Johnson v. United Investors Life Ins. Co.
263 N.W.2d 770 (Iowa 1978)
This is an appeal from a decree
reforming a life insurance contract to eliminate an exclusion of double
indemnity coverage for death while piloting a private aircraft. Defendant United
Investors Life Insurance Company contends the trial court erred in holding it
was bound by the knowledge and representations of its soliciting agent when it
acted on the policy application and in finding the evidence sufficient to
establish a basis for reformation. We affirm the trial court.
Plaintiff's husband Merlin Swan
Johnson applied through defendant's soliciting agent Eller Lutes for a $100,000
annual renewable term life insurance policy which was to include double
indemnity protection for accidental death. Lutes took the application in the
Johnson farm home on January 4, 1973. After receiving the application, defendant
issued a policy with an effective date of February 8, 1973. It provided primary
coverage of $100,000 and included a double indemnity supplement. Plaintiff was
the policy beneficiary.
Merlin Johnson was killed while
piloting a private aircraft on January 15, 1974. Shortly thereafter Lutes
notified plaintiff she would receive $200,000 under the policy's double
indemnity coverage. However, defendant instead subsequently issued a benefit
check for $100,000 because of a provision in the double indemnity rider
excluding double indemnity coverage of death resulting from piloting private
aircraft.
This litigation resulted from
plaintiff's contention her husband desired double indemnity protection while
piloting private aircraft, communicated this wish to Lutes when making
application for the policy, and was assured by Lutes the double indemnity
provision would cover that activity. She sought reformation of the policy to
eliminate the exclusion on the ground of mutual mistake and asked judgment for
$100,000. After trial, the trial court granted the relief requested. This appeal
followed.
. . .
We hold defendant was bound by Lutes'
knowledge and representations when it acted upon Johnson's application for
insurance.
. . . Plaintiff sought reformation
based on mutual mistake. It was her burden to prove by a preponderance of clear,
satisfactory and convincing evidence that through mistake the policy failed to
express the mutual intent of the parties. Schuknecht v. Western Mutual Insurance
Company, 203 N.W.2d 605, 609 (Iowa 1973). In reformation cases involving
insurance policies, less proof is required than in contract cases generally.
Baldwin v. Equitable Life Assurance Society of the United States, 252 Iowa 639,
108 N.W.2d 66 (1961).
A mistake within the meaning of
reformation doctrine "is a belief that is not in accord with existing facts."
Restatement (2d) of Contracts § 293 (Tent. Draft No. 10).
Plaintiff's theory was that her
husband and Lutes mutually intended the policy to provide double indemnity
coverage for accidental death while piloting private aircraft. They were
mutually mistaken, in plaintiff's view, in believing defendant would issue such
a policy. Therefore, because Lutes' mistake is deemed the mistake of defendant,
she contends she established the requisite basis for reformation.
Our review is de novo. We accord
weight to trial court findings of fact but are not bound by them. We are
particularly mindful, when credibility issues are involved, that the trial court
had the advantage of seeing and hearing the witnesses.
Lutes met with plaintiff and her husband in the kitchen of their home at about
noon on January 4, 1973. Johnson was a farmer and had been a licensed pilot
since 1972.
Plaintiff testified as follows
regarding the discussion concerning double indemnity coverage:
Q. Now, do you recall Mrs. Johnson any conversation about double indemnity or
accidental death benefits between your husband and Mr. Lutes?
A. Yes.
Q. Did Mr. Lutes explain what double indemnity meant?
A. Yes.
Q. What did he say that it meant?
A. In case of an accident the life insurance policy for $100,000.00 would pay
for $200,000.00, but the $100,000.00 benefits, life insurance policy would pay
$200,000.00.
Q. Now, was there any conversation about your husband's flying an airplane in
connection with this insurance coverage?
A. Yes, sir.
Q. What was that conversation?
A. I sir, asked Mr. Lutes specifically if my husband had enough flying hours in
and about his rating as a pilot, whereupon, Mr. Lutes proceeded to get up from
the kitchen table, go over to the couch; where his attache case was laying and
from the case he took a small little black book. I did not see what was in this
book before he turned to my husband and well, first he ran down the pages
himself, then he turned to my husband and he said you have nothing to worry
about.
Q. Did you as Mr. Lutes specifically about the double indemnity benefit?
A. Oh, yes, I did.
Q. What did you ask him about that?
A. In case, God forbid, that there would be an accident, did the $100,000.00
policy with the double indemnity benefits would it pay the $200,000.00 and he
was very reassuring that, yes, it would.
Q. Did you ask him anything about if the accident occurred while Merlin was
piloting an airplane?
A. Yes, sir. Many times over.
Q. And what did he say?
A. He was very reassuring with his little booklet that my husband was thoroughly
covered.
She said Lutes filled out the application and showed her husband where to sign
it. She testified he signed it without reading it. She also testified her
husband did not read the policy after it was issued.
