Prudential Ins. Co. of America v. Smith

• Decision Date: 07 October 1952
• Docket Number: No. 28983,28983
• Parties: PRUDENTIAL INS. CO. OF AMERICA v. SMITH.
• Court: Indiana Supreme Court

Page 61

108 N.E.2d 61

231 Ind. 403

PRUDENTIAL INS. CO. OF AMERICA v. SMITH.

No. 28983.

Supreme Court of Indiana.

Oct. 7, 1952.

Stuart, Devol, Branigin & Ricks, Lafayette, and Harker & Irwin, Frankfort, for appellant.

Jones & Cook, Kokomo, Hudson & Ewan, Lafayette, and Robert E. Million, Monticello, for appellee.

EMMERT, Judge.

This is an appeal from a judgment on a verdict for appellee for $10,000 for breach of an insurance policy issued on the life of Robert J. Smith who named appellee, his father, as beneficiary. Prudential executed the policy on September 9, 1946, in the face amount of $5,000, with the further provision that in the event of the death of the insured by accidental means, Prudential would pay an additional $5,000. On November 3, 1946, the insured was killed as a result of an automobile and bus collision on a public highway of this state.

For the purpose of deciding the controlling issue here, it is possible to assume as true appellant's statement of the material facts, as follows:

'In the application for the policy, insured, who was the son of his beneficiary, appellee herein, stated that he had never made claim for sickness, etc., or other benefits, that he had not consulted, or been attended by, a physician for the past three years, that he had never had an X-ray, electrocardiagram or blood study, that he had no physical defect or infirmity, that he had never had heart disease or any serious illness, that he had never been in a hospital or other institution for observation, diagnosis or treatment, and that the foregoing statements contained complete details as to any illness and sojourns in hospitals and similar institutions that he had had. The application was executed September 9th, 1946, and on November 3rd, 1946, less than two months after the issuance of the policy, insured died from accidental causes.'

'Insured was in the armed forces of the United States until May, 1946. In March, 1946, he contracted rheumatic fever, which resulted in a leaking of two major valves in his heart. He was in Fort Lawton Station Hospital and Madigan General Hospital from March until May, during which time, according to the testimony of Dr. Straub, who treated him, and records, including his certificate of disability for discharge and his application for disability benefits, both of which were signed by insured, he had this double leakage of the heart, had been in two hospitals, had had X-rays, electrocardiagrams and blood studies, had been treated by at least two doctors and, at the time of his discharge, he had applied for, and thereafter received during his lifetime, total disability payments of $115 per month, and was discharged on the basis of total disability.' (Appellant's emphasis.) * * *

'When the application was prepared, insured gave the information to appellant's agent, who recorded the answers on the application as they were given to him. Appellant waived a physical examination because appellee appeared to be in good health and appellant did not require a physical examination for a policy in this amount.

'After insured's death, appellant learned of his physical disability and declined payment and tendered the return of the one premium paid with interest, which tender was refused.'

Appellant filed an answer in three paragraphs to appellee's amended complaint, the first paragraph alleging answers made by the insured on the application were warranties, which were false and untrue and so known at the time they were made, which induced Prudential to execute the policy; that Prudential on March 6, 1947, 'tendered to the plaintiff herein (appellee) repayment of the premium theretofore paid by said decedent (insured), together with interest thereon to date of tender, which tender was refused.' The second paragraph of answer in substance alleged that the representations contained in the same answers were false and untrue, that they were made to and did induce Prudential to execute the policy sued upon, and that tender back of the premium was made to the beneficiary, which was refused. The third paragraph of answer admitted some and denied other allegations of the amended complaint, but the issues under this paragraph are not material to the decision here. Nor do we regard the reply as forming issues material to this decision.

It will be noted that neither paragraph of answer alleged that Prudential elected to rescind the contract of insurance, although there was evidence that it did so elect, but there was no allegation and there was no evidence that Prudential paid into court, for the use of the appellee, the amount of the tender which had been refused.

Appellants position here is that the judgment must be reversed on the authority of National Life & Accident Ins. Co. v. Ransbottom, 1940, 217 Ind. 452, 28 N.E.2d 78, 79, hereafter referred to as the Ransbottom case. In this case the second paragraph of answer alleged the company elected to rescind and tendered back the amount of the premiums paid, and that the company "now brings into open court and herewith tenders the sum of Eight and 33/100 ($8.33) Dollars, which said sum is the amount of premiums paid under the provisions of said policy." The appellee contended that the company had failed to keep the tender good by paying the money into court, and the decision was on that assumption. This case stated that 'It is clear beyond dispute that the insured had an incurable cancer', and held that 'Under the undisputed facts the defendant was entitled to a decree canceling the contract.'

