Freed v. Bankers Life Ins. Co. of Nebraska, 56281

• Court: United States State Supreme Court of Iowa
• Writing for the Court: Heard before MOORE; LeGRAND
• Citation: 216 N.W.2d 357
• Parties: Willard M. FREED, Executor of the Estate of Scott Swisher, Deceased, Appellee, v. BANKERS LIFE INSURANCE COMPANY OF NEBRASKA, Appellant.
• Docket Number: No. 56281,56281
• Decision Date: 27 March 1974

Page 357

216 N.W.2d 357 Willard M. FREED, Executor of the Estate of Scott Swisher, Deceased, Appellee,
v.
BANKERS LIFE INSURANCE COMPANY OF NEBRASKA, Appellant. No. 56281. Supreme Court of Iowa. March 27, 1974.

Cahill, Lovelace, Poula & Wimpey, Iowa City, for appellant.

L. G. Klein, Coralville, and Willard M. Freed, Iowa City, for appellee.

Heard before MOORE, C.J., and MASON, LeGRAND, UHLENHOPP and REYNOLDSON, JJ.

LeGRAND, Justice.

This appeal presents for the first time the question whether an incontestability clause in a group life insurance policy bars the insurer from defending against a claim on the ground the decedent was not an employee eligible for insurance under the terms of the policy. The trial court held against the insurer, and we agree.

The matter arises on an application for adjudication of law points under rule 105, Rules of Civil Procedure. The defendant insurer concedes it is liable unless the incontestable clause is available as a defense. The trial court's ruling is therefore final for purposes of appeal.

The facts upon which an adjudication under rule 105 was requested are as follows. On December 15, 1970, defendant company issued a policy of group insurance to Johnson County Broadcasting Corporation on the lives of all participating

Page 358

full-time employees of that company. The policy defined a full-time employee as one who worked at least 30 hours per week.

Under the policy individual certificates were issued to each employee as to his 'Personal Insurance.' This is the term used in the policy. Such a certificate was delivered to Scott Swisher, and premiums were paid on his insurance from the date the policy became effective until his death on February 6, 1972. Thereafter defendant refused to pay the proceeds of the policy on decedent's life--$50,000.00--on the ground it had discovered after his death he was not a full-time employee as defined by the policy at the time it was issued or at any time thereafter. Although defendant denies this allegation, we are not concerned with that factual dispute. The only question tendered to the trial court by the rule 105 application is the legal proposition that, even if decedent was not an employee as defined by the policy, the defendant is barred from raising this as a defense because of the incontestability clause contained in the policy. This is all the trial court decided and it is all that we consider. See Reynolds v. Nowotny, 213 N.W.2d 648 (Iowa 1973).

Group insurance is a type of insurance which extends protection to a designated class of persons (frequently the employees of a certain business) under a single or 'master' contract. It permits a lower premium because it effects certain economies in selling and servicing the policy. It is usually held to be a contract between the employer and the carrier for the benefit of the insured employees. 44 Am.Jur.2d, Insurance, § 1868, page 801 (1969).

The group policy issued by defendant included this clause:

'The validity of the various provisions of this policy will not be contested by the Insurance Company after one year from the date of issue except for non-payment of premiums. No statement made by any Insured Person relating to his insurability shall be used in contesting the validity of the insurance with respect to which such statement was made after such insurance has been in force prior to the contest for a period of one year during the Insured Person's lifetime, nor unless it is contained in a written application signed by him.'

Except that the policy period of contestability was shortened to one year, this paragraph--commonly referred to as the incontestability clause--adopts the literal language of our two-year incontestability statute. See § 509.2(2), The Code.

It is conceded the policy had been in force for more than one year prior to Scott Swisher's death. The incontestability features of the policy had therefore become fixed. The precise question presented for review is this: Does the incontestable clause prevent defendant from now asserting the insurance on decedent's life is invalid because it was issued on the misrepresentation that he was an eligible member of the class to which such insurance was offered?

We have already noted that this matter has not previously been before us. However, much of the groundwork upon which our decision depends has been done by courts of other jurisdictions. The battlelines are clearly drawn between two competing theories, each supported by formidable authority. Our task is to choose the one we find most logical and persuasive.

The cases, pro and con, are listed in an annotation at 26 A.L.R.3d 632 (1969). See also Insurance Law Journal, March, 1969, page 142 and E. Crawford, The Law of Group Insurance, § 58 (1936).

Strangely enough, as pointed out in the annotation referred to, there has not been as much litigation on this matter as might be expected--to which we...