306 U.S. 563 (1939), 598, Atlas Life Insurance Co. v. W. I. Southern, Inc.

Docket Nº:No. 598
Citation:306 U.S. 563, 59 S.Ct. 657, 83 L.Ed. 987
Party Name:Atlas Life Insurance Co. v. W. I. Southern, Inc.
Case Date:April 17, 1939
Court:United States Supreme Court
 
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Page 563

306 U.S. 563 (1939)

59 S.Ct. 657, 83 L.Ed. 987

Atlas Life Insurance Co.

v.

W. I. Southern, Inc.

No. 598

United States Supreme Court

April 17, 1939

Submitted March 29, 1939

CERTIFICATE FROM THE CIRCUIT COURT OF APPEALS FOR

THE TENTH CIRCUIT

Syllabus

1. In Oklahoma, an insurer may set up fraud in the procurement of a policy as a defense to an action at law upon it, or may interpose a cross-complaint in that action for cancellation of the policy. P. 567.

2. An action in a state court of Oklahoma by a Delaware corporation against an Oklahoma insurance company upon a policy of insurance is not removable to the federal court, since the defendant is not a nonresident of Oklahoma within Judicial Code, § 28. P. 567.

3. The "jurisdiction" of suits in equity, conferred on the federal courts by Judicial Code, § 24(1), is an authority to administer in equity suits the principles of the system of judicial remedies which had been devised and was being administered by the English Court of Chancery at the time of the separation of the two countries. P. 568.

4. The provision of Judicial Code, § 267, that suits in equity shall not be maintained in the federal courts in any case where a "plain, adequate and complete remedy may be had at law," which continues, in substance, § 16 of the Judiciary Act of 1789, is but a declaration of the equity rule established long before the enactment of the Judiciary Act, and it serves by emphasis of the rule to protect the States from the encroachments which would result from the exercise of equity powers by federal courts failing to observe it. P. 569.

5. The accepted test of legal adequacy which the section prescribes is the legal remedy which the federal, rather than state, courts afford. P. 569.

6. Though the federal court have jurisdiction, in the sense of power to hear and decide the cause, and there is an absence of legal remedy, the right to equitable relief nevertheless depends upon allegation and proof of a cause of action in equity. P. 569.

7. The fact that an "incontestable" clause in a policy would soon come into operation is not necessarily ground for resort to equity in the federal court, when a suit at law is pending in a state court wherein the ground for equitable relief can be set up as a defense.

Page 564

The federal court should proceed only so far as is necessary to protect the suitor from loss of his defense at law. P. 572.

8. Questions certified by the Circuit Court of Appeals to this Court in a suit by an insurance company for cancellation of policies of insurance on the ground of fraud in procurement, seeking instructions as to the right of the insurer to equitable relief in view of the pendency in the state court of a action at law previously brought on the policies by the beneficiary, held not appropriately framed for proper answer, because the facts certified fail to show whether the insurance company is entitled to the relief sought. P. 571.

The questions suggested may be properly answered only by reframing them or giving qualified answers to them. This the Court is not required to do, and cannot properly do without recourse to the record, which, in this case, is not here.

9. It is inappropriate on certificate to answer questions which may be affected by unstated matter lurking in the record, or questions which admit of one answer under one set of circumstances and a different answer under another, neither of which is inconsistent with the certificate. P. 573.

Certificate from the Circuit Court of Appeals upon an appeal from a decree dismissing a bill in equity for cancellation of policies of insurance.

Page 566

STONE, J., lead opinion

MR. JUSTICE STONE delivered the opinion of the Court.

In this case, the Court of Appeals for the Tenth Circuit has certified to us questions of law concerning which it asks instructions for the proper decision of the cause pending in that court. Judicial Code, § 239.

The certificate states that, on March 13, 1936, Atlas Life Insurance Company, an Oklahoma corporation, plaintiff below, issued, on a single application, three policies of insurance on the life of one Southern, in amounts of $10,000, $15,000 and $25,000, respectively, each naming as beneficiary W. I. Southern, Inc., a Delaware corporation. All of the policies contained an incontestable clause reading:

This policy will be incontestable after two years from date of issue except for the nonpayment of premium and except as to provisions and conditions relating to disability benefits and those granting additional insurance specifically against death by accident, if any,

and a clause relating to statements of the insured in his application as follows:

All statements made by the Insured shall, in the absence of fraud, be deemed representations, and not warranties, and no such statement shall void this policy unless it be contained in the written application and a copy of the application is endorsed upon or attached to this policy when issued.

The insured died February 23, 1938, and on March 7, 1938, the corporate beneficiary began suit against the insurance company in the Oklahoma state district court. On the following day, the insurance company brought a suit in equity against the beneficiary in the federal district court for northern Oklahoma for cancellation of the

Page 567

policies, on the ground that, in his application, the insured had intentionally and fraudulently given false answers to questions material to the risk. The trial court sustained a motion to dismiss the equity suit, made on the ground that the insurance company had an adequate remedy at law by setting up the alleged fraud as a defense to the action pending in the state court. 23 F.Supp. 334. The insurance company electing not to plead further, a decree was entered dismissing the bill, from which the insurance company appealed to the Circuit Court of Appeals.

Under the Oklahoma practice, the insurance company can set up the fraud as a defense to the action at law on the policies, or can interpose a cross-complaint in that action for cancellation of the policies. Farmers' & Merchants' Bank v. Hoyt, 29 Okl. 772, 120 P. 264. The action on the policies in the state court is not removable by the insurance company, since it is not a nonresident of Oklahoma within the meaning of § 28 of the Judicial Code, 28 U.S.C. § 71.

The questions certified are as follows:

1. Is the remedy at law available in the state court by setting up the alleged fraud as a defense to the action on the policies, such an adequate remedy at law as will constitute a valid defense to the suit in equity for cancellation of the policies?

2. In order to constitute a defense to a suit in equity to cancel a policy of life insurance on the ground of fraud, is it essential that the remedy at law be available to the complainant in an action at law pending in the federal court?

3. Is the principle that the adequate remedy at law which will preclude a federal court of equity from granting relief must be one available in the federal courts, applicable in the instant case where the relief sought is affirmative in form but defensive in character?

Page 568

Section 11 of the Judiciary Act of 1789, 1 Stat. 78, provided that the circuit courts should have "cognizance . . . of all suits of a civil nature at common law or in equity" in cases appropriately brought in those courts. This provision is perpetuated in § 24(1) of the Judicial Code, 28...

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