Person v. Aetna Life Ins. Co.

• Decision Date: 15 April 1929
• Docket Number: No. 8162.,8162.
• Parties: PERSON v. ?TNA LIFE INS. CO.
• Court: U.S. Court of Appeals — Eighth Circuit

32 F.2d 459 (1929)

PERSON v. ?TNA LIFE INS. CO.

No. 8162.

Circuit Court of Appeals, Eighth Circuit.

April 15, 1929.

James D. Head, of Texarkana, Ark., for appellants.

S. Lasker Ehrman, of Little Rock, Ark. (Grover T. Owens, of Little Rock, Ark., on the brief), for appellee.

Before VAN VALKENBURGH and BOOTH, Circuit Judges, and MUNGER, District Judge.

BOOTH, Circuit Judge.

This is a bill in equity brought by appellee insurance company, against Levin K. Person and Corinne Person, husband and wife, to cancel a combination policy of life and indemnity insurance which appellee had issued to the husband, and in which the wife was designated as the death beneficiary.

The bill alleged that application for the policy was made December 16, 1926. It further alleged:

"That said application, among other things, provided: `It is agreed that no insurance hereon shall be effective until a policy is issued and the entire first premium has been paid during the good health of the proposed insured, and within sixty days from the date hereof.'

(6) "That thereafter a policy of insurance was issued by the plaintiff to the defendant, Levin K. Person, with the defendant, Corinne Person as death beneficiary therein; that said policy of insurance, among other things, provides: `This policy shall not become effective until the first premium upon it is paid during the good health of the insured.'

(7) "That said policy of insurance was delivered to the defendant, Levin K. Person, on the 7th day of January, 1927, at Garland, Arkansas, and the first premium was by him paid at that time; that at the time of the delivery of said policy to the defendant, Levin K. Person, and the payment of the first premium by him, the said Levin K. Person was not in good health but was suffering from tuberculosis, and that he is now and has been since the time prior to the delivery of the policy to him, suffering from tuberculosis; that this fact was unknown to the plaintiff at the time of the delivery of the policy to him by the plaintiff, but it has since learned that he was not, in fact, in good health at that time."

It further alleged that by reason of these facts the policy never became a valid contract; that the company elected to rescind the contract of insurance; and that it tendered into court the amount of the premium paid with interest. It prayed that the policy be declared null and void and that it be surrendered and canceled.

Defendant moved to dismiss the bill on two grounds: (1) That since no fraud was alleged on the part of the insured in the procurement of the policy, the bill failed to state a cause of action for rescission; (2) that it was contrary to the public policy of the state of Arkansas to construe the policy clauses (above quoted) as a warranty, but that by the law of the state of Arkansas the clauses were mere recitals and required merely good faith on the part of the insured in actually believing that he was in good health at the time of the delivery of the policy.

The motion to dismiss was denied; defendants elected to stand upon their motion and refused to plead further; plaintiff deposited the amount of the premium in court, and a decree was entered canceling the policy. The present appeal followed.

The main question involved in the case is what construction should be placed upon the above quoted clause in the policy. Is good health on the part of the insured at the time the first premium is paid a condition precedent to the taking effect of a valid contract of insurance, or does the contract of insurance take effect at the time of the payment of the first premium, unless at that time the insured knew or had reason to suspect that he was not in good health? The former construction was adopted by the court below; the latter is contended for by appellants.

By the great weight of authority, both in the federal and state courts, the former of these two constructions is placed upon such a clause.

