D & P TERMINAL, INC. v. WESTERN LIFE INSURANCE COMPANY

• Decision Date: 01 February 1966
• Docket Number: Civ. No. 933 N. D.
• Citation: 250 F. Supp. 388
• Court: U.S. District Court — District of South Dakota
• Parties: D & P TERMINAL, INC., a Corporation, Plaintiff, v. WESTERN LIFE INSURANCE COMPANY, a corporation, Defendant.

250 F. Supp. 388

D & P TERMINAL, INC., a Corporation, Plaintiff, v. WESTERN LIFE INSURANCE COMPANY, a corporation, Defendant.

Civ. No. 933 N. D.

United States District Court D. South Dakota, N. D.

February 1, 1966.

Austin, Hinderacker & Hackett, Watertown, S. D., for plaintiff.

Davenport, Evans, Hurwitz & Smith, Sioux Falls, S. D., for defendant.

BECK, Chief Judge.

The D & P Terminal Company, a corporation, as against the Western Life Insurance Company, also a corporation— hereinafter referred to as Terminal and Western—with all jurisdictional requirements met and none in dispute, is in this case seeking judgment to reform an insurance policy, changing specified effective dates to others allegedly correct, annexing thereto new application as a substitute for the one on August 4, 1959, claimed to have been canceled on December 30, the same year and in the alternative, should reformation be found not to be necessary for purpose of recovery, judgment for the amount due on the policy issued on January 7, 1960 and ascertainment of the amount of insurance the paid premiums purchased on the date of issue at the age of fifty.

Defenses interposed aside from the usual general, are to the effect that issuance of the policy was regular, that premiums under its terms were to be paid on February 5, May, August and November of each year until premiums had been paid for five years and annually thereafter, that the May 5, 1961 premium wasn't paid on or before that date or within the grace period thereafter and that the policy for that reason had lapsed. Ratification of it by Terminal, is another defense, based on acceptance and confirmation of the policy and payment of premiums, and estoppel is one more.

Others, are false representations and fraud in procuring reinstatement after lapse because of nonpayment of premiums and in that connection the usual offers to restore on election to rescind.

Either of two alternative theories, according to Terminal, can be invoked to sustain such relief: (1) on Western's acts on December 30, 1959 being held a cancellation of Terminal's August 4, 1959 application and the insurance, on the proceedings the same day and thereafter being a new application for the policy issued on January 7, 1960, on the back-dating of it and use of an insurance age of forty-nine instead of fifty rendering the issuance of the policy illegal, on the combined effect of all of those operations permitting Terminal to treat the policy as an insurance contract which did not come into existence until the date of actual issuance or not earlier than December 31, 1959, and (2) on there being no competent evidence under the doctor and patient privilege communication rule in connection with the reinstatement, after lapse, to justify denial of recovery.

Western, on the other hand, challenges the merits of that claim as well as the remedy on grounds: (1) that it issued the policy pursuant to the August 4, 1959 application and amendments to it; (2) that the remedy to have it reformed is not available; (3) that the policy conformed to the laws of the state; (4) that its terms in every respect represents the insurance contract which was made; (5) that the acts of Terminal and the insured from and after the application constitute ratification; (6) that the policy lapsed because of nonpayment of the premiums due May 6, 1961; (7) that the thereafter procured reinstatement was based on false representations and fraud and therefor void; (8) that Western after discovery made tender to Terminal of all premium payments made after May 6, 1961; (9) that all of Terminal's acts after the issuance and acceptance of the policy and payment of the first quarterly premium, with the procedure on the reinstatement and the premium payments thereafter included, are consistent with the terms of the policy as it is; (10) that Western properly and technically has exercised its asserted right to rescind and (11) that Terminal under all of the facts and circumstances in the case is estopped from claiming that the policy is something different from the one which was issued, accepted and thereby and thereafter allegedly ratified.

Reformation having been invoked it is for Terminal to bring itself within the statutory provisions governing that remedy, to show to what extent they are controlling on insurance contract cases and how under this record they are to be applied. On this, SDC 37.0601-3, 1960 Supp.:

"Revision: fraud or mistake. When through fraud or mutual mistake of the parties, or a mistake of one party which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value."

"Substance: not form; object of revision. In revising a written instrument, the court may inquire what the instrument was intended to mean, and what were intended to be its legal consequences, and is not confined to the inquiry what the language of the instrument was intended to be."

