Duvall v. National Ins. Co. of Montana

• Decision Date: 12 January 1916
• Citation: 28 Idaho 356,154 P. 632
• Parties: GERTRUDE DUVALL, Respondent, v. THE NATIONAL INSURANCE COMPANY OF MONTANA, a Corporation, Appellant
• Court: Idaho Supreme Court

154 P. 632

28 Idaho 356

GERTRUDE DUVALL, Respondent, v. THE NATIONAL INSURANCE COMPANY OF MONTANA, a Corporation, Appellant

Supreme Court of Idaho

January 12, 1916

LIFE INSURANCE-STATUTORY CONSTRUCTION-INCONTESTABLE CLAUSE-VALIDITY OF.

1. Under the provisions of sec. 42, Sess. Laws 1911, p. 732, as amended by Laws of 1913, p. 406, it is provided that an insurance policy, so far as it relates to life or endowment insurance, shall be incontestable after two years from the date of issue, except for nonpayment of premiums and except for violation of the conditions of the policy relating to military or naval service in time of war, etc. That provision of the statute does not prohibit the parties from contracting that the period of contestability shall be less than two years nor from agreeing that the policy shall not be contestable after its delivery.

[As to contesting policy on ground of fraud, where it contains incontestable provision, see note in Ann.Cas. 1914C, 652.]

2. A clause in a policy of life insurance providing that "This policy is incontestable from its date, except for nonpayment of premiums," precludes any defense after the stipulated period on account of false statements in the application for the policy, even though they were fraudulently made.

3. Held, under the facts of this case that the court did not err in sustaining the demurrer to the answer and entering judgment in favor of the plaintiff.

APPEAL from the District Court of the Eighth Judicial District, for Bonner County. Hon. John M. Flynn, Judge.

Action to recover on a life insurance policy. Judgment for the plaintiff. Affirmed.

Judgment affirmed, with costs in favor of the respondent.

H. H Taylor, for Appellant.

Any contract obtained by fraud, whether of life insurance or other kind, is voidable at the option of the defrauded party. (9 Cyc. 411.)

And if within a reasonable time, he desires to avoid the contract there is no question of his right to do so. (Richardson v. Vick, 125 Tenn. 532, 145 S.W. 174, 176.)

In the case of Reagan v. Union Mutual Life Ins. Co., 189 Mass. 555, 109 Am. St. 659, 76 N.E. 217, 2 L. R. A., N. S., 821, 4 Ann. Cas. 362, a clause identical with the clause before the court was considered; and the supreme court of Massachusetts held that this clause was against public policy and void, and that the plaintiff, the beneficiary of the insured, could not avail herself of its provisions as against the defense of fraud. (New York Life Ins. Co. v. Hardison, 199 Mass. 190, 127 Am. St. 478, 85 N.E. 410; Kansas Mutual Life Ins. Co. v. Whitehead, 123 Ky. 21, 93 S.W. 609, 13 Ann. Cas. 301; Bliss on Life Ins., 2d ed., sec. 254; Welch v. Union Central Life Ins. Co., 108 Iowa 224, 78 N.W. 853, 50 L. R. A. 774; New York Life Ins. Co. v. Weaver's Admr., 114 Ky. 295, 70 S.W. 628.) There is an additional reason why this clause is avoided. It is against public policy and the express provisions of sec. 3321, Rev. Codes. (Huber v. St. Joseph's Hospital, 11 Idaho 631, 83 P. 768; Douville v. Pacific Coast Casualty Co., 25 Idaho 396, 138 P. 506.)

G. H. Martin, for Respondent.

The issuance of a policy with knowledge of the falsity of statements warranted to be true or with knowledge of the breach of any condition precedent to the taking effect of the policy is a waiver. (25 Cyc. 865; Allen v. Phoenix Assur. Co., 14 Idaho 728, 95 P. 829; Security Trust Co. v. Tarpey, 182 Ill. 52, 54 N.E. 1041; Kelly v. Metropolitan Life Ins. Co., 15 A.D. 220, 44 N.Y.S. 179; Iverson v. Metropolitan Life Ins. Co., 151 Cal. 746, 91 P. 609, 13 L. R. A., N. S., 866; Pacific Mutual Life Ins. Co. v. Van Fleet, 47 Colo. 401, 107 P. 1087; Rome Ins. Co. v. Thomas, 11 Ga.App. 539, 75 S.E. 894.)

The right of action for fraud in the procurement of a policy may be waived by inserting in the policy a provision that after a specified time the policy shall become incontestable, and this incontestable clause is valid after the stipulated period as against any defense based on false statements or untrue warranties, even though they were made fraudulently. (25 Cyc. 873; Elliott on Contracts, sec. 89.)

