Aetna Life Ins. Co. v. Daniel

• Decision Date: 01 October 1931
• Docket Number: No. 31007.,31007.
• Parties: AETNA LIFE INSURANCE COMPANY, Appellant, v. JULIA E. DANIEL.
• Court: Missouri Supreme Court

42 S.W.2d 584

AETNA LIFE INSURANCE COMPANY, Appellant, v. JULIA E. DANIEL.

No. 31007.

Supreme Court of Missouri.

Division Two, October 1, 1931.

Appeal from Scott Circuit Court. — Hon. Frank Kelly, Judge.

AFFIRMED.

Ray B. Lucas and Jones, Hocker, Sullivan & Angert for appellant.

(1) A suit in equity will lie, after the insured's death, by virtue of a clause of the policy making it incontestable after a certain period, to cancel a policy because of misrepresentations in the application therefor. New York Life Ins. Co. v. Cobb, 219 Mo. App. 609; Mutual Life Ins. Co. v. Packing Co., 263 U.S. 167. (2) Under the incontestable clause of a policy the insurer can only contest a policy by a suit in equity to cancel the same within the contestable period, or by an answer filed within the contestable period in an action brought by the beneficiary to recover on the policy. Monahan v. Metropolitan Life, 119 N.E. 68; Powell v. Mutual Life Ins. Co., 144 N.E. 829; Mutual Life v. Packing Co., 263 U.S. 167; Great Southern Life Ins. Co. v. Russ, 14 Fed. 27; Humpston v. State Mutual Life Assur. Co., 256 S.W. 439; Missouri State Life v. Cranford, 257 S.W. 66; Walpin v. Prudential Ins. Co., 228 N.Y. Supp. 78; Reliance Life Ins. Co. v. Thayer, 203 Pac. 190; Mutual Life Ins. Co. v. Buford, 160 Pac. 928; Indiana Life Ins. Co. v. McGinnis, 101 N.E. 289. (3) The prior institution or pendency of an action at law by the beneficiary to recover on the policy does not deprive a court of equity of jurisdiction of a subsequent suit by the insured to cancel a policy, containing an incontestable clause, because the beneficiary has the right to dismiss the action at law to recover on the policy at any time and if upon such dismissal the incontestable period has expired and the insurer has not answered, and has not been required to answer, at the time of the dismissal of the beneficiary's action, it will be precluded from defending on the ground of fraud or misrepresentations in the procurement of the policy in a subsequent action brought by the beneficiary to recover on the policy after the expiration of the contestable period.

M.E. Montgomery and Ward & Reeves for respondent.