"Equitable agreement presumed. For the purpose of revising a contract it must be presumed that all the parties thereto intended to make an equitable and conscientious agreement.",

on the construction and use of those provisions as they are applied:

"Before a court of equity will undertake to reform a written instrument, so as to make it express a contract other than as expressed in the instrument, it must clearly appear that the minds of the contracting parties did not meet upon the proposition therein expressed, and that the actual contract made between the parties was other and different from that expressed in the writing, and that the writing came through fraud or mistake, and that plaintiff was not negligent. Heard v. Nancolas, 187 Iowa, 1045, 175 N.W. 13; Day v. Dyer, 171 Iowa, 437, 152 N.W. 53; Barnum v. White, 128 Minn. 58, 150 N.W. 227, 151 N.W. 147; Bates v. Bates, 56 Mich. 405, 23 N.W. 63; Pyne v. Knight, 130 Iowa, 113, 106 N.W. 505; 34 Cyc. 915.

"The grounds relied upon for reformation must be established by clear and satisfactory evidence. Richardson v. Short, 201 Iowa, 561, 207 N.W. 610; Buntrock v. Hoffman, 178 Wis. 5, 189 N.W. 572; Lyons v. Chafey, 219 Mich. 493, 189 N.W. 86; Hallgren v. Becker, 94 Neb. 415, 143 N.W. 467.", Gould v. Nolen, 51 S.D. 472, 214 N.W. 853 (1927).

and on the point urged, should it be held to have merit, that the policy violates SDC 31.1610(3)¹: "Reformation is not granted of void provisions in contracts * * *", Lacks v. Lacks, N.Y., 189 N.E.2d 487, 488. Again on the same point:

"Where a contract is void at law for want of power to make it, a court of equity has no jurisdiction to enforce such contract, or in the absence of fraud, accident, or mistake to so modify it as to make it legal, and then enforce it. Courts of equity can no more disregard statutory and constitutional requirements and provisions than can courts of law. They are bound by positive provisions of a statute equally with courts of law, and, where the transaction, or the contract is declared void because not in compliance with express statutory or constitutional provision, a court of equity cannot interpose to give validity to such transaction or contract, or any part thereof. * *", Hedges v. Dixon County, 150 U.S. 182, 14 S.Ct. 71, 37 L.Ed. 1044.

As for the use of that remedy to change effective dates also in connection with the same point, it is said in Wall v. Mutual Life Ins. Co. of New York, 228 Iowa, 119, 289 N.W. 901, 904 (1940):

"As to the first question the prayer of the petition is: `Plaintiff prays that said policy be reformed and corrected to conform to and correctly evidence and express the true and actual contract agreement of said parties and conform to the Statutes of the State of Iowa, by striking from said policy `14th day of June' and inserting in lieu thereof, said terminal end of the initial annual period of insurance and the date on which said second premium became due, fourth day of August, and payable within thirty-one days thereafter; that is to say, that the court strike from said policy the date of June 14th, as the date for the payment of the second and subsequent annual premium, and insert, in lieu thereof, the words August 4th, * * *.'"

"To entitle plaintiff to reformation such as prayed for in the petition it must appear that the contract does not express the true agreement of the parties. If it does not so appear, the contract must necessarily be controlling. To entitle a person to reformation there must be some showing of fraud, ambiguity, or mutual mistake. No question of fraud arises in this case, nor is there evidence of mistake. Plaintiff urges the well known rules of liberal construction in favor of the insured, the construction of contract of life insurance so as to avoid forfeiture, and the general rule for interpretation in favor of the insured. About these propositions there can be little doubt. But no question of construction arises in this case. The general rule is that, to warrant reformation the proof necessary must be clear, satisfactory, and convincing. Haugh v. Lanz, 187 Iowa 841, 272 N.W. 199; King v. Good, 205 Iowa 1203, 219 N.W. 517. Of course, there could not be mutual mistake and fraud, since these claims would be mutually destructive. See Seymour v. Chicago & N. W. R. Co., 181 Iowa 218, 164 N.W. 352. From an examination of the record we find no evidence which would warrant a finding of either fraud or mutual mistake."

The outcome of the case, thus in part having been postured on application, cancellation, legal effect of the issuance, manual delivery, acceptance and payment of premiums in compliance with its terms up to May 6, 1961, or on a combination of those factors, the court finds each and all of the events between the contracting parties to that date and from August 4,...