Formosa v. Equitable Life Assur. Soc. of U.S.

• Decision Date: 31 January 1979
• Citation: 166 N.J.Super. 8,398 A.2d 1301
• Parties: Claire FORMOSA, Plaintiff-Respondent, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES, Defendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 8

166 N.J.Super. 8

398 A.2d 1301

Claire FORMOSA, Plaintiff-Respondent, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES Defendant-Appellant.

Superior Court of New Jersey, Appellate Division.

Argued Sept. 26, 1978.

Decided Jan. 31, 1979.

Charles W. Hutchinson, Jersey City, for defendant-appellant (Lamb, Hutchinson, Chappell, Ryan & Hartung, Jersey City, attorneys; Charles W. Hutchinson on the brief).

Paul A. Dykstra, Hackensack, for plaintiff-respondent (Breslin & Breslin, Hackensack, attorneys; Paul A. Dykstra on the brief).

Before Judges LORA, MICHELS and LARNER.

The opinion of the court was delivered by

MICHELS, J. A. D.

Defendant The Equitable Life Assurance Society of the United States (Equitable) appeals from a judgment of the Law Division awarding plaintiff Claire Formosa $72,187 under a life insurance policy issued on the life of her husband Daniel J. Formosa (Dr. Formosa), and dismissing its counterclaim for rescission of the policy.

On April 17, 1973 Equitable issued a life insurance policy to Dr. Formosa on the basis of his signed application. The application, which was attached to and formed part of the policy, consisted of two parts. Part 1 of the application was signed by Dr. Formosa on April 2, 1973 and contained the following pertinent statement above his signature:

Agreement

It is hereby agreed by the undersigned that:

1. The statements and answers in all parts of this application are represented by the undersigned to be true and complete and are made to induce the Equitable to enter into this Agreement and to issue any policy or contract which may be issued upon this application.

Part 2 of the application was signed by Dr. Formosa on February 8, 1973, prior to his signing Part 1, and also contained a clause above his signature, reading:

                6.    a.              Print name and address of your
                                      personal physician: (If none, so
                                      state).  [Ans.] V. D'Agti, Teaneck
                                      N.J
                      b.              Date and reason last consulted
                                      [Ans.] 1972 Routine checkup
                      c.              What treatment was given or
                                      recommended?  [Blank].
                7.      Have you ever been treated for or ever had any     YES               NO
                        known indication of: (Circle the applicable
                        item).
                                               *    *    *    *    *    *    *B
                      g.              Diabetes; thyroid or other                             X
                                      endocrine disease of disorder?
                8.      Are you now under observation or taking                              X
                        treatment?
                                               *    *    *    *    *    *    *B
                10.     Other than as stated in answers to questions 6-9,
                        have you within the past 5 years:
                      a.              Consulted or been examined or        X
                                      treated by any physician or
                                      practitioner?
                      b.              Had any illness, injury or surgery?                    X
                                               *    *    *    *    *    *    *B
                      d.              Had electrocardiogram, X-ray or      X
                                      other diagnostic test?
                                               *    *    *    *    *    *    *B
                      DETAILS
                        For each yes answer to the questions on this
                        page, enter the question number and full details
                        below.  Inclue diagnostic, treatment and result,
                        dates, duration and names and addresses of all
                        attending physicians and medical facilities:
                                                   10--10 a.--d --see 6b.
                

I represent that the above statements and answers are true and complete. I agree that such statements and answers shall be part of the application for insurance or request for policy change or reinstatement, as the case may be, and are made to induce the Equitable to issue any policy which may be issued upon the application or to make the policy change or reinstatement.

Part 2 also contained questions and answers concerning Dr. Formosa's health and medical history, of which the following are pertinent to the resolution of this appeal:

Actually, Dr. Formosa, who was an oral surgeon on the staff of Holy Name Hospital in Teaneck, New Jersey, was suffering from diabetes when he signed the application for life insurance on February 8, 1973, and had been suffering from the disease for several years prior to that time. In fact, as the result of laboratory tests, Dr. Formosa knew sometime in the mid-to late 1960s that he had diabetes. He prescribed Diabinese ¹ for himself, taking this medication for several years until he entered Holy Name Hospital on October 6, 1974 with an illness which, on October 18, 1974, proved fatal.

