Mutual Life Ins. Co. of New York v. Rose

• Decision Date: 13 October 1923
• Citation: 294 F. 122
• Parties: MUTUAL LIFE INS. CO. OF NEW YORK v. ROSE et ux.
• Court: U.S. District Court — Eastern District of Kentucky

294 F. 122

MUTUAL LIFE INS. CO. OF NEW YORK v. ROSE et ux.

United States District Court, E.D. Kentucky.

October 13, 1923

Bruce Bullitt & Gordon, of Louisville, Ky., for plaintiff.

Burnam & Greenleaf, of Richmond, Ky., for defendants.

COCHRAN District Judge.

This cause is before me on defendants motion to dismiss the bill as amended. It is a suit in equity to cancel two life insurance policies issued upon the life of the defendant Grover C. Rose, in favor of his wife, the defendant Annie P Rose. One was issued on or about July 25, 1919, and is so dated. The other was issued on or about August 14, 1919, and bears that date. Both were issued on the faith of the statements in the same application. One provided for the payment of $3,000, and the other of $2,000, on the death of the insured, resulting otherwise than from bodily injury, and for double liability on death from such injury, if the death was effected solely through external, violent, and accidental means. The ground upon which cancellation is sought is that the policies have been rescinded. The allegation is that the application contained misrepresentations as to the insured's health and liquor habits, that plaintiff became aware of such misrepresentations, and, on the ground thereof on or about April 14, 1921, tendered to the defendants the premiums which had heretofore been paid, and demanded the surrender of the policies to it, which they refused, and thereby it is claimed the policies became and were rescinded.

Two grounds of dismissal are urged: The first is want of jurisdiction, because the amount in controversy does not exceed $3,000 as to either policy. But the amount in controversy does exceed that amount as to each policy, in that each provides for double liability in the contingency stated. It is urged that the insured has died of tuberculosis since the bringing of this suit, and there is no possibility now of that contingency happening. There was, however, a possibility of its happening when the suit was brought. And jurisdiction depends on the situation as it exists at the time suit is brought and not on what happens thereafter. Besides, even if the policies did not provide for any greater liability than $3,000 and $2,000, respectively, in determining the amount in controversy, these two sums should be added together.

The other ground of dismissal is on the merits. Each policy contained an incontestable clause, which is in these words:

'This policy shall be incontestable after two years from its date of issue, except for nonpayment of premiums.'

This suit was brought more than two years after the date of issuance of each policy. It was brought January 31, 1923. It is defendants' contention that plaintiff had no right, because of this incontestable clause, to bring this suit at the time it did; and this is the sole reason why it urges that the bill should be dismissed on the merits. It is my purpose to consider this question, thus raised, first from the point of view of the authorities, and then from that of principle. The defendants contend that their position is upheld by the following authorities: Mutual Life Ins. Co. v. Buford, 61 Okl. 158, 160 P. 928; American Trust Co. v. Life Ins. Co. of Va., 173 N.C. 558, 92 S.E. 706; Ebner v. Ohio State Life Ins. Co., 69 Ind.App. 32, 121 N.E. 315; Hardy v. Phoenix Mut. Life Ins. Co., 180 N.C. 180, 104 S.E. 166; Ramsey v. Old Colony Life Ins. Co., 297 Ill. 592, 131 N.E. 108; Reliance Life Ins. Co. v. Thayer, 84 Okl. 238, 203 P. 190.

