Ramsay v. Old Colony Life Ins. Co.

• Decision Date: 09 June 1921
• Docket Number: No. 13767.,13767.
• Citation: 131 N.E. 108,297 Ill. 592
• Parties: RAMSAY v. OLD COLONY LIFE INS. CO.
• Court: Illinois Supreme Court

297 Ill. 592

131 N.E. 108

RAMSAY

v.OLD COLONY LIFE INS. CO.

No. 13767.

Supreme Court of Illinois.

April 21, 1921.

Rehearing Denied June 9, 1921.

Action by Gordon A. Ramsay, as administrator against the Old Colony Life Insurance Company. Judgment for the plaintiff was affirmed by the Appellate Court, and defendant appeals on certificate of importance.

Affirmed.

Cartwright, C. J., dissenting.

Appeal from First Branch, Appellate Court, First District, on Appeal from Circuit Court, Cook County; Jesse A. Baldwin, Judge.

McKinley & Price and Stebbins, Garey, L'Amoreaux & Hurtubise, all of Chicago, for appellant.

John Kuchinskas and E. Marshall Amberg, both of Chicago (W. Arnold Amberg, George W. Thoma, and August R. Marx, all of Chicago, of counsel), for appellee.

Horace Kent Tenney, of Chicago, amicus curiae.

DUNN, J.

On September 7, 1916, the Old Colony Life Insurance Company issued its insurance policy at Chicago on the life of Adam Kleveczka for $2,000, payable to him upon his attaining the age of 85 years or to his estate in case of his previous death. The policy contained a clause declaring it to be incontestable after one year from the date of issue if the premiums were duly paid. The insured died on April 13, 1917. An administrator was appointed on July 19, 1918, who brought an action of assumpsit on the policy in the circuit court of Cook county on November 7, 1918. The plea of the defendant, which was filed on May [297 Ill. 594]12, 1919, alleged that prior to the execution of the policy the insured executed and delivered to the defendant an application in writing which was attached to the policy and consisted of questions in writing propounded to the insured and his answers thereto, also in writing. Various interrogatories and the answers thereto, which concerned the habits at the time and previously of the insured in regard to the use of intoxicating liquors, the condition of his health, and his occupation, are set forth, and it is averred that the answers were material, false, known to the insured to be false, and were made for the purpose of inducing the company to issue the policy; that the company believed the answers to be true, and, relying on them, accepted the application and issued the policy; that it did not discover the falsity of the answers until about July 1, 1918, after the death of the insured, and that by reason of the fact that the policy was payable to his estate and of the delay in the appointment of an administrator until July 19, 1918, the company was unable to return or offer to return the premiums received from the insured until after September 7, 1917; that the insured died on April 13, 1917, from an attack of delirium tremens, due to his excessive consumption of intoxicating liquors and the shattered, deranged, and disordered condition of his nervous system as set forth in the plea, which had continued from the issuance of the policy to the time of his death and had existed prior to the time of making application for the policy, but was intentionally concealed from the company and falsely stated to it. The plea further avers that soon after the discovery of the falsity of the answers of the insured, and after an administrator was appointed, the company on August 1, 1918, tendered to the plaintiff the amount of the premiums received on account of the policy and interest on that amount, but the tender was refused, and the defendant now again tenders the amount to the plaintiff and offers to pay it to him at any time he will accept it. The plaintiff demurred to this plea, and his demurrer was sustained. The defendant electing to stand by its demurrer, and a jury being waived, the court assessed the plaintiff's damages at $2,000, for which, together with costs, a judgment was rendered. The Appellate Court for the First District, having affirmed the judgment on the appeal of the defendant, granted a certificate of importance and an appeal to this court.

The plea alleges facts showing that the insured was guilty of intentional fraud in procuring the policy, and the demurrer admits them. It is an elementary rule of law that fraud vitiates all contracts, and therefore the contract was voidable by the company. When the insured died it had a complete defense to any action on the policy which his representative might bring. The only question, therefore, is whether the company was still bound, after the death of the insured, by the limitation of one year from the date of issue of the policy in which to contest it.

