Brown v. Pacific Mut. Life Ins. Co., 3398.

• Decision Date: 10 January 1933
• Docket Number: No. 3398.,3398.
• Citation: 62 F.2d 711
• Parties: BROWN et al. v. PACIFIC MUT. LIFE INS. CO.
• Court: U.S. Court of Appeals — Fourth Circuit

62 F.2d 711 (1933)

BROWN et al. v. PACIFIC MUT. LIFE INS. CO.

No. 3398.

Circuit Court of Appeals, Fourth Circuit.

January 10, 1933.

L. D. Lide, of Marion, S. C. (L. D. Jennings, of Sumter, S. C., and Lide & McCandlish, of Marion, S. C., on the brief), for appellants.

A. M. Lumpkin, of Columbia, S. C. (Thomas, Lumpkin & Cain, of Columbia, S. C., and Blake Franklin, of Los Angeles, Cal., on the brief), for appellee.

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

PARKER, Circuit Judge.

This is an appeal in a suit instituted to secure the rescission and cancellation of a policy of life and disability insurance on the ground of fraud and false warranty in its procurement. The insured and his mother, who was named as beneficiary under the policy in case of death, were made defendants. After the bill was filed, but before the subpœna ad res. was served, the insured instituted an action in the state court to recover $450 under the disability feature of the policy, and secured service of the summons therein. The defendants then moved to dismiss this suit on the ground of the pendency of the action in the state court, and the complainant moved that the defendants be enjoined from further prosecuting that action. The court below entered an order overruling the motion to dismiss and enjoining defendants from further prosecuting the action in the state court; and from this order the defendants have appealed.

The policy in question was issued on the 30th day of June, 1930, and contained a two-year incontestable clause in the usual form. It insured the life of defendant Herbert W. Brown in the sum of $5,000, and named his mother Florence Wilkes Brown as beneficiary in case of death, with right on his part to change the beneficiary. It contained also a disability feature, providing for the payment of $75 per month to insured in case of his total and permanent disability. The bill of complaint was filed January 29, 1932, alleging fraud and false warranty in the application for the policy. It set forth that complainant, having only recently discovered the fraud, had promptly tendered a return of the premiums and demanded a return and cancellation of the policy, which had been refused. It asked that the policy be declared void and of no effect, and that defendants be required to surrender it for cancellation. Subpœna was immediately placed in the hands of the marshal of the district, but was not served until February 17th, eighteen days later. In the meantime the insured, on February 6th, had instituted an action in the state court, seeking the recovery of $450 under the disability feature of the policy, and had secured immediate service of the summons in that action. As he was under twenty-one years of age, he brought the action through his mother as next friend.

The appeal before us presents three questions for our consideration: (1) Is there jurisdiction in equity to decree cancellation in a case of this character? (2) Granting the jurisdiction, should the court of equity enjoin defendants from further prosecuting the action at law in the state court? And (3) is the jurisdiction of the court of equity, or its power to enjoin the prosecution of the action in the state court, affected by the fact that service of process was first obtained in that action?

We think that the first two of the questions stated above are conclusively answered in the affirmative by the decisions of this court in Jefferson Standard Life Ins. Co. v. Keeton, 292 F. 53, and Jones v. Reliance Life Ins. Co., 11 F.(2d) 69. The general rule, of course, is that equity will not ordinarily take jurisdiction of a suit for cancellation of a policy of insurance for fraud in its procurement, for the reason that the company has an adequate remedy at law in its right to defend on the ground of fraud in an action instituted on the policies. Phœnix Mutual Life Ins. Co. v. Bailey, 13 Wall. 616, 20 L. Ed. 501; Cable v. Ins. Co., 191 U. S. 288, 24 S. Ct. 74, 48 L. Ed. 188. But where the policy contains an incontestable clause, so that if it be not canceled for fraud within the time limited the right to defend on that ground will be lost, equity will grant relief, as otherwise the company would be without remedy. This was the ground upon which jurisdiction was sustained in the leading case of Jefferson Standard Life Ins. Co. v. Keeton, supra, and that decision has been followed in this circuit by the Jones Case, supra, and in other circuits by the following cases: Jefferson Standard Life Ins. Co. v. McIntyre (C. C. A. 5th) 294 F. 886; Peake v. Lincoln National Life Ins. Co. (C. C. A. 8th) 15 F.(2d) 303; Keystone Dairy Co. v. New York Life Ins. Co. (C. C. A. 3d) 19 F.(2d) 68; N. Y. Life Ins. Co. v. Seymour (C. C. A. 6th) 45 F. (2d) 47, 73 A. L. R. 1523. See, also, the following cases in the district courts: N. Y. Life Ins. Co. v. Renault, 11 F.(2d) 281; N. Y. Life Ins. Co. v. Sisson, 19 F.(2d) 410; Phila. Life Ins. Co. v. Burgess, 18 F.(2d) 599; Mutual Life Ins. Co. v. Dreeben, 20 F.(2d) 394; Abraham Lincoln Life Ins. Co. v. Kleven, 33 F.(2d) 638. These cases affirm the duty of equity to grant relief in such cases even after the policy has matured by the death of the insured; and a number of them approve the rule of the Keeton and Jones Cases to the effect that the jurisdiction in equity is not defeated by the subsequent institution of an action at law on the policy.

In the case at bar, the insured is living and there is consequently no possible way in which complainant can secure the full relief to which it is entitled except in equity. It is argued that relief might be obtained at law by defending the action instituted for recovery under the disability feature of the policy. But it is clear that this remedy would not be full, complete, or adequate. In the first place, the action at law might be terminated in such a way as not to decide the issue of fraud at all and in the meantime the policy might have become incontestable. In the second place, the judgment in that action would not be binding upon the beneficiary. See N. Y. Life Ins. Co. v. Halpern (D. C.) 47 F. (2d) 935, 936. In addition to this, it is well settled that equity jurisdiction existing at the commencement of the suit is not lost because after the filing of the bill an adequate legal remedy has become available. Dawson v. Kentucky Distilleries & Warehouse Co., 255 U. S. 288, 296, 41 S. Ct. 272, 65 L. Ed. 638; N. Y. Life Ins. Co. v. Seymour, supra. We think that both on reason and authority, therefore, the jurisdiction of equity in a case such as this is thoroughly established.

And we think it equally clear that the court of equity, having acquired jurisdiction, should stay the proceedings at law in the state court. There can be no question as to the general power of a court of equity, which has acquired jurisdiction of a cause, to enjoin the prosecution of all proceedings commenced afterward which would have the effect of defeating or impairing its jurisdiction, or the lawful effect of its orders and decrees in the exercise of that jurisdiction; and it is settled that in such cases section 720 R. S., 28 USCA 379, has no application. Looney v. Eastern Texas R. Co., 247 U. S. 214, 38 S. Ct. 460, 62 L. Ed. 1084; Kline v. Burke Construction Co., 260 U. S. 226, 229, 43 S. Ct. 79, 67 L. Ed. 226, 24 A. L. R. 1077. And it has been specifically decided that such power exists and should be exercised in a case such as this, where suit for the...