Arnold v. Equitable Life Assur. Soc. of United States

• Decision Date: 20 September 1915
• Citation: 228 F. 157
• Parties: ARNOLD et al. v. EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES (ARNOLD et al., Interveners).
• Court: U.S. District Court — Southern District of Iowa

228 F. 157

ARNOLD et al. v. EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES (ARNOLD et al., Interveners).

United States District Court, S.D. Iowa, Central Division.

September 20, 1915

J. H Ross and S. C. Kerberg, both of Audubon, Iowa, for plaintiff.

Henry &amp Henry, of Des Moines, Iowa, and J. M. Graham, of Audubon Iowa, for defendant.

F. O Hinkson, of Stuart, Iowa, W. R. Green, of Council Bluffs, Iowa, and Sullivan & Sullivan, for interveners.

WADE District Judge.

This is an action upon a policy of life insurance for $10,000 issued to Lois G. Stuart April 17, 1897, in lien of a policy for the same amount issued October 18, 1890, which was returned to the company. This exchange of policies was made at the request of the insured in order to change the beneficiaries.

The plaintiffs are the executors of the estate of the insured, who bring this action because the insured devised the proceeds of the policy to certain persons not named therein as beneficiaries. The interveners are the beneficiaries named in the policy, and by their petition of intervention contend that the provisions of the will of the insured, changing the beneficiaries of the policy, are void and of no effect.

The defendant admits the execution of the policy, and does not deny liability thereon for a portion of the policy; but it alleges that, in the application by the insured, she represented her date of birth as December 22, 1830, when in fact she was born December 22, 1829, and because of this misstatement the defendant claims that it is only liable for the face of the policy, less the amount which would represent the difference between the premium paid and the premium which she should have paid, at her true age, which, together with interest, amounts to $1,793.79, or at most that it should be liable only for the amount of insurance which could have been purchased with the premium actually paid.

Plaintiffs and interveners contend that by the terms of the policy it is made incontestable after one year, and therefore that the defendant is liable for the full amount thereof, and cannot rely upon the partial defense pleaded. They also contend that the defendant cannot plead the misrepresentation, because of the failure to attach a copy of the application to the policy, as required by section 1741 of the Code of Iowa, and they plead a settlement effected at the end of the tontine period, and they further allege an estoppel.

The policy issued contains the following statements prominently displayed thereon:

'This policy becomes incontestable, and grants freedom of residence, travel, and occupation one year from its date of issue.'

'Incontestable and 'unrestricted' after one year.'

No question is made that these statements upon the policy form part of the contract between the parties. The application for the original policy, which was exchanged for the policy in suit, contained the following clause:

'Incontestability.-- After two years from the date of issue, the only conditions which shall be binding upon the holder of the policy are that he shall duly pay the premiums, and observe the regulations of the society as to age and service in war. In all other respects, if the policy matures after the expiration of two years, the policy shall be indisputable.'

It will be observed that after the issuance of the first policy in 1890, and before the issuance of the policy in suit in 1897, the defendant company had reduced its period of incontestability to one year, and made it absolutely unconditional. At the time the policy was issued, Code, Sec. 1813, was in force, and is as follows:

'Misrepresentation of Age.-- In all cases where it shall appear that the age of the person insured has been misstated in the proposal, declaration or other instrument upon which any policy of life insurance has been founded or issued, then and in such case the person or company issuing such policy shall, upon the discovery of such misstatement, be permitted to demand and collect the difference of premium, if any, which would be due, with interest not to exceed six per cent. per annum, and payable on account of the true age of the assured, from year to year, according to the rates of premium of such person or company upon which such policy was issued; or such person or company so issuing the policy may, after the decease of the assured, deduct from the amount payable by such policy the difference of premium, if any, with interest, which would so have been payable from year to year, by reason of any difference of age at time of issuance of such policy; and no other defense or deduction by such person or company issuing such policy shall be permitted, after the death of the person assured, on account of such misstatement of age of the assured, notwithstanding any warranty of such statement of age by terms of policy or otherwise, except when it be shown by the person or company insuring that the policy was procured by fraud in fact.'

There is a controversy in the case as to whether the policy in suit is an Iowa contract, or New York contract; but upon this question it becomes immaterial, because there is a presumption that the New York law is the same as the law of Iowa. Born v. Home Insurance Co., 120 Iowa, 299, 94 N.W. 849; Marden v. Hotel Insurance Co., 85 Iowa, 584, 52 N.W. 509, 39 Am.St.Rep. 316; Sieverts v. National Benefit Association, 95 Iowa, 710, 64 N.W. 671.

Does the 'incontestable clause' in this policy prevent the defendant from making the partial defense pleaded herein? These clauses have been uniformly upheld, and uniformly construed against the insurer. It has been seriously contended that such clauses should not be effectual as against actual fraud; but, even as to the most gross frauds, it is now well settled that the incontestable clause is effectual. One of the leading cases upon this question is Massachusetts Benefit Life Association v. Nora Robinson, 104 Ga. 256, 30 S.E. 918, 42 L.R.A. 261, which reviews the authorities fully, and concludes:

'It would seem therefore to be the rule that, in regard to every matter which would have the effect of defeating or destroying the contract, the incontestable clause would be controlling, and stipulations in the policy to the contrary must yield.'

In Great Western Life Insurance Co. v. Snavely, 206 F. 20, 124 C.C.A. 154, 46 L.R.A. (N.S.) 1056, the Circuit Court of Appeals, Ninth Circuit, says:

'The incontestable clause in the present policy is very general, excepting nothing from its scope, and by the strong current of authority precludes any defense after the expiration of one year on account of false statements, warranted to be true, although they may have been made for a fraudulent purpose. This is true as spoken of the original policy. The grounds for its support are that insurance companies, in order to obtain business, represent that they will issue policies incontestable as to certain matters after a designated period, and individuals negotiate with them on that basis. Furthermore, the clause constitutes in effect a short period of limitation, which it is perfectly competent for the parties to agree upon. While it is true that fraud vitiates all contracts, yet in contracts of the kind, where the beneficiaries are placed at a disadvantage because the dead cannot speak, it is not contrary to public policy for the parties to agree that the company shall be precluded upon the subject after some specified time, reasonable, within which to make investigation. The clause lends stability to the contract, and renders life insurance of greater value to the insured and beneficiary. The subject is exhaustively and ably discussed in Massachusetts Life Ass'n v. Robinson, 104 Ga. 256, 30 S.E. 918, 42 L.R.A. 261. See also Wright v. M.B.L. Ass'n, 118 N.Y. 237, 23 N.E. 186, 6 L.R.A. 731, 16 Am.St.Rep. 749; Teeter v. United Life Ins. Ass'n, 159 N.Y. 411, 54 N.E. 72; Austin v. Mutual Reserve Fund Life Ass'n (C.C.) 132 F. 555; s.c., 142 F. 398, 73 C.C.A. 498, 6 L.R.A. (N.S.) 1064; 25 Cyc. 872.'

In Wright v. Mutual Benefit Ass'n, 118 N.Y. 237, 23 N.E. 186, 6 L.R.A. 731, 16 Am.St.Rep. 749, the Court of Appeals of New York, says:

'No doubt the defendant held it

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