American Nat. Ins. Co. v. Welsh

Decision Date22 January 1930
Docket Number(No. 1187-5186.)
PartiesAMERICAN NAT. INS. CO. v. WELSH et al.
CourtTexas Supreme Court

Suit by James Adolph Welsh and others against the American National Insurance Company. Judgment for plaintiffs was affirmed by the Court of Civil Appeals , and defendant brings error. Affirmed.

Thompson, Knight, Baker & Harris and Pinkney Grissom, all of Dallas, for plaintiff in error.

Cockrell, McBride, O'Donnell & Hamilton, and J. L. Lipscomb, all of Dallas, for defendants in error.

HARVEY, P. J.

On March 24, 1924, the plaintiff in error, the American National Insurance Company, a Texas corporation, issued a policy of insurance on the life of Katherine Welsh. The policy contained the following provision: "Provided, however, that no obligation is assumed unless on the date hereof the assured is alive and in sound health." Also the following provision: "Subject to correction of age as above provided, and provided premiums have been duly paid, this policy shall be incontestable for the amount due after having been in force two years during the life time of the assured."

All premiums were duly paid to January 25, 1925. The insured, Katherine Welsh, died on August 13, 1924. Proof of death was promptly made, and the insurance company refused payment of the policy, and, within 90 days after the death of the insured, tendered to the beneficiaries all premiums that had been paid, and gave notice of rescission on account of the insured's misrepresentation in the respect hereinafter mentioned. On May 4, 1926, the defendants in error, as beneficiaries under the policy, brought this suit to recover the amount of the policy, with statutory penalty and attorney's fees. On January 22, 1927, the insurance company filed its amended answer, in which, for the first time in the suit, it set up two distinct defenses, based upon the following grounds: First, that the insured was not in sound health on the date of the policy, consequently, in virtue of the first quoted clause of the policy, no effective contract of insurance was consummated; and, second, that the insured had fraudulently stated, in her application for insurance, that she did not then have tuberculosis and had never been affected with this disease, whereas in truth and in fact she had said disease at the time, had been affected with it for a long time, and said disease eventually caused her death. Exceptions urged by the defendants in error were sustained, and the part of the amended answer setting up the above defenses was stricken out by the trial court, on the ground that said defenses were presented for the first time more than two years after the date of the policy. On the trial of the case, judgment was rendered in favor of the defendants in error for the sum sued for. On appeal this judgment was affirmed by the Court of Civil Appeals. 3 S.W. (2d) 946.

It is contended that, because premiums for two years had not been paid prior to the death of the insured, the two defenses in question still were available to the plaintiff in error on January 22, 1927, when the amended answer was filed. In support of this contention the hereinafter quoted provisions of article 4951 are cited. Inasmuch as the policy in question was issued prior to the adoption of the Revised Statutes of 1925, we shall, in discussing the case, employ the article numbering of the Revised Statutes of 1911.

The portions of article 4741, Rev. St. 1911, which are material here, read as follows: "No policy of life insurance shall be issued or delivered in this state, or be issued by a life insurance company organized under the laws of this state, unless the same shall contain provisions substantially as follows: * * * 3. A provision that the policy, or policy and application, shall constitute the entire contract between the parties and shall be incontestable not later than two years from its date, except for nonpayment of premiums; and which provision may or may not, at the option of the company, contain an exception for violations of the conditions of the policy relating to naval and military services in time of war."

The meaning and effect of these provisions were to prescribe two years as the maximum period of limitation, after which no defense, except nonpayment of premiums or violations of conditions relative to naval or military service during war, should be allowed to defeat payment of a life policy. American Nat. Ins. Co. v. Tabor, 111 Tex. 155, 230 S. W. 397. These provisions first became law in the year 1909. See section 22, chapter 108, Acts of 1909. By operation of law, they are read into and control the terms of every policy issued by a domestic life insurance company, after December 31, 1909. When this law was originally passed, there was a pre-existing statute, enacted in 1903, which afterwards became article 4951 of the Revised Statutes of 1911. In such pre-existing statute it was provided that "no defense based upon misrepresentation made in the application for, or in obtaining or securing, any contract of insurance upon the life of any person being or residing in this state shall be valid or enforceable in any suit brought upon such contract two years or more after the date of its issuance, when premiums due on such contract for the said term of two years have been paid to, and received by, the company issuing such contract, without notice to the assured by the company so issuing such contract of its intention to rescind the same on account of misrepresentation so made, unless it shall be shown on the trial that...

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