New York Life Ins. Co. v. Rotman

• Decision Date: 12 May 1942
• Docket Number: 45782
• Citation: 3 N.W.2d 603,231 Iowa 1249
• Parties: NEW YORK LIFE INS. CO. v. ROTMAN et al.
• Court: Iowa Supreme Court

3 N.W.2d 603

231 Iowa 1249

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

No. 45782

Supreme Court of Iowa

May 12, 1942

Kenline, Roedell & Hoffmann, of Dubuque, for appellants.

Carr Cox, Evans & Riley and Ehlers English, all of Des Moines for appellee.

OLIVER Justice.

Action in equity by New York Life Insurance Company against Louis Rotman and others to cancel the disability and double indemnity provisions in three policies, insuring the life of said Louis Rotman. All the policies were issued upon the same application and appear to be identical in form. Therefore they will be herein considered as one policy for the aggregate amount of $25,000.

The policy was issued in 1931. In 1939, the insured made claim for disability benefits. After investigating said claim and before starting this suit, the company notified defendants that it rescinded the disability and double indemnity provisions of the policy. At the same time it tendered the additional premiums (plus interest) received therefor, the amounts of which were separately fixed in the policy. The rescission was based upon alleged false and fraudulent representations in the 1931 application in that the applicant had failed to disclose a serious ailment and examinations and treatments by doctors therefor, in the year 1928. Insured claimed he had forgotten the prior ailment and treatments at the time the application was made. Upon trial, the court decreed the rescission and cancellation of said disability and double indemnity benefits and the return to assured of the tendered premiums. From said decree defendants have appealed.

An insurance policy of this kind may be regarded as containingseparate agreements, one being a life insurance agreement, the others providing for disability and double indemnity benefits. Wilson v. Equitable Life Ins. Co., 220 Iowa 321, 262 N.W. 525. It will be noted that there was no attempt to rescind the general life insurance provisions, it being conceded by appellee that the two-year incontestability clause of the policy barred its right to rescind such provisions for fraud in the application. That clause reads as follows: "Incontestability.--This Policy shall be incontestable after two years from its date of issue except for non-payment of premium andexcept as to provisions and conditions relating to Disability and Double Indemnity Benefits." (Italics supplied.)

The principal proposition is whether the language above italicized takes away from the incontestability clause the bar of the right to rescind the disability and double indemnity insurance agreements on the ground that the issuance of the policy was procured by fraud.

It is well settled that where the language of an insurance policy, prepared by the company, is ambiguous it will be construed liberally in favor of the insured and strictly against the insurer so as to effect the dominant purpose of indemnity or payment to the insured. However, this rule of interpretation may properly be invoked only in case of ambiguity or obscurity. Where the language is plain and the contract clear and understandable the rule is inapplicable. Goodwin v. Provident Sav. Life Assur. Soc., 97 Iowa 226, 66 N.W. 157, 32 L.R.A. 473, 59 Am.St.Rep. 411; Wilson v. Equitable Life Ins. Co., supra; Levitt v. New York Life Ins. Co., 230 Iowa 456, 297 N.W. 888. With the foregoing doctrine the parties are not in disagreement. The real issue is whether there is an ambiguity in the provisions in question which may be fairly resolved against the company. The test to be applied by the court in determining this issue is not what the insurer intended its words to mean, but what a reasonably prudent person applying for insurance of this type would have understood them to mean.

Incontestability clauses in form and language substantially the same as that here in question have been frequently considered by other courts. One line of authority holds the language is not ambiguous, and that it clearly excepts the disability and the double indemnity insurance from the bar of incontestability. Among such cases cited by appellee are: Terry v. New York Life Ins. Co., 8 Cir., 104 F.2d 498; Franco v. New York Life Ins. Co., 5 Cir., 53 F.2d 562; Pyramid Life Ins. Co. v. Selkirk, 5 Cir., 80 F.2d 553; Connecticut General Life Ins. Co. v. McClellan, 6 Cir., 94 F.2d 445; Equitable Life Assur. Soc. v. Deem, 4 Cir., 91 F.2d 569; Ruhlin v. New York Life Ins. Co., 3 Cir., 93 F.2d 416; Id., 3 Cir., 106 F. 2d 921; Steinberg v. New York Life Ins. Co., 263 N.Y. 45, 188 N.E. 152, 90 A.L.R. 642; Guise v. New York Life Ins. Co., 127 Pa.Super. 127, 191 A. 626; New York Life Insurance Company v. Gresham, 170 Miss. 211, 154 So. 547; Millis v. Continental Life Ins. Co., 162 Wash. 555, 298 P. 739; Greber v. Equitable Life Assur. Soc., 43 Ariz. 1, 28 P.2d 817; New York Life Ins. Co. v. Bonasso, 121 W.Va. 143, 2 S.E.2d 260, 121 A.L.R. 1433; Weiss v. Pacific Mutual Life Ins. Co., 215 N.C. 230, 1 S.E.2d 560; Smith v. Equitable Life Assur. Soc., 169 Tenn. 477, 89 S.W.2d 165; Isom v. Equitable Life Assur. Soc., 138 Fla. 260, 189 So. 253; Guardian Life Ins. Co. v. Barry, 213 Ind. 56, 10 N.E.2d 614; Schaedler v. New York Life Ins. Co., 201 Minn. 327, 276 N.W. 235; Scott v. New England Mutual Life Ins. Co., 127 Neb. 724, 256 N.W. 910.

Appellants rely upon authorities which hold identical or similar provisions to be ambiguous. New York Life Ins. Co. v. Kaufman, 9 Cir., 78 F.2d 398; Stroehmann v. Mutual Life Ins. Co., 300 U.S. 435, 57 S.Ct. 607, 81 L.Ed. 732; Malloy v. New York Life Ins. Co., 1 Cir., 103 F.2d 439; Coodley v. New York Life Ins. Co., 9 Cal. 2d 269, 70 P.2d 602; Horwitz v. New York Life Ins. Co., 9 Cir., 80 F.2d 295; New York Life Ins. Co. v. Thomas, 27 Pa. Dist. & Co. R. 215; Penn Mutual Life Ins., Co. v. Kelley, 88 N.H. 351, 189 A. 345; Kiriakides v. Equitable Life Assur. Soc., 174 S.C. 140, 177 S.E. 40. Many authorities are collected in notes in 94 A.L.R. 1133 and 121 A.L.R. 1437. See, also, 29 A.J. 682.

Not all of the cited cases are directly in point. In some the question here involved either was not a direct issue or was practically submerged by other questions. Others are affected by statutes. In some other cases the incontestability clauses employ different language.

Most of the authorities which hold ambiguous such language as, "except as to provisions and conditions relating to Disability and Double Indemnity Benefits" note that by the exception phrase the company would remove a part of the incontestability clearly provided in the first words of the clause, "This policy shall be incontestable * * *." They particularly stress the use of the words "provisions and conditions relating to", and point out that as a result of the use of this additional language the exception is not to the benefits but to the provisions and conditions relating thereto. They...