## Facts

- In December 1977, Friez applied for a life-insurance policy from National Old Line Insurance Co. (Old Line).
- The application required Friez to answer “yes” or “no” whether he knew of any “existing impairment, disease, or disorder” in his health condition; Friez answered “no.”
- The application also stated: “I understand and agree that there shall be no insurance in force until the policy hereby applied for is issued and delivered to me during my lifetime and good health and the first premium is paid by me in which event the insurance shall be effective as of the Date of issue stated in the policy.”
- Old Line issued and delivered the policy to Friez in January 1978.
- At the time of delivery, Friez had terminal cancer that had not been diagnosed; neither Friez nor Old Line knew of the cancer.
- Friez died the following month.
- Old Line refused to pay the policy proceeds on two grounds: (1) the “good health” language created a condition precedent to coverage, and Friez’s undiagnosed cancer meant he was not in “good health” at delivery; and (2) Friez allegedly misrepresented his health history by not disclosing treatment for ulcers about nine years earlier.
- Old Line cancelled the policy and returned the premium payments.
- The beneficiary sued for the policy proceeds, and the district court entered judgment for the beneficiary.
- Old Line appealed.

## Issues

1. Whether the application’s “good health” clause barred coverage as a condition precedent when the insured, unknown to himself and the insurer, had terminal cancer at policy delivery.
2. Whether the insured’s failure to disclose ulcer treatment from approximately nine years earlier constituted a misrepresentation allowing the insurer to avoid the policy.

## Decision

- The appellate court affirmed the judgment for the beneficiary.
- The court rejected Old Line’s attempt to defeat coverage based solely on the “good health” clause where the insured did not know of the terminal condition at delivery and fraud was not shown.
- The court also rejected Old Line’s misrepresentation defense based on the ulcer treatment because the record did not support avoidance on those facts.

## Legal Principles

- A life insurer may not automatically treat “good health” language in an application as a strict condition precedent that defeats coverage when the insured was unaware of a latent, serious illness at delivery and there is no proof of fraud.
- Insurers seeking to avoid a policy based on statements in the application generally must show that the statement was false within the meaning of the question asked and that the asserted inaccuracy justifies rescission under the governing state law.
- When an application question is framed in terms of knowledge of an “existing” condition, a remote episode of medical treatment does not necessarily establish a false answer absent proof that the applicant knew of a current impairment or that the earlier condition remained present and relevant at the time of application.

## Conclusion

Friez’s beneficiary recovered the policy proceeds because Old Line could not defeat coverage by relying on an application clause requiring delivery during “good health” where Friez unknowingly had undiagnosed terminal cancer, and Old Line also failed to establish that the nondisclosure of ulcer treatment from nine years earlier warranted avoiding the policy.


Friez v. National Old Line Insurance Co., 703 F.2d 1093 (1983)