Equitable Life Ins. Co. v. Mann

• Decision Date: 31 December 1940
• Docket Number: 45452.
• Parties: EQUITABLE LIFE INS. CO. v. MANN.
• Court: Iowa Supreme Court

295 N.W. 461

229 Iowa 945

EQUITABLE LIFE INS. CO. v. MANN.

No. 45452.

Supreme Court of Iowa.

December 31, 1940

Appeal from District Court, Pottawattamie County; John A. Murray Judge.

A suit in equity to cancel a life insurance policy on the ground that it was obtained by misrepresentations in the application for the policy and for a temporary injunction enjoining defendant from proceeding with an action at law commenced by defendant upon the policy against the plaintiff in the District Court of Iowa in and for Polk County subsequent to the commencement of the action in equity. The trial court sustained defendant's motion to dismiss the petition and denied plaintiff's application for a temporary injunction. Plaintiff electing to stand upon its petition a decree was entered dismissing it. Plaintiff appealed.

Reversed and remanded.

Under clause of life policy that " This policy shall be incontestable after it has been in force for a period of two years from its date of issue," death of the insured within two years from the date of the policy does not stop the running of the contestability period, but under a life policy containing provision that " This policy shall be incontestable after it has been in force during the lifetime of the insured for a period of two years from its date of issue", death of insured before the policy has been in force two years from the date of issue would make policy contestable any time after his death.

Phineas M. Henry, of Des Moines, and Tinley, Mitchell, Ross Everest & Geiser, of Council Bluffs, for appellant.

Kimball, Peterson, Smith & Peterson, of Council Bluffs, for appellee.

STIGER, Justice.

The case was decided upon the pleadings. The petition contained the following allegations:

Plaintiff issued a policy of life insurance to Ida E. Michener, defendant's decedent, on November 15, 1938. The policy contained the following incontestable clause: " This policy shall be incontestable after it has been in force for a period of two years from its date of issue, except for nonpayment of premiums."

In the application for the policy the applicant made certain material misrepresentations. The policy was issued in reliance on the truth of the statements and if plaintiff had known said statements were untrue it would have refused to issue the policy. Subsequent to the death of the insured on September 26, 1939 plaintiff learned of the misrepresentations for the first time and on November 11, 1939 notified defendant that the policy was null and void. No suit at law has been commenced against plaintiff on the policy and plaintiff would not be able to contest the policy because of the misrepresentations after the expiration of the contestable period. The defendant may delay the commencement of the action on the policy until after the expiration of the contestable period and the only protection plaintiff has against the effect of said misrepresentations is in a court of equity. Plaintiff has no adequate remedy at law.

Plaintiff prayed that a decree be entered cancelling the policy and that defendant be restrained from prosecuting any action at law against the plaintiff on account of said policy. By amendment to the petition, plaintiff alleged that subsequent to the filing of the petition in equity and service of notice on the defendant, defendant filed a petition at law in the District Court of Polk County against the plaintiff on the policy; that before said law action was commenced in Polk County, " this Court as a court of equity had acquired jurisdiction of the defendant in this action and of the subject matter thereof and has power as a court of equity to make a complete determination of all questions material or necessary to the accomplishment of full and complete justice between the parties, and that a determination of the issues involved in this action will determine the right of the defendant to recover upon said policy; that the parties to said actions are identical and necessary to the accomplishment of full and complete justice between the parties, and that a determination of the issues involved in this action will determine the right of the defendant to recover upon said policy; that the parties to said actions are identical and the issue involved in each of said actions is the validity of the policy of life insurance referred to in the plaintiff's original petition."

Defendant filed a motion to the petition as originally filed to dismiss on the ground that the rights of the parties were fixed by the decedent's death, and that the plaintiff had an adequate remedy at law. After the amendment to the petition was filed, defendant amended her motion to dismiss asserting the commencement of the law action in Polk County and stated that defendant in said action (plaintiff herein) may plead and prove the misrepresentations as a complete defense to the law action.

The motion further stated that plaintiff's cause of action is not cognizable in equity because the petition was not filed until after the death of the insured; that a suit in equity will not lie for the surrender and cancellation of the policy involved in this action because plaintiff has a plain, adequate, and speedy remedy by interposing in the law action the defense of misrepresentations inducing the issuance of the policy and the court was without jurisdiction to restrain the action at law.

