Appeal from the Circuit Court of Coles County; the Hon.
William J. Sunderman, Judge, presiding.
JUSTICE MILLER DELIVERED THE OPINION OF THE COURT:
Rehearing denied November 18, 1983.
The plaintiff's son, Stephen Hildebrand, applied for a policy of life insurance with the defendant, gave the defendant's agent a check for the first month's premium, and received a conditional premium receipt in return; he died while his application was on its way to the defendant's home office. Aware of the death, the defendant investigated the applicant's answers to some questions on the application and learned that he had understated the number of his traffic convictions and license suspensions. Therefore, the defendant declined to issue the policy and denied coverage, relying on the provision in the conditional receipt that no insurance would issue unless the applicant were found by the defendant's underwriters to be an acceptable risk for the exact premium and policy applied for. The plaintiff, named as the beneficiary on the application, sued for and recovered the death benefit of the policy, $36,695. The defendant appeals, arguing that the terms of the conditional receipt entitle it to judgment as a matter of law, that the verdict was against the manifest weight of the evidence, and that the trial judge's incorrect rulings on evidence and instructions deprived it of a fair trial. We reverse and remand for a new trial.
The evidence presented at trial consisted mainly of what steps the defendant took in processing Stephen Hildebrand's application. The defendant also introduced the testimony of some competitors' underwriters, who said that their companies would have rated, i.e., charged a premium higher than normal, or declined this application.
The plaintiff, Judith Ann Farrier, formerly Hildebrand, testified that at the time her son applied for the insurance policy, September 1979, he was living in Villa Grove and working for the Missouri-Pacific Railroad Company. He was 20 years old and single and died about 9:30 p.m. September 27, 1979. Mrs. Farrier first learned of his application for insurance when a Mr. Davis of Franklin Life, the defendant, visited her in the middle of October 1979 and asked for permission to check her son's medical records. She later went through her son's papers and found the conditional premium receipt and the business card of Thomas K. Homma, one of the defendant's agents. The plaintiff telephoned Homma, who acknowledged selling the policy and said that she would have no problem collecting on it. About November 8, 1979, Mrs. Farrier telephoned Jerry Jourdan, a claims examiner, at the defendant's home office in Springfield, who said that because of her son's bad driving record, the company would never have issued the policy. Next, Mrs. Farrier received a letter dated November 13, 1979, from Richard Haines, the defendant's assistant claims director. Haines wrote:
"Because of your son's death shortly after the application, we made an investigation into his insurability and secured a copy of the Illinois motor vehicle driving record. Based on the information in that report, our Underwriting Department has declined to issue the policy as applied for under our regular underwriting rules and standards."
Haines returned the premium check of $44.50, which the defendant had not cashed.
Over the defendant's objection, the plaintiff called and examined Thomas K. Homma as an adverse agent under section 2-1102 of the Code of Civil Procedure (Ill. Rev. Stat. 1981, ch. 110, par. 2-1102). Homma testified that he first met Stephen Hildebrand September 20, 1979. On that day they talked about insurance and signed the necessary documents, but dated them a week later, September 27, because Hildebrand said that he would not have enough money in his bank account until then to cover the check for the initial premium. Homma accepted the application on a "non-medical" basis, meaning that Hildebrand did not have to take a physical examination.
Plaintiff's exhibit No. 8, the front side of the application, was filled out by Homma as he was talking with Hildebrand, and both signed it; the back side of the application is the "Agent's Confidential Report," which Homma filled out later and signed. Homma filled out an occupational questionnaire as he talked with Hildebrand, and both signed it. Finally, Homma wrote down Hildebrand's answers to the questions on the confidential-personal questionnaire, and both signed it. The third question on the confidential-personal questionnaire says, "List and describe driving convictions, including dates. Has license been suspended or revoked?" Underneath that Homa wrote the following:
"3 MOS. — DEC 1978-MAR 1979
Homma told Hildebrand that a poor driving record could cause the application to be rated or declined. Hildebrand also signed a bank draft, allowing the defendant to obtain the monthly premiums directly from his account. Homma then left the conditional premium receipt with Hildebrand; like the other forms, the receipt was postdated September 27, 1979. Homma sent the application to John Jeffers, the defendant's area manager, who signed the confidential report. Homma denied telling Mrs. Farrier that she would be able to collect on the policy. Homma said that as of the trial date, the defendant had never declined because of a bad driving record a life policy written by him, though the defendant had declined for that reason policies written by other agents; some of Homma's policies had been rated for bad driving records.
John Jeffers testified for the plaintiff. Jeffers worked for the defendant from 1964 until May 1982, and he could not remember the defendant ever declining an application for a life insurance policy because of a bad driving record; the defendant had, however, rated applications for that reason.
Richard Haines, the assistant claims director for the defendant since 1971, was questioned as an adverse agent. Haines explained that when the defendant's home office received an application, it normally went to the underwriting department rather than to the claims department. In this case, however, the claims department got involved because Hildebrand had died. The claims department asked Equifax, an investigation company used by most insurance companies, to review some of the information on Hildebrand's application.
Jerry Jourdan also was questioned as an adverse agent. During the period in question, September 1979 through November 1979, Jourdan worked for the defendant as a claims examiner; at the time of trial he had a different job with the defendant. On September 28 Homma's wife telephoned with the information that Hildebrand had been killed and that his application was on its way to Springfield; Jourdan said that the application was received October 2, 1979, and he identified Defendant's exhibit No. 1A as the home office's file on the matter. Jourdan asked Equifax to obtain Hildebrand's medical history, which it did; the reports showed only minor things, such as treatment for a cut. Jourdan also asked Equifax to obtain a copy of Hildebrand's motor vehicle record (MVR), which it did.
