Ruhlin v. New York Life Ins. Co., 7097.

Decision Date01 November 1939
Docket NumberNo. 7097.,7097.
Citation106 F.2d 921
PartiesRUHLIN et al. v. NEW YORK LIFE INS. CO.
CourtU.S. Court of Appeals — Third Circuit

Margiotti, Pugliese, Evans & Buckley, John E. Evans, Sr., Sachs & Caplan, and Charles H. Sachs, all of Pittsburgh, Pa., for appellants.

William H. Eckert, and Smith, Buchanan & Ingersoll, all of Pittsburgh, Pa., for appellee.

Before BIGGS, MARIS, and CLARK, Circuit Judges.

MARIS, Circuit Judge.

This case involves the question whether the incontestability clause appearing in five of plaintiff's life insurance policies issued to John G. Ruhlin bars the plaintiff from obtaining rescission of the disability and double indemnity provisions of the policies because of fraud practiced by Ruhlin in their procurement. The incontestability clause in controversy is as follows:

"Incontestability. — This Policy shall be incontestable after two years from its date of issue except for non-payment of premium and except as to provisions and conditions relating to Disability and Double Indemnity Benefits."

The plaintiff filed its bill in the district court for the Western District of Pennsylvania February 14, 1935, seeking to rescind the disability and double indemnity provisions in the five life insurance policies in question and to enjoin the insured from prosecuting an action in the state courts to recover disability benefits. Ruhlin, the insured, and his wife and children, the beneficiaries under the policies, were joined as defendants.

The district court granted a preliminary injunction restraining the defendants from proceeding with the state suit. Subsequently the defendants' motion to dissolve the injunction and dismiss the bill was overruled, which action was affirmed by this court on appeal. 3 Cir., 93 F.2d 416. The Supreme Court allowed a writ of certiorari (302 U. S. 681, 58 S.Ct. 408, 82 L.Ed. 526) because of the conflict of our decision with those of other circuit courts of appeals. Thereafter the Supreme Court announced its opinion in Erie R. Co. v. Tompkins, 304 U. S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L. R. 1487, and shortly afterward handed down its opinion in the present case, 304 U. S. 202, 58 S.Ct. 860, 82 L.Ed. 1290. It held that the rule of the Tompkins case was applicable to suits in equity involving the construction of insurance policies and accordingly vacated the judgment and remanded the case to the district court for decision in accordance with the applicable state law.

After the return of the mandate from the Supreme Court the district court permitted the amendment of the bill to set forth the specific facts necessary to determine which state's law applied. The defendants moved to dismiss the bill as amended and to dissolve the injunction. These motions were overruled by the district court. 25 F.Supp. 65. The defendants then filed their answer and the case went to trial on the merits. The district court found as a fact that Ruhlin in his applications had made false answers to questions material to the risk in that he had stated that he had never consulted a physician for or suffered from any disease of the heart, whereas in fact for many years previously he had suffered from and had been treated for heart trouble, myocarditis and a decompensating heart. The court held the provisions for disability and double indemnity benefits invalid because of this fraud and entered a decree directing reformation of the policies by deleting them. Defendants have appealed from that decree.

The defendants asserted in the district court and argue here that the incontestability clause in the policies operates to bar the plaintiff from averring the invalidity of the disability and double indemnity provisions of the policies. The district court construed the incontestability clause which we have quoted as not to be applicable to those portions of the policies which provide for the payment of disability and double indemnity benefits. Under the rule laid down by the Supreme Court in its opinion in this case that construction of the policies must be made which accords with the applicable state decisions. Consequently in order to determine whether the construction placed upon the clause by the district court is right the state or states whose law is to be applied must first be determined. The decision of this question in turn depends upon a consideration of the facts with regard to the issuance of the policies which will now be recounted.

Five life insurance policies are involved, Nos. 10,452,365 and '66 issued December 1, 1928, and Nos. 11,165,728, '29 and '30 issued July 7, 1930. The application for the first policy, No. 10,452,365, was signed by Ruhlin in Pennsylvania and at the same time he paid the first premium called for by the policy to the plaintiff's agent in Pennsylvania. The application was mailed to the plaintiff's home office in New York where it was accepted and the policy written in accordance therewith. The policy was afterward mailed to the plaintiff's agent in Pennsylvania by whom it was delivered by hand to Ruhlin in Pennsylvania. Policy No. 10,452,366 was written at the plaintiff's home office in New York pursuant to an addition there made to the application for the first policy. It was mailed from the plaintiff's home office to its agent in Pennsylvania. The latter delivered it by hand to Ruhlin who accepted it and paid the first premium thereon. The application for the three remaining policies was signed by Ruhlin in Ohio, who at the same time paid to the plaintiff's agent in Ohio the first premium called for by the three policies. The application was mailed to the plaintiff's home office in New York where it was accepted and the three policies written in accordance with it. The three policies were then mailed to the plaintiff's agent in Ohio who delivered them by hand to Ruhlin in that state.

The application for each of the policies contained the following clause: "It is mutually agreed as follows: 1. That the insurance hereby applied for shall not take effect unless and until the policy is delivered to and received by the applicant and the first premium thereon paid in full during his lifetime, and then only if the applicant has not consulted or been treated by any physician since his medical examination; provided, however, that if the applicant, at the time of making this application, pays the agent in cash the full amount of the first premium for the insurance applied for in Questions 2 and 3 and so declares in this application and receives from the agent a receipt therefor on the receipt form which is attached hereto, and if the Company, after medical examination and investigation, shall be satisfied that the applicant was, at the time of making this application, insurable and entitled under the Company's rules and standards to the insurance, on the plan and for the amount applied for in Questions 2 and 3, at the Company's published premium rate corresponding to the applicant's age, then said insurance shall take effect and be in force under and subject to the provisions of the policy applied for from and after the time this application is made, whether the policy be delivered to and received by the applicant or not."

It is a general rule that the construction of an insurance contract is governed by the law of the state where the contract was made. Northwestern Life Ins. Co. v. McCue, 223 U.S. 234, 32 S.Ct. 220, 56 L.Ed. 419, 38 L.R.A.,N.S., 57. The contract is made where the last act legally necessary to bring it into force...

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