We have held that the provision in a policy of life insurance that it shall be incontestable after one year from the date of its issue, provided the premiums are duly paid, is a valid provision, which bars the insurer from making any defense against the policy, after the expiration of the contestable period, except for nonpayment of premiums, and that after the lapse of that period even fraud in procuring the policy is not available to avoid it. Royal Circle v. Achterrath, 204 Ill. 549, 68 N. E. 492,63 L. R. A. 452, 98 Am. St. Rep. 224;Flanigan v. Federal Life Ins. Co., 231 Ill. 399, 83 N. E. 178;Weil v. Federal Life Ins. Co., 264 Ill. 425, 106 N. E. 246, Ann. Cas. 1915D, 974;Monahan v. Metropolitan Life Ins. Co., 283 Ill. 136, 119 N. E. 68, L. R. A. 1918D, 1196. This is in accord with the substantially unanimous decisions of the courts, which hold that the language admits of no reasonable construction other than that the company reserves to itself the right to ascertain all the matters and facts material to its risk and the validity of its contract for one year, and that, if within that time it does not ascertain all the facts and does not cancel and rescind the contract, it may not do so afterward upon any ground then in existence.When the execution of a contract has been procured by the fraud of one of the parties, the innocent party, upon discovering the fraud, may still insist upon the contract or may rescind it. He must, however, if he desires to repudiate it, do so promptly upon discovering the fraud and consistently adhere to his intention. By delay or vacillation he waives his right to rescind. The effect of the stipulation in the policy is not to prevent the insurer from annulling the contract upon the ground of the fraudulent representations of the insured, but its practical and intended effect is to create a short statute of limitations in favor of the insured, within which limited period the insurer must, if ever, test the validity of the policy. Wright v. Mutual Benefit Life Ass'n, 43 Hun (N. Y.) 61; Id., 118 N. Y. 237, 23 N. E. 186, 6 L. R. A. 731, 16 Am. St. Rep. 749; Massachusetts Benefit Life Ass'n v. Robinson, 104 Ga. 256, 30 S. E. 918,42 L. R. A. 261;Clement v. New York Life Ins. Co., 101 Tenn. 22, 46 S. W. 561,42 L. R. A. 247, 70 Am. St. Rep. 650;American Trust Co. v. Life Ins. Co. of Virginia, 173 N. C. 558, 92 S. E. 706;Murray v. State Mutual Life Assurance Co., 22 R. I. 524, 48 Atl. 800,53 L. R. A. 742;Mutual Life Ins. Co. v. Buford, 61 Okl. 158, 160 Pac. 928;Metropolitan Life Ins. Co. v. Peeler (Okl.) 176 Pac. 939, 6 A. L. R. 441.

The statute of Illinois has provided that after January 1, 1908, no policy of life insurance shall be issued or delivered in this state unless it shall provide that it shall be incontestable after two years from its date, except for nonpayment of premiums and except for violation of the conditions of the policy relating to the naval and military service in time of war. Laws of 1907, p. 367. The policy in question is in conformity with this provision, except that the incontestable period is reduced to one year and the policy is wholly unrestricted as to military or naval service in time of war. In both of these particulars it is more favorable to the insured than the statute requires.

The appellant does not deny the validity of the incontestable clause in the policy or deny that, if the insured survives the contestable period, the company is excluded from the defense of fraud or any other defense except for the nonpayment of premiums. It does, however, contend that the rights of the parties become fixed by the death of the insured, that a cause of action accrues at that time, and that, if the policy is then contestable, it remains contestable no matter when suit may be brought to enforce it. In this connection there is some discussion in the briefs as to whether the language of the incontestable clause of the policy is to be regarded as the language of the statute or the language of the insurer, and as to the applicability of the rule that ambiguous language used in an insurance policy is to be construed most strongly against the insurance company. The only language selected by the insurance company consists of the words ‘one year,’ and that expression is not ambiguous. The remaining language of the clause is prescribed by the statute and was not selected by the company. It is not to be presumed that the Legislature in prescribing the terms of the contract intended that the language used should be understood in a manner favorable or unfavorable to either party, or that it should receive any other than a fair and reasonable construction to carry out the legislative intent that policies of life insurance should be incontestable after two years from their date, without any qualification except those mentioned in the statute.

It is true that the cause of action upon the policy accrues upon the death of the insured, and the policy then becomes payable according to its terms, but the terms of the contract are not changed by the death of the insured. The...