New York Life Ins. Co. v. Hollender

• Decision Date: 21 November 1951
• Court: California Supreme Court
• Parties: NEW YORK LIFE INS. CO. v. HOLLENDER et al. L. A. 21561.

Page 510

237 P.2d 510

38 Cal.2d 73

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

L. A. 21561.

Supreme Court of California, in Bank.

Nov. 21, 1951.

As Modified on Denial of Rehearing Dec. 20, 1951.

Meserve, Mumper & Hughes and E. Avery Crary, all of Los Angeles, for appellant.

Newlin, Holley, Sandmeyer & Tackabury, Los Angeles, Keesling & Keesling, San Francisco, Henry H. Childress, George W. Tackabury and C. Hudson B. Cox, all of Los Angeles, amici curiae on behalf of appellant.

Leo M. Zinner, Walley & Davis and Milton Davis, all of Los Angeles, for respondent.

SPENCE, Justice.

Plaintiff brought this action to reform an insurance policy issued on the life of defendant Leo Hollender. Specifically, it sought a reduction in the face amount of the policy so as to conform with the alleged true age of the insured. Defendant cross-complained for the amount of total and permanent disability payments allegedly due under the policy, and for the refund of premiums allegedly paid to prevent forfeiture of the policy. The trial court, sitting without a jury, granted a motion for nonsuit on the complaint and made findings in favor of the insured on the issues embraced in the cross-complaint and the answer thereto. Judgment in favor of defendant was entered accordingly and from such judgment, plaintiff has appealed.

This case presents for determination the question of whether the incontestable clause of the policy bars the right of plaintiff to adjust the amount payable under the insurance contract in accordance with the provisions of the age adjustment clause thereof. The trial court adopted the theory of defendant insured in holding that the reformation sought by plaintiff constituted a contest of the policy after the time limitation therefor had expired, and that plaintiff therefore was precluded from inquiry into the correctness of defendant's statement of age. In challenge of such view, plaintiff maintains that it is not contesting the provisions of the policy but is only seeking to confine its liability within the express terms thereof to enforce the insurance contract in accordance with its coverage and the risk assumed and that therefore the incontestable clause does not apply in bar of its claim for reformation. An analysis of the policy sustains the propriety of plaintiff's argument, and we therefore conclude that the judgment must be reversed.

On April 16, 1931, plaintiff issued a life insurance policy, with provisions for certain disability benefits, to defendant Leo Hollender. In his application for such policy made on April 10, 1931, defendant stated that he was born in Russia on April 27, 1886, and that his age as of his nearest birthday was 45 years. The policy was in the face amount of $5,000, and the disability payments were fixed at $50 per month, with the proviso that defendant's total and permanent disability must have begun before the anniversary of the policy on which his age at nearest birthday was 60 and prior to the maturity of the contract, and in which event plaintiff would then waive the payment of future premiums. The policy contained these further pertinent provisions:

'Age. If the age of the insured has been misstated, the amount payable hereunder shall be such as the premium paid would have purchased at the correct age.

'The Contract. The Policy and the application therefor, copy of which is attached hereto, constitute the entire contract.

'Incontestability. This Policy shall be incontestable after two years from its date of issue except for non-payment of premium and except as to the provisions and conditions relating to Disability and Double Indemnity Benefits.'

By stipulation of the parties, it is conceded that defendant became totally and permanently disabled on June 15, 1945, within the meaning of the policy, and that on December 16, 1945, defendant filed with plaintiff his proof and claim for disability benefits, with demand for the scheduled $50 monthly payments and the specified waiver of premiums. Upon investigation of defendant's claim and the conclusion that his total and permanent disability did not occur within the prescribed age period, plaintiff refused defendant's demand. The policy was not then in default and defendant continued to make payments so as to avoid cancellation.

