OCCIDENTAL LIFE INSURANCE COMPANY OF CAL. v. Nichols

• Decision Date: 16 November 1954
• Docket Number: No. 14966.,14966.
• Parties: OCCIDENTAL LIFE INSURANCE COMPANY OF CALIFORNIA, a corporation, Appellant, v. Fred W. NICHOLS, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

216 F.2d 839 (1954)

OCCIDENTAL LIFE INSURANCE COMPANY OF CALIFORNIA, a corporation, Appellant, v. Fred W. NICHOLS, Appellee.

No. 14966.

United States Court of Appeals, Fifth Circuit.

November 16, 1954.

Frank M. Young, Birmingham, Ala., Spain, Gillon & Young, Birmingham, Ala., of counsel, for appellant.

Morris K. Sirote and E. M. Friend, Jr., Birmingham, Ala., for appellee.

Before BORAH, RIVES and TUTTLE, Circuit Judges.

TUTTLE, Circuit Judge.

The appellant, Occidental Life Insurance Company of California issued on November 14, 1951, a life insurance policy to appellee, Fred W. Nichols, in the amount of $35,000. The policy incorporated by reference a supplemental agreement providing for waiver of premiums and disability payments to the appellee in the event of his permanent total disability as a result of injury or disease. The policy named appellee's wife as beneficiary for the death benefits, and the supplemental agreement designated appellee as the person entitled to receive the disability benefits. The policy contained a two-year incontestable clause.

The appellee Nichols filed a suit against the Occidental Company in the Circuit Court of Jefferson County, Alabama, on March 3, 1953, claiming disability benefits on the supplemental agreement from and after July 1, 1952. The present action was commenced on September 2, 1953, within the two-year period of contestability, in the United States District Court for the Northern District of Alabama, for a declaratory judgment and for rescission of both the policy and the supplemental agreement, on the ground that allegedly appellee Nichols had made material and fraudulent misrepresentations concerning his medical history in his written application for the policy and supplemental agreement. The District Court on December 11, 1953, granted a motion by appellee Nichols to dismiss this action, the order of dismissal indicating as the ground therefor that this was a proper case to decline to exercise the discretionary jurisdiction conferred by the Federal Declaratory Judgments Act, 28 U.S.C. §§ 2201-2202, and citing as authority for this proposition Aetna Insurance Co. v. Busby, D.C.N.D.Ala., 87 F.Supp. 505; Public Service Commission v. Wycoff Co., 344 U.S. 237, 73 S.Ct. 236, 97 L.Ed. 291; and Public Utilities Commission v. United Air Lines, Inc., 346 U.S. 402, 74 S.Ct. 151.

From that order Occidental brought this appeal. On August 18, 1954, appellee Nichols submitted a motion to dimiss the appeal, or in the alternative, to suspend action thereon pending final ruling in the state court case, alleging that the instant case has become res adjudicata and moot, in that on April 30, 1954, judgment was entered on a verdict in favor of Nichols in the state court action in which all issues in the instant case were adjudicated, and that Occidental's appeal from that judgment was then pending in the Supreme Court of Alabama.

This case is quite similar to our recent case of Ray v. Hasley, 5 Cir., 214 F.2d 366. It differs, however, in that in the Ray case a judgment had already been rendered in the Texas State Court against Ray, Ray v. Gage, Tex.Civ.App., 269 S.W.2d 411 and he nevertheless filed his suit in the United States District Court, pending the prosecution of his appeal through the state court; whereas, here there was only a suit pending when the trial judge declined to accept jurisdiction of this suit for declaratory judgment and rescission. No plea of res adjudicata was filed below, and in fact none could have been filed because the state court suit had not yet gone to judgment. The District Court was asked, by the filing of the suit, to accept and hold jurisdiction of the matter against the possibility that in some manner the state court litigation might end without the insurance company having an opportunity to contest effectively its ultimate liability to the beneficiary on the ordinary life provisions of the policy.

Viewed as of the time of the decision of the trial court, we are convinced that the plaintiff insurance company was entitled to have the Federal Court's protection of this substantial right. Appellee now moves to dismiss the appeal by going outside the record and presenting the fact (that was not before the trial court) that the state court has now decided the case in favor of appellee, and that appellant has appealed to the Supreme Court of Alabama. The appellee thus, in effect, filed a plea of res adjudicata for the first time in this Court.

The question as to whether the trial court correctly dismissed the petition below may be determined as though the state court trial had already been concluded when the motion to dismiss was there filed, for the gist of the motion was that what has now happened was within the normal range of the expected and really formed the basis of appellee's contention that the Federal District Court should not entertain the suit.

In the Ray case, supra, we dealt with a cause of action which arose in Texas and resulted in the filing of a suit in the state court there. We found that the Texas rule was well established, that the pendency of an appeal from a judgment prevented its operation as res...