Scales v. Jefferson Standard Life Ins. Co.

• Decision Date: 11 June 1927
• Citation: 295 S.W. 58
• Parties: SCALES v. JEFFERSON STANDARD LIFE INS. CO.
• Court: Tennessee Supreme Court

Page 58

295 S.W. 58

SCALES v. JEFFERSON STANDARD LIFE INS. CO.

Supreme Court of Tennessee.

June 11, 1927.

Rehearing Denied June 25, 1927.

Appeal from Chancery Court, Davidson County; John R. Aust, Chancellor.

Action by Noah E. Scales against the Jefferson Standard Life Insurance Company. Judgment for defendant, and plaintiff appeals. Affirmed.

Hughes & Felts, of Nashville, for Scales.

Thos. G. Watkins, of Nashville, for Insurance Co.

CHAMBLISS, J.

On July 26, 1924, the insurance company issued its $5,000 policy on the life of Noah Remmel Scales for an annual premium of $55.75, containing the following "general provisions":

"(a) After this policy shall have been in force for two whole years from the date hereof it shall be incontestable for any cause except for nonpayment of premium. (b) In case of self-destruction committed, whether sane or insane, within two years from the date hereof, the extent of recovery hereunder shall be the premiums paid."

It appears from the stipulation filed herein that the insured committed suicide on or about July 15, 1925, and that in August following tender was made by the insurance company to the beneficiary of the premiums paid, to wit, $55.75, which was rejected, and that this tender was continued and made into court upon the filing of this suit by the beneficiary, father of the insured. The suit was brought July 27, 1926, one day after the expiration of two years from the date of the policy, and a year and twelve days after the death of the insured.

The insistence of the claimant is, in substance, that, no affirmative action having been taken by the insurance company within two years from the date of the policy to contest and avoid it, provision (a), above quoted, applies so as to make the liability of the insurance company absolute, not to the extent of the premiums paid only, but for the $5,000 named therein, together with the statutory penalty.

The defense, as finally framed, is that the provision relied on, commonly known as the incontestable clause, has no application to a case of self-destruction within two years — within one year in the instant case — but in such a situation the extent of the liability under the contract of insurance is as provided in (b), above set out, namely, "the extent of the recovery hereunder shall be the premiums paid."

The chancellor dismissed the bill, and in a clear and forceful opinion sustained the position of the insurance company, and has granted this appeal.

Upon both principle and authority, we think it clear that under this contract the incontestable clause is without application, but that the rights of the beneficiary are fixed by the suicide clause.

In neither Humpston v. State Mutual Life Assurance Co., 148 Tenn. 439, 256 S. W. 438, 31 A. L. R. 78, nor Thistle v. Ins. Co., 149 Tenn. 667, 261 S. W. 667, relied on for appellant, was the question here presented involved. Neither were cases of suicides, occurring either within or after two years, which difference we regard as immaterial as affecting the application of the incontestable clause, although the defense of suicide, if occurring after two years, is cut off under the terms of the policy, not by the general incontestable clause (a), but by the suicide clause (b) itself.

In those cases the application generally of the incontestable clause was assumed; the discussions and decisions being confined to the form in which and time when rights under it must be asserted.

However, it is perhaps unnecessary to go beyond expressions contained in the opinions in these cases, and authorities therein quoted from and approved, to illustrate conclusively the essential distinction on which the decree of the chancellor rests. Running through both of these opinions, in stating the purpose and effect of incontestable clauses, are expressions emphasizing that this limitation on contests has reference to matters going to the validity of the contract; as affected particularly by the representations made in its procurement.

In the Humpston Case, supra, Mr. Justice Hall said:

"It was held by this court in Clement v. Insurance Co., 101 Tenn. 22, 46 S. W. 561, 42 L. R. A. 247, 70 Am. St. Rep. 650, that incontestable clauses inserted in insurance policies similar to the one in question are reasonable and valid, and that the practical and intended effect of such a clause is to create a short statute of limitation in favor of the insured, within which limited period, the insurer must, if ever, test the validity of the policy. The court in that case said:

"`It has been well said: "The effect of the provision is to prevent the insurer from interposing as a defense the falsity of the representations of the insured, which is a fraud. But it does not prevent abandonment, rescission and cancellation of the contract for such fraud, provided the action for that purpose is brought within a year." It is virtually saying to the insured that "I will take one year in which to ascertain whether your representations are false or not, and whether you have been guilty of any fraud in obtaining the contract, and if within that period I cannot or do not detect such falsity and fraud, I will obligate myself to make no further inquiry into these matters, and to make no defense on account of them."'"

In answer to a petition to rehear, the concluding paragraph above is again quoted. Emphasis is thus put on the meaning and purpose of the provision — that is the limited period is given within which the insurer must "ascertain whether your representations are false, and whether you have been guilty of any fraud in obtaining the contract" (italics ours) — not a period within which the insurer may ascertain whether or not the insured will exercise an election as to the manner of his death. How would it be possible to fix the running of a limitation period allowed for investigation, except until and upon the happening of the matters to be made the subject of the investigation?

And so Mr. Justice McKinney, in the Thistle Case, supra, speaking of the statutory incontestable clause, says:

"The purpose of the above statute was to prevent the issuing of a life policy that could be contested after two years. In other words, the Legislature entertained the view that two years was a reasonable time for the insurer to ascertain whether the policy had been obtained by fraud or for other reason justifying a contest as to its validity."

How could the "purpose" thus defined possibly have application to a "reason justifying a contest" until the arising of the reason?

The incontestable clause considered in Clement v. Ins. Co., 101 Tenn. 22, 46 S. W. 561, 42 L. R. A. 247, 70 Am. St. Rep. 650, while not identical with that now before us, was, in substance, the same. On page 27 of the opinion (46 S. W. 562) this court said:

"The provision in this case is very broad in its terms. There is only one condition upon which the validity of the policy can be questioned, after the lapse of a year, and that is the nonpayment of premiums. The meaning of the provision is that, if the premiums are paid, the liability shall be absolute under the policy, and that no question shall be made of its original validity."

Again, at page 28 (46 S. W. 562), it is said:

"The practical and intended effect of the stipulation is to create a short statute of limitation in favor of the insured, within which limited period, the insurer must, if ever, test the validity of the policy. * * * The...