Schiel v. New York Life Ins. Co.

• Decision Date: 23 January 1950
• Docket Number: No. 12250.,12250.
• Parties: SCHIEL et al. v. NEW YORK LIFE INS. CO.
• Court: U.S. Court of Appeals — Ninth Circuit

178 F.2d 729 (1949)

SCHIEL et al. v. NEW YORK LIFE INS. CO.

No. 12250.

United States Court of Appeals Ninth Circuit.

December 21, 1949.

Rehearing Denied January 23, 1950.

Crawford & Baker, A. M. Crawford, A. G. Baker, Prescott, Ariz., for appellants.

Evans, Hull, Kitchel & Jenckes, Joseph S. Jenckes, Jr., Phoenix, Ariz., for appellee.

Before HEALY, BONE, and ORR, Circuit Judges.

HEALY, Circuit Judge.

This is an appeal by the beneficiaries of a life insurance policy from a judgment reforming the policy and from a summary judgment in favor of the insurance company terminating the litigation.

The first question to be noticed is whether, as the insurer claims, this court lacks jurisdiction of the appeal insofar as it relates to the decree of reformation. The contention is that the decree was final under Rule 54(b), Federal Rules of Civil Procedure, 28 U.S.C.A., hence was reviewable only by appeal taken within the statutory time after its entry. The facts bearing on the point are these: The insured, a young army pilot named Frank Schiel, Jr., met his death in December 1942 while on a military mission in a remote part of China, allegedly in a crash of his plane. In 1943 the insurer filed suit in the form of a single cause of action in which it set up the facts on which reformation was sought, alleged that the insured died in an operation intended to be excluded from coverage, and asked a declaration of its obligations. The beneficiaries by answer placed in issue the allegations pertaining to reformation and to the circumstances of the death, and prayed judgment for the full amount of the insurance. On the suggestion of the court that the affirmative matter in the answer should, under the requirements of Rule 10 (b), be pleaded as a counterclaim, the beneficiaries interposed a cross-complaint. Subsequently, on September 12, 1945, the judgment of reformation was entered without express direction that it be final. The proceedings thereafter ensuing had to do with the contention of the beneficiaries that they were entitled in any event to recover on the facts. Summary judgment against them on this issue was entered March 9, 1949, and this appeal followed.

In urging the finality of the judgment of reformation the insurer relies mainly on this court's ruling in Hanney v. Franklin Fire Ins. Co., 9 Cir., 142 F.2d 864, and on Reeves v. Beardall, 316 U.S. 283, 62 S.Ct. 1085, 86 L.Ed. 1478. A reading of the Hanney decision shows plainly that it is distinguishable. The complaint in that instance was in two counts the first of which attempted to state a claim on an insurance policy as written. The second sought reformation. The trial court granted the defendant's motion to dismiss the first count for failure to state a claim upon which relief could be granted. Following the entry of the judgment of dismissal the plaintiffs voluntarily moved for and obtained the dismissal of their second count, with prejudice. They then appealed. In denying a motion to dismiss the appeal as premature this court was careful to point out the foregoing circumstances. Obviously if the plaintiffs were denied the right of appeal they would be deprived of the possibility of review altogether, since no issue below remained undisposed of. In Reeves v. Beardall, supra, the situation was so remote from the present as to afford no analogy.

Rule 54(b) has been amended, effective March 19, 1948. The subdivision as it presently exists is shown on the margin.¹ As indicated in the notes of the Advisory Committee, the amendment is in conformity with the historic rule in the federal courts prohibiting piecemeal disposal of litigation. Subdivision (b), as it stood in 1945,² does not require or in terms permit of a holding that the judgment in question was final, and we are of opinion that the court has jurisdiction to review it.

The policy was issued to Schiel in August 1935, the insured being then of the age of 18 and a resident of Arizona. The beneficiaries were his parents. The face amount of the insurance was $5,000, premiums of $25.30 to be paid quarterly; and in consideration of an additional quarterly premium of $1.50 double indemnity was payable in the event of accidental death. Among other provisions was one relating to residence, travel and occupation, important to bear in mind as the discussion proceeds. It provided that "this policy is free of conditions as to residence, travel, occupation, and military and naval service, except as to provisions and conditions relating to double indemnity and disability benefits." The policy lapsed for nonpayment of the premium due August 10, 1936.