Plaintiff, who is the named beneficiary in the policy, made claim for payment of the death benefit provided thereunder. Equitable refused to pay the claim, notified plaintiff that it was rescinding the policy, and tendered to her the premiums paid, together with interest. Thereafter, plaintiff instituted this action to recover the face amount of the policy $72,187. Equitable filed an answer denying liability and a counterclaim seeking dismissal of the complaint and rescission of the policy on the ground of equitable fraud. It claimed that Dr. Formosa's answers to Questions 7(g), 8 and 10(b) and (d) of Part 2 of the application were either false or incomplete in that Dr. Formosa had a history of diabetes for a period of approximately nine years prior to February 8, 1973, and that he had been treating himself during that time with Diabinese. Equitable further claimed that Dr. Formosa's false and incomplete statements materially affected its acceptance of the risk and the hazard assumed thereby.

The counterclaim for rescission based on equitable fraud was tried by the judge without a jury. At the conclusion of the evidence he found that Dr. Formosa had diabetes when he entered Holy Name Hospital in October 1974, had known indications of the disease as of September 24, 1974 from the hospital's out-patient blood test, and that he must have had diabetes for some period before. However, the judge refused to rescind the policy, holding Equitable had failed to prove that as of February-April 1973 Dr. Formosa had any known indication of diabetes and, even assuming that he did, his false answer to Question 7(g) was immaterial since his diabetic condition did not either render him uninsurable or cause his death. We disagree and reverse.

It is firmly embedded in the jurisprudence of this State that life insurance policies may be rescinded based upon equitable fraud, as well as legal fraud, even after the death of the insured. Equitable Life Assur. Soc. v. New Horizons, Inc., 28 N.J. 307, 312-313, 146 A.2d 466 (1958); Gallagher v. New England Mut. Life Ins. Co. of Boston, 19 N.J. 14, 20, 114 A.2d 857 (1955); Metropolitan Life Ins. Co. v. Tarnowski, 130 N.J.Eq. 1, 3, 20 A.2d 421 (E. & A. 1941); Metropolitan Life Ins. Co. v. Lodzinski, 124 N.J.Eq. 357, 359, 1 A.2d 859 (E. & A. 1938); Russ v. Metropolitan Life Ins. Co., 112 N.J.Super. 265, 274, 270 A.2d 759 (Law Div.1970). See also Redler v. New York Life Ins. Co., 437 F.2d 41 (3 Cir. 1971); Parker Precision Products Co. v. Metropolitan Life Ins. Co., 407 F.2d 1070, 1073 (3 Cir. 1969); Garman v. Metropolitan Life Ins. Co., 175 F.2d 24, 26 (3 Cir. 1949); Ettelson v. Metropolitan Life Ins. Co., 164 F.2d 660, 663, 664-665 (3 Cir. 1947). However, an action for rescission based on equitable fraud must be commenced prior to the incontestability clause in the policy taking effect, as mandated by N.J.S.A. 17B:25-4, (L.1971, C. 144, § 17B:25-4), which provides:

There shall be a provision that the policy (exclusive of provisions of the policy or any contract supplemental thereto relating to disability benefits or to additional benefits in event of death by accident or accidental means or in event of dismemberment or loss of sight) shall be incontestable, except for nonpayment of premiums, after it has been in force during the lifetime of the insured for a period of 2 years from its date of issue.

Here, the incontestability clause did not operate to bar Equitable's counterclaim for rescission based on equitable fraud because the policy had not "been in force during the lifetime of the Insured for two years from the Date of Issue." Dr. Formosa died before the two-year period expired, and therefore the policy remained contestable. Downs v. Prudential Ins. Co. of America, 130 N.J.Super. 558, 564-568, 328 A.2d 20 (Law Div.1974); Taylor v. American Heritage Life Ins. Co., 448 F.2d 1375, 1376-1377 (4 Cir. 1971). See also, 18 Couch on Insurance 2d, § 72.48 (1968).

The doctrine of equitable fraud and the long line of cases supporting it were not overruled by the Supreme Court's holding in Johnson v. Metropolitan Life Ins. Co., 53 N.J. 423, 440-443, 251 A.2d 257 (1969). Johnson dealt with a health and accident policy which the issuing insurer sought to rescind on the ground of equitable fraud after the expiration of the three-year contestable period provided in N.J.S.A. 17:38-13.2(A). As Judge John Ackerman correctly observed in Russ v. Metropolitan Life Ins. Co., supra, analyzing the holding in the Johnson case:

The net result was that the Supreme Court held in Johnson that the proper construction of the mandatory contestable provision for inclusion in health and accident policies is that for the contestable period of three years (one year longer than the contestable period for life insurance policies), such policy may be voided for legal fraud Or equitable fraud, but that after the expiration of the three-year period, such policy may be voided only for legal fraud. The court stated:

Thus the statute, as we interpret it, boils down to the proposition that After two years the policy may not be voided for a misstatement in the application unless the misstatement is 'fraudulent' as we have defined the word, * * *.

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