As I read the opinions in these cases, so far as the things actually decided in them is concerned, they are not in point. All that defendants can gather from them in support of their position is certain expressions made arguendo. In each case, except the Ebner Case, an action was brought on the policy after the maturity thereof-- i.e., after the death of the insured-- and the questions in it were raised by defense to the action. In that case, suit was brought by the insurer to cancel the policy. It, too, was brought after such maturity. In the Buford Case, the defense relied on was misrepresentations by the insured, in his application, in regard to his family history, occupation, residence, and excessive use of alcoholic liquors. The policy contained an incontestable clause in the same words as here. It was issued May 17, 1906. The insured died November 8, 1911. The suit was brought some time after that, and the answer, setting up this defense, was filed in 1913. On October 30, 1907, before the expiration of the two years, the insurer undertook, as it is stated, to rescind the policy on the ground of misrepresentation in the application as to the insured's liquor habits, and offered to return the premium theretofore paid, which offer the insured refused to accept. There was no evidence on the trial of misrepresentation in regard to such habits. As to the alleged misrepresentations in the other particulars, the evidence preponderated in favor of defendant's contention. It was held that plaintiff was entitled to recover, notwithstanding such misrepresentations, because of the incontestable clause. It is to be noted that, in this case, there had been no rescission of the policy prior to the suit. The only possible basis for claiming that there had been was by reason of the tender on October 30, 1907; but this did not effect a rescission, because there had been no misrepresentation in the matter of the insured's liquor habits. The court said:

'An unwarranted effort on the part of the defendant within two years from the date of the policy to declare said policy void on account of the breaches of warranties in the application of insurance, as to the habits of the insured as to the use of intoxicating liquors, would not, in our opinion, entitle the defendant, after the expiration of two years after the date of issue of said policy, to interpose a defense to the action other breaches of warranties contained in said application for insurance.'

This disposed of this case, and there was no occasion for saying anything further. The expressions which may be relied on as favoring defendants' contention, and which were purely obiter, are these:

'The defendants failing to show that within two years from the date of policy that legal action had been taken to avoid the policy on account of breaches of the warranties in the application for insurance, or that said policy had been canceled with the assent of the insured, the court properly overruled defendant's demurrer to the evidence, correctly denied motion for a directed verdict for defendant, and properly directed a verdict for the plaintiff.'

And again:

'Certainly, in the absence of authority contained in the contract of insurance, the insurer was without power to determine as to the truthfulness of statements contained in the application for insurance, and to declare the policy forfeited. If the insurer desired, to avoid the policy, on the ground of misrepresentations contained in the application for insurance, it should, in the absence of the consent on the part of the insured and the beneficiaries named in the policy have taken legal steps to do so within two years from the date of issuance of the policy, and, failing so to do within two years from the date of the issue of the policy, the policy of insurance was incontestable on the ground of breaches of warranties contained in the application.'

If, by the taking of legal action or of legal steps, referred to in these quotations, was meant the bringing of suit to avoid the policy, the implication therefrom is that such suit cannot be brought after the expiration of the contestable period; and it is to be noted that the second quotation does not recognize the possibility of an avoidance or rescission of the policy by the act of the insurer in tendering back the premiums and demanding the policy, if in fact there was misrepresentation in the particular claimed as the basis for such action.

In the American Trust Company Case, which is the one mainly relied on by the defendants, the policy was issued March 4, 1913. The insured died February 7, 1915. The incontestable clause was exactly the same as that in the policy sued on, except that the period after which it was to be incontestable was only one year. Within in that period the insurer notified the insured that it elected to rescind the policy, and tendered a return of the first premium on the ground that it had discovered facts which, in its opinion, rendered the policy void; but it refused upon the request of the insured to state what the facts were. It was held that the plaintiff was entitled to recover notwithstanding such action on defendant's part. Clearly it did not effect a rescission of the policy, even though ground may have then existed entitling defendant to a rescission. What defendant did was, in effect, an assertion on its part of the right to rescind the policy irrespective of the existence of such ground or the consent of the insurer. I do not understand that rescission of a contract for fraud can be brought about otherwise than by stating the fraud on the ground of which the right to rescind is based. Here the defendant merely stated that it had discovered facts which in its opinion rendered the policy void, and, on being requested to state what these facts were, refused to do so. The court, in disposing of the case, treated defendants' action as in effect an assertion of such a right. In the statement of facts it is said:

'There is no provision in the policy giving the defendant the right to cancel it.'

In the opinion it said:

'It takes two to make a contract, and, while one may cause a breach, it takes two to rescind or cancel it, unless there is some provision in the contract itself...