Pyramid Life Ins. Co. v. Selkirk

• Decision Date: 03 January 1936
• Docket Number: No. 7676.,7676.
• Citation: 80 F.2d 553
• Parties: PYRAMID LIFE INS. CO. v. SELKIRK.
• Court: U.S. Court of Appeals — Fifth Circuit

80 F.2d 553 (1936)

PYRAMID LIFE INS. CO. v. SELKIRK.^*

No. 7676.

Circuit Court of Appeals, Fifth Circuit.

January 3, 1936.

A. V. Knight, of San Antonio, Tex., for appellant.

C. W. Trueheart, of San Antonio, Tex., for appellee.

Before FOSTER and SIBLEY, Circuit Judges, and STRUM, District Judge.

STRUM, District Judge.

This is a suit in equity seeking, besides incidental relief, cancellation of the disability benefit provisions of a combination policy of life and disability insurance issued by Kansas Life Insurance Company to Wyatt Owen Selkirk. Motion to dismiss the bill was sustained upon the ground that the hereinafter quoted incontestability clause bars the suit. From final judgment thereon this appeal is taken.

Appellant, plaintiff below, asserts that in the original application for the policy in 1928, and in subsequent applications for reinstatement in November, 1929, and September, 1930, after the policy had lapsed for the nonpayment of premiums, Selkirk fraudulently concealed and misrepresented material facts concerning his health and consultations with and treatment by physicians, in reliance upon which appellant acted in originally issuing and subsequently reinstating the policy, having no knowledge to the contrary. The last reinstatement was in September, 1930. Suit was begun December 8, 1933. The life insurance feature of the policy is not assailed, as that contract admittedly has become incontestable.

The policy contains the following clause which is the background of the controversy: "Incontestability. This policy shall be incontestable after one year from date of issue, except for the non-payment of premiums or violation of its terms as to military or naval service in time of war, and except as to provisions and conditions relating to disability benefits and those granting additional insurance specifically against death by accident, if any."

The quoted incontestability clause is in the face of the life policy. Disability benefits were provided by "rider" attached to and issued simultaneously with the life policy, of which it is a part. The rider (1) defines total and permanent disability; (2) provides for a monthly income to insured, and (3) a waiver of premiums during disability; (4) guards ultimate settlement, loan, and surrender values; (5) provides for cessation of such benefits upon the recovery of the insured; and (6) provides for automatic cancellation of disability benefits (a) upon default in payment of premiums, or (b) if insured shall engage in military or naval service in time of war or (c) if insured shall engage as a civilian in time of war in any occupation associated with military or naval operations, or (d) in the manufacture of explosives, or (e) if disability results from aeronautic, aviation, or submarine casualty.

The District Judge held that the effect of the second exception to the incontestability clause is merely to preserve to the insurer defenses arising out of the provisions and conditions specifically enumerated in the rider, which do not include fraud or misrepresentations in the procurement of the policy, and that upon all other grounds, including fraud, the insurer is precluded and a contest barred after one year. Appellant contends that even after one year the insurer may seek rescission of the disability benefit provisions for fraud in procuring that contract.

For the purpose here under consideration, the incontestability clause may be thus contracted: "This policy shall be incontestable after one year from date of issue, * * * except as to provisions and conditions relating to disability benefits. * * *"

The effect of this exception, it seems to us, is to exclude from the one-year limitation of the incontestability clause, all grounds of contest relating to liability for disability benefits, not merely those based on conditions enumerated in the rider, leaving open to contest after one year the question of fraud in procuring the disability benefit contract. New York Life Ins. Co. v. Gresham, 170 Miss. 211, 154 So. 547; Greber v. Equitable Life Assur. Soc. (Ariz.) 28 P.(2d) 817; New York Life Ins. Co. v. Davis (D.C.) 5 F.Supp. 316; Mutual Life Ins. Co. v. Stroehmann (D. C.) 6 F.Supp. 953; Connecticut General Life Ins. Co. v. Brandstein, 233 App.Div. 723, 249 N.Y.S. 1018. Compare, contra, Thompson v. New York Life (D.C.) 9 F. Supp. 248.

The expression, "provisions and conditions relating to disability benefits," even if tautological, embraces all matters relating to liability for such benefits; those which create the right to receive them, as well as...