Where a company with knowledge of the facts, or with such knowledge as will put it upon inquiry to determine the facts, enters into such a contract as the defendant in this case did, agreeing not to contest the contract upon such a state of facts, the defendant becomes estopped by contract from relying upon such defenses as are set up in this case. (Patterson v. Natural Premium Mut. Life Ins. Co., 100 Wis. 118, 69 Am. St. 899, 75 N.W. 980, 42 L. R. A. 253; Insurance Co. v. Fox, 106 Tenn. 347, 82 Am. St. 885, 61 S.W. 62.)

SULLIVAN, C. J. Budge, J., concurs. MORGAN, J., Dissenting.

OPINION

SULLIVAN, C. J.

This action was brought by the widow of the insured, as beneficiary, to recover upon a policy of life insurance issued by the appellant company and delivered about the 10th of December, 1913, to the deceased, Luther F. Duvall, who died about the 14th of March, 1914. A copy of the insurance policy, which was for $ 2,000, is attached to the complaint and made a part thereof, $ 100 having been paid thereon.

The prayer is for judgment for $ 1,900 with interest and costs.

The answer denied liability and set up five affirmative defenses, alleging false and fraudulent answers made by the deceased to material questions contained in his application and in the examination by the medical examiner; that the answers were made with intent to defraud the company, were believed and relied upon by the company, were material and known by the deceased to be untrue; that the truth of the statements was warranted by the deceased and was a consideration for the contract, and that such falsity and fraud rendered the policy null and void; that the deceased when making application for the policy, and when examined by the defendant's medical examiner, and when he received the policy, had tuberculosis of the lungs and had had such disease for a long time prior to his said application, and from which disease bronchial pneumonia developed, from which the insured subsequently died; that the appellant had offered to return to the plaintiff the $ 111.94, together with interest from the date of payment.

To this answer and each affirmative defense the plaintiff interposed a demurrer upon the ground that the facts stated in said answer and defenses did not constitute a defense to the plaintiff's cause of action. Said demurrer was sustained by the court and the defendant refused to plead further.

Upon the facts found the court entered judgment in favor of the plaintiff for $ 1,900, with interest and costs of suit. The appeal is from the judgment.

The policy contained the following incontestable clause: "This policy is incontestable from its date, except for nonpayment of premiums."

The only point involved on this appeal is the right of defendant to set up and prove fraud committed by the plaintiff in making material and false warranties and statements in his application for the policy, and whether this incontestable clause deprives the defendant of the right to set up the defense of fraud.

It will be observed that it is provided that said policy was incontestable from its date, with the one exception, namely, for the nonpayment of premiums.

Sec. 42 (Sess. Laws 1911, p. 732) of an act relating to the insurance department in and for the state of Idaho, as amended by Laws of 1913, p. 406, provides, among other things, as follows: "That the policy, so far as it relates to life or endowment insurance, shall be incontestable after two (2) years from its date of issue, except for nonpayment of premiums, and except for violation of the conditions of the policy relating to military or naval service in time of war."

The latter exception is not involved in this case.

Under the provisions of said statute, the contestability of the policy is limited to two years, but that does not prevent the parties from contracting that the period of contestability shall be less than two years, or from agreeing that the policy shall not be contestable after it is delivered. It does, however, prohibit the parties from extending the time of contestability beyond two years.

In 25 Cyc., at p. 873, it is stated as follows: "A clause, now often inserted in policies, that after being in force a specified time they shall not be disputed or shall be incontestable precludes any defense after the stipulated period on account of false statements which were warranted to be true, even though they were made fraudulently."

The policy under consideration is stipulated to be absolutely incontestable from its date, except for nonpayment of premiums and for violation of the condition of the policy relating to military and naval service in time of war.

It was held in Patterson v. Natural Premium Mut. Life Ins Co., 100 Wis. 118, 69 Am. St. 899, 75 N.W. 980, 42 L. R. A. 253, under an incontestable clause such as in the case at bar, that in determining the rule that should be adopted by the court there were numerous considerations which deserve attention; that it must be borne in mind that the suicide clause has become so universal in policies that its absence at once attracts attention; that it can hardly be otherwise than that the agent soliciting insurance under such a policy as the one under consideration would at once call attention to this apparent liberality in that there was no suicide clause, and further, that there was in addition an absolute incontestable clause and that the average layman, not to say lawyer, in looking it over would conclude that it was in fact a very favorable policy to the insured; that such provisions were all carefully framed by the insurance company and expressly framed to induce people to...