Massachusetts Protective Ass'n v. Stephenson, No. 1441.

• Court: United States District Courts. 6th Circuit. United States District Court of Eastern District of Kentucky
• Writing for the Court: Bruce & Bullitt, of Louisville, Ky., for complainant
• Citation: 5 F. Supp. 586
• Docket Number: No. 1441.
• Decision Date: 31 October 1933
• Parties: MASSACHUSETTS PROTECTIVE ASS'N, Inc., v. STEPHENSON.

5 F. Supp. 586

MASSACHUSETTS PROTECTIVE ASS'N, Inc.,
v.
STEPHENSON.

No. 1441.

District Court, E. D. Kentucky.

October 31, 1933.

Bruce & Bullitt, of Louisville, Ky., for complainant.

Dysard, Tinsley & Prichard, of Ashland, Ky., for defendant.

ANDREW M. J. COCHRAN, District Judge.

This suit is before me on defendant's motion to dismiss. By it plaintiff seeks the cancellation of a general health and accident policy of insurance issued by it to defendant September 2, 1924, and recovery of $1,985.69 theretofore paid by it to him under the policy. The ground upon which such relief is sought is that plaintiff was induced to issue the policy by fraudulent misrepresentations as to material matter. The policy was issued with a rider known as "Continuous Disability Rider. Form 21" attached to it in substitution for a policy issued March 31, 1923. Provision was made for payment of $5,000 for continuous total disability resulting from bodily injuries effected by accidental

5 F. Supp. 587

means for any one of certain losses, including death, and also for a payment of a weekly indemnity of $100 for total disability from accident or disease during his lifetime. The original policy limited this benefit to sixty weeks. The object of the substitution was to provide for a lifetime payment, and it called for a greater premium. The bill contains certain allegations on which the right to the relief sought was based. The policy was issued in reliance upon the representations made in defendant's application for the original policy, a copy of which was attached thereto. In that application these questions were put to be answered by him

"What sickness or accidents have you had during the past five years? What physicians have you consulted during that period?" His answer was "None."

This question was also put there:

"Are you now in sound health and bodily condition?" His answer thereto was "Yes."

These answers were material to the risk, and were false and fraudulently made, in that commencing about 1921 the defendant had a sickness known or variously described as catarrhal jaundice and cholecystitis and gall bladder disease, which confined him in a hospital for a number of days, that he had consulted and was treated for such sickness by one or more physicians, and that at the time of the making of the application he was not in sound health, but was suffering from such sickness, and was so serious that in April, 1929, he applied to the United States Veterans' Administration for benefits granted to veterans of the World War, claiming in his application therefor that the cholecystitis originated from and was connected with his service therein.

On or about December 8, 1932, the defendant asserted a claim under the policy against defendant for payment of the weekly indemnity provided for therein on the ground of total disability from chronic gall bladder disease, which he continued to assert and was asserting at the time of the bringing of the suit, April 6, 1933, and which then amounted to $1,978.59. Theretofore, in ignorance of the falsity of the fraudulent misrepresentations relied on and by mistake, plaintiff paid to defendant on account of disability claim $1,985.69. The first information which it received as to their falsity was in February, 1933. It at once investigated the matter and definitely ascertained such falsity April 5, 1933. It could not by ordinary diligence have discovered it sooner. The defendant has paid to plaintiff on account of fees and premium $3,625.84. Such are the facts alleged by plaintiff in its bill on the basis of which it seeks cancellation of the policy and recovery of the $1,985.69 paid under it. It offers to confess judgment for the $3,625.84 less the amount so paid.

Several grounds are urged for dismissing the bill.