I.

The policy was issued November 15, 1938. The insured died on September 26, 1939. Plaintiff commenced this suit to cancel the policy on November 21, 1939. An action at law was commenced on the policy in Polk County on February 23, 1940.

The incontestability clause in the policy reads: " This policy shall be incontestable after it has been in force for a period of two years from its date of issue, except for nonpayment of premiums."

The plain meaning of this clause is that the policy shall be incontestable after two years from its date. And this is true though the insured died within the two-year period. Mutal Life Ins. Co. v. Hurni Packing Co., 263 U.S. 167, 44 S.Ct. 90, 68 L.Ed. 235, 31 A.L.R. 102; State Mut. Life Assur. Co. v. Stapp, 7 Cir., 72 F.2d 142; New York Life Ins Co. v. Steinman, 103 N.J.Eq. 403, 143 A. 529.

Plaintiff's remedy at law was not adequate and certain for it did not have a remedy at law until defendant elected to bring a suit on the policy, and if the commencement of an action were delayed by defendant until the expiration of the contestable period, plaintiff would be deprived of its defense that the policy was obtained by misrepresentations. An insurer need not rely on the dubious possibililty that a beneficiary will commence an action at law on the policy during the contestable period and give it an opportunity to interpose its defense of fraud in the procurement of the policy in the law action.

It is well settled that where there is a provision in the policy limiting the time in which the insurer may contest its validity an insurer may, prior to the commencement of an action on the policy, sue in equity within the limited period for the cancellation of the policy on the ground of fraud in its procurement and a subsequent suit at law on the policy in which the insurer could interpose the defense of fraud does not destroy the equitable jurisdiction existing when the suit in equity was commenced.

In American Life Insurance Co. v. Stewart, 300 U.S. 203, 57 S.Ct. 377, 379, 81 L.Ed. 605, 111 A.L.R. 1268, the policies were, as in this case, incontestable after two years from their date of issue. The insurer, prior to the commencement of an action on the policy, brought a suit to cancel them on the ground of fraud in their procurement. The opinion states: " If the policy is to become incontestable soon after the death of the insured, the insurer becomes helpless if he must wait for a move by some one else, who may prefer to remain motionless till the time for contest has gone by. * * * Accordingly an insurer, who might otherwise be condemned to loss through the mere inaction of an adversary, may assume the offensive by going into equity and there praying cancellation. * * * ‘ Where equity can give relief, plaintiff ought not to be compelled to speculate upon the chance of his obtaining relief at law.’ Davis v. Wakelee, 156 U.S. 680, 688, 15 S.Ct. 555, 558, 39 L.Ed. 578 [584]. To this must be added the danger that witnesses may disappear and evidence be lost. A remedy at law does not exclude one in equity unless it is equally prompt and certain and in other ways efficient. * * * Here the insurer had no remedy at law at all except at the pleasure of an adversary. There was neither equality in efficiency nor equality in certainty nor equality in promptness. ‘ The remedy at law cannot be adequate if its adequacy depends upon the will of the opposing party.’ * * * The argument is made that the suits in equity should have been dismissed when it appeared upon the trial that after the filing of the bills, and in October, 1932, the beneficiaries of the policies had sued on them at law. But the settled rule is that equitable jurisdiction existing at the filing of a bill is not destroyed because an adequate legal remedy may have become available thereafter."

" That equity has jurisdiction to cancel the policy, where, unless such action is taken the company will be deprived of its legal defense, is well settled." New York Life Ins. Co. v. Rigas, 117 Conn. 437, 168 A. 22, 24, 91 A.L.R. 1122.

See also the following cases wherein similar incontestable clauses were involved: Jefferson Standard Life Ins. Co v. Keeton, 4 Cir., 292 F. 53; Mutual Life Ins. Co. v. Bamford, 132 Pa.Super. 255, 200 A. 907; New York Life Ins. Co. v. Cobb, 219 Mo.App. 609, 282 S.W. 494; New York Life Ins. Co. v. Steinman, 103 N.J.Eq....