Am. Trust Co v. Life Ins. Co

• Decision Date: 23 May 1917
• Docket Number: (No. 446.)
• Citation: 92 S.E. 706
• Parties: AMERICAN TRUST CO. v. LIFE INS. CO. OF VIRGINIA.
• Court: North Carolina Supreme Court

(173 N.C. 658)

92 S.E. 706

AMERICAN TRUST CO.

v. LIFE INS. CO.OF VIRGINIA.

(No. 446.)

Supreme Court of North Carolina.

May 23, 1917.

Appeal from Superior Court, Mecklenburg County; Cline, Judge.

Action by the American Trust Company against the Life Insurance Company of Virginia. Judgment for plaintiff, and defendant appeals. No error.

This is an action to recover $10,000, the amount of a policy of insurance, issued by the defendant upon the life of Harvey Lambeth, in favor of the plaintiff on March 4, 1913. The policy contained the following clauses, among others:

"This policy shall not take effect until the first premium is paid, nor unless on the date of said payment the insured is alive and in sound health."

Incontestability.—The incontestable clause provides:

"This policy shall be incontestable after one year from its date, except for nonpayment of premium."

Within 12 months from the date of the policy the defendant notified the plaintiff that It elected to cancel the policy, and tendered a return of the first premium on the ground that it had discovered facts which, in its opinion, rendered the policy void, but it refused, upon the request of the plaintiff, to state what the facts were. The plaintiff declined to accept the premium and elected to treat the policy as still in force. There is no provision in the policy giving the defendant the right to cancel it. The plaintiff thereafter tendered the premiums as they became due, which the defendant refused to receive, and the insured died on or about February 7, 1915. No action was brought by the defendant to have the policy canceled. The defendant offered evidence tending to prove that the insured was not in good health when the policy was delivered, and that there were false representations in the application for the policy. His honor instructed the jury if they found the facts to be as testified to by the witnesses to answer the issue in favor of the plaintiff, and the defendant excepted. There was a verdict and judgment for the plaintiff, and the defendant appealed.

Stewart & McRae and Cansler & Cansler, all of Charlotte, for appellant.

Morrison & Dockery and Tillett & Guthrie, all of Charlotte, for appellee.

ALLEN, J. The principal contentions of the defendant are: (1) That the plaintiff and the insured were partners when the policy was issued, and as such the plaintiff had no insurable interest in the life of the insured, and that therefore the contract of insurance is a wagering or gambling contract. (2) That the insured was not in good health at the time of the delivery of the policy of insurance, and that therefore the contract of insurance was never in force under the terms of the policy. (3) That the defendant rescinded the contract of insurance within 12 months after it was issued, and tendered a return of the first premium, andthat, this being so, the incontestable clause does not prevent the defendant from alleging and proving false statements in the application for insurance and fraud in procuring its issue.

The plaintiff, on the other hand, contends: (1) That the insured was not a partner, but an agent, and officer of the plaintiff, and that it had an insurable interest in his life. (2) That there is no evidence that the insured was not in good health at the time of the delivery of the policy, and no evidence of false statements or fraud. (3) That the defendant had no right to cancel the policy of insurance, and did not do so, and that the same was in force at the death of the insured. (4) That the incontestable clause in the policy prevents the defendant from relying upon the fact, if it existed, that the insured was not in good health at the time of the delivery of the policy, or that false and fraudulent statements were made in the application.

There is authority for the position that the incontestable clause in a policy of insurance covers every defense except that there was no insurable interest at the time of the issuing of the policy (Elliott, Contracts, vol. 5, § 4077), although the trend of modern authority is that the clause, when it takes effect within a reasonable time after the issue of the policy and not from date, cuts off all defenses except those specially allowed by the clause itself.

