Guardian Life Ins. Co. of Texas v. Galoostian, 2167.

• Decision Date: 15 July 1941
• Docket Number: No. 2167.,2167.
• Parties: GUARDIAN LIFE INS. CO. OF TEXAS v. GALOOSTIAN.
• Court: Texas Court of Appeals

155 S.W.2d 396

GUARDIAN LIFE INS. CO. OF TEXAS v. GALOOSTIAN.

No. 2167.

Court of Civil Appeals of Texas. Eastland.

July 15, 1941.

Rehearing Denied October 10, 1941.

Appeal from Dallas County Court; Owen George, Judge.

Action by Yervand Galoostian against the Guardian Life Insurance Company of Texas on a life policy. From a judgment for plaintiff, defendant appeals.

Reversed and remanded for further proceedings.

Chrestman, Brundidge, Fountain, Elliott & Bateman, of Dallas, for appellant.

Geo. K. Holland, of Dallas, for appellee.

FUNDERBURK, Justice.

Yervand Galoostian, beneficiary in a policy issued by Guardian Life Insurance Company of Texas to Dolores Galoostian, his wife, insuring her life in the sum of $500, brought this suit against the insurer to recover upon said policy. All material facts necessary to support a recovery by plaintiff were agreed upon, except one, namely, whether the insured had cancer prior to the issuance of the policy. The policy contained this provision: "If the insured is * * * not in sound health on the date hereof; or if before the date hereof, the insured * * * has had * * * cancer * * * then, in any such case, the company may, within the contestable period, declare this policy void and the liability of the company shall be limited to the return of premiums paid on the policy."

The date of the policy was September 27, 1937. The date of the death of the insured was September 26, 1938. It was, in effect, agreed that the judgment rendered by the court awarding recovery on the policy for $787.50 was proper if the above quoted provision of the policy contravenes the Texas Statutes, and especially Art. 4733, R.S.1925; that if said policy provision contravenes the statutes, the judgment of the trial court should be affirmed; otherwise, it should be reversed.

Guardian Life Insurance Company, appellant, contends that the court erred in "holding the policy provision invalid under Texas statutes because it gave the defendant the right to declare the policy void within the contestable period in the event the insured had cancer before the date of the policy."

Revised Statutes, 1925, Art. 4732, subd. 3, provides: "No policy of life insurance shall be issued or delivered in this State, * * * unless the same shall contain provisions substantially as follows: * * * 3. That the policy, or policy and application, shall * * * be incontestable not later than two years from its date, except for nonpayment of premiums; and which provision may or may not, at the option of the company, contain an exception for violations of the conditions of the policy relating to naval and military services in time of war."

Article 4733, subd. 3, provides: "No policy of life insurance shall be issued or delivered in this State, * * * if it contains any of the following provisions: * * * 3. A provision for any mode of settlement at maturity of less value than the amounts insured on the face of the policy, plus dividend additions, if any, less any indebtedness to the company on the policy, and less any premium that may, by the terms of the policy, be deducted. Any company may issue a policy promising a benefit less than the full benefit in case of the death of the insured by his own hand while sane or insane, or by following stated * * * occupations * * *."

The question for decision may be stated as follows: Within the meaning of the above statutory provisions, may an insurer by provision of a life insurance policy have the legal right, within the contestable period (validly) provided in the policy, to have the policy declared void on the ground that the insured had had cancer prior to the issuance of the policy? From a different viewpoint the same question may be stated thus: Does the above quoted part of the policy constitute provision for a "mode of settlement at maturity of less value than the amounts insured on the face of the policy"?

On its face the provision has no necessary relation to the maturity of the policy. It purportedly evidences a right of the Insurance Company, optional in terms, which may be exercised at a time when there has been no maturity of the policy. The limitation upon the exercise of such right is such that the right could not be exercised coincidentally with the maturity of the policy in any event if such maturity occurred after the specified time of contestability. Hence, it appears that by the test of the expressed intention of the parties, said provision was not designed to constitute a provision for a mode of settlement at maturity of the policy. There is likewise as certainly absent the expression of any intention thereby to provide a mode of settlement at all. The provision is of an entirely different nature. Its purpose, we think, was to give the Insurance Company the right within the contestable period to rescind the contract upon the grounds stated. In a sense, of course, it was a condition upon which the insurer would not be liable to pay the promised $500 or any part thereof. It was not a condition precedent to any possible liability upon the policy; but so far as we can see, it was no different from a condition precedent in relation to the question of whether it constituted provision for a mode of settlement at maturity of the policy. Once the condition existed, which is to say that, when and if the insurer within the contestable period had exercised its right to rescind the contract of insurance, the non-liability of the insurer was the same as if it resulted from the operation of a condition precedent.

That the non-liability of the insurer may be shown by the existence of a condition precedent not fulfilled, unaffected by said Art. 4733, subd. 3, may be taken to be an established proposition. American Nat. Ins. Co. v. Lawson, 133 Tex. 146, 127 S.W.2d 294, and authorities therein cited.

In considering whether the provision of the policy in question may be prohibited by Art. 4733, subd. 3, some discrimination is required in appraising the effect of the clause which reads "and the liability of the Company shall be limited to the return of premiums paid on the policy." (Italics ours). It may be granted that if instead of the provision under consideration there had been one to the effect that if within the contestable period it appeared that the insured had had cancer prior to the issuance of the policy, in that event some amount less than all of the $500 should be paid, such would have constituted provision for a mode of settlement of less value than the amount insured on the face of the policy. The distinction between such a provision and the one under consideration is material. Under the provision in question the contract would be rescinded, canceled. It would cease to exist and, therefore, of course, all its obligations would be in effect canceled. Equity...