Mutual Life Ins. Co. of New York v. Markowitz, 7796.

• Citation: 78 F.2d 396
• Decision Date: 24 June 1935
• Docket Number: No. 7796.,7796.
• Parties: MUTUAL LIFE INS. CO. OF NEW YORK v. MARKOWITZ et al.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

78 F.2d 396 (1935)

MUTUAL LIFE INS. CO. OF NEW YORK v. MARKOWITZ et al.^*

No. 7796.

Circuit Court of Appeals, Ninth Circuit.

May 13, 1935.

Rehearing Denied June 24, 1935.

Frederick L. Allen, of New York City, F. Eldred Boland, and Knight, Boland & Riordan, all of San Francisco, Cal., and J. R. Girling, and O'Melveny, Tuller & Myers, all of Los Angeles, Cal., for appellant.

Arthur Rosenblum, of Los Angeles, Cal., for appellee.

Before WILBUR and DENMAN, Circuit Judges, and LOUDERBACK, District Judge.

DENMAN, Circuit Judge.

This appeal is from a decree dismissing a bill of complaint without leave to amend. The bill alleging the jurisdictional requirement as to the amount involved was brought by appellant, a New York corporation, against appellee, a California citizen. It alleges in effect two causes of action. The first is for the rescission of the provisions of a policy agreeing to pay the insured beneficiary certain monthly benefits in event of his total and presumably permanent disablement, because of his fraud in its procurement. The policy also insures against death, but the bill seeks no relief in that regard.

The policy contains an incontestability clause, and it is urged here that its terms prevent the consideration of the alleged fraud as warranting either equitable or legal relief. It is also arguable that the bill should have been dismissed because there existed a plain, adequate, and complete remedy at law, in that the defense of fraud could be set up in an action brought by the insured and the effect of the incontestability clause be there determined. Dismissal upon this latter ground would leave open for adjudication the effect of the clause on the alleged fraud.

The second cause of action is one at law, based on the same fraud, for the return of the company's payments to the insured, exceeding $6,000, on proof made to it of the existence of the disability. If the incontestability clause permits the consideration of the fraud, the bill was transferable to the law side of the court.

The decree bases the dismissal on the conclusion that the bill "does not state facts sufficient to constitute a valid cause of action in equity," without specifying upon which of the insufficiencies of fact the adjudication rests. It hence leaves in doubt what is res judicata between the parties, unless we infer from the failure to transfer the bill to the law side that the incontestability clause was held to preclude the defense of fraud.

Rescission for fraud in certain situations is an historical ground of equitable jurisdiction, and the objection that the bill discloses no more than a defense at law for fraud concerns the merits only and not the court's jurisdiction. Twist v. Prairie Oil & Gas Co., 274 U. S. 684, 692, 47 S. Ct. 755, 71 L. Ed. 1297; Reynes v. Dumont, 130 U. S. 354, 9 S. Ct. 486, 32 L. Ed. 934; Buffum v. Peter Barceloux Co., 289 U. S. 227, 236, 53 S. Ct. 539, 77 L. Ed. 1140.

Both parties argued here the question whether, with such an incontestability clause, there was any defense at all at law on claims for future benefits, and thus acquiesced in invoking its decision by this court sitting in equity. Hence this court has the power to dispose of that question and make the decision res judicata between the parties. Southern Pacific R. Co. v. U. S., 200 U. S. 341, 26 S. Ct. 296, 50 L. Ed. 507.

If decided in the affirmative the...