New York Life Ins. Co. v. Seymour

Decision Date18 November 1930
Docket NumberNo. 5439.,5439.
Citation73 ALR 1523,45 F.2d 47
PartiesNEW YORK LIFE INS. CO. v. SEYMOUR et al.
CourtU.S. Court of Appeals — Sixth Circuit

A. D. Baldwin, of Cleveland, Ohio (Wm. McE. Weldon, of Mansfield, Ohio, Garfield, Cross, MacGregor, Daoust & Baldwin, of Cleveland, Ohio, on the brief), for appellant.

L. H. Beam, of Mansfield, Ohio, and H. A. Beckett, of Cleveland, Ohio (W. F. Voegele, of Mansfield, Ohio, and Cannon, Spieth, Taggart, Spring & Annat, of Cleveland, Ohio, on the brief), for appellees.

Before DENISON and MACK, Circuit Judges, and RAYMOND, District Judge.

DENISON, Circuit Judge.

Seymour had a life insurance policy in the appellant company, issued in 1919. It contained the now common clause, by which, after two years, it should be incontestable except for nonpayment of premium. Early in 1928 it lapsed, for such nonpayment. Shortly thereafter, Seymour applied for its reinstatement under that clause of the policy which provided:

"Reinstatement. — At any time within five years after any default, upon written application by the Insured and upon presentation at the Home Office of evidence of insurability satisfactory to the Company, this Policy may be reinstated together with any indebtedness in accordance with the loan provisions of the Policy, upon payment of loan interest, and of arrears of premiums with five per cent interest thereon from their due date."

This application says that "for the purpose of inducing the company to reinstate said policy, I make the representations contained in my answers to the following questions:" These answers expressly stated that he was in the same condition of health as when the policy was issued, and that within the then past two years he had not had any illness, and had not consulted or been treated by any physician. The application concluded: "I hereby certify that the foregoing answers are full, complete and true, and agree that the Company, believing them to be true, shall rely and act thereon." The reinstatement was effective as of February 14, 1928. Seymour died about sixty days later. The insurance company claimed that the two representations above specified were false and fraudulent; and thereupon filed this bill in the court below against Seymour's widow, who was beneficiary in the policy, asking that the policy be declared invalid because the reinstatement was procured by fraud, and praying that the policy be delivered up and canceled. Upon motion of the defendant, the bill was dismissed because there was an adequate remedy at law. In connection with the motion to dismiss, it was stated, and the court below accepted it as a fact, that after the filing of the bill, the beneficiary brought an action on this policy in the state court of Ohio, and that this action had been removed by the insurance company to the court below.

Upon the authority of Phoenix Mut. L. Insurance Co. v. Bailey, 13 Wall. 616, 20 L. Ed. 501, and Cable v. Insurance Co., 191 U. S. 289, 24 S. Ct. 74, 48 L. Ed. 188, it must be held that, except for the presence of the incontestable clause in such policy, a court of equity would not have the right to assume and try the issue whether the policy was fraudulently procured. The opinions in these cases are rested mainly upon the plaintiff's right to try before a jury such a question of fraud. In the Bailey Case the fact that the remedy by the defense at law was under the control of the opposite party, and so might not be thought adequate, was not discussed in the opinion; but it was expressly said that there might be instances where, for peculiar reasons, equity would nevertheless have jurisdiction. The substance of the decision in the Cable Case is that the peculiar reasons there relied upon to get within the exception in the Bailey Case were not sufficient. Those circumstances were all, save one, immaterial here. The one was that the power of the other party, the plaintiff, to discontinue made the remedy by defense too contingent to be "adequate." This point was necessarily overruled (page 309 of 191 U. S., 24 S. Ct. 74, 78), as it was ruled by the Bailey Case. These Supreme Court opinions have established the law on that subject; and it must be accepted as the basis of decision in that type of case.

The policy involved in the Bailey Case did not have the incontestable clause; and, however long the beneficiary delayed the suit at law, the assured's fraud in the application continued to be a good defense, which, if shown, would defeat the action. Manifestly, with the incontestable clause, the situation is different; the beneficiary has only to wait until the specified time expires; and, to the suit then brought, the defense is not available. This presents a situation within the exception of the Bailey Case, and gives equity the right to take hold. So the C. C. A. of the Fourth Circuit held (by majority, in Jefferson v. Keeton, 292 F. 53),1 and we agree. The dissenting opinion of Judge Woods is urged upon us as presenting the sounder view; but we think not. With all deference, the Bailey Case seems to us to push to the limit the denial of an established ground of equitable jurisdiction, and the denial should be carried no further. When the principle upon which a decision depends is absent from a later case, the earlier one ceases to be controlling. Incidentally, it may be noted that the Bailey Case was decided before it had been developed that the "contest" which would bar the limitation must be by a pleading in a law suit. Rose v. Mutual Co. (C. C. A. 6) 19 F. (2d) 280. If it had been then assumed that the insurance company could make the contest by a notice and demand, and thus fix its right and satisfy the limitation, it would be easier to think of its remedy as "adequate"; but under the Rose Case the company can never make the defense unless its adversary moves. Unless limited by some state statute, the right of a plaintiff to take a voluntary nonsuit in a suit at law is absolute; the court cannot examine his motives. In the ordinary case at law, there is no established practice by which a defendant setting up a legal defense — or probably even an equitable one — can hold the suit in court against the plaintiff's wish. Hence a beneficiary under such an incontestable policy may commence a suit at law to which the defendant, within the limitation period, may plead fraud in the procuring of the policy, and may thereby institute a "contest"; but after this pleading, and after the limitation period expires, the plaintiff may dismiss the suit, and the next day commence another one against which this defense may not be available. To say that, under those circumstances, there is adequate defense at law, seems to us clearly wrong. The comment in the Cable Case (page 309 of 191 U. S., 24 S. Ct. 74, 78), to the effect that the right to...

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