This court is reluctant to overrule its own precedents if there is any justification in legal principles by which they can be sustained, but on the other hand when a case has overruled what had been previously decided to be the law, and the new rule cannot be supported under any of the rules of substantive or adjective law, the precedent should be overruled.

As has been well stated in a recent authority on pleading and practice in this state, 'It is a very common thing to see a pleading termed an 'answer and counterclaim' or an 'answer and cross-complaint.' This is a plain contradiction in terms. The same pleading cannot, at the same time, be a counterclaim, or cause of action, and a defense.' 2 Lowe, Works' Indiana Practice § 17.17, page 18. See also I Watson's Works' Pr. & Forms §§ 584, 673, and I Gavit, Ind.Pl. & Pr. § 143. The facts stated determine whether the pleading is in fact an answer or a cross-action.

As we construe the pleadings designated as the first and second paragraphs of answer, they are in fact answers. They ask for no affirmative relief, and if they did they would be insufficient as cross-actions for want of equity. Fish v. Prudential Ins. Co., 1947, 225 Ind. 448, 75 N.E.2d 57; Nichols v. Pacific Mutual Life Ins. Co. of California, 8 Cir., 1936, 84 F.2d 896, 897. ¹ They merely seek to defeat plaintiff's cause of action on the policy. ²

Appellant's position here is that appellee has waived any question of failure to allege and prove that the tender of the amount of the premium received by Prudential was paid into court for the use of the beneficiary. Although § 2-1011, Burns' 1946 Replacement, has been construed to waive defects in an answer when not questioned by a demurrer, this statute does not dispense with proof of a cause of defense. 'It was intended to reinforce other statutes providing that, after verdict, pleadings should be deemed amended as to such defects so as to conform to the evidence; but it was not the purpose to dispense with the proof of facts essential under the law to constitute a cause of action or a cause of defense.' (Italics added.) Prudential Insurance Co. of America v. Ritchey, 1918, 188 Ind. 157, 163, 119 N.E. 369, 370, 484. See also Cassell v. Cochran, 1943, 114 Ind. App. 115, 118, 50 N.E.2d 668, 51 N.E.2d 21. If Prudential was required to keep the tender good by paying it into court, appellee did not waive this burden of proof by failure to demur to the answer. If Prudential had in fact paid the amount of the premium into court but not alleged such deposit, a different question would be presented.

It is quite clear that when a party asserts that he has been defrauded into entering into a contract, or the other party has breached a material warranty therein, the injured party is put to his election to determine whether he will affirm the transaction, which will entitle him to damages for the fraud or the breach of warranty, or elect to rescind the contract for the fraud or breach of warranty. The contract is voidable at the election of the injured party. State Life Ins. Co. v. Jones, 1910, 48 Ind. App. 186, 187, 92 N.E. 879; Commercial Life Ins. Co. v. Schroyer, 1911, 176 Ind. 654, 95 N.E. 1004; Brotherhood of Railroad Trainmen v. Virden, 1940, 216 Ind. 324, 24 N.E.2d 934. If he elects to affirm the transaction, he has his remedy by way of damages. If he elects to rescind, he must return back what he has received, and in turn he is entitled to receive what he has parted with. Love v. Oldham, 1864, 22 Ind. 51. ³

It logically follows that an answer which merely charges fraud does not state a cause of defense; the defendant must plead a proper rescission to do that. 4 Watson's Works' Pr. & Forms, p. 1186, note 3, and cases therein cited.

Before the decision in the Ransbottom case, supra, 217 Ind. 452, 28 N.E.2d 78, the law was well settled in this state that an insurer, if it elected to rescind, had to plead and prove the fraud, the election, the tender back of the consideration, and if refused, the payment of the premiums in court for the use of the party entitled thereto, who would be the beneficiary if the policy had been issued on the life of the insured. Grand Lodge, etc., Trainmen v. Clark, 1920, 189 Ind. 373, 381, 127 N.E. 280, 282, 18 A.L.R. 1190. In this case it was said, 'A tender of money, to be sufficient, must first be offered to the party entitled to receive it, or to some one...