Missouri State Life Insurance Company v. Cranford

• Decision Date: 24 December 1923
• Docket Number: 102,74
• Citation: 257 S.W. 66,161 Ark. 602
• Parties: MISSOURI STATE LIFE INSURANCE COMPANY v. CRANFORD
• Court: Arkansas Supreme Court

257 S.W. 66

161 Ark. 602

MISSOURI STATE LIFE INSURANCE COMPANY v. CRANFORD

No. 102, 74

Supreme Court of Arkansas

December 24, 1923

Appeal from Little River Circuit Court; B. E. Isbell, Judge affirmed.

STATEMENT OF FACTS.

This is a suit brought by the wife against a life insurance company to recover the amount of two policies of life insurance for the sum of $ 1,500 each, issued to her husband.

It appears from the record that on the 29th day of May, 1918 the Missouri State Life Insurance Company issued two policies of life insurance in the sum of $ 1,500 each to Burrel A Cranford, and Ida D. Cranford, his wife, was named as the beneficiary in each policy. The insured died on January 6 1919. Each policy carried the following clause:

"Unrestricted, and after one year incontestable, as follows:

"This policy is free from conditions as to residence, occupation, travel or place of death, in times of peace, and shall be incontestable after one year if the premiums are duly paid, except for violation of the provisions relating to military or naval service in time of war."

On May 27, 1919, separate suits were instituted by the wife against the insurance company on the policies. The complaint alleges that the insured died on the 6th of January, 1919, and that notice and proof of death was given to the company, as provided by the terms of the policies, and that demand for the payment of the amount of each policy was made upon the company, and that on the 25th day of March, 1919, the company denied liability on said policies.

The insurance company filed an answer to each suit on the 26th day of June, 1919. Payment of the policies was defended on the ground that the insured had made certain fraudulent representations to the company in his application for the insurance, which were false, and which induced the company to issue the policies.

The cases were consolidated for the purposes of trial. At the first trial the jury failed to agree, and was discharged from further consideration of the case. The cases were continued until the next term of the court. At the next term of the court a mistrial resulted from the serious illness and physical inability of one of the jurors selected to try the case.

Subsequently, on July 4, 1922, the plaintiff filed an amendment to her complaint. Among other things she set up the incontestable clause above quoted, and alleged that the defendant did not, within one year from the date of the policies, contest the same, and that it is, by the terms of the policies, forever barred and estopped from contesting the same.

The defendant filed an answer in each case, in which it admits that each policy of insurance contains an incontestable clause in the language set out in the complaint, and the language of the clause is again set out in the answer. The answer admits the issuance of the policies on May 29, 1918; that the insured died January 6, 1919, and that in sixty days thereafter notice of the death of the insured was given to the defendant; but it denies that the defendant is, by the terms of said policies, barred from contesting the same.

The answer further alleges that the actions were commenced on the 27th day of May, 1919, within one year from the date of the policies sued on, and for that reason that the incontestable clause is not applicable.

The defendant, further answering, states that on the 25th day of March, 1919, which was within one year from the date of the policies sued on, the defendant notified the plaintiff that it did not recognize any liability on said policies, on account of the fraud practiced upon it by the insured in the procurement of the policies.

The plaintiff demurred to the amended answer, and the demurrer was sustained by the court. The defendant elected to stand upon its amended answer in each case, and refused to plead further. Judgment was thereupon rendered in favor of the plaintiff for the amount sued for, and to reverse that judgment the defendant has duly prosecuted an appeal to this court.

Judgment affirmed.

Lake & Lake, A. P. Steel, J. S. Steel, for appellant.

The incontestable provision in the policies does not apply, since the death of the insured occurred and suit was commenced within the contestable period. The rights of all parties became fixed by the death of the insured, and it was unimportant that answer was not filed within the contestable period to the suit, which was filed only two days before the expiration of that period. Since the rights and liabilities had become fixed by the death of the insured within the contestable period the defense of fraud was available at any time thereafter. 157 Ark. 499 and cases cited; 108 Ark. 511. However, the real contest began within the contestable period, when appellant denied liability on the policies and tendered the amount of premiums paid and demanded the return of the policies. This was affirmative action on the part of appellant, and affirmative action is all that is required. 280 F. 18; 219 Ill.App. 467; 20 S.E. 517.