In Imperial Fire Ins. Co. v. Coos County, 151 U. S. 452, 462, 14 S. Ct. 379, 381 (38 L. Ed. 231), the court, speaking generally of contracts of insurance, said: "Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy or policies, embodying the agreement of the parties. For a comparatively small consideration the insurer undertakes to guaranty the insured against loss or damage, upon the terms and conditions agreed upon, and upon no other, and when called upon to pay, in case of loss, the insurer, therefore, may justly insist upon the fulfillment of these terms. If the insured cannot bring himself within the conditions of the policy, he is not entitled to recover for the loss. The terms of the policy constitute the measure of the insurer's liability, and in order to recover, the assured must show himself within those terms; and if it appears that the contract has been terminated by the violation on the part of the assured, of its conditions, then there can be no right of recovery. The compliance of the assured with the terms of the contract is a condition precedent to the right of recovery. If the assured has violated, or failed to perform the conditions of the contract, and such violation or want of performance has not been waived by the insurer, then the assured cannot recover. It is immaterial to consider the reasons for the conditions or provisions on which the contract is made to terminate, or any other provision of the policy which has been accepted and agreed upon. It is enough that the parties have made certain terms, conditions on which their contract shall continue or terminate. The courts may not make a contract for the parties. Their function and duty consist simply in enforcing and carrying out the one actually made." ?tna Life Ins. Co. v. Johnson (C. C. A.) 13 F.(2d) 824, was an action upon a policy. The application, which was made a part of the policy, contained the following provision: "This policy shall not take effect until the first premium thereon shall have been actually paid, during the good health of the insured, a receipt for which payments shall be the delivery of the policy."

The insured died before making any premium payment. This court in its opinion said (page 825): "It is a rule generally adopted in the United States courts that, if a policy of life insurance provides that it is not to take effect until the first premium is paid, recovery cannot be had upon the policy, when it appears that the premium was unpaid at the date of the death of the insured, unless it appears that payment was waived by action of the insuring company."

MacKelvie v. Mutual Ben. Life Ins. Co. (C. C. A.) 287 F. 660, was a case similar in facts to the Johnson Case, supra. Action was upon the policy. The court said (page 663): "The law is settled in this court that, when a life insurance policy contains, as this one did, the provision that it `will not take effect, unless the first premium or agreed installment thereof shall be actually paid during the lifetime of the insured,' the provision means exactly what it says and will be enforced."

New York Life Ins. Co. v. Wertheimer (D. C.) 272 F. 730, was a suit for cancellation of two policies. The court said (page 731):

"Plaintiff's right to relief rests on two grounds. One is that these insurance contracts contained a condition that they should not take effect unless the insured was in good health at the time the policies were delivered. The other is that the insured, in his written applications, which are made a part of the policies, made material statements and representations which were willfully false and fraudulently made, and were relied upon. The law relating to these grounds of relief is different and will therefore be considered separately.

"1. The applications do contain a clause which provides that the insurance applied for shall not take effect unless the first premium is paid and the policy is delivered to and received by the insured during his lifetime and good health. The applications are made a part of the policies, and have the same effect as if written in the policies. See Hubbard v. Mutual Reserve Fund (1 C. C. A.) 100 F. 719, 40 C. C. A. 665; First National Bank v. Hartford Ins. Co., 95 U. S. 673, 675, 24 L. Ed. 563. The effect of these provisions is to make it a condition that the policies shall not take effect and become valid and binding unless the insured was in fact in good health at the time the policies were delivered. In this aspect, the insurer's obligation is not made to depend upon willful fraud or misrepresentation, but upon the fact as to whether or not the insured's health was good or otherwise. The inquiry then becomes an inquiry as to that fact, and does not depend upon the insured's knowledge or belief. It was so held in Metropolitan Life Ins. Co. v. Howle, 62 Ohio St. 204, 56 N. E. 908, and Metropolitan Life Ins. Co. v. Howle, 68 Ohio St. 614, 68 N. E. 4. Such, also, is the general, if not the uniform, rule of decision. See Barker v. Metropolitan Life Ins. Co., 188 Mass. 542, 74 N. E. 945; note 17 L. R. A. (N. S.) 1145, 1148."

See, also, Scharlach v. Pacific Mut. Life Ins. Co. (C. C. A.) 16 F.(2d) 245.

Cooley's Briefs on Insurance (2d Ed.) vol. 1, p. 693, states the rule as follows: "Where an application for a life insurance policy, or the policy itself, or both the application and the policy, contain a provision to the effect that the policy shall not become operative until the first premium thereon has been actually paid to the company or to an authorized agent during the good health of the applicant, actual payment of the first premium while insured is in good health is a condition precedent to the liability of the insurer, unless waived." Many state court decisions are cited in support of the rule.

The foregoing holdings by the federal and state courts are not disputed by appellants, but they contend (1) that the contract of insurance was an Arkansas contract, and that...