on the ventral surface or lower side of the penis at the small valley around the head of the penis. The condition had been observed at delivery by Mrs. Knepp’s physician and had been discussed with her. She was told that there was no cause for alarm but that future surgery would be necessary. Because a portion of the skin flap was to be used in the operating procedure it was recommended that the boy not be circumcised. The parents agreed, and circumcision was not performed. The parents also accepted the medical recommendation that surgery be delayed and not be performed while the child was an infant. On two separate occasions prior to making the application for insurance, the parents had inquired whether it was time for their son’s surgery to be performed. The correctness of these facts is supported by medical records and by the testimony of the parents themselves.

The trial court concluded, nevertheless, that the parents’ failure to disclose their son’s condition in the insurance application was not committed in bad faith or with a conscious intent to deceive and defraud the insurance company. Therefore, rescission was denied. The court en banc held otherwise. All the evidence, the court en banc observed, was clearly to the effect that the parents had known of their son’s disorder and had failed to disclose it to the insurer. Under such circumstances, concluded the court en banc, the parents’ misrepresentations entitled the insurer to rescind the policy after the true facts had become known.

A court en banc may reverse the hearing judge in a proper case, but if this occurs the court en banc must state its reasons for so doing; and it is the duty of an appellate court to examine carefully the court’s reasons, together with the entire record, and determine if the action of the court en banc was justified. See: Vajentic Estate, 453 Pa. 1, 6 , 306 A.2d 300, 303 (1973); Billinger Estate, 451 Pa. 77, *490 80 , 301 A.2d 795, 796 (1973). See also: Bortz v. Troth, 359 Pa. 326, 332 , 59 A.2d 93, 96 (1948); Lacey v. Rutter, 358 Pa. 502, 506 , 57 A.2d 679, 680-681 (1948); 16 Standard Penna. Practice 2d § 91:124. Where the trial court’s findings depend upon the credibility of witnesses whom the court heard and saw, those findings are to be accorded great weight by the court en banc. See: Lacey v. Rutter, supra, 358 Pa. at 505 , 57 A.2d at 680 , quoting Thorndell, Administratrix v. Munn, 298 Pa. 1, 3 , 147 A. 848, 849 (1929); Jones v. Motor Sales Co. of Johnstown, 322 Pa. 492, 495-496 , 185 A. 809, 811 (1936); Belmont Laboratories, Inc. v. Heist, 300 Pa. 542, 547 , 151 A. 15, 16 (1930); Luria v. Robbins, 223 Pa.Super. 456, 460 , 302 A.2d 361, 363 (1973). Where, however, the en banc court has stated its reasons for rejecting the trial judge’s findings, those findings cannot have the same weight as would ordinarily attach; this is particularly the case “where the issue must be determined from reasoning or inferences drawn from undisputed facts.” YMCA of Germantown v. Philadelphia, 323 Pa. 401, 408-409 , 187 A. 204, 208 (1936), citing Kirmse, et al. v. Adler, et al., 311 Pa. 78 , 166 A. 566 (1933), and Hamilton, et al. v. Fay, 283 Pa. 175 , 128 A. 837 (1925).

In Shafer v. John Hancock Mutual Life Insurance Co., 410 Pa. 394 , 189 A.2d 234 (1963), an applicant for life insurance had made statements which were false in fact and which were known to be false when made. His beneficiary argued, however, that the insurer had failed to prove an intent to deceive or defraud the insurer. The Supreme Court rejected this argument and held that where material misstatements are knowingly false, an insurer can avoid the policy. The Court said:

“In order to avoid the policy sued upon, the burden was upon the defendant to establish that the statements made by the insured in the application were material to the risk and were falsely and fraudently made by the insured: Evans v. Penn Mutual Life Insurance Co., 322 Pa. 547 , 186 A. 133 (1936). If the statements in fact were false and the insured knew that they were false when he made them, this constituted fraud, since a statement known to

*491 be false when it is made is presumptively fraudulent: Kizirian v. United States Life Ins. Co., 383 Pa. 515 , 119 A.2d 47 (1956). If such falsity and the requisite bad faith affirmatively appear from (a) competent and uncontradicted documentary evidence, such as hospital records, admissions in the pleadings or proofs of death or (b) the uncontradicted testimony of plaintiff’s own witnesses, a verdict may be directed for the insurer, Kizirian v. United States Life Ins. Co., supra. Inquiries in applications for life insurance as to prior medical attendance and hospitalization are material to the risk and fraudulent answers thereto must permit the insurer to avoid the policy, not only because of a failure to report the exact nature of the previous illness, but also because of a failure to furnish information from which the insurer could protect itself through further investigations. Reeder v. Metropolitan Life Ins. Co., 340 Pa. 503 , 17 A.2d 879 (1941); Prevete v. Metropolitan Life Ins. Co., 343 Pa. 365 , 22 A.2d 691 (1941).

In the instant case, the falsity of the answers given by the insured was established beyond question by unimpeached documentary evidence and in part by plaintiffs’ own witnesses. But argue the appellants, this does not conclusively establish that the insured knew they were false or intended thereby to deceive and defraud the company. It is speculated that the false statements were made inadvertently and unintentionally. As stated in Derr et al. v. Mutual Life Ins. Co., 351 Pa. 554, 559 , 41 A.2d 542 , [544] (1945) . Where it affirmatively appears from sufficient documentary evidence, that the policy was issued in reliance on false and fraudulent statements, made by or on behalf of the insured, as where false answers are shown to have been given by the insured under such circumstances that he must have been aware of their falsity, the court may direct a verdict or enter judgment for the insurer.’ ” ’ Accord, Freedman v. Mutual Life Ins. Co., 342 Pa. 404 , 21 A.2d 81 (1941).”

Id., 410 Pa. at 398-400 , 189 A.2d at 236-237 . See also: Connecticut Mutual Life Ins. Co. v. Wyman, 718 F.2d 63, *492 67 (3rd Cir.1983); Wolfson v. Mutual Life Insurance Co. of America, 455 F.Supp. 82 , 85 n. 3 (M.D.Pa.1978), aff'd mem., 588 F.2d 825 (3rd Cir.1978); DeBellis v. United Benefit Life Insurance Co., 372 Pa. 207, 210-211 , 93 A.2d 429, 430-431 (1953); Indovina v. Metropolitan Life Insurance Co., 334 Pa. 167, 171-172 , 5 A.2d 556, 558 (1939); McCloskey v. New York Life Insurance Co., 292 Pa.Super. 1, 6-7 , 436 A.2d 690, 692-693 (1981); Underwood v. Prudential Insurance Co., 241 Pa.Super. 27, 32-33 , 359 A.2d 422, 424-425 (1976); Glaser v. Prudential Insurance Co. of America, 157 Pa. Super. 471, 474-475 , 43 A.2d 534, 535 (1945); Glaser v. Metropolitan Life Insurance Co., 139 Pa.Super. 261, 266 , 11 A.2d 558, 559-560 (1940); Loder v. Metropolitan Life Insurance Co., 128 Pa.Super. 155, 160 , 193 A. 403, 405-406 (1937). Cf. Ciesielski v. Prudential Insurance Co. of America, 416 Pa. 146 , 205 A.2d 42 (1964); Travellers Insurance Co. v. Heppenstall Co., 360 Pa. 433 , 61 A.2d 809 (1948). If an insurer can avoid liability under such circumstances, it can most certainly obtain rescission of an executory contract of insurance under similar circumstances.

For these reasons I concur with the majority in holding that the court en banc properly overruled the trial court and permitted the insurer to rescind or cancel the policy providing coverage for hospital and medical expenses.