Phillip Steele, since 1972 the defendant's assistant vice-president of underwriting, was questioned as an adverse agent. Steele said that the underwriting department did not become involved in this case until late October. The conditional premium receipt refers to "underwriting rules, limits and standards." Steele explained that the defendant does not have rules, that its limits are memorialized in various memos that have accumulated over the years, and that its standards are contained in the Life Underwriting Manual put out by the Lincoln National Life Insurance Company. The defendant was using this manual during the time it reviewed Stephen Hildebrand's application. Steele explained that Lincoln National provides reinsurance for the defendant; the two are not affiliated. All the defendant's underwriters had that manual, which was the only one used; the manual was advisory only, and the underwriters would consult it and then use their own judgment in handling applications. The manual contains what Steele called "a minimal reference" to driving records; this reference is in the list of "associated hazards" under the heading of alcohol; alcohol is discussed in the chapter on "nonphysical factors." Nothing in the manual says that a person whose license has been suspended should be rated or denied insurance.
Steele testified that after the application left the claims department, it went to the underwriting department. Steele was the first person in the underwriting department to review Hildebrand's application, and he did this October 29, 1979. Steele said that had Hildebrand not died, William McLaughlin, an underwriter, would have reviewed the application; McLaughlin never saw this application. The company decided to decline the application a few days later; according to Steele, the decision was based only on Hildebrand's driving record.
William Martin was the last of the defendant's employees to be questioned by the plaintiff as an adverse agent under section 2-1102. In autumn 1979 and at the time of trial Martin held the highest position in the defendant's underwriting department, vice-president. Martin said that Hildebrand's application was declined only because of the bad MVR. Had the application been accepted, the monthly premium would have been $44.50 and the death benefit $36,695. Martin repeated much of what Steele had said about the defendant's underwriting policies and the Lincoln National manual: in autumn 1979 the defendant did not have any written rules, limits, or standards dealing with applicants' driving records; the Lincoln National manual was used only as a guide, and each underwriter relied ultimately on his own judgment in deciding whether to rate or decline an application; the manual refers to driving records only once, and then in connection with the use of alcohol; the defendant did not require underwriters to obtain an MVR for every applicant listing three moving violations.
Over the defendant's objection, Harlan Heller, a lawyer from Mattoon, testified that one may obtain the MVR of any driver licensed in Illinois simply by writing to the Secretary of State, who usually responds within the week.
The defendant presented six witnesses: three of its employees who had testified under section 2-1102-Haines, Steele, and Martin — and three underwriters for other insurance companies, who gave their opinions on Stephen Hildebrand's insurability.
Richard Haines, the defendant's assistant claims director, testified that for as long as he could remember, the claims department has had investigations done on applicants that die before their policies have been accepted or approved. The claims department relied on Equifax to get Hildebrand's MVR; because of their load of work, the department's employees do not have the time to do things like that themselves. Haines identified in the defendant's file on Hildebrand a memo of a telephone conversation that he had October 18, 1979, with someone in Equifax' Springfield office; Haines told that person to speed the investigation along. Haines said that once the investigation was finished, the matter went to the underwriting department, which made the decision to reject the application; Haines, assigned to the claims department, thus did not take part in that decision.
Phillip Steele, assistant vice-president of underwriting, examined the file on Hildebrand's application October 29, 1979. Steele said that a person with a bad driving record is more likely to die at an early age than a person with a good record; this is particularly true for unmarried males between the ages of 20 and 25. The MVR obtained by Equifax showed eight traffic convictions for which points were assigned, one completed suspension, and one impending suspension. The answer to the question about traffic violations on the personal-confidential questionnaire showed only three violations and the earlier suspension. Steele testified that when he reviewed the file he was aware of Hildebrand's death but that that did not influence him. He recommended rating the policy or declining it.
William Martin, the defendant's vice-president of underwriting, testified that the question on driving records was added to the personal-confidential questionnaire early in 1979, partly because many of the defendant's policyholders are young; even before that time, however, the underwriting department had considered applicants' driving records. Martin knew that Hildebrand had died but ignored that in making the decision to decline the policy. Martin testified that he was sure that the defendant has rated or declined other life policies for unmarried, 20-year-old males with driving records similar to Hildebrand's; this was not an unusual case.
Over the plaintiff's objection, the defendant presented three underwriters for three other insurance companies; they testified that their companies would have rated or declined Hildebrand's application. Jerry Kownacki, since 1970 the director of underwriting and policy issuance for the Country Life Insurance Company, an affiliate of the Farm Bureau, testified that every underwriter uses a manual, commonly that of a reinsurer. Looking at Hildebrand's application and questionnaire, Kownacki said that his company would not have issued him a standard policy; without an MVR and other information, Kownacki could not tell whether the application would have been rated or declined. Kownacki was then handed Hildebrand's MVR. Kownacki explained that the underwriting manual used by his company assigns different numbers or points to different traffic convictions and illegal speeds and refuses to insure applicants whose records exceed a certain number of points. Because the MVR did not show Hildebrand's speeds when he was caught speeding, Kownacki could not say whether Country Life would have declined the application.
John Hindahl, vice-president of underwriting for the State Farm Life Insurance Company the last nine years, testified that State Farm considers an applicant's driving record in deciding whether to issue a policy and, if so, what type — standard or rated. After examining Hildebrand's application, personal-confidential questionnaire, and MVR, Hindahl concluded that State Farm would not have issued him a standard policy. Hildebrand was at the high end for rated policies under State Farm's point system for driving convictions; without knowing what speeds ...