Citizens Life Ins. Co. v. McClure, &C.

• Decision Date: 29 April 1910
• Citation: 138 Ky. 138
• Parties: Citizens Life Ins. Co. v. McClure, &c.
• Court: Kentucky Court of Appeals

138 Ky. 138

Citizens Life Ins. Co. v. McClure, &c.

Court of Appeals of Kentucky.

April 29, 1910.

Appeal From Fleming Circuit Court.

C. D. NEWELL, Circuit Judge.

Judgment for plaintiff, defendant appeals. — Affirmed.

HELM BRUCE and J. H. POWERS for appellants.

O. R. BRIGHT FOR APPELLEES.

OPINION OF THE COURT BY JUDGE SETTLE — Affirming.

On July 24, 1907, the appellant issued to Mathew B. McClure a policy insuring his life for $3,000, payable at death to his estate. The insured upon receiving the policy paid the first premium, and thereafter with appellant's consent assigned the policy to his father and brother, the appellees, William B. and Joseph C. McClure. The second premium on the policy became due July 24, 1908, and was then paid by the insured. In October of that year he died, and, appellant having refused to pay the policy, appellees, claiming to be the beneficiaries, brought this action to compel its payment. The answer and counterclaim of appellant charged that the policy had been fraudulently obtained by the insured, and for that reason imposed no liability upon it, and should be adjudged void, the fraud consisting in his having falsely represented in his application for the insurance, in answering certain questions contained therein, that he had never had consumption and had not consulted any physician since 1902; whereas, in fact he did have consumption and had been treated for it, and informed by his physician that he had it within the year he made his application; that he further falsely represented in his application that his mother was then in good health, when in fact she was then dying of consumption, and did die with that disease only two days after the application was made; that he likewise falsely represented that one of his sisters died with pneumonia, when the truth was that she had died with consumption. The answer and counterclaim contained the averments that these representations were false; that they were known by the insured to be false when made; that they were made by him for the fraudulent purpose of obtaining the policy; and that appellant was induced thereby to issue the policy, which it would not have done had it known the representations to be false. The answer and counterclaim also alleged that appellant was ready and willing to pay to whomsoever the court might direct the two premiums the insured had paid it, but that, as there was no administrator of his estate, appellant did not know to whom it should tender them. Appellees filed a general demurrer to the answer, which the circuit court sustained, and entered judgment against appellant for the amount of the policy. From that judgment this appeal is prosecuted.

The policy which was copied into the petition and filed as an exhibit contained, among other things, the following stipulation: "If the premiums are duly paid as required, this policy, after it has been renewed beyond the first year, shall be incontestable."

The principal question involved on this appeal is: Can the apellant, in view of the above stipulation of the policy, rely upon the defense interposed by its answer? It is insisted for appellant that it had the right to do so, and that the Legislature of this state has, by the enactment of section 2515, Ky. St. (Russell's St. sec. 224), prescribed a period of limitation within which relief can be obtained from a contract procured by fraud; that this period is five years, and not one year; that the stipulation of the policy making it incontestable after the payment of the second premium at the end of the first year should not be so construed as to make the limitation interposed by the statute, supra, inapplicable to this case, and, therefore the contractual provision of the policy in question is not valid; and that inasmuch as five years after the perpetration of the fraud had not elapsed when the answer and counterclaim were filed, the court erred in sustaining a demurrer to the pleading. In support of this contention the case of Union Central Life Insurance Company v. Spinks, 119 Ky. 261, 83 S. W. 615, 84 S. W. 1160, 26 Ky. Law Rep. 1205, 27 Ky. Law Rep. 325, 69 L. R. A. 264, is relied on. In that case the court held that a provision in a life policy to the effect that no suit should be maintained thereon, unless commenced within one year from the death of the insured, was void as in contravention of public policy; the statute prescribing a period of 15 years for actions on such contracts. It is, however, conceded by counsel for appellant that under the ruling announced in the case of Kansas Mutual Ins. Co. v. Whitehead, 123 Ky. 21, 93 S. W. 609, 29 Ky. Law Rep. 458, upon which the court below bases its ruling on the demurrer, appellant would be estopped by the provision of the policy referred to from relying upon the defense contained in its answer, but insisted that there is a conflict between that case and the Spinks Case, and that, therefore, the Whitehead Case should be overruled.

In the latter case the court, in upholding the incontestable clause in the policy, in the opinion said: "In regard to the incontestable clause, appellants insist: First, that it should be construed to exclude any defense based upon the personal fraud of the insured and, second, if this be not so, that the provision is void as authorizing and promoting fraud, contrary to public policy. It seems to us that the terms of the clause clearly embrace all defenses, except those specifically excluded by its language; and these are, first, that the premiums are duly paid, and, second, that the requirements of the company as to age, military or naval service in time of war are observed. * * * Webster defines `incontestable' to mean "not contestable; not to be disputed; that which cannot be called in question, or controverted; incontrovertible; indisputable.' It must be conceded that if all defenses predicated upon the fraud of the insured are excluded there will be very little left upon which the incontestable clause can operate. * * * Is the clause void as contravening public policy? It is said that as a rule fraud vitiates every contract, and that a sound morality requires that the courts should forbid one's contracting for immunity from the consequences of his own fraud. All this may be admitted to be sound as an abstract proposition; but it does not hold good in the actual affairs of life, when rules must be adjusted to meet conditions rather than theories. In the case at bar full force and effect is given to the theory for a specified time — two years — and after that another public policy comes into play, which recognizes the right of the insured, under certain conditions, to contract for peace and for a knowledge that, after the stipulated time has expired, neither he, nor, if he be dead, those for whom he has undertaken to provide, shall be put to the expense and trouble of a trial of the question as to whether or not fraud was perpetrated in the procurement of the policy. This view does not exclude the consideration of fraud, but allows the parties to fix by stipulation the length of time in which the fraud of the insured can operate to deceive the insurer. It recognizes the right of the insurer, predicated upon a vast experience and profound knowledge in such matters, to agree that in a stipulated time, fixed by himself, he can unearth and drag to light any fraud committed by the insured and protect himself from the...