New York Life Ins. Co. v. Kaufman

• Decision Date: 24 June 1935
• Docket Number: No. 7455.,7455.
• Citation: 78 F.2d 398
• Parties: NEW YORK LIFE INS. CO. v. KAUFMAN et al. KAUFMAN et al. v. NEW YORK LIFE INS. CO.
• Court: U.S. Court of Appeals — Ninth Circuit

78 F.2d 398 (1935)

NEW YORK LIFE INS. CO. v. KAUFMAN et al.^*

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

No. 7455.

Circuit Court of Appeals, Ninth Circuit.

May 13, 1935.

Rehearing Denied June 24, 1935.

Alfred J. Smallberg and Robert Kaufman, both of Los Angeles, Cal., for appellant.

Meserve, Mumper, Hughes & Robertson, of Los Angeles, Cal. (E. Avery Crary, of Los Angeles, Cal., of counsel), for appellee.

Arthur Rosenblum and Clore Warne, both of Los Angeles, Cal., amici curiæ.

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

DENMAN, Circuit Judge.

The bill of complaint in this case was brought by the New York Life Insurance Company, a New York corporation, against Louis Y. Kaufman and Anna Kaufman, each alleged to be citizens of California. Two causes of relief are stated. One sought the cancellation of the disability insurance in three policies which insured, in separable agreements, against both the disability of and the death of Louis Kaufman. Kaufman is the beneficiary of the disability insurance and Anna Kaufman of the life insurance. Concerning the latter, no relief is sought. Each policy is but part of the insurance agreement between the parties; the "entire contract" consisting of "the policy and the application therefor." There was a single instrument for each contract, a copy of the application following the policy.

The cancellation was sought on the ground of Louis Kaufman's fraudulent concealment, made in his application, concerning his prior health and medical history. Answers in his application concealed a prior infection of tuberculosis from which he became totally and permanently disabled after the insurance contracts were made. The policies, identical in pertinent drafting, contain a two-year incontestable clause, in effect at the filing of the bill more than three years after they were issued.

The second cause of action, also based on the fraud, was for $900 disability benefits paid Kaufman, less $114.51, a tendered return of premiums.

The Kaufmans appeared generally in a motion to dismiss the bill. The pertinent grounds are those enumerated below, except that in (3). The motion was denied. The answer set up the following defenses: (1) The bill joined as defendant Anna Kaufman, shown by affidavit accompanying the notice of motion, to be a resident of the state of Massachusetts; (2) the bill failed to allege damages exceeding $3,000; (3) the court in equity had no jurisdiction because the insurance company had a "plain, speedy and adequate" remedy at law; (4) the incontestability clause period having passed, its provisions prevented any contest based on the warranties or representations of the application portion of the insurance contract.

The Kaufmans' answer, so far as pertinent, failed to deny the fraud and the receipt of the $900 disability benefits, alleged waiver and laches, and the four separate defenses set forth above. They filed a cross-complaint for $1,751 disability insurance due and the return of certain premiums, discussed later. The insurance company's answer to the cross-complaint tendered issue to its allegations, but did not set up the defense of fraud.

Hearing was had, and the court found the existence of the fraud, the permanent total disability of the insured after the making of the contracts, an absence of laches and waiver, and the jurisdictional amount. It concluded the incontestability clause was not applicable to the disability portion of the contracts, ordered a decree for the insurance company on its bill and that defendants take nothing by their cross-complaint. The decree canceled and rescinded the disability insurance and awarded the insurance company $900 less the setoff of $114.51. Defendants appealed, and the pertinent errors assigned concern the four grounds of attack on the bill enumerated above.

The decree adjudicates nothing concerning the cross-complaint and does not mention it, though the order for the decree is that the Kaufmans take nothing by it. The question suggests itself whether an appeal from a decree deciding only the issues raised by the bill and answer brings up an interlocutory order affecting the issues raised by the cross-complaint and its answer. However, it is unnecessary to decide this question, since the principles upon which we hold the decree should be reversed with reference to the issues of the bill may guide the court as to its disposition of its unperformed order on the cross-complaint.

(1) Anna Kaufman's Joinder as Defendant Not a Ground of Dismissal. — There was no prior special appearance by Anna Kaufman seeking dismissal as to her. In bills claiming jurisdiction because of diverse citizenship, it is not a ground of dismissal of the bill as a whole that one of the defendants is not a citizen of the state in which it is filed. Sweeney v. Carter Oil Co., 199 U. S. 252, 257, 26 S. Ct. 55, 50 L. Ed. 178; St. Louis & S. F. R. Co. v. McBride, 141 U. S. 127, 11 S. Ct. 982, 35 L. Ed. 659.

