Guardian Life Ins. Co. of America v. Barry

• Decision Date: 26 October 1937
• Docket Number: 26931.
• Citation: 10 N.E.2d 614,213 Ind. 56
• Parties: GUARDIAN LIFE INS. CO. OF AMERICA v. BARRY.
• Court: Indiana Supreme Court

10 N.E.2d 614

213 Ind. 56

GUARDIAN LIFE INS. CO. OF AMERICA v. BARRY.

No. 26931.

Supreme Court of Indiana

October 26, 1937

Hatfield Roberts & Hatfield, Leo Warren, and Selwyn F. Husted, all of Evansville, for appellant.

Craig & Mitchell and W. K. Denton, all of Evansville, for appellee.

FANSLER Chief Justice.

Appellee brought this action to recover benefits for total disability under a policy of insurance. Appellant, by its second and fourth paragraphs of answer, admitted the execution of a policy of insurance upon the life of appellee in the sum of $1,000, which included a provision for the payment of double indemnity in case of accidental death, and for the payment of $10 per month and a waiver of all premiums on the policy upon proof of, and during the continuance of, total disability. The answers allege that the policy was issued pursuant to an application which contains representations that were false respecting the health of appellee, which were material to the risk, and that, if the true facts as to the health of the applicant, at the time of the making of the application, had been known, the company would not have issued the policy that two years and a few months after the issuing of the policy the company discovered the true facts concerning appellee's condition of health at the time of and prior to the application, and that the statements in the application were untrue; that upon said discovery the defendant notified the plaintiff that, because of the false answers in the application, the policy, with respect to total permanent disability benefits, was invalid; that the company repaid to appellee the severable amounts which had been paid under the contract for disability benefits, which he accepted and retains; that he had paid no premiums for such benefits since that date. Demurrers were sustained to these answers. In an additional answer the same facts are alleged, and in addition thereto it is alleged that appellee then, in writing, requested appellant to change the policy sued upon for a life policy with double indemnity, but without disability benefits, to be effective as of the date of the original policy, and in the same amount, and for the same premium, as the old policy in respect to life and double indemnity benefits, which was done, and the original policy surrendered. The answers differ in their allegations concerning certain matters, which need not be noticed.

Error is assigned upon the ruling upon the demurrers referred to.

It appears that the demurrers were sustained upon the theory that the company had not attempted a rescission of the policy within two years, the statutory period after which a policy of life insurance is incontestable, and that the acceptance and retention of the premiums returned was no defense, even though appellee had failed to tender back the premiums. The statute then in force provided: 'From and after July 1 1909, no policy of life insurance shall be issued or delivered in this state or be issued by a life insurance company organized under the laws of this state, unless the same shall provide the following: * * * (3) That the policy * * * shall be incontestable after it shall have been in force during the lifetime of the insured for two (2) years from its date, except for nonpayment of premiums and except for violation of the conditions of the policy relating to naval and military service in time of war.' Burns' Ann.St.1933, § 39-801, section 9723, Baldwin's Ind.St.1934. The policy provides that it 'shall be incontestable after it has been in force during the lifetime of the Insured for a period of one year from its date of issue, except for non-payment of premium, and except as to provisions and conditions relating to benefits in the event of total and permanent disability and those granting additional insurance specifically against death from accident, and subject to the provisions of paragraph 16 concerning misstatement of age.'

Two questions are presented. Does the statute make the policy incontestable in respect to the disability benefits, notwithstanding a clause in the policy expressly excepting the restrictions and provisions thereto applying? And, if the statute is not a barrier, is the language of the policy so ambiguous that there is no clear provision for the exception?

Appellee contends that, inasmuch as the statute from which we have quoted is a part of an act which provides for the incorporation of life insurance companies and defines their powers, and such companies are by the act authorized to insert total permanent disability and double indemnity features in their contracts, it follows that the incontestability provision must have been intended to apply, not only to that part of the contract which affects life insurance, but also to that part which provides for disability benefits. But there are other statutes authorizing the organization of insurance companies. Burns' Ann.St.1933, § 39-101 et seq. (section 9575 et seq., Baldwin's Ind.St.1934), authorizes the organization of companies to issue policies of insurance upon 'vessels, freight, money, goods and effects, on the life or health of any person' (Burns' Ann.St.1933, § 39-120), and against loss by fire, et cetera. It would seem that it was the legislative intention to deal with all policies of life insurance rather than with the policies of life insurance companies organized under the particular statute. It will be noted that it provides that 'no policy of life insurance shall be issued or delivered in this state or be issued by a life insurance company organized under the laws of this state, unless * * *.' It therefore was intended to apply to the contracts of foreign insurance companies which were not and could not have been organized under the statute of which the section is a part. Other statutes authorize the organization of companies and the issuance of contracts insuring against disability because of disease or accident, and there is no similar provision covering such contracts. It is therefore but reasonable to conclude that public interest was thought to require that policies upon the life of persons should be protected, and that no necessity was seen for a like protection in the case of policies insuring against disability. The insurance contract in question is severable, and, while it insures the life of appellee, it insures him against permanent disability for a separate and distinct consideration. The risks assumed by the company and the consideration for this separate risk are distinct and severable and might have been written in different contracts. It is as though a company insured the life of an individual and insured his house against loss by fire in the same contract.

While it is true that, where there is ambiguity or doubt as to the meaning of insurance contracts, or other contracts, the preparation of which was under the control of one of the parties, the construction least favorable to the party preparing the contract is adopted, there is no rule or reason for a rule under which statutes affecting contracts should in case of doubt or ambiguity be construed against the insurance company. The statutes are not made by the company. The statute here in question contravenes the common-law right of the company to freely contract with respect to the time in which its policy shall be contestable. Statutes in derogation of the common law are strictly construed, and, where there is doubt, they will be construed as not changing the common-law rule. In all of the cases which have come to our attention, dealing with statutes of the character here involved, it has been held that a combination of life and disability policies is to be regarded as two distinct contracts, though contained in one instrument, and that statutory provisions for an incontestability clause for life insurance policies is inapplicable to the disability insurance. Greber v. Equitable Life Assurance Society (1934) 43 Ariz. 1, 28 P.2d 817; Pyramid Life Insurance Co. v. Selkirk (C.C.A.1936) 80 F. (2d) 553; Love v. Prudential Insurance Co. (1934) 173 S.C. 433, 176 S.E. 333.

In Federal Life Insurance Co. v. Zebec (C.C.A.1936) 82 F. (2d) 961, 963, an action to recover double indemnity for the death of the insured, the court considered that, under the Indiana statute, the limitations in the policy concerning contestability applied only to life insurance and did not apply to the disability provision. The court said: 'The rider is 'attached to and made a part of' the life insurance policy and because it contains no disability benefits, but insures only against accidental death, it is a policy of life insurance, hence governed by the provisions of the Indiana statute as to incontestability and misrepresentation.' It will be noted that the court's language is susceptible of being construed as holding that if there were disability benefits provided for in the policy it would not be a life insurance policy. But in any event, it seems clear that if the action had been for disability benefits, and not for death, the court would have held that the statute did not apply. The appellee...