Hulme v. Springfield Life Ins. Co., 49623

• Decision Date: 31 May 1977
• Docket Number: No. 49623,49623
• Citation: 565 P.2d 666
• Parties: Homer H. HULME and Chickasha Transit Mixed Concrete, Inc., Appellees, v. SPRINGFIELD LIFE INSURANCE COMPANY, INC., Appellant.
• Court: Oklahoma Supreme Court

Page 666

565 P.2d 666

Homer H. HULME and Chickasha Transit Mixed Concrete, Inc., Appellees, v. SPRINGFIELD LIFE INSURANCE COMPANY, INC., Appellant.

No. 49623.

Supreme Court of Oklahoma.

May 31, 1977.

Robert L. Huckaby, Vaughn, Allen, Stack & Huckaby, Chickasha, for appellees.

C. D. Van Dyck, Jr., Michael A. Emmons, Van Dyck & Hays, Chickasha, for appellant.

LAVENDER, Vice Chief Justice.

Richard L. Kamm (Kamm) died January 6, 1974. He was shown as insured person by certificate issued by Springfield Life Insurance Company (insurer). That insurer is the appellant and was defendant below. That company was the insurer under a group life insurance contract issued to Chickasha Transit Mixed Concrete, Inc., one of the appellees and plaintiffs below. That party to the insurance contract was called the policyholder. Homer H. Hulme, (Hulme), the named beneficiary, joined by the policyholder, brought suit to recover under the policy on Kamm's death. Hulme was the president, principal stockholder and manager of the policyholder. Parties plaintiff and defendant filed motions for summary judgment. Trial court granted summary judgment to the beneficiary, Hulme. Insurer appeals.

These facts were before the trial court without conflict. Kamm had no legal relationship with the policyholder. He was not an employee or partner. He managed a similar concrete mix company at another city, El Reno. Hulme did have an interest with Kamm in that El Reno business. There was a close business association between the two men whereby the two businesses accommodated each other through the exchange of information, trucks, equipment, and men. They worked together from time to time. Neither drew a salary from the other. The group life insurance written by the insurer was secured through Blaire L. Nelson, an insurance agent. He represented several insurance companies, including this insurer, as its local agent. Nelson knew the details of the association between Hulme and Kamm. Insurer had no actual knowledge of these facts. Nelson was of the opinion that Kamm qualified as an insured person under the group policy. Kamm was included in the original enrollment under the group policy. Kamm was included in the original enrollment as an insured person and a certificate of insurance was issued to him. The policy was effective December 19, 1969. Premiums were paid by the policyholder. The premiums were properly paid on Kamm until his death some four years later. Insurer tendered back all premiums paid on Kamm.

The incontestable clause of the master contract reads:

"Section 14. Incontestability

This contract shall be incontestable after two years from the date of issue, except for nonpayment of premiums. No statement made by a person insured under this contract relating to the insurability of himself or his insured dependents, if any, shall be used in contesting the validity of the insurance with respect to which such statement was made after the insurance has been in force prior to the contest for a period of two years during said person's or dependent's lifetime and in no event unless it is in a written instrument signed by him, a copy of which is or has been furnished to such person or to his beneficiary."

Insurer argues Kamm was not covered by the group policy for he was not an employee or partner of the policyholder, Chickasha Transit Mixed Concrete, Inc.; and that defense was not precluded by the incontestable clause. Insurer also contends there was no insurable interest in Kamm's life.

Appellee Hulme argues the incontestable clause does preclude the issue as to whether Kamm qualified for coverage. He also contends imputed knowledge through the insurance agent to establish an estoppel or waiver against the insurer as to Kamm's qualification for coverage.

We reach, first, the issue of precluding the defense, that the deceased was not in fact an employee, by the operation of the incontestable clause. Insurer says there was no contract of insurance on the life of Kamm for Kamm did not qualify as a member of the eligible group. An attack on validity is admitted to be precluded by the incontestable clause. It is argued that this is not an attack on the original validity of the contract. This court has rejected that position in Baum v. Massachusetts Mutual Life Insurance Co., Okl., 357 P.2d 960, 964 (1960). That opinion approved the line of reasoning advanced in the quoted case of Equitable Life Assurance Society v. Florence, 47 Ga.App. 711, 171 S.E. 317. ¹ This Georgia opinion finds the incontestable clause estops the insurer from denying that the insured was an employee at the time of the issuance of the policy. In Baum, supra, the deceased regularly did tax work for employer but the evidence failed to show he was, in a technical sense, an employee and as such a member of the class covered under the group policy. On the purpose of the incontestable clause, the opinion quotes from Metropolitan Life Ins. Co. v. Peeler, 122 Okl. 135, 176 P. 939, 940, 6 A.L.R. 441 (1918), saying:

" * * * 'The meaning of the provision is that, if the premiums are paid, the liability shall be absolute under the policy, and that no question shall be made of its original validity. The language admits of no reasonable construction other than that the company reserves to itself the right to ascertain all the matter and facts material to its risk and the validity of its contract for one (present case, two) year; and that if within that time it does not ascertain all the facts, and does not cancel and rescind the contract, it may not do so afterwards upon any ground then in existence.' (Citing cases.)" (Explanation and emphasis added.)

Here, whether Kamm qualified as a member of the eligible group goes to the question of original validity. Under the incontestable clause, the insurer reserved the right to ascertain all facts material to the validity of its contract, including the eligibility of Kamm to enroll as a member of the covered group. If within that two year time period, the insurer did not ascertain all the facts, and did not cancel or rescind the contract, it may not do so afterwards upon grounds then in existence.

The insurer would distinguish present case from Baum, supra, on (1) bad faith misrepresentation of Kamm being an employee and (2) operation of 36 O.S.1971, § 4015 not considered in Baum.

According to the affidavit of Nelson, the insurance agent, he was aware of Kamm's relations with the policyholder and believed there was justification to include Kamm as a member of the group to whom insurance was offered. Baum, supra, 176 P. p. 963. We find no bad faith in the inclusion of Kamm in the group that would prevent the application of Baum, supra, to this case.

Insurer's brief points to inaccuracies found in Kamm's enrollment card. That enrollment card is not a part of the record on appeal, here. The affidavit of Stockwell, vice president of insurer, says the insurer relied on representations made by Kamm on the enrollment card. Terms of the particular incontestable clause found here in § 14 of the contract precludes the use of the insured person's statement after the two year period had run.

36 O.S.1971, § 4015 provides:

"A clause in any policy of life insurance providing that such policy shall be incontestable after a specified period shall preclude only a contest of the validity of the policy, and shall not preclude the assertion at any time of defenses based upon provisions in the policy which exclude or restrict coverage, whether or not such restrictions or exclusions are excepted in such clause; nor shall it be construed to preclude adjustment at any time of the amount payable or benefits accruing under the policy...