1. Want of jurisdiction in that the amount in controversy is not in excess of $3,000. This position is based upon the view that the relief sought is limited to cancellation of the policy, the effect of which would be to relieve plaintiff of its contingent liability for $5,000 upon total disability by reason of certain losses, including death, resulting from bodily injuries caused by accidental means and of the claim of $1,978.59 under the policy on account of total disability from disease. This claim is less than the jurisdictional amount, and the value of the provision for the $5,000 is so uncertain that it cannot be said that the amount in controversy was equal thereto. But the relief sought is not limited to cancellation of the policy. Recovery of the sum of $1,985.69 theretofore paid under the policy is sought also. This, added to the definite claim of $1,978.59 made under the policy, relief from which is sought by cancellation thereof, brings the amount in controversy above the amount required to give jurisdiction. Massachusetts Protective Ass'n v. Kittles (C. C. A.) 2 F.(2d) 211. Had plaintiff not sought recovery of the $1,985.69 theretofore paid by it, but limited itself to deducting same from the $3,625.84 theretofore paid by defendant and offering to confess judgment for the balance, possibly some question might be made whether jurisdiction existed without reference to the relief from the contingent liability for $5,000. But it did not so limit itself. It sought recovery of the amount so paid by it.

But apart from this I think that jurisdiction exists on the ground that plaintiff seeks relief from its contingent liability for $5,000. In the case of Mutual Life Insurance Co. v. Rose (D. C.) 294 F. 122, 123, I held that federal jurisdiction existed of a suit to cancel two ordinary life policies, one for $3,000 and the other for $2,000. I think that the same thing is true of a suit to cancel an accident policy for an amount in excess of $3,000. In the case of Mutual Life Ins. Co. v. Thompson (D. C.) 27 F.(2d) 753, 754, it was held that no such jurisdiction existed

5 F. Supp. 588

to cancel either the ordinary life or accident policy in excess of that amount, nothing else appearing. There the suit was to cancel two life insurance policies for $5,000 each providing for double liability in case of death from accidental cause. It was held that, in the absence of an allegation that the two policies had a value in excess of $3,000, the court was without jurisdiction. It was conceded that possibly they might have such value, but held that, in order to jurisdiction, it must be alleged, and, if denied, proved, that such was the case. It was not sufficient that the policies called for the payment of $5,000 for death from a natural cause and $10,000 for death from an accidental cause. No distinction was made between the different liabilities. Each was contingent and hence difficult of valuation. As to the liability for accidental death, it was said: "In so far as the policies provide for accidental death, the object sought might be without pecuniary value. Nothing stated in the bill shows that the insured is in the least degree more liable to accidental injury than is the average man of his age. To an insurance company, engaged in accident insurance, the policies here (in so far as they are merely accident policies) might easily be assets rather than liabilities

As to the liability for natural death, it was said: "And, in so far as they are life insurance policies, the liability of the plaintiff is contingent. For a failure to pay either the second or the third annual premium all rights under the policies will be absolutely forfeited, and there would be no liability whatever on the insurer. For a failure to pay any annual premium after the third, the liability of the insurer might, at the option of the insured, be for the full amount ($5,000) of each policy, but only if the insured were to die within a certain fixed period after the default. * * * It seems to me clear that it is impossible to regard the maximum possible liability under the policies as the measure of the value of the object sought by the bill."

As to the authorities bearing on the question, it was said: "Some explanation is needed of my total failure to cite authority in support of my reasoning concerning the value of the object sought by the bill. It seems almost impossible that there are not in the books some opinions discussing the pecuniary value of a right to have canceled for fraud or mistake contracts which create a contingent liability to pay an uncertain sum of money."

The word "uncertain" here was evidently a slip. "Certain" should have been used, as the sum payable was certain. The only uncertainty was as to whether it would ever be payable. The explanation of the failure to find the authority referred to may be that it had never been thought that the question of jurisdiction was affected by the value of the policy. Reference was made to my decision in the Rose Case. It was recognized that it was against the position there taken and disposed of on this ground: "In that case the subject is not discussed."

I did not discuss it because it did not occur to me that jurisdiction was affected by the value of the policy. I thought that it depended solely on the amount of the policy. The trouble with this case is that the question of jurisdiction was disposed of on the assumption that the provision of the statute as to jurisdiction reads, "where the matter in controversy exceeds, exclusive of interest and costs, the value of $3,000." It does not so read. It reads, "where the matter in controversy exceeds, exclusive of interest and costs, the sum or value of $3,000." The words "the sum" were ignored. That such was the case appears from the quotations heretofore made from the opinion. It appears more baldly in the opening of the discussion. It is in these words: "The ground of the motion to dismiss is that the bill does not show that the value of the matter in controversy is sufficient. In a suit of this character, the value of the object sought by the bill, relief from the plaintiff's liability, is the...