After Johnson's death Lutes visited plaintiff. They agree he told her she would
receive $200,000 under the double indemnity provision of the policy. He
testified as follows:
Q. What did you tell her that she would be receiving under this policy at that
time?
A. I indicated to her she would be getting the accidental benefit.
Q. And how much was that?
A. Would have been two hundred thousand.
It was only after defendant issued its benefit check in the lesser amount of
$100,000 that Lutes informed plaintiff of the exclusion.
A friend of Johnson, John Christiansen, testified he had discussed Johnson's
coverage with him several months before his death while the two were hunting. He
testified as follows:
Q. Can you tell the Court the substance of this conversation?
A. Well, Merlin and I went - were out hunting one day, we were just talking and
just shooting the breeze and got talking about we just mentioned insurance and
he said yeah, you know how you talk when you don't expect any death or anything.
Yeah, I'm worth more dead than alive and he told me what the - he said not too
long ago he bought this $100,000.00 policy and had accidental death benefit in
it. I told him, I said, "well, it won't pay if you're killed in the airplane
though." He says, "No, the insurance agent says that didn't make any difference,
I'm still covered by accidental death." I told him, "Well, years ago", I said,
"I sold insurance for a company here in Clinton" and I says, "Maybe its
different now than it was then" and he said, "Yeah," - no, he say, "I'm covered
if I fly the airplane." That was all the more we ever said about it. I thought,
well, maybe they changed, but he was certainly under the opinion that he was
covered for while he was flying his airplane.
Johnson's father testified regarding a similar conversation:
Q. And did you at that time have occasion to discuss what coverage he would have
under the policy he would have if he was killed while flying the airplane?
A. Well, I asked him, I said, "You know flying planes is dangerous" and he said,
I know it and he said but I've got insurance to cover if anything should happen
to me because he was farming my farm and I was interested in everything was
going to be all right so I says, "How much insurance do you carry?" He said, "I
carry $100,000.00. In case of accidental death that will pay me twice that much"
he told me.
Q. Aid did he mention whether or not that accidental death included flying an
airplane, in his opinion?
A. He did, I said, "Does it cover you if your flying an airplane" and he said,
"Yes, it does." He told me.
Lutes denied having discussed the
exclusion with Johnson. He acknowledged Johnson requested double indemnity
coverage. He also acknowledged he knew Johnson was a pilot, and he therefore
obtained information from him to fill out an aviation questionnaire. On the
questionnaire Johnson signified his willingness to pay a higher premium if
necessary because of aviation to obtain the coverage he requested.
Lutes was asked if he personally was
then aware of the exclusion. He said, "I would say yes." However, he also said
this was the first policy he ever sold with an "aviation rider." He admitted he
thought the double indemnity provision was applicable when he first visited
plaintiff after her husband's death, and he did not change his mind until he
received the $100,000 benefit check, called the Kansas City office of defendant,
and was told of the exclusion. Under the whole record we believe it is more
likely he was unaware of the exclusion when he solicited the application. We
also believe plaintiff's version of the discussion which took place then is more
credible.
Like the trial court, we find
plaintiff proved her case for reformation.
This is true despite a fine-print
disclaimer in the application of the agent's authority to bind defendant
regarding policy benefits. Lutes admitted he did not call this language to
Johnson's attention, and the evidence is persuasive that Johnson did not read
it. As is usual, the agent filled out the application and the applicant merely
signed it where directed. Johnson was not negligent nor is reformation barred
because of his failure to read the application. Quinn v. Mutual Benefit Health
and Accident Association, supra, 244 Iowa at 14, 55 N.W.2d at 550. See
Restatement (2d) of Contracts § 299 (Tent. Draft No. 10()"A mistaken party's
fault in failing to know or discover the facts before making the contract does
not bar him from avoidance or reformation * * *, unless his fault amounts to a
failure to act in good faith and in accordance with reasonable standards of fair
dealing.").
It is plain that Johnson wanted
double indemnity protection while piloting aircraft. Lutes knew this and took
the application on that basis. Therefore in passing upon the application
defendant knew Johnson sought a policy which would include such coverage.
Defendant thus had a duty either to issue a policy providing the desired
coverage or to notify Johnson the coverage was unavailable. Frohna v.
Continental Insurance Companies, 62 Wis.2d 650, 652, 215 N.W.2d 1, 2 (1974)
("mutual mistake is established when the party applying for insurance proves he
made certain statements to the agent concerning the coverage desired, but the
policy as issued did not provide the coverage"); 13A Appleman, Insurance Law and
Practice, § 7609, 1977 pocket part p. 26. The case for reformation is even
stronger when Lutes' representations are considered.
We agree with the trial court that
plaintiff is entitled to reformation.
AFFIRMED.
All Justices concur except REES and
LeGRAND, JJ. who dissent.