Policy Provisions Pertaining to Agency

It frequently happens that life-insurance companies insert a provision in their policies or application forms prohibiting their agents from in any way altering the contract. Industrial policies, as has already been noted, usually contain a provision to some such effect as: "No modification, change or alteration hereof or endorsement hereon will be valid unless signed by the president, a vice-president, the secretary or an assistant secretary, and no other person is authorized on behalf of the company to make, alter or discharge this contract or to waive any forfeiture. Agents are not authorized to waive any of the terms or conditions of this policy or to extend the time for payment of premiums or other moneys due to the company, or to bind the company by making any promise or by accepting any representation or information not contained in the application for this policy " Ordinary life policies in the case of some companies likewise stipulate, for example, that "no agent of the company has any authority to waive forfeitures or to make, alter or discharge contracts."

The reasonableness of stipulations like the above must be conceded when one takes into account the fact that most large life-insurance companies are represented by hundreds and sometimes thousands of agents and that in the desire to obtain business many are often tempted to make promises not covered by the policy, or to overlook or conceal representations or information which, had the same been known to the company, would have caused it to refuse the issue of the policy. It therefore seems reasonable that the companies should seek to protect themselves against such contingencies by stating expressly in the contract itself that the agent is not authorized to modify or alter the policy in any particular. It may be added that a similar clause is found in fire and various other kinds of insurance policies.

Despite the apparent reasonableness of such policy provisions, however, the various court decisions are by no means in harmony as to the legal force of the same. Most of the decisions deal with the subject of oral waiver in its relation to fire policies. Here most of the state courts have refused to uphold such policy provisions, and have taken the position that where facts constituting a forfeiture are known to the agent at the time of the issue of the policy the company may not consider the policy forfeited. Various reasons have been offered by the courts for taking this view. One court regards the doctrine " as peculiar to the law of insurance and as founded on the laudable design of preventing the perpetration of a fraud through obtaining a premium by the issuance of a policy known to be void ab initio." Other courts refuse to uphold the provision "in the interest of fair dealing" or on the ground that "if the principal has inherent, inalienable power to waive either orally or in writing so has the agent." But it should be noted that in the famous Northern Assurance Company case, characterized by Mr. Richards as "a decision of perhaps greater practical moment than any other rendered in the law of insurance within half a century" the United States Supreme Court refused to uphold the aforementioned doctrine of oral waiver and repudiated it as fundamentally unsound. Despite this decision, however, many state courts have continued to render opinions to the opposite effect.

In life insurance the state court decisions relating to oral waiver on the part of the agent show the same lack of harmony that we have noted in connection with fire insurance. Thus the Court of California,4 for example, approved and followed the Northern Assurance Company case, and held that where the agent knew the applicant for insurance had had a stroke of paralysis, and still permitted the policy to be issued without the company having knowledge of the fact, his knowledge could not be regarded as a waiver of the forfeiture since the application contained a stipulation to the effect that the determination of whether the policy should be issued rested entirely with the officers of the company. On the other hand there are cases where the courts, with the California and other similar cases before them, have rendered contrary decisions. Moreover, as previously stated, some states seek to neutralize policy provisions like those discussed under this heading by enacting laws which make notice to the agent notice to the company as regards the insured's health, habits and occupation.