Plaintiff thereafter commenced this action for reformation of the policy. It alleged that defendant was in fact born on April 27, 1884, and it asked that the policy be reformed to reflect that age qualification: by changing the face value of the policy from $5,000 of $4,632 (the amount of insurance which the premiums paid would have purchased at the corrected age, that is, 47 instead of 45 years at the time of defendant's original application for the insurance). In answer to plaintiff's complaint, defendant denied the alleged misstatement of age and claimed that he 'did not become sixty years of age until April, 1946,' which would accord with the representation made at the time he applied for insurance with plaintiff. Defendant then cross-complained for the payment for disability payments, the refund of the premiums allegedly paid to prevent cancellation of the policy, and the waiver of the obligation to pay future premiums. At the trial plaintiff attempted to introduce certain documentary evidence wherein defendant had stated his birthdate as April, 1884. Such documentary evidence included his declaration of intention to become a citizen of the United States made in 1910, his petition for naturalization in 1914, and his World War I draft registration in 1918. Defendant's objection to this evidence offered by plaintiff in support of its claim for reformation of the policy and its contention that defendant's total and permanent disability occurred subsequently to the anniversay of the policy nearest his sixtieth birthday was sustained on the ground that the incontestable clause of the policy barred plaintiff from disputing defendant's statement of age as made in his insurance application. In line with such ruling, the trial court found that 'at the time of commencement of * * * disability, defendant's * * * age at nearest birthday was fifty-nine years,' and that he was entitled to recovery on his cross-complaint. Defendant's age was properly an issue for determination by the court as a matter of fact, and plaintiff's profferred evidence thereon was improperly excluded.

It is generally held that the incontestable clause, after the lapse of time it specifies, prevents nullification of the insurance contract for any cause not excepted in the clause. 29 Am.Jur. 674, sec. 811; 45 C.J.S., Insurance, § 747, p. 758; 1 Appleman, Insurance Law and Practice, ch. 17, p. 383, sec. 331; Metropolitan Life Ins. Co. v. Shalloway, 5 Cir., 151 F.2d 548, 550; Dibble v. Reliance Life Ins. Co., 170 Cal. 199, 208, 149 P. 171; Coodley v. New York Life Ins. Co., 9 Cal.2d 269, 272, 70 P.2d 602. However, here plaintiff's effort is not to nullify the insurance contract, but recognizing its validity, to have it enforced according to its terms. Every resistance by the insurer against a claim of the insured or the beneficiary is in one sense a contest, but it is not a contest of the policy within the meaning of the 'incontestable clause,' that is, a contest against the terms of the policy for the purpose of destroying its validity as distinguished from a contest for or in favor of the terms of the policy for the purpose of securing its enforcement. Moore v. Bankers' Credit Life Ins. Co., 223 Ala. 373, 136 So. 798, 799; Langan v. United States Life Ins. Co., 344 Mo. 989, 130 S.W.2d 479, 481, 123 A.L.R. 1409; Hall v. Missouri Ins. Co., Mo.App., 208 S.W.2d 830, 833; Stean v. Occidental Life Ins. Co., 24 N.M. 346, 171 P. 786, 787.

When an insurance policy by its provisions is made incontestable after a specified period, the intent of the parties is to fix a limited time within which the insurer must discover and assert any grounds it might have to justify a rescission of the contract. Accordingly, the insurer must make its 'contest of the policy' within the prescribed period, either by the institution of a suit to cancel the policy or by setting up misrepresentation or fraud in the procurement of the policy as a defendant in an action brought by the insured or the beneficiary. But the present case is not within the concept of such litigation. Rather here, defendant's alleged understatement of his age was not, under the terms of the policy, ground for its rescission by plaintiff, for the policy expressly obligated plaintiff to pay the amount of insurance which the premiums paid would have purchased at defendant's 'correct age.' 1 Appleman, Insurance Law and Practice, ch. 10, p. 187, § 193; Singleton v. Prudential Ins. Co., 11 App.Div. 403, 42 N.Y.S. 446, 448; Zolintakis v. Equitable Life Assur. Soc., 10 Cir., 97 F.2d 583, 586. A policy provision which measures the amount of recovery does not avoid the obligation of the policy. On the contrary, it gives the insured what his money bought at his correct age. The denial of liability under a policy by reason of fraud or misrepresentation in its procurement is the 'contest' which is governed by the incontestable clause, Annotations 6 A.L.R. 452, 13 A.L.R. 675, 35 A.L.R. 1492, 170 A.L.R. 1048; Coodley v. New York Life Ins. Co., supra, 9 Cal.2d 269, 272-274, 70 P.2d 602; Blair v. New York Life Ins. Co., 40 Cal.App.2d 494, 501, 104 P.2d 1075; Braun v. New York Life Ins. Co., 46 Cal.App.2d 335, 346, 115 P.2d 880; Trousdell v. Equitable Life Assur. Soc., 55 Cal.App.2d 74, 78-81, 130 P.2d 173, 990, and not the raising of the question of coverage afforded by the policy under application of the age adjustment clause.

It appears that this precise problem has not heretofore been the subject of judicial review in this state. However, the matter apparently has been adjudicated in a number of other jurisdictions, and while there is some conflict of judicial opinion, the weight of...