New York Life Ins. Co. v. Truesdale, 3874.

• Citation: 79 F.2d 481
• Decision Date: 08 October 1935
• Docket Number: No. 3874.,3874.
• Parties: NEW YORK LIFE INS. CO. v. TRUESDALE et al.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

79 F.2d 481 (1935)

NEW YORK LIFE INS. CO. v. TRUESDALE et al.

No. 3874.

Circuit Court of Appeals, Fourth Circuit.

October 8, 1935.

Pinckney L. Cain, of Columbia, S. C. (Thomas, Lumpkin & Cain, of Columbia, S. C., on the brief), for appellant.

Toy R. Gregory, of Lancaster, S. C. (Gregory & Gregory and Williams & Stewart, all of Lancaster, S. C., on the brief), for appellees.

Before PARKER and NORTHCOTT, Circuit Judges, and CHESNUT, District Judge.

PARKER, Circuit Judge.

This is an appeal from a decree dismissing a bill filed to secure the cancellation of a policy of life and disability insurance on account of false and fraudulent representations contained in the application. The court below found that the policy had been obtained by means of the false and fraudulent representations alleged, but held that, under section 7986 of the South Carolina Code; it had become incontestable as to its life insurance provisions and that, as to its disability provisions, complainant had an adequate remedy at law, in the right to assert as a defense against any action which might be instituted under such provisions the matters set up in the bill.

The policy in question was issued September 4, 1929, and suit for cancellation was instituted within two years of that date but after premiums for two years had been paid. The policy contained the following provision: "This policy shall be incontestable after two years from its date of issue except for nonpayment of premium and except as to provisions and conditions relating to disability and double indemnity benefits."

Sections 7986 and 7987 of the South Carolina Code, which were in force when the policy was issued, when premiums for the second year were received and when the decree below was entered, are as follows:

"§ 7986. All life insurance companies, fraternal benefit associations or any other company, corporation or association by whatever name known, who issues a policy or certificate of insurance on the life of a person that shall receive the premium on any policy for the space of two years shall be deemed and taken to have waived any right they may have had to dispute the truth of the application for insurance, or that the assured person had made false representations, and the said application and representations shall be deemed and taken to be true.

"§ 7987. Life insurance companies are hereby authorized to institute proceedings to vacate policies on the ground of the falsity of the representations contained in the application for said policy: Provided, The same be commenced within two years from the date of said policy."

On May 4, 1935, more than three months after the decree below was entered, section 7986 was amended by the Legislature of South Carolina (39 St. at Large, p. 303) to read as follows: "All Life Insurance companies, fraternal benefit associations or any other company, corporation or association by whatever name known, who issues a policy or certificate of insurance on the life of a person shall, after a period of two (2) years from the date of such policy or certificate of insurance, be deemed and taken to have waived any right they may have had to dispute the truth of the application for insurance, or that the assured person had made false representations, and the said application and representations shall be deemed and taken to be true; Provided, that where any such policy shall contain, in addition to life insurance, agreements for indemnity or benefits for disability, or any other coverage, the provisions of this section shall apply to such agreements with the same force and effect as to the life insurance coverage of such policy."

Three questions are presented by the appeal: (1) Whether the company was precluded from disputing the validity of the policy, in so far as it related to life insurance, by the provisions of section 7986 of the South Carolina Code, in view of the fact that the company had accepted premiums on the policy for the second policy year; (2) if so, whether the passage of the statute of May 5, 1935, had the effect of restoring to the company the right to dispute the validity of the provisions of the policy relating to life insurance; and (3) whether the company had an adequate remedy at law in its right to interpose against suits on the disability features of the policy the fraud and misrepresentation in its procurement alleged in the bill.

On the first question, we think it clear that the Supreme Court of South Carolina has construed section 7986 of the Code, as it stood prior to the recent amendment, as precluding a contest on a policy, on the ground of false representations in the application, after the company has accepted premiums covering the second policy year; and we are, of course, bound by the interpretation which that court places upon the statute. In Beard v. North State Life Ins. Co., 104 S. C. 45, 88 S. E. 285, it appeared that a policy of life insurance was reinstated in December, 1912, and that insured died in June, 1914. At the time of his death premiums for the two year period following the reinstatement had been accepted, but two years from the reinstatement had not elapsed either at that time or later when the company sought to defend on the ground of fraud in the application for the policy and in the certificate of health upon which it was reinstated. In holding that the company could not defend on this ground because it had received premiums for two years, the court said: "It will be observed our statute said nothing about the date or age of the policy. The language refers solely to the receipt of the premium on life insurance. Companies that shall receive the premium on any policy for the space of two years shall be deemed and taken to have waived any right they may have had to dispute the truth, etc. The case states that the company had received the premium for the two years. Under the express terms of the statute, the courts are bound to hold that, as a matter of law, it had waived the right to dispute the truth of the application for insurance."

In the very recent case of Henderson v. Life Ins. Co. of Virginia, 176 S. C. 100, 179 S. E. 680, 690, which is the latest expression of the Supreme Court of South Carolina on the subject, that court held that the lower court should have granted a motion to strike from the answer of defendant insurer a defense of fraud and misrepresentation in the application, where it appeared that premium for the second policy year had been accepted by the insurer, although two years had not elapsed from the issuance of the policy, saying: "By the specific provisions of section 7986, Code of 1932, and the decisions of this court thereunder cited, fraud and misrepresentation in the application are not available to the insurer after two premiums have been paid."

While expressions are to be found in some of the South Carolina cases upholding the interpretation of the statute for which the company argues, in none of them, except those which we have cited, was the question definitely before the court. In neither Ward v. New York Life Ins. Co., 129 S. C. 121, 123 S. E. 820, nor in New York Life Ins. Co. v. Greer, 170 S. C. 151, 169 S. E. 837, upon which the company chiefly relies, was the question presented as to what was the proper interpretation of the statute. In the Ward Case the question decided was that fraud in procuring a reinstatement was ground for rescission, and there was no showing that premium on the policy for the second year was accepted after the reinstatement. The Greer Case dealt with the question as to whether the company was entitled to have fraud in the procurement of a policy adjudicated as an equitable issue. So far as the question here involved is concerned, it was not discussed, and the report of the case does not show whether the second year's premium was in fact paid or not. Certainly, neither of these cases would justify us in ignoring the clear expression of the court in the Beard and Henderson Cases, particularly as the Henderson Case seems to be directly in point and is the latest expression of the court on the subject.

While the construction of the statute is no longer of general importance because of the recent amendment, we think it not amiss to say that in our opinion the construction placed upon it in the Beard and Henderson Cases is correct. There is a distinct difference between sections 7986 and 7987. As stated by the learned judge below: "The bar in one is by conduct of the parties. The bar in the other is currency of time. The first is in the nature of an estoppel. The other is a pure statute of limitations." It was evidently the intention of the Legislature to provide that a company after accepting the premium for a second year on a contract of insurance should be precluded thereafter from contesting its validity on the ground of statements contained in the application, and that, whether it accepted the second year's premium or not, it should be precluded from instituting a proceeding to vacate the policy on such ground after two years from its issuance. There is nothing inconsistent in the two provisions and no ambiguity in the language employed. There is no reason, therefore, why the language used in section 7986 should not be...