Lindsay v. U.S. Life Ins. Co. in City of New York, L--18427

• Court: Superior Court of New Jersey
• Citation: 194 A.2d 31,80 N.J.Super. 465
• Docket Number: No. L--18427,L--18427
• Parties: John S. LINDSAY, Jr., and Thelma Lindsay, his wife, Plaintiffs, v. The UNITED STATES LIFE INSURANCE COMPANY IN the CITY OF NEW YORK, a New York corporation, Defendant.
• Decision Date: 20 September 1963

Page 465

80 N.J.Super. 465

194 A.2d 31

John S. LINDSAY, Jr., and Thelma Lindsay, his wife, Plaintiffs, v. The UNITED STATES LIFE INSURANCE COMPANY IN the CITY OF NEW

YORK, a New York corporation, Defendant.

No. L--18427.

Superior Court of New Jersey

Law Division.

Sept. 20, 1963.

Eugene H. Gilmartin, River Vale, attorney, for plaintiffs.

Bertram M. Light, Jr., Newark, for defendant (Toner, Crowley, Woelper & Vanderbilt, Newark, attorneys).

G. H. BROWN, J.C.C. (temporarily assigned).

In this action plaintiffs John S. Lindsay, Jr. and Thelma Lindsay are husband and wife. They sue on a major medical expense policy issued by defendant to recover the cost of treating her illness. Additionally, they demand a declaratory judgment as to the validity of future claims.

Defendant denies liability on the ground that issuance of the policy was induced by fraud. In particular, it is alleged that Mr. Lindsay, the named insured, deliberately misrepresented the physical condition of his wife (a 'covered person') in answering questions propounded in the application, so that her adverse medical history was concealed. The same set of facts serves as the footing for five separate defenses. In a sixth defense it is alleged that the claim is based upon a sickness contracted before the policy was in force and therefore not covered by its terms. Defendant also counterclaims against the named insured for reimbursement, with costs and attorneys' fees, for any moneys paid in the event of liability.

Now before the court is a motion by plaintiffs to strike, as insufficient in law, the six separate defenses, the counterclaim and all references to fraud in the answer. They contend that the claim cannot be contested for alleged fraud because of the following provision in the policy:

'Incontestable: (a) After this policy has been in force for a period of two years during the lifetime of any Covered Person, it shall become incontestable as to the statements contained in the application of such Covered Person.'

The Uniform Individual Accident and Sickness Policy Provisions Law, as drafted in 1950 by the National Association of Insurance Commissioners, has now been adopted in nearly every American jurisdiction. It was enacted by New Jersey in 1951. N.J.S.A. 17:38--13.1 et seq. The clause above quoted is derived from N.J.S.A. 17:38--13.2(A)(2)(a).

It is required by statute that such policies shall include a provision by which the insurer must surrender certain defenses, based upon the application, after a fixed time has elapsed. Alternative clauses are offered. The following provision may be used:

'Time limit on certain defenses: (a) After three years from the date of issue of this policy no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy shall be used to void the policy or to deny a claim for loss incurred or disability (as defined in the policy) commencing after the expiration of such three-year period.'

Where a policy is non-cancellable (such as the one here involved) the insurer may, in lieu of the foregoing, stipulate as follows, after the caption 'Incontestable':

'After this policy has been in force for a period of three years during the lifetime of the insured (excluding any period during which the insured is disabled), it shall become incontestable as to the statements contained in the application.'

It was this 'incontestable' provision which the defendant chose to write into the subject policy with changes favorable to the insured.

Plaintiffs invoke the clause. They say that the policy was issued on October 17, 1958, and since the claim is for medical expenses incurred in 1962 it is too late for defendant to contest the claim even if the application was fraudulent in fact (which, of course, plaintiffs deny).

Defendant argues that the provision is not so drastic. It says that after the policy has been in force for two years it does not become 'incontestable'; it becomes 'incontestable As to the statements contained in the application' according to the statutory language. This, the defendant urges, is a qualification which makes it evident that something less than total incontestability was intended. What is meant to be saved for contest, at least, are misstatements of the kind here alleged because they are expressly kept viable in the 'time limit on certain defenses' provision, and the term 'misstatements' is not used at all in the 'incontestable' clause; if misstatements of this type were intended to be innocuous after three years by virtue of the 'incontestable' provision, the concept of 'misstatements' would have been reiterated therein; the new term 'statements' was deliberately introduced to show that misstatements in the application would still be actionable. Thus defendant reasons out the argument.

This construction results in an emasculation of the 'incontestable' provision. It makes its effect more narrow than the 'time limit on certain defenses' clause because the latter ultimately protects the insured against misstatements of a nonfraudulent character. The insured would never be immune from such misstatements if defendant's interpretation of the 'incontestable' clause is correct.

If the word 'statements' was purposely used in the 'incontestable' provision to narrow the range of its effect, what would be accomplished for the benefit of the insurer or the insured? When the statements are correct, there is no reason for a contest. They are necessarily incontestable. It is only when they are incorrect that the insurer has an adversary interest. And if the statements are incorrect they are necessarily misstatements.

A reading of the 'incontestable' provision without reference to the language used as to the 'time limit for certain defenses' conveys the impression of absoluteness. Incontestability arises 'as to the statements contained in the application.' 'The'...