The Application and Its Interpretation

An application for life insurance may be defined as the insured's proposal to the insurer for protection, and may be considered as the beginning of the policy contract. In this document the applicant is required to give true answers to a large number of questions, relating principally to his personal and family history, habits, age, total insurance already taken out, and other applications for insurance which are either pending or have been postponed or refused. The policy usually stipulates that insurance is granted in consideration of the application for the policy, which is declared to be a part thereof, and most generally contains an additional clause to the effect that the policy and the application therefore (a copy of which is attached to the policy when issued) "constitute the entire contract between the parties". At a recent date thirteen states had also adopted laws requiring the annexation of applications to policies, on penalty of the company being stopped from denying the correctness or truth of such application; while eleven states have adopted statutes requiring every policy to contain the entire contract between the parties and forbidding the incorporation therein by reference, of any rules, application or other writings unless the same are indorsed upon or attached to the policy when issued. Since the application is the basis of the policy contract, and especially in view of the fact that the answers to the questions contained therein are frequently warranted by the applicant to be true, it is important to note the attitude of the courts in construing disputes that grow out of misstatements made by the applicant. The facts in this respect may be conveniently summarized under the following:

1. Statements as to health, freedom from disease, tidbits, and medical attendance. An unusually large number of decisions have been rendered in connection with such statements, owing principally to the varying phraseology used by the companies in formulating the questions. While much depends upon the exact phraseology used in determining whether or not the contract has been violated, the courts have generally taken the view that the expression "good health" or words to that effect, does not preclude indispositions but means freedom from such diseases or ailments as tend to undermine the general healthfulness of the system. If such words as "to the best of my knowledge or belief" are used to qualify the applicant's answers, the insurer, in order to avoid the policy, must show, that the insured acted in bad faith and had actual knowledge of the facts. But as Richards points out: "Without such, qualifying words, where the answer of the applicant is made in good faith and relates to an unknown and obscure disease, or to a long list of diseases, some of them obscure, the courts are disposed to construe the answer as relating to matter of opinion, of the applicant rather than to matter of fact."

Answers relating to habits, while regarded by the courts as matters of fact rather than opinion, have in many instances been construed leniently, as may for example be judged from the expression of opinion of the United States Supreme Court that one occurrence of delirium tremens does not necessarily violate a warranty covering temperate habits.7 Similarly, the courts, while holding that untrue answers to questions relating to medical attendance or consultation with physicians invalidate the policy, will, whenever possible, especially if the questions are in the least ambiguous, interpret the language favorably to the insured.

2. Statements relating to family relationships and family history. Untrue answers of the applicant to questions relating to his family relationships have, in nearly all instances, been held to invalidate the policy. With respect to family history, however, the courts have shown reluctance to nullify a policy where the insured's incorrect answers were not made in bad faith. In other words the courts have manifested a strong tendency to construe statements of this class, if made in good faith, as mere representations .or matters of opinion on the ground that such questions are in the mature of collateral inquiries and that the applicant can hardly be expected to keep himself thoroughly posted as regards the ages at death, the condition of health during fife, and the causes of death, of his relatives and ancestors.

3. Statements relating to the age of the applicant. It must be apparent that the insurer is entitled to a correct statement of the insured's age, since the rate of premium is based on that age. In the absence therefore of any policy provision relating to the matter, the courts have consistently held that an understatement of age increases the risk as a matter of law and will void the policy. Such a harsh consequence is avoided to-day by a clause which provides for an adjustment by stipulating that "if the age of the insured has been misstated, and the error shall not have been adjusted during his lifetime, the amount payable hereunder shall be such as the premium paid would have purchased in the correct age". Some thirteen states have also provided by statute for a similar adjustment of errors in age.

4. Statements relating to other insurance and to rejected or postponed applications. The importance of inquiries along these lines as a means of preventing over-insurance and uncovering or preventing attempts at fraud is obvious, and false answers to such inquiries have been consistently held to invalidate the policy. The only question of importance in this respect, concerning which court decisions do not agree, is whether the term "other insurance", when used in the application of a regular insurance company, includes certificates issued by and applications made to fraternal and mutual benefit societies. Most of the cases rendered take the position that only policies or applications in regular companies are included in the inquiry, although some of the courts regard fraternal orders and other benefit societies as insurance concerns and, therefore, consider membership therein as "other insurance". The doubt occasioned by this conflict of legal opinion, can, however, easily be overcome by making the inquiry in the application specifically cover benefit certificates as well as other insurance in companies.