New York Life Ins. Co. v. Halpern, 2494.

• Decision Date: 11 March 1931
• Docket Number: No. 2494.,2494.
• Citation: 47 F.2d 935
• Parties: NEW YORK LIFE INS. CO. v. HALPERN et al.
• Court: U.S. District Court — Western District of Pennsylvania

47 F.2d 935 (1931)

NEW YORK LIFE INS. CO. v. HALPERN et al.

No. 2494.

District Court, W. D. Pennsylvania.

March 11, 1931.

William H. Eckert and Smith, Buchanan, Scott & Gordon, all of Pittsburgh, Pa., for plaintiff.

Charles H. Sachs and Sachs & Caplan, all of Pittsburgh, Pa., for defendants.

GIBSON, District Judge.

On January 25, 1929, the plaintiff issued a policy of insurance to Julius Halpern, wherein it agreed to pay him $100 per month in event of his total disability, and to pay to Lillian Halpern and Fidelity Trust Company, trustees, the sum of $10,000 in case of his death, with double indemnity in case death was accidental. On April 30, 1929, it issued another policy which differed from the first only in the amount of the yearly premium, and the amounts to be paid upon total disability and upon death. By the second policy it was agreed that $150 per month was to be paid upon total disability, and $15,000 to the beneficiaries, upon death of insured, with double indemnity in case of accidental death. Each policy contained a provision which made it incontestable after two years from its date except for nonpayment of premium and as to provisions relating to disability and double indemnity.

On September 15, 1930 plaintiff tendered the return of the premiums theretofore paid and sought to rescind both of the policies by reason of the alleged fact that each policy had been obtained by means of certain false answers to questions concerning the health of the insured which were given by him upon his medical examination in connection with his applications for the policies. The application was made a part of each contract of insurance and a copy attached to the policy.

On December 26, 1930, Julius Halpern, the insured, brought an action against plaintiff in the court of common pleas of Allegheny county to recover disability benefits under the policies. On the same day that it filed its bill in the instant case, plaintiff caused such action to be removed to this court. In and by its bill the plaintiff seeks the cancellation of the policies, and, pending final disposition of the bill, prays that the defendants be enjoined from instituting any further actions against the plaintiff, and that the defendant Julius Halpern be enjoined from further proceeding upon the suit already brought by him. The defendants have jointly answered plaintiff's bill, denying fraud and praying the dismissal of the action on the ground that plaintiff has an adequate remedy at law in a defense of the suit brought against it by Julius Halpern.

The matter has been heard upon plaintiff's motion for a preliminary injunction and the question of law raised by defendants' answer.

It has been held by the Supreme Court of the United States that fraudulent representations and suppressions of facts may be established by insurance companies in defense of actions at law brought against them upon the insurance contracts. Phœnix Mutual Life Ins. Co. v. Bailey, 13 Wall. 616, 20 L. Ed. 501; Cable v. U. S. Life Ins. Co., 191 U. S. 288, 24 S. Ct. 74, 48 L. Ed. 188. In the cases cited, however, the insured were dead and the interests under the policies had fully vested in the beneficiaries. In the instant case the insured is alive, and the interests of the beneficiaries, whether termed "vested" or "mere expectancies," are not the same interests as existed in the beneficiaries in the cases last mentioned. Our decision herein would seem to depend largely upon whether the beneficiaries are in privity with Julius Halpern, and, as a consequence, whether the plaintiff company could properly plead a verdict against Halpern as res judicata upon subsequent suit against it by the beneficiaries to recover death benefits. In this connection counsel for plaintiff has pointed out that the suit brought by Mr. Halpern is for disability benefits, and that a general verdict against him would not be a necessary finding that the policies had been procured by fraud, but might be founded upon his failure to establish his disability. To this proposition counsel for the present defendants counter with the assertion that the life insurance company could demand a special verdict which would set out the findings of fact in respect to its fraud defense, and that the refusal to require such a special verdict would be reversible error.

This contention of counsel for defendants has considerable force, but it does not answer the principal question involved — the effect upon the beneficiary of a judgment against the insured. Many cases have been called to our notice which discuss the interest of the beneficiary in a policy of life insurance in which the insured has reserved the right to change the beneficiary, but none of them deal directly with the question of privity between the insured and the beneficiary. All agree that the beneficiary in a policy, wherein the right to change the beneficiary is reserved to the insured, has a tangible interest, although not all of them speak of it as "vested." Certain of the cases speak of the interest as a defeasible vested interest. In certain cases it has been held that the interest was such that it could not be defeated except by strict conformity with the policy provisions in respect to change of beneficiaries. Indiana Nat. Life Ins. Co. v. McGinnis, 180 Ind. 9, 101 N. E. 289, 45 L. R. A. (N. S.) 192; Roberts v. Northwestern Nat. Life Ins. Co., 143 Ga. 780, 85 S. E. 1043; Brown v. Life Ins. Co. of Virginia, 114 S. C. 202, 103 S. E. 555; Security Co., etc., v. Pacific Mutual Life Ins. Co., 14 Pa. Dist. R. 554. In Grand Lodge A. O. U. W. v. Frank, 133 Mich. 232, 94 N. W. 731, it was held that the beneficiary had such an interest as enabled her to maintain a suit to set aside a change of beneficiary on the ground of insanity of insured at the time of change. A number of cases uphold the right of the beneficiary to assign his interest under the policy prior to the death of insured. 2 Cooley, Briefs on Insurance, 1810; Peake v. Lincoln Nat. Life Ins. Co. (C. C. A.) 15 F.(2d) 303. In Chase Nat. Bank v. U. S., 278 U. S. 327, 49 S. Ct. 126, 127, 73 L. Ed. 405, 63 A. L. R. 388, a case in which it was held that the proceeds of policies similar to the one under discussion should be included in the estate of the insured decedent for taxable purposes, Mr. Justice Stone, in the opinion stated: "It is true, as emphasized by plaintiff, that the interest of the beneficiaries in the insurance policies effected by decedent `vested' in them before his death and that the proceeds of the policies came to the beneficiaries, not directly from the decedent, but from the insurer."...