(1) Equity has no jurisdiction, after the death of the insured, to cancel a policy on the ground of fraud in its procurement, because it has a legal remedy to set up such fraud in an answer to the action on the policy (with one exception). Sureman v. Ins. Co., 165 Mo. 641; Keen v. Ins. Co., 198 Mo. 463; State ex rel. v. Trimble, 292 Mo. 371; Gratty v. Ins. Co., 256 S.W. 501. (2) The one exception to this rule is where the insurance company does not have an adequate remedy at law. This occurs in the one instance only, wherein the policy has a contestable clause in it making such clause incontestable upon the ground of fraud after a limited period, and the assured dies before that incontestable period has expired, and there is no suit filed, so that a legal defense can be set up. Under such circumstances the courts hold that since there is no suit pending in which the insurance company can invoke the question of fraud, the insurance company is not required to wait until the incontestable period has expired before it takes any action, and thus and thereby lose its right to raise the question of fraud. N.Y. Life Ins. Co. v. Cobb, 282 S.W. 494; N.Y. Life Ins. Co. v. Wiegman, 256 S.W. 505. Our position is that equity gets its jurisdiction out of an emergency. That emergency is that the beneficiary may not institute a suit at law until after the incontestable period has expired, and then it is too late for the insurance company to plead fraud in procurement of the policy and thus and thereby lose its valuable right to this defense. Under and from that emergency, or shortcoming of the law, the equitable right sprang. That right is that the insurance company does not have a legal remedy because there is no suit pending to file its legal answer to; and it does not have to wait for suit to be filed and until the incontestable period has expired and thereby lose its defense. Because of this probable loss of testimony or loss of defense has sprung up the proposition that the insurance company, under that peculiar state of affairs, would have no legal remedy and can go into a court of equity. This cannot happen if a suit is already filed. (3) The insurance company's right to a suit in equity depends entirely upon its having no adequate legal remedy. The only time it has no adequate legal remedy is when (a) there is a limited incontestable period; and (b) the assured dies within that time and no action is brought on the policy so this legal defense can be asserted. Under those circumstances the insurance company does not have to wait until the limited period, to make this defense, has expired and then lose the right to that defense. And under those peculiar circumstances it can go into a court of equity and plead such facts and therefore show it has no legal remedy. The thing that it must plead to show that it has no legal remedy is (a) the period of incontestability; (b) that assured died within that period with an outstanding policy; (c) that the policy is non-enforceable because of this fraud, which can only be taken advantage of during this contestable period; (d) and that no action at law has been begun whereby this legal answer can be asserted. Those are the things that show that no legal remedy exists. If a legal remedy exists (as is the general rule), then equity has no jurisdiction at all. To get away from this general rule and give equity jurisdiction the insurance company must plead the facts that show that no legal remedy exists; and one of the main facts is that no suit has been filed by the beneficiary and therefore no legal answer can be set up. That is jurisdictional. (4) The only ground appellant contends for in its brief as to why an equity suit can be maintained is that the beneficiary having an action at law on the policy in court might dismiss it; but the case cited by appellant clearly dispels that theory of the case, Powell v. Mutual Life Ins. Co., 144 N.E. 829. The law presumes that a person acts right and not wrong; acts honestly and not dishonestly. Therefore, the beneficiary having an action pending when this suit was brought, the insurance company could not bring and maintain an action in equity upon the presumption that the beneficiary would or might fraudulently bring an action on the policy to prevent an action in equity and then dismiss the suit to get beyond the contestable period of the policy. City v. Truex, 235 Mo. 619; Missouri Trust Co. v. Bank, 154 Mo. App. 189; Glover v. Ins. Co., 130 Mo. 173; Ivy v. Yancy, 129 Mo. 501; Rice v. Ins. Co., 176 S.W. (Mo. App.) 1113. In passing upon the demurrer the courts cannot take into consideration conditions which came into existence or might possibly come into existence after the commencement of the equitable action. Jefferson Standard Ins. Co. v. Keeton, 292 Fed. 53. (5) This proceeding is to prevent plaintiff from having a jury trial, as guaranteed to her by statute. And this statute applies to issue upon answer in application for reinstatement. Sec. 6142, R.S. 1919; 171 Mo. 381.

COOLEY, C.

This action was instituted January 17, 1929, by the Aetna Life Insurance Company, to cancel, for fraudulent misrepresentations in procuring its reinstatement, an insurance policy for $2500 issued by said company to Archie D. Daniel, in which respondent, Julia E. Daniel, was beneficiary. The suit was filed after the death of the insured. A demurrer to plaintiff's petition was sustained. Plaintiff refused to plead further, and judgment was entered for defendant dismissing plaintiff's bill. Plaintiff appealed to the Springfield Court of Appeals, where a decision was rendered affirming the judgment of the circuit court, reported in 33 S.W. (2d) 424. The Court of Appeals certified the cause to this court because of conflict between its decision and that of the St. Louis Court of Appeals in New York Life Ins. Co. v. Cobb, 219 Mo. App. 609, 282 S.W. 494.

It appears from the petition that the original policy was issued November 20, 1921, and contained a provision that it should be incontestable after one year from its date of issue. Premiums were payable on November 20th of each year. The premium due November 20, 1927, was not paid and the policy lapsed. It was reinstated January 27, 1928, on application of the insured. The petition alleges that the insured made certain material false statements in his application for reinstatement on which the insurance company relied and by which it was induced to reinstate the policy; that the insured died August 31, 1928, and that the facts alleged to have been misrepresented by him in his application for reinstatement contributed to his death. The petition asked for cancellation of the policy and that defendant be enjoined from instituting or maintaining an action or a suit under or on account of the policy. The petition did not allege that no such suit had been brought.

Defendant's demurrer was upon the grounds that there was no equity in plaintiff's bill; that plaintiff had an adequate remedy at law, as shown by its petition, and that the petition failed to state facts sufficient to constitute a cause of action.

Respondent's contention is that the insurer would have a complete and adequate remedy at law by asserting the alleged fraudulent misrepresentations as a defense to an action on the policy if such action had been brought by the beneficiary and was pending, thereby permitting the insurer thus to contest the policy; that equity takes cognizance in such cases only to prevent irreparable injury to the insurer in being deprived of a valid defense which it could assert within one year from the date of the policy (or in this case, the reinstatement), but could not assert thereafter and would therefore lose if an action on the policy were postponed by the beneficiary until...