Lanier v. New York Life Ins. Co.

• Decision Date: 22 March 1937
• Docket Number: No. 8204.,8204.
• Citation: 88 F.2d 196
• Parties: LANIER et al. v. NEW YORK LIFE INS. CO.
• Court: U.S. Court of Appeals — Fifth Circuit

88 F.2d 196 (1937)

LANIER et al. v. NEW YORK LIFE INS. CO.^*

No. 8204.

Circuit Court of Appeals, Fifth Circuit.

February 24, 1937.

Rehearing Denied March 22, 1937.

John E. Mathews, of Jacksonville, Fla., for appellants.

Charles Cook Howell, of Jacksonville, Fla., for appellee.

Before SIBLEY, HUTCHESON, and HOLMES, Circuit Judges.

SIBLEY, Circuit Judge.

The decree canceled four insurance policies, issued by New York Life Insurance Company upon the life of Virgil H. Lanier, because of false statements in applications for their reinstatement. The main questions in dispute are whether the misstatements were material, and whether the two-year incontestable clause bars the company from attacking the reinstatements; and as pertinent to the latter question whether the reinstatements occurred on receipt of the proofs of health at the home office or only after review and approval there, and whether a "contest" by the company occurred prior to the filing of its answers.

The evidence, taken by an examiner, is not conflicting except on the point of the materiality of the misstatements. It is not disputed that four policies, one for $10,000 and three for $5,000 each, were issued March 30, 1932, that they lapsed for nonpayment of premium Sept. 30, 1933, and that separate applications for reinstatement were made on blanks furnished by the company through its agent at Jacksonville, Fla., styled "cashier," accompanied with letters from the cashier requesting their return to him when executed. One application was dated November 3, 1933, was stamped "Received, Florida Branch, Nov. 3, 1933, New York Life Insurance Company," and indorsed "Approved by J. F. Roney, Cashier, on the 6th day of November, 1933." Another was made and received November 10th and approved November 14th. A third was dated November 24th, received November 25th, and approved November 27th. The fourth was dated and received December 1st and approved December 4th. With each one the cashier accepted the premium payment necessary for reinstatement. They were severally received at the home office November 7, November 19, December 2, and December 7. They went through the Comptroller's Department, and on December 7th, since $25,000 then appeared to be involved, they went to the Renewing Division. They were finally approved in the home office on January 3, 1934, and the Jacksonville cashier so notified. No notice of any kind was given Lanier or any beneficiary or assignee, nor was any customarily given. To a question included in each application blank as follows: "Within the past two years have you had any illness, diseases or bodily injuries, or have you consulted or been treated by any physician or physicians?" Lanier answered "No." In truth, he had been treated by a skin specialist in the removal by one application of radium of a small scaly spot on his cheek in July, 1933. In August, 1934, Lanier developed a gland trouble in his throat, later diagnosed as cancer, from which he died January 6, 1936. In May, 1935, he made claim under his policies for disability benefits. On June 20, 1935, he was notified by the company that it had rescinded the reinstatements of his policies because of the misrepresentation in the reinstatement applications, and it tendered return of premiums. Lanier refused the return of premiums, contending there was no right to cancel his insurance. He and others claiming as assignees of his policies filed suits in equity in the Florida courts in August, 1935, praying a decree that the notices of recission and cancellation given June 20th were void and the policies in full force and effect. These complainants also filed in the state court a proceeding to perpetuate the testimony of Lanier, the company filing cross-interrogatories and the testimony being taken September 23, 1935. The suits were removed to the United States District Court and a stipulation was made to take Lanier's testimony orally and it was so taken on September 3. The company in the District Court filed motions to dismiss and to strike portions of the bills. The bills were amended to meet some of the objections on December 3d, and on December 4th the complainants served notice on defendant's counsel of an intention to file supplemental bills pleading that, because of the incontestable clause in the policies, the company was then debarred from contesting the policies, no contest having yet been made. Thereafter, on December 20, 1935, the company filed answers which contended that the rescission of the reinstatements was justified, that the proceedings already taken constituted a contest, and if not, that the answers were within two years of the reinstatements and in time, and it was affirmatively prayed that the rescissions be set up and the policies judicially canceled. Lanier having died in January, 1936, his executor was made party and prayed recovery on the policies. The cases were consolidated and a single trial and decree was had.

