Papers and Addresses on the Law of Fraternal Insurance

Sargent vs. Supreme, etc., 158 Mass. 557.

Wist vs. Grand Lodge, Supra.

This seems to be upon the theory that where the by-law shows clearly upon its face that it is intended to act retrospectively and to affect certificates already issued, such effect will be given to it by the courts, whether or not it harmonizes with the rule that legislation cannot impair the obligation of existing contracts, is a question that must be settled by future decisions.

While there is apparently complete harmony among the decisions upon the question of the retrospective effect of these statutes, the question still presents many interesting angles due to the almost infinite variety in the provisions of the by-laws governing the subject.

The question is one that it is rarely if ever necessary for the society to litigate. The liability of the society being admitted and the contest between rival claimants, it is safest as well as most economical to let them settle the controversy between themselves.

"TO WHAT EXTENT IS A FRATERNAL SOCIETY BOUND BY THE ACTS OF ITS MEDICAL EXAMINER IN THE EXAMINATION OF APPLICANTS FOR MEMBERSHIP?"

By Geo. P. Steele, Gen. Att'y Woodmen of the World, Pacific Jurisdiction. Read before Law Section, August 18, 1914, Niagara Falls, N. Y.

Fraternal societies necessarily conduct their business through the medium of representatives. It results therefore, that the questions concerning the agency of such representatives are of prime importance. Is he the agent of the society, and if so, what is the extent of such agency?

The policy of the law attaches certain burdensome incidents to the conduct of a business which necessarily acts through agents.

Vance (p. 302).

In the absence of statutory definition, the status of an agent of a fraternal society is to be determined either from the express stipulations found in the laws of the society and in the contracts which it issues; or by the application of the general rules of agency, or the doctrine of estoppel, to the facts and circumstances of each particular case.

Inasmuch as statutory regulation is treated in another address read here, it will suffice to say that definitions of agency are to be found in the statutes of many states. I venture the remark, however, that statutes have not settled the question; they seem only to furnish an additional angle from which the courts may view the subject.

As in all other fields of the law, we find here a relatively large number of reported cases, and here, also, we discover a hopeless conflict. The purpose of this address will be to discuss some of the decisions concerning the status of examining physicians and learn the trend of judicial thought with respect to the subject.

With reference to express stipulations, there are two absolutely antagonistic doctrines. For convenience I shall denominate one the Federal doctrine and the other the New York doctrine.

In the earlier cases we find savage, if not unfair attacks on insurance contracts. The opinion written by Judge Caldwell, for the Court of Appeals of the Eight Circuit, in the Russell case (77 Fed. 94) is typical. It was there said in substance:

The Courts long ago decided that the agents of insurance companies, authorized to solicit and receive applications for insurance, and forward them to the companies for acceptance, must be deemed the agents of the insurance companies in all they do in preparing the applications, and in any representations they make to the insured as to the character and effect of the statements therein contained; and that the companies would be held to a knowledge of all statements, representations and information given by the insured when making the application to the agent respecting the subject matter. The courts applied to the relation between insurance companies and their agents the well-settled rule of agency, that all acts performed, and all knowledge acquired by an agent in the conduct of the business of his principal, are the acts and knowledge of the principal. When this doctrine became established, companies, in order to evade and escape the effect of the rule, began to insert in their applications and in their policies, variously carefully worded provisions to the effect that the person soliciting or taking the application should be deemed the agent of the insured and not of the insurer. The obvious purpose of clauses of that character was to enable the companies to escape from the necessary obligations and liabilities imposed upon them by the law of agency. They were designed to evade a fundamental rule of the law of agency, and to shear its acknowledged agents of their natural, appropriate and accustomed powers and duties, and impose them, instead, upon the insured.

"In this case it was the duty of the company's medical examiner to make the report called for by the clause of the application last quoted, if the answer to the question, and the information communicated to the medical examiner, made such report necessary. This was a duty required of the medical examiner by the company. It would be unprecedented and unreasonable for an applicant to take into his own hands the preparation of the medical examiner's report, and, in so doing, disregard the express advice and direction of the company's medical examiner. It results that the information communicated by the applicant to the company's agents and medical examiner was in contemplation of law communicated to the company itself, and the company, therefore, having issued the policy,

with knowledge of all the facts, will not be heard to defend upon the ground that these facts were not fully set out in the report of its agents or medical examiner."

In sharp contrast is the later decision rendered by the same court through Judge Sanborn in

Modern Woodmen vs. Tevis, 117 Fed. 369,

where it was held that a fraternal benefit society may limit the authority of its agents by a provision in its certificates, or by its bylaws; and the agent whose powers are thus limited cannot bind the association beyond the limits of his authority to those who know the extent of its powers. And the insured and the beneficiaries under a contract of a beneficial association are charged with knowledge of the limitations of the powers of the association's agents which are found in the certificate, or in the by-laws, which are made a part of the contract.

It may be doubted, however, if such limitation would be held binding when applied to a general officer of the association.

Bankers' Association vs. Staff, 77 Tex. 517.

In Maier vs. Fidelity Life Association., 24 C. C. A., 243, Judge Harlan said:

"It is said in argument that the company should not be permitted to take advantage of the misconduct or wrong of its own agent; but the law did not prohibit the company from taking such precautions as were reasonable and necessary to protect itself against the frauds or negligence of its agents. If the printed application used by it had not informed the applicant that he was to be responsible for the truth of his answers to questions, and if the want of truth in such answers were wholly due to the negligence, ignorance or fraud of the soliciting agent, a different question would be presented. But here the assured was distinctly notified by the application that he was to be held as warranting the truth of his statements, 'by whomsoever written.' Such was the contract between the parties, and there is no reason in law or in public policy why its terms should not be respected and enforced in an action on the written contract, It is the impression with some that the courts may, in their discretion, relieve parties from the obligations of their contracts,

whenever it can be seen that they have acted heedlessly or carelessly in making them, but it is too often forgotten that in giving relief, under such circumstances, to one party, the courts make and enforce a contract which the other party did not make or intend to make."

So far as the federal courts are concerned, the matter has been lately finally settled by the Supreme Court:

Aetna Life Co. vs. Moore, 231 U. S. 543.

In this case the policy under consideration contained very explicit stipulations with reference to agency. All answers were warranted to be those of the applicant, and to be full, correct and true. Certain of the questions were incorrectly answered. It was shown that the actual facts had been given to the examining physician. The contention was, of course, that the company was estopped by the acts. of its agent-the examining physician-and that the case therefore fell within the principle announced in the Winkinson (13 Wall., 222) and Mahone (21 Wall., 152) cases; but the court said:

"There are, however, later cases which enforce the provisions of a policy, and we have seen that it was agreed in the policy under review 'that no statement or declaration made to any agent, examiner or other person, and not contained in' the application, should be 'taken or construed as having been made to or brought to the notice or knowledge of' the company, 'or as charging it with any liability by reason thereof.' The competency of applicants for insurance to make such agreements, and that they are binding when made, was decided by Northern Co. vs. Grand View Assn., 183 U. S. 308."

Knihy

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