Background
In June 1983 Albert Manzo, 46, applied to Massachusetts Mutual for a $500,000 life policy. During the insurer’s medical exam he answered “no” when asked whether he had ever been advised of, treated for or had any known indication of diabetes, or of sugar in his urine. He also denied seeing a doctor for anything other than routine checkups in the past five years.
None of that was true. He had been diagnosed with diabetes in 1968, it was poorly controlled, and he had been hospitalized twice in 1979. His doctor had discussed the disease with him, prescribed medication and put him on a diet. A year before applying to Mass. Mutual, he had answered “yes” to the same diabetes question on another insurer’s application.
On August 22, 1983, Manzo was found shot to death in the trunk of his car. The policy was issued nine days later at standard rates, effective June 13. After investigating, Mass. Mutual sued his widow, the primary beneficiary, and his estate to rescind the policy. Its underwriter testified that had he known the truth, he would have required more tests and information, charged about two and a half times the standard premium, and refused the disability premium-waiver rider.
The trial court found that Manzo knew he had diabetes and ordered rescission. The Appellate Division reversed and reformed the policy instead, awarding the $500,000 less the higher premiums he would have paid. It reasoned that the insurer had not shown that the diabetes made Manzo uninsurable or had anything to do with his death.
What the court held
The Supreme Court reversed unanimously and reinstated rescission. It held three things.
Equitable fraud survives the insured’s death within the contest period. The incontestability statute (N.J.S.A. 17B:25-4) bars contests after a policy has been in force for two years during the insured’s lifetime. The Court said this is how the Legislature balanced the insurer’s interest against the insured’s need for secure coverage, and it does not end the right to contest at death. Mass. Mutual contested within two years, so it could rely on equitable fraud.
No intent to defraud is required. N.J.S.A. 17B:24-3(d) says a false statement in an application does not bar recovery “unless such false statement materially affected either the acceptance of the risk or the hazard assumed by the insurer.” It says nothing about the applicant’s intent. The Court noted that in 1951 the Legislature had removed “actual intent to deceive” language from a predecessor statute. Because Manzo knew he had diabetes when he denied it, the insurer had proved equitable fraud without having to show an intent to defraud. The Court expressly left open how far an innocent misstatement can support rescission.
Materiality uses the long-standing Kerpchak test, and no causal link is needed. Under a 1922 decision, Kerpchak v. John Hancock, a misstatement is material if it would “naturally and reasonably influence the judgment of the underwriter in making the contract at all, or in estimating the degree or character of the risk, or in fixing the rate of premium.” The Court rejected the Appellate Division’s “uninsurable” test because it would reward dishonest applicants, who could lie with nothing to lose. It also rejected any requirement that the misrepresented condition caused the death. That is the majority rule “in the absence of a statute establishing a different rule,” the Court said, and the law should not encourage applicants to “gamble that they will not die of a concealed disease.”
Why it matters
Manzo is still the starting point for any New Jersey denial based on the application during the first two years of an individual policy. Three practical points follow:
- Cause of death is usually irrelevant. Manzo was murdered, and his diabetes had nothing to do with it, yet the policy was still rescinded. Compare Missouri, where a statute (RSMo 376.580) does require that the misrepresented matter actually contributed to the death. See our Missouri page.
- What the insured knew is the key factual question. Manzo involved a plainly knowing misstatement. Where the applicant did not know of a condition, or an agent recorded the answers, the insurer’s case is weaker, and the Court left that issue open.
- Underwriting evidence is central. The insurer won because its underwriter showed that the truth would have changed the premium and the terms of the policy. Beneficiaries should ask for the underwriting guidelines and file, not just the denial letter.
After two years, the incontestability statute generally bars these defenses. Texas takes a different approach and requires the insurer to prove intent to deceive; see American National v. Arce. For New York’s materiality rule, see Mutual Benefit Life v. JMR Electronics. Our New Jersey page and contestability guide cover the statutes.
Read the opinion
Massachusetts Mutual Life Ins. Co. v. Manzo, 122 N.J. 104, 584 A.2d 190 (1991) (CourtListener).
Not legal advice. This page summarizes general rules and the specific statutes cited. Your policy's wording, the state whose law applies, and whether the coverage came through an employer can all change the result. See the disclaimer and editorial policy.