"The modern rule is that a life insurance policy containing a provision that it shall be incontestable after a specified time cannot be contested by the insurer on any ground not excepted in that provision. Williams v. St. Louis Life Ins. Co., 189 Mo. 70 ; Massachusetts Ben. Life Ass'n v. Robinson, 104 Ga. 256 [30 S. E. 918, 42 L. R. A. 261]; Northwestern Life Ins. Co. v. Montgomery, 116 Ga. 799 ; Wright v. Mutual Ben. Life Ass'n, 118 N. Y. 237 [23 N. E. 186, 6 L R. A. 731, 16 Am. St. Rep. 749]; Patterson v. Natural Premium Mut. Life Ins. Co., 100 Wis. 118 [75 N. W. 980, 42 L. R. A. 253, 69 Am. St. Rep. 899]; Mutual Reserve Fund Life Ass'n v. Austin, 142 Fed. 398 [73 C. C. A. 498, 6 L. R. A. (N. S.) 1064]; Murray v. State Mut. Life Ins. Co., 22 R. I. 524 [48 Atl. 600, 53 L. R. A. 742]; Clement v. New York Life Ins. Co., 101 Tenn. 22 [46 S. W. 561, 42 L. R. A. 247, 70 Am. St. Rep. 650]; Citizens' Life Ins. Co. v. McClure, 138 Ky. 138 [127 S. W. 749, 27 L. R. A. (N. S.) 10261; 25 Cyc. 875." Harris v. Ins. Co., 248 Mo. 313, 154 S. W. 69, Ann. Cas. 1914C, 650.

Accepting it, however, as a valid defense when established by proof, although not excepted in the clause, it is one that should not be favored, when invoked by the insurer, when, as in this case, the policy was issued with full knowledge of the facts, because it convicts the insurance company of having issued a policy invalid in its inception and contrary to law, and permits it to take advantage of its own wrong.

It is not, however, necessary for us to decide whether the incontestable clause covers this defense, because it seems clear to us that the insured was not a partner of the plaintiff.

The uncontradicted evidence showing the relationship between the plaintiff and the insured is as follows: W. H. Wood testified:

"I have been secretary and treasurer of the American Trust Company since its organization, about 15 years ago. In 1912, Harvey A. Lambeth was and had been associated with the company, as manager of the insurance department, since 1902. He was also a director in the company. We had a verbal contract with him, made by Mr. F. C. Abbott, who was the president, the vice president, and myself, as secretary and treasurer, providing that he should organize an insurance department, and act as manager of it, receiving one-half of the net profits of that department as his compensation. The department belonged to the American Trust Company. He served continuously as active manager from his appointment until during 1912. During February and March, 1912, he was manager of the insurance department, and director in the bank. He directed the operations of the business and was the head of it. We went out to solicit insurance, and got it and brought it back. At times I saw the applications and was co-operating with him personally, at times, in getting the business. He frequently conferred with me in getting insurance. He had charge of a large business; was principal producer of practically all the business of the insurance department. * * * The insurance department was a success from the time it was organized. He spent all his time in the insurance department. Had charge of all the force, controlled their work and their salaries. He worked incessantly at the business. He had charge of employing and discharging all employes in the insurance department and fixed their salaries. The plaintiff had subagents all over this state and in South Carolina, and he looked after them."

There was also evidence that the plaintiff received as its share of the profits of the business conducted by the insured $7,500 per year.

The ordinary test of a partnership, as the defendant contends, is sharing in the profits, but the evidence brings this case within the well-recognized exception to the rule that there is no partnership if sharing in the profits is a mere means of ascertaining and determining the compensation for the services rendered. Lance v. Butler, 135 N. C. 422, 47 S. E. 488, and cases cited. In this case the court says:

"In Kootz v. Tuvian, 118 N. C. 393 , it is held that while an agreement to share profits as such, is one of the tests of a partnership, an agreement to receive part of the profits for his services and attention, as a means only of ascertaining the compensation, does not create a partnership."

The evidence shows that the plaintiff established an insurance department; that the insured was a director of the plaintiff, was the manager of this department, and therefore both an officer and an agent, and received half the profits as compensation for his services; and this brings the parties directly within the provisions of chapter 507 of the Laws of 1909, which reads as follows:

"And whenever there shall devolve upon any officer or agent of a corporation duties and responsibilities of such a nature as that a financial loss would result to the corporation fromthe death and consequent loss of the services of such officer or agent, then in such cases the corporation shall be deemed to have an insurable interest in the life of such officer or agent and shall have the power to insure the life of such officer or agent for its benefit."

This statute was passed in consequence of the opinion in Victor v. Louise Mills, 148 N. C. 107, 01 S. E. 048, 16 L. R. A. (N. S.) 1020, 16 Ann. Cas. 291, and permits the taking out of a policy of insurance by a corporation upon the life of an officer or agent whose duties and responsibilities are of such nature that a financial loss would result to the corporation from his death, and the uncontradicted evidence conforms to all of its provisions. The case of Powell v. Dewey, 123 N. C. 103, 31 S. E. 381, 68 Am. St. Rep. 818, relied on by the defendant, Is not...