A. D. DuLaney, Paul Jones and Jas. D. Head, for appellee.

The incontestable clause of the policy is a sweeping provision and covenant on the part of the company that, if the premiums are paid, the policy "shall be incontestable after one year," with an exception as to military or naval service. Such clauses are to be construed literally. 108 Ark. 511. The contract is between the beneficiary and the company, and he has a vested interest in the policy of which he cannot be deprived except by some act in violation of a condition of the policy. 14 R. C. L., p. 1438, § 601. See also 134 Ark. 245; 146 Ark. 140; 106 Ark. 91. The word "incontestable" has been construed many times, for which see the following: 43 Hun 61, 118 N.Y. 237; 144 Iowa 451; 101 N.E. 289; 92 S.E. 706; 160 P. 928; 121 N.E. 315; 183 N.W. 1000; 238 S.W. 534; 131 N.E. 108; 46 S.W. 561; 23 N.E. 186. If a contest was to be made, it must be done within a year, either by affirmative action for cancellation, or by defense to a suit on the policy. 121 N.E. 314; 101 N.E. 289; 46 S.W. 561, and other cases cited above. The cases relied upon by appellant, 108 Ark. 511 and 157 Ark. 499, are out of harmony with other cases, and should be overruled. That rights of parties are not fixed by death, see Mutual Life Ins. Co. v. Hurni Packing Co., 260 U.S. 712.

HART J., MCCULLOCH, C. J., dissenting. Mr. Justice SMITH concurs in these views.

OPINION

HART, J., (after stating the facts).

Each of the policies of insurance sued on was issued by the defendant on the 29th day of May, 1918, and the insured, Burrel A. Cranford, died on the 6th day of January, 1919. Proof of death of the insured was given to the defendant by the wife, who was the beneficiary in each policy. Payment was refused by the company on the ground that the insurance had been procured by false representations of a material character which had been made by the insured in his application for the purpose of procuring the policies of insurance.

No answer was filed to the present suit within one year after the date of the insurance policies, and no suit has been brought by the insurance company to set aside the contract of insurance because it had been procured by fraudulent representations on the part of the insured.

Thus it will be seen that the sole issue raised by the appeal depends upon the construction to be given the incontestable clause, which is set out in full in our statement of facts. In substance it provides that the policies shall be incontestable after one year, if the premiums are duly paid, except for the violation of the provision relating to military or naval service in time of war. The modern rule is that a life insurance policy containing a provision that it shall be incontestable after a specified time cannot be contested by the insurer on any ground not excepted in that provision. It is said that the practical and intended effect of such a stipulation is to create a short statute of limitations. By the stipulation, the insurance company agreed that it would take a year to investigate and determine whether it would contest the policies of insurance, and that, if it failed within that time to discover any grounds for contesting the same, it would make no further investigation and would not thereafter contest the validity of the policies.

It has been uniformly held that a provision of this kind is valid where the time allowed for the investigation is a reasonable period. Policies of insurance are prepared by the insurance companies, and the insured has no voice in their preparation. Clauses of this kind are evidently inserted in insurance policies by the insurer for the mutual advantage of both the insurer and the insured. It has been well said that such a provision is reasonable and proper because it gives the insured a guaranty against expensive litigation to defeat his policy after the lapse of the time specified, and at the same time gives the company a reasonable time and opportunity to ascertain whether the contract should remain in force. Such a stipulation is not against public policy as tending to put fraud on a par with honesty. On the contrary, the stipulation recognizes fraud and all other defenses, but provides a reasonable time in which they may be, but beyond which they may not be, established. Therefore it is in the nature of and serves a similar purpose as a statute of limitations, the wisdom of which has been universally recognized.

As said by Judge MITCHELL in Mareck v. Mutual Reserve Fund Life Assn., 62 Minn. 39, 64 N.W. 68, an incontestable clause is inserted in the contract by the company itself and is written there for a purpose. After holding such a stipulation to be valid, the learned judge said: "To the layman...