Mutual Reserve Fund Life Ass'n v. Austin

• Decision Date: 13 December 1905
• Docket Number: 587.
• Parties: MUTUAL RESERVE FUND LIFE ASS'N v. AUSTIN.
• Court: U.S. Court of Appeals — First Circuit

142 F. 398

MUTUAL RESERVE FUND LIFE ASS'N v. AUSTIN.

No. 587.

United States Court of Appeals, First Circuit.

December 13, 1905

Victor J. Loring, for plaintiff in error.

Joseph Bennett, for defendant in error.

Before LOWELL, Circuit Judge, and ALDRICH and BROWN, District Judges.

BROWN District Judge.

The policies of insurance upon the life of Jonathan W. Austin contain the following clause:

'XIV. If this policy of insurance shall have been in continuous force for three years from its date, it shall thereafter be incontestable except for nonpayment of premiums as herein provided or for misstatement of the age of the member in the application therefor, subject to the provisions hereof.'

The insurance company contends that this so-called 'incontestable clause' never took effect, for the reason that the policy had not been 'in continuous force' for three years from its date. The application contains the following language:

'The applicant further agrees * * * that under no circumstances shall the insurance hereby applied for be in force until payment in cash of the first payment, while the applicant is in good health, and delivery of the policy to the applicant in person during his lifetime and while in good health.'

A further provision in the policy is:

'II. This contract shall not take effect until this policy is delivered to the member in person, during his lifetime and while in good health, nor until the first payment is paid in cash hereon while said member is also in good health. * * * '

It is established as a fact that Austin was not in good health within the meaning of the applications and policies, either when the applications were made or when the policies were delivered, or when the first premiums were paid. It is further established that the policies were delivered to Austin on April 14, 1897;-- that he paid the first payment and all premiums as stipulated in each policy until his death on October 5, 1902. The company does not rely upon false or fraudulent representations, and disavows an intention to avoid its policies for breach of warranties. It contends that the good health of the applicant was a condition precedent, and that no contractual relation, therefore, ever existed between the applicant and the defendant below.

According to this contention, the agreement that the policy, after three years from its date, shall be incontestable, save for nonpayment of premiums or misstatement of age, is itself a conditional agreement, conditional upon the insurance having been 'in force'; and the insurance was not in force because, at the time of the delivery of the policy, the assured was not in good health.

Upon the view that the expression 'in force' implies that the contract of insurance shall have been of full and binding obligation during three years, the clause may be regarded as self-destructive and deceptive. If we are to read it to mean that, if the policy shall have been incontestable for three years, it shall thereafter be incontestable, it is practically meaningless.

During the first three years the policy is contestable upon any one of the express warranties, or upon any one of the conditions inserted by the insurance company for its benefit. These warranties and conditions all relate to the inception of the obligation of the insurance company. It was agreed by the assured that, if any condition or agreement should not be fulfilled, the policy should be null and void. It is the purpose of an ordinary incontestable clause to annul all warranties and conditions that might defeat the rights of the assured. It is said, however, that this is not the ordinary incontestable clause, but a conditional clause novel in character.

An agreement that a policy shall be incontestable is of no significance unless we assume the existence of grounds for contest in the terms of the contract, or in extrinsic facts. If the policy is not to be regarded as in force during the first three years, provided that after three years the company is able to show a breach of warranty or of conditions, then this incontestable clause is of no value, save as a deceptive inducement to those seeking insurance. A construction which renders the clause self-destructive and of no avail to the assured, is to be avoided. 'Parties to a contract are always to be supposed to have intended something, rather than nothing, by what they have said. ' We think it clear that the clause contemplates that a policy may have been 'in continuous force' for three years, even though the insurance company then had good grounds for avoiding it for the reason that a condition precedent had not been fulfilled. The words 'in continuous force for three years' distinguish between policies which mature by death, or otherwise terminate within three years, and policies which do not so mature or terminate. Continuance of life for three years removes certain risks, and affords a reasonable period for the detection of fraud. It has become quite customary for insurance companies to waive warranties and conditions after two or three years. In construing this incontestable clause, we must not lose sight of the fact that it relates, not to the risk at the date of the policy, but at a period three years later, and to a risk that is different in character.

The agreement concerning the original assumption of risk is distinct and independent from the agreement that the policy after it has been outstanding three years in the possession of...