The Company's case for reformation is as follows: Under date of January 24, 1939, Schiel made written application for reinstatement on a company form pursuant to a clause providing for reinstatement within five years after default on presentation "of evidence of insurability satisfactory to the Company" and payment of over-due premiums with interest. In response to a query whether he contemplated participation in aeronautics Schiel answered "yes — as pilot." An additional questionnaire, form No. 5794, relative to aeronautics, was submitted and answered February 2, 1939. The same inquiry was repeated and the insured replied "I am a candidate for Randolph Field as student pilot. Expect to be called in a month." The final question in the form was "To what extent do you contemplate making use of any aircraft and in what capacity?", to which the reply was "Military operation." Subsequent to the return of this questionnaire the Company notified the insured that reinstatement would be made only on condition that the double indemnity provision be eliminated and that there be included in the policy an aviation clause denominated "A"; and under date of March 29, 1939, Schiel complied with the condition by signing a form numbered 2274 requesting a change of the policy "same plan, with waiver of premium, but without double indemnity benefit, and with aviation `A' clause in loco." The clause itself was not set out in the form, nor, so far as the record discloses, had it been submitted to the applicant for examination.

On an unspecified date a typed letter, directed to the Company, was submitted to the insured and by him signed and returned, stating that "in connection with my application for reinstatement and the offer you made, I request you to endorse the following clause: `Anything in this Policy to the contrary notwithstanding, the death of the Insured as a result directly or indirectly from operating or riding in any kind of aircraft, whether as a passenger or otherwise, other than as a fare-paying passenger in a licensed passenger aircraft provided by an incorporated passenger carrier and operated by a licensed pilot on a regular passenger route between definitely established airports, is a risk not assumed under this Policy, but upon receipt of due proof of the death of the insured, as a result directly or indirectly from operating or riding in any kind of aircraft, whether as a passenger or otherwise (other than as a fare-paying passenger as defined above) the Company will pay to the beneficiary in lieu of the amounts provided in this Policy, the reserve on the face amount of this Policy at the date of death, and the reserve on any outstanding dividend additions, and any outstanding dividends, including dividend deposits, less any indebtedness to the Company against this Policy.'"

The Company reinstated the policy at a date not specified, but evidently prior to May 1, 1939. Whether this was done before or after the submission for the insured's signature of the undated letter last mentioned the record does not disclose, nor did the court make any finding on the subject. The document was not attached to the reissued policy nor did the court find that its omission was the result of the insurer's oversight.³

In effecting the reinstatement Schiel paid the accumulated delinquencies plus interest, together with the current premium in the sum originally fixed. The double indemnity premium alone was eliminated. In the policy as reissued the double indemnity clause, wherever appearing, was marked "void," and there was an endorsement noting its cancellation with corresponding premium reduction. The occupation clause unlimited as to the ordinary life coverage remained in the contract as before. Due to oversight of the insurer's clerical staff the aviation clause "A" was not endorsed on the policy. On May 1, 1939, the Company again had the instrument before it, this time for the addition of contingent beneficiaries. So the matter rested until after the insured's death, when this suit was begun to procure reformation by endorsement of clause "A."

One of the defenses raised by the answer, and urged here, is want of consideration for the condition imposed on reinstatement and sought to be given vitality by reformation. This brings up the problem of the scope of the reinstatement clause. Preliminarily, there can be no doubt that the clause vested in the insured a valuable contract right, which survived the lapse, and which the Company could not arbitrarily condition or deny. If the applicant produced evidence of insurability, and if his showing was such as should reasonably have satisfied the Company in light of the attendant circumstances, he became entitled to have the policy reinstated — not as a matter of grace but of right. We have found in the books no dissent from this proposition. The beneficiaries contend that the term "insurability" comprehends nothing beyond good health, in respect of which no question was raised. The insurer argues for a much broader interpretation. While there is a conflict of judicial opinion on the subject, the weight of authority appears to be that the term comprehends something more than good health; and one Arizona decision indicates in general terms that such is the local rule. Equitable Life Assur. Soc. v. Pettid, 40 Ariz. 239, 254, 11 P.2d...