Perry v. Bankers Life & Cas. Co.

• Decision Date: 26 October 1962
• Docket Number: No. 16357,16357
• Citation: 362 S.W.2d 213
• Parties: Zella Rose PERRY et vir, Appellants, v. BANKERS LIFE AND CASUALTY COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 213

362 S.W.2d 213

Zella Rose PERRY et vir, Appellants, v. BANKERS LIFE AND CASUALTY COMPANY, Appellee.

No. 16357.

Court of Civil Appeals of Texas, Fort Worth.

Oct. 26, 1962.

Rehearing Denied Nov. 30, 1962.

Harry N. Ward, Fort Worth, for appellants.

Hudson, Keltner, Jordan, Smith & Cunningham, and Walter E. Jordan, Fort Worth, for appellee.

BOYD, Justice.

Zella Rose Perry and her husband, L. W. Perry, appeal from an adverse summary judgment in their suit on an insurance policy on the life of Cora Lee Cox. Mrs. Perry being the beneficiary.

The question presented is whether fraud in an application for reinstatement of a lapsed policy may be urged as a defense after the expiration of the contestable period.

The policy was issued on May 6, 1959. It lapsed for nonpayment of premiums on July 6, 1959, and was reinstated on September 14, 1959, on the basis of a reinstatement application executed by the insured on September 3, 1959. The application stated that the insured was in sound health and had not during the past five years suffered any illness or undergone any medical or surgical treatment. At that time the insured was in a hospital and was being treated for cirrhosis of the liver, for which she had been undergoing treatment since May 21, 1959. She knew her condition at the time the application was made She died of that disease on June 20, 1960. It was stipulated that had appellee known of the condition of the insured's health the policy would not have been reinstated. The policy stated that it would be incontestable after two years from the date of issue, except for nonpayment of premiums.

Appellants furnished proof of insured's death and made demand for payment late in July, 1960. Appellee refused to pay. This suit was filed on September 22, 1961. Appellants say that time does not cease to run against the incontestable clause because of the insured's death; that appellee's denial of liability within the two year period did not in law amount to a contest; and that although a new incontestable period began at the time of the reinstatement, it was necessary for appellee, within such two-year period, to institute a court proceeding to cancel the policy to avail itself of the defense of fraud in the application for reinstatement. There seems to be authority for each proposition. American National Insurance Company v. Welsh, Tex.Civ.App., 3 S.W.2d 946, affirmed, Tex.Com.App., 22 S.W.2d 1063; Scharlach v. Pacific Mut. Life Ins. Co., 5 Cir., 9 F.2d 317; State Mutual Life Insurance Company v. Rosenberry, Tex.Civ.App., 175 S.W. 757, reversed on other grounds, Tex.Com.App., 213 S.W. 242; note, 134 A.L.R. 1525; Appleman, insurance Law and Practice, Vol. 1, p. 374, sec. 320.

It is appellee's position that the incontestable clause has no application when fraud would otherwise have vitiated the reinstatment, and relies on the rule announced in State Mutual Life Insurance Company v. Rosenberry, supra. $:The Commission of Appeals in the Rosenberry case very clearly stated that in case of fraud in a reinstatement application the incontestable rule does not apply. We quote from the opinion as follows:

'But we think that the better rule and the one that would come nearer doing justice is to regard the contract for reinstatement, not as a new contract of insurance, but as a waiver of the forfeiture, thus restoring the policy and making it as effective as if no forfeiture had occurred, but reserving the right of the company to avoid the effect of the reinstatement by showing, if it can, that the reinstatement was induced by unfair and fraudulent menas. Massachusetts Benefit Life Association v. Robinson, 104 Ga. 256, 30 S.E. 918, 42 L.R.A. 274; Goodwin v. Provident, etc., Life Association, 97 Iowa 226, 66 N.W. 157, 32 L.R.A. 473, 59 Am.St.Rep. 411; Monahan v. Fidelity Mutual Life Insurance Co., 242 Ill. 488, 90 N.E. 213, 134 Am.St.Rep. 337; Mutual Life Insurance Co. v. Lovejoy, [210 Ala. 337,] 78 South. 299, L.R.A.1918D, 864.

'Applying these principles to the case, it appears that the policy sued on lapsed for failure to pay the premium after the same became incontestable under its terms, and we think that the insurance company could not contest it by reason of anything connected with its original issuance or any act of the insured up to that time. When it lapsed for failure to pay the premium, no contract of insurance existed, but the parties had a right by a new contract to provide for a waiver by the company of the forfeiture and a reinstatement of the policy. The insured undertook to comply with the requirements of the company in order to obtain a reinstatement, and to that end made an application warranting the facts stated therein to be true. As we construe the opinion of the Court of Civil Appeals, it finds that the statement in the application to the effect that the insured had not applied for insurance in any other company which had not been issued was untrue and was material. This being true, the application to reinstate the policy was induced by the fraud of the insured. We do not think that the clause in the policy making it incontestable after one year from its date applies to this transaction. To make it apply is to hold that, however gross the fraud by which the reinstatement of a lapsed policy is procured, the insurance company is without remedy. In this case less than one year after the perpetration of the...