It would have availed her nothing if the motion had been to dismiss as to her alone; it being a part of her general appearance asking dismissal on the other grounds set forth above. St. Louis & S. F. R. Co. v. McBride, supra.

(2) The Bill Alleged the Jurisdictional Amount. — This question is important here, for, if answered in the negative, the court has no jurisdiction to consider the merits of either the bill or the cross-complaint; the latter claiming less than $3,000.

The disability insurance provided for the payment of $25 each on two policies and $50 on the third, an aggregate of $100 a month. The bill alleges insured's disability and the payment to him of nine monthly benefits aggregating $900. Some time after the last payment, it alleges the discovery of a fraudulent representation in the application for the insurance relative to the prior medical and sickness history of the insured, whereupon the company gave its notice of rescission. The aggregate of further payments, had they been made, to the date of the filing of the bill, was $1,200. If the fraud constituted a defense to the disability insurance, the company would also collect from the insured a further sum of $502 in premiums on the life portion of the policies, the obligation for which the policies suspended during the disability period. The total is $2,702, specifically alleged to be involved in the litigation at the time the bill was filed.

It is obvious that, unless the totally disabled consumptive must be presumed to have a three months' life expectancy, this portion of the bill fails to allege the jurisdictional amount. We know of no such presumption of vitality in a totally disabled consumptive, and hence, if no more appeared in the bill, Kaufman's motion to dismiss for want of the jurisdictional amount would have to be sustained. In suits in federal courts based on diversity of citizenship, the presumptions are against its limited jurisdiction. Bors v. Preston, 111 U. S. 252, 255, 4 S. Ct. 407, 28 L. Ed. 419.

The situation is different where a bill properly alleging the jurisdictional amount is subsequently attacked under Judicial Code § 37 (28 USCA § 80), where it must be shown affirmatively that the amount is less than the requirement. Wetmore v. Rymer, 169 U. S. 115, 18 S. Ct. 293, 42 L. Ed. 682; Smithers v. Smith, 204 U. S. 632, 27 S. Ct. 297, 51 L. Ed. 656. On the hearing on issue joined under section 37, the burden would be on Kaufman to show that his illness was so acute that his survival for three months after the filing of the bill was highly improbable. Absence of all evidence on this issue would make it proper for the court to find against Kaufman. It would be necessary only to decide that he had not sustained his burden of proof.

However, the bill is not confined to the allegations of the amounts of disability installments and premiums matured at the time of its filing, but further states that "the value of the object sought by the bill of complaint exceeds $3,000," and issue was joined on this allegation.

The object sought here is the extinction of contracts with the insured, which contracts are the property of both the plaintiff and defendant. Second Nat. Bank v. M. Samuel & Sons (C. C. A.) 12 F.(2d) 963, 53 A. L. R. 49; Central Metal Products Corp. v. O'Brien (D. C.) 278 F. 827; J. C. McFarland Co. v. O'Brien (D. C.) 6 F.(2d) 1016. This is a proper method of allegation of jurisdictional amount in connection with physical property. Smith v. Adams, 130 U. S. 167, 9 S. Ct. 566, 32 L. Ed. 895; Woodside v. Ciceroni (C. C. A.) 93 F. 1; Marion Mortgage Co. v. Edmunds (C. C. A.) 64 F.(2d) 248; South Dakota Cent. R. Co. v. Chicago, M. & St. Paul R. Co. (C. C. A.) 141 F. 578. We can see no reason for holding otherwise with reference to the deprivation of or extinction of a contract. Mutual Life Ins. Co. v. Thompson (D. C.) 27 F.(2d) 753; Hunt v. New York Cotton Exchange, 205 U. S. 322, 27 S. Ct. 529, 51 L. Ed. 821.

The fact that Kaufman was alive and litigating at the hearing, a year after the filing of the bill, warranted the inference that he had three months' vitality at filing and sustained the court's finding of the jurisdictional amount.

The jurisdiction as to amount confers jurisdiction of the cross-complaint, in which Kaufman claims damage for less than $3,000. Since the insurance company's bill is within the jurisdiction as to amount, the District Court retains jurisdiction to try and dispose of the claim of the cross-complaint, even after a dismissal of the bill. The court retains this jurisdiction for a law cause of less than the $3,000, though the dismissed cause is brought on the equity side. Kirby v. American Soda Fountain Co., 194 U. S. 141, 24 S. Ct. 619, 48 L. Ed. 911.

(3) Court in Equity Can Consider Questions of Other Issues on Merits Submitted by Parties, Even if Complainant's Rights Have Plain, Adequate, and Complete Remedies at Law. — Kaufman contends that whatever rights the company's bill asserts...