In order to apply the incontestable clause, it will be helpful to see how and when the reinstatements occurred. They were not wholly new and independent agreements. Each policy, after providing that the insurance should lapse on default in paying a premium, added: "This policy may be reinstated at any time within five years after default upon presentation at the home office of evidence of insurability satisfactory to the Company and payment of overdue premiums with six percent interest thereon from their due date." Such a provision, common in policies, helps to sell them, and it means, not that the insurer may possibly at its option reinstate, but that it will do so if in the time limited back premiums are paid and if evidence of then insurability is furnished at the home office such as is satisfactory to the company. It has been said that reinstatement when the conditions are met is a positive right and may be specifically enforced. Mutual Life Ins. Co. v. Lovejoy, 203 Ala. 452, 83 So. 591. See, also, Leonard v. Prudential Ins. Co., 128 Wis. 348, 107 N.W. 646, 116 Am.St. Rep. 50. But the stipulation that the company shall have evidence of insurability satisfactory to it is a real and a reasonable qualification. The company need not reassume its obligations if it honestly thinks the risk is no longer a proper one. It probably could not refuse for some collateral reason, as that it wished to reduce its outstanding insurance or to withdraw from the state, nor capriciously and without any reason. But one who contracts that he shall be satisfied touching a matter of opinion or judgment is entitled to satisfaction. Shepherd v. Union Central Life Ins. Co. (C.C.A.) 74 F.(2d) 180, and authorities cited. The reservation that an insurance company shall be satisfied with the evidence of insurability fairly implies that it shall have the evidence put before an agent authorized to consider it and with opportunity to weigh it. But, if it proves satisfactory, it may have effect from the time it was tendered if that is the intent of the contract. We think that a reinstatement under the agreement before us is not automatic, but is a transaction requiring a meeting of minds, and to that extent it has elements of a new contract. Compare Broughton v. Equitable Life Assur. Co. (C.C.A.) 71 F.(2d) 821; Fidelity Mutual Life Ins. Co. v. Merchants' & Mechanics' Bank (C. C.A.) 71 F.(2d) 777. But it results in putting the old contract back into force with its premium rates and premium dates and its general provisions unchanged. Pursuant to a conditional promise in the policy to do so, it wipes out the default in premiums as though it had not occurred. In view of what is said in Aetna Life Ins. Co. v. Dunken, 266 U.S. 389, 45 S.Ct. 129, 69 L.Ed. 342, we should hesitate to call it a new contract. It arises not under the rules applying to a new negotiation by offer and acceptance but according to the policy provision on which it is based.

Each policy, then, promised reinstatement on stated conditions. There is no question but that all requirements for reinstatement of each policy were finally met, and that reinstatement was accomplished; the only question is when. In McCormack v. Security Mutual Life Ins. Co., 161 App.Div. 33, 146 N.Y.S. 613, it was held with reference to an incontestable clause that a reinstatement related back to the time of the default which it wiped out, and the limitation on contest was to be computed from that date. On appeal this holding was reversed, and the date that reinstatement actually occurred was held controlling. 220 N.Y. 447, 116 N.E. 74, 75. We agree. The rejected rule would be manifestly impracticable and unjust, for in the policy before us the right of reinstatement continues for five years from default but the period for contest is limited to two. The contest period is designed to give opportunity for investigation and would reasonably begin when the transaction which is to be investigated takes place.

Looking at the reinstatement clause, it stipulates for two things: (a) Presentation at the home office of satisfactory evidence of insurability; (b) payment with interest of overdue premiums. Until the policyholder has done these two things, he can claim...