Strawbridge v. New York Life Ins. Co., Civ. No. 79-1180.

CourtUnited States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
Citation504 F. Supp. 824
Docket NumberCiv. No. 79-1180.
Decision Date03 March 1981


Dean Anglin, East Brunswick, N. J., for plaintiff.

Richard T. Philips, Newark, N. J., for defendant.


ACKERMAN, District Judge.

This diversity case involves a dispute over a life insurance policy. The plaintiff, James Strawbridge, is a field insurance underwriter employed by the defendant, New York Life Insurance Co. In the course of his employment, Mr. Strawbridge sold a New York Life Insurance Co. policy insuring the life of his father-in-law, John Henry Loch. At the time of Mr. Loch's death, Mr. Strawbridge was named as the beneficiary of the life insurance policy on Mr. Loch's life. New York Life refused Mr. Strawbridge's claim as beneficiary for payment on the policy, principally due to its belief that Mr. Strawbridge participated in the making of fraudulent misrepresentations on the application for the policy. Mr. Strawbridge then filed this suit, in Superior Court of New Jersey, demanding payment of the death benefit. The defendant removed the case to federal court. In its answer, New York Life pleaded, inter alia, a defense of fraud and also set forth a counterclaim against Mr. Strawbridge for his alleged breach of the field underwriter's contract with New York Life and for his alleged breach of fiduciary duties owed to New York Life.

The plaintiff has now moved for summary judgment on the complaint and on the counterclaim. In support of this motion, Mr. Strawbridge principally relies upon the policy's statutorily mandated incontestability clause. See N.J.S.A. 17B:25-4. This clause bars the insurance company from raising any defenses to a claim for death benefits, other than non-payment of premiums, after the policy has been in force during the lifetime of the insured for a period of one year from its date of issue. In the present case, it is uncontested that Mr. Loch, the named insured, died after the requisite period had passed. I have concluded, for the reasons set forth below, that the plaintiff is entitled to summary judgment on his complaint due to the operation of the incontestability clause. I have also concluded, however, that nothing in either the clause itself or the New Jersey statute prevents the insurance company from proceeding with its counterclaim. I have, therefore, denied the plaintiff's motion for summary judgment as to the counterclaim.

In opposition to the plaintiff's motion, the defendant has made two arguments. The first of these arguments might be characterized as a shield to the plaintiff's complaint, while the second argument serves as a sword in support of the counterclaim. I have analyzed the defendant's arguments separately but in both cases I have given New York Life the benefit of every factual inference that can reasonably be drawn in its favor. Fed.R.Civ.P. 56(c); Janek v. Celebrezze, 336 F.2d 828, 834 (3d Cir. 1964).

In its first argument, New York Life contends that there was no contract in existence and therefore the clause does not apply. According to New York Life it was not the named insured, John Henry Loch, who applied and paid for the insurance policy, but the plaintiff, Loch's son-in-law and the beneficiary on the policy, and that therefore the named insured never entered into a contract with the defendant. The defendant argues that because the contract never existed, the incontestability clause could not become operative.

Whatever persuasive force this argument has as an abstract proposition, it is New Jersey law that counts. In Prudential Insurance Co. of America v. Connallon, 108 N.J.Eq. 316, 154 A. 729 (E.&A.1931), the Court of Errors and Appeals, which was at that time New Jersey's highest court, rejected the same abstract argument with the following language:

The substance of the complainant's first contention is that the incontestability clause was intended to be conditional, that is, conditional upon the policy taking effect. Under such construction, the clause is deceptive, meaningless and ineffectual to the insured because although it purports to state that the policy shall be incontestable for any reason after one year, it shall nevertheless be contestable at any time on the ground herein urged. If the policy is to be regarded as never in force so as to permit the insurer to show that the insured was not in sound health at its date, although the insured's death may not occur until many years after the policy date, then an incontestability clause is of but little value and is a deceptive inducement to an insured to accept it.

Id. at 318, 154 A. 729 (quoting the unpublished opinion of the Chancellor below). See also Drews v. Metropolitan Life Insurance Co., 79 N.J.L. 398, 399, 75 A. 167 (Sup.Ct.1910). The parties agree that the named insured, Mr. Loch, died after the one year period specified in the incontestability clause of the policy. That being the case, it is clear that New Jersey law precludes the defendant from asserting its defense based upon the absence of a contract. The plaintiff, therefore, is entitled to summary judgment