Equitable Life Assur. Soc. of U.S. v. New Horizons, Inc., No. A--30

• Court: United States State Supreme Court (New Jersey)
• Writing for the Court: WACHENFELD
• Citation: 28 N.J. 307,146 A.2d 466
• Docket Number: No. A--30
• Decision Date: 01 December 1958
• Parties: The EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Plaintiff-Respondent, v. NEW HORIZONS, Inc., a corporation, Defendant-Appellant.

Page 307

28 N.J. 307 146 A.2d 466 The EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES,
Plaintiff-Respondent,
v.
NEW HORIZONS, Inc., a corporation, Defendant-Appellant. No. A--30. Supreme Court of New Jersey. Argued Oct. 21, 1958.
Decided Dec. 1, 1958.

Page 308

[146 A.2d 467] Herbert M. Gannet, Newark, for appellant (Gannet, Widmark & Goldberg, Newark, attorneys; Theodore Sager Meth, Newark, of counsel).

Page 309

James J. Langan, Jersey City, for respondent (Emory, Langan, Lamb & Blake, Jersey City, attorneys; Eugene T. O'Neill, of the New York Bar, on the brief).

The opinion of the court was delivered by

WACHENFELD, J.

This is an action for rescission and cancellation of a policy of insurance issued on the life of one Stephen Yafchak by the plaintiff, the Equitable Life Assurance Society of the United States. Defendant, New Horizons, Inc., is the assignee of the policy and counterclaimed to recover its full amount. The material facts are undisputed and in the trial court both parties moved for summary judgment. Judgment was granted in plaintiff's favor, and the defendant appealed. We granted certification of the appeal to the Appellate Division on our own motion.

The policy in question is sometimes referred to as 'key man' insurance. This type of insurance is usually taken out by an employer upon the life of an essential employee. Although the employee is the 'insured,' the employer is the applicant for, and owner and beneficiary of, the policy. The purpose of the insurance is to compensate the employer for the economic detriment occasioned by the loss, through death, of the important services of its employee.

In 1955 Stephen Yafchak was the general manager of Linden Tool Company, Inc. He supervised sales, production, design and general operations and was, without doubt, the key employee of the enterprise. When New Horizons, Inc., purchased Linden Tool, it insisted that the contract of sale be conditioned upon Yafchak's agreeing to remain as general manager.

The subject policy, in the face amount of $20,000, was issued to Linden Tool on June 10, 1955 and contained a clause providing for a two-year contestability period. The application for the policy was signed by both Yafchak and Linden Tool Co., Inc., through its president, Herman Nathanson, and consisted of two parts. The second part relates to the medical history of the insured and the information

Page 310

contained therein was supplied by Yafchak, who affixed his signature immediately beneath a stipulation reading:

'I have read the foregoing answers which are true, full and complete, and agree that such answers shall be part of the application, which shall consist of both Part I and Part II, and that such answers shall also become part of any policy contract that may be issued on the strength thereof.'

The first part of the application was signed by Nathanson, in his capacity as president of Linden Tool, as well as by Yafchak. It contained in the body the assertion that:

'It is hereby agreed that any policy issued hereon shall not take effect until the first premium thereunder has been paid during the good health of the person whose life is proposed for insurance; * * *. All of the foregoing statements and all those contained in Part II hereof are true, and are offered to the Society as an inducement[146 A.2d 468] to issue the policy or policies for which application is hereby made.'

Additionally, above the signature of Nathanson appears a clause providing:

'The undersigned hereby applies for the insurance herein specified and certifies that the statements herein contained are correct.'

And over Yafchak's signature on Part I is found the agreement:

'I hereby consent to the insurance herein specified and certify that all the representations and statements made herein are true.'

Defendant concedes that Yafchak gave false negative answers to all of the following questions, which are found in Part II of the application:

'6. Have you ever had or been treated for any disease or disorder of: (Answer each separately.)

'c. the heart, blood vessels or blood?'

'7. Have you ever:

'b. consulted a physician about a pain in the chest or shortness of breath?

'g. had any other illness or injury?'

Page 311

'8. a. Have you ever had an electrocardiogram made?'

'9. Have you consulted or been treated by any physician, practitioner or specialist during the past five years?'

In actuality, the insured had been treated for an acute cardiac decompensation on August 12 or 13, 1954 after he had complained of shortness of breath and a pain in his chest. He had remained under a physician's care for some time thereafter, and in the latter part of 1954 two electrocardiograms had been taken which showed that his heart was functioning abnormally. The doctor who had first treated Yafchak diagnosed the insured's ailment as coronary sclerosis accompanied by dyspnea and peripheral edema. In addition, the insured had suffered from a mild condition of hyperthyroidism.

The 'Proofs of Death--Physician's Statement' submitted to the plaintiff by one of Yafchak's physicians listed the immediate cause of death, which had occurred on April 20, 1957, as 'coronary occlusion' and the antecedent causes, giving rise to the direct cause of death, as 'coronary sclerosis (insufficiency)' and 'generalized arteriosclerosis.'

In the trial court plaintiff and defendant reached certain important accommodations respecting the facts of the case. Defendant not only stipulated that the answers to the questions quoted above were false, but it also conceded that the plaintiff insurance company had relied on such answers in issuing the policy and that the answers were material to the risk. Plaintiff, on the other hand, stipulated that neither defendant nor its assignor, Linden Tool Co., Inc., had had knowledge of the falsity of Yafchak's representations.

The two grounds asserted by plaintiff as justifying a judgment of rescission were: (1) that it had been induced by material misrepresentations to issue the policy; and (2) that the first premium on the policy had not been paid during the good health of the insured.

The trial judge ruled in plaintiff's favor on the first ground and, since this was...