State Mut. Life Ins. Co. v. Rosenberry

• Decision Date: 11 June 1919
• Docket Number: (No. 72-2832.)
• Citation: 213 S.W. 242
• Parties: STATE MUT. LIFE INS. CO. v. ROSENBERRY et al.
• Court: Texas Supreme Court

213 S.W. 242

STATE MUT. LIFE INS. CO. v. ROSENBERRY et al.

(No. 72-2832.)

Commission of Appeals of Texas, Section B.

June 11, 1919.

Error to Court of Civil Appeals of Fifth Supreme Judicial District.

Suit by Charles M. Rosenberry and another against the State Mutual Life Insurance Company. Judgment for plaintiffs affirmed by the Court of Appeals (175 S. W. 757), and defendant brings error. Reversed and rendered for defendant.

Maddox & Doyal, of Rome, Ga., Harris & Brittain, of Quitman, and Seay & Seay, of Dallas, for plaintiff in error.

R. B. Howell and J. H. Beavers, both of Winnsboro, for defendants in error.

MONTGOMERY, P. J.

This is a suit upon a policy of life insurance issued by the State Mutual Life Insurance Company upon the life of Elmer E. Rosenberry. Charles M. Rosenberry, the beneficiary, and Woodie Rhone, a creditor of Elmer E. Rosenberry, to whom the policy had been assigned as collateral security for a debt, joined as plaintiffs. The pleadings of the parties are shown in the opinion of the Court of Civil Appeals. 175 S. W. 757.

The insurance company in the year 1908 issued the policy to Elmer E. Rosenberry for $10,000. The policy contained a clause making it incontestable after one year from the date of its issuance. The premiums were payable annually on January 15th of each year in advance. The premiums were paid as they became due until January 15, 1912. The premium falling due on that date was not paid, and the policy thereupon lapsed, and it had no value in excess of a loan that had been made to the insured.

On November 14, 1912, Elmer E. Rosenberry made application in writing to the insurance company for a reinstatement of the policy. In this application, among other things, he represented to the insurance company that he had not since the date of the policy been examined for life insurance without a policy having been issued as applied for. He warranted the statement in his application to be true. The court of Civil Appeals held this representation to be untrue and material.

By application dated October 26, 1912, Elmer E. Rosenberry applied for a change in beneficiary, as provided for in the policy, and informed the company that he had changed the beneficiary from his estate to his brother Charles M. Rosenberry. This application, though dated October 26, 1912, was not received by the company until November 20, 1912. On November 6, 1912, Elmer E. Rosenberry and Charles M. Rosenberry assigned the policy to Woodie Rhone to secure him in the payment of an indebtedness due him by Elmer E. Rosenberry, and a duplicate of this assignment was given to and retained by the insurance company.

It further appears that the original policy had in some way become mutilated, and it was returned to the company, and request made that a duplicate or new policy be issued.

On December 9, 1912, the company accepted the application to reinstate the policy, and on the same day attached to the policy a statement to the effect that the beneficiary had been changed, as provided in the request of Elmer E. Rosenberry. This indorsement was actually made on December 9, 1912, but was dated October 26, 1912. It was shown by the testimony that it was the custom of the company to date the indorsement of the change of beneficiary as of the date of the request, and that this was done for clerical convenience only. The indorsement above referred to was made upon the duplicate of the original policy which was issued to take the place of the policy which had been mutilated. This duplicate was a literal copy of the original policy and was not marked "duplicate." Neither Charles M. Rosenberry nor Woodie Rhone knew of the lapse of the policy or of its reinstatement, and knew nothing of the false statements contained in the application to reinstate the policy. The insurance company in reinstating the policy relied on the statements contained in the application, and knew nothing of the false statements until after the death of Elmer E. Rosenberry, which occurred on July 1, 1913. The insurance company, immediately upon learning of the false statements contained in the application to reinstate the policy, repudiated the policy, and promptly notified both Rhone and Rosenberry of that fact.

The trial court rendered judgment for the plaintiffs for the full amount of the policy, and this judgment was by the Court of Civil Appeals affirmed.

Opinion.

For the purpose of showing the views of the Court of Civil Appeals and the reasons given for its decision, we quote the following from its opinion:

"The deceased, Rosenberry, having answered incorrectly, as shown above, to questions propounded by appellant, and upon which answers the reinstatement of the policy was based, would be sufficient to avoid the policy, notwithstanding the incontestable clause in the policy, for we are of the opinion that the incontestable clause was revivified by the reinstatement and did not bar the appellant from contesting the right of recovery for acts of the deceased in procuring a reinstatement of the policy, one year not having elapsed after said reinstatement.

"However, we regard the foregoing as immaterial to a decision of this case, notwithstanding the false answers; for we think the appellant is estopped from urging said matters as a defense by reason of the assignment of the policy to secure an indebtedness. When an insurance company issues a policy and thereafter consents to its assignment, a new contract is thereby created, and the assignee takes free from all vitiating circumstances of which he is innocent, and the company is estopped from denying its validity, though ignorant of any vice that would forfeit the policy, before its issuance. Ellis v. Insurance Co. (C. C.) 32 Fed. Rep. 640."

There are only two questions which we think it necessary to decide: First, whether article 4953, Revised Statutes, applies to this case so as to deny the insurance company the right to defend this suit upon the ground of fraud and false representations in obtaining a reinstatement of the policy; second, whether, conceding the fraud and false representations, the insurance company was estopped as against the beneficiary, Charles M. Rosenberry, and the creditor, Woodie Rhone, to deny the validity of the policy.

Article 4953, Revised Statutes, which was originally enacted in the year 1909, reads as follows:

"Every policy of insurance issued or delivered within this State on or after the first day of January, 1910, by any life insurance company doing business within this state, shall contain the entire contract between the parties, and the application therefor may be made a part thereof."

The fact that in 1912, on account of a mutilation of the original, an exact duplicate of the original policy was issued, we do not think material. This was not the issuance of a new policy, but simply the issuance of a duplicate. The transaction should be judged as if the new policy had not been issued.

The question then is whether a life insurance company, where a policy has lapsed for nonpayment of premium, and has been induced by fraudulent representations to reinstate the policy, can rely upon the fraud to avoid liability where neither the application to reinstate nor any reference thereto is indorsed on or attached to the policy.

The article of the Revised Statutes quoted above requires that every policy issued by a life insurance company after January 1, 1910, shall contain the entire contract between the parties. Unless the reinstatement is treated as an entirely new and independent contract of insurance and the issuance of the duplicate of the original in this case treated as a new policy, this statute can have no application.

The original contract of insurance was issued prior to 1910, and at a time when the statute quoted had not been enacted. Therefore but for the forfeiture and reinstatement, no contention that it applied to this policy could be made.

After the lapse of the policy on account of the failure to pay the premium no contract of insurance between the parties existed. The insured and the company, however, had the right to make a contract by which the company should waive the forfeiture and reinstate the policy. When thus reinstated, the policy as originally issued became as effective as if no forfeiture had been declared, unless the contract for reinstatement itself was tainted with such fraud as would justify the company in repudiating it. Under the incontestable clause of the policy the company was precluded from any defense which it might otherwise have had based on anything which occurred at the time of or prior to the issuance of the policy, and also of any defense based upon any breach of warranty on the part of the insured contained in the original application or policy. It, however, had the right to assert and prove that the contract by which the policy was reinstated was induced by material false representations or warranties, and thus defeat liability on the policy. As we understand the record, this is what the insurance company attempted to do in this case.

There is some conflict in the authorities as to the effect of a reinstatement of a policy after lapse for failure to pay the premium. Some courts hold that there is a new contract of insurance as of the date of the reinstatement, but containing all the terms of the original policy, and thus hold that the clause rendering the policy incontestable applies to the new contract and authorizes a contest for the period named after the reinstatement. Pacific Mutual Life Insurance Co. v. Galbraith, 115 Tenn. 471, 91 S. W. 204, 112 Am. St. Rep. 862, and cases cited.

But we think that the better rule and the one that would come nearer doing justice is to regard the contract for reinstatement, not as a new contract of insurance, but as a waiver of the forfeiture, thus restoring the policy and making it as effective as if no forfeiture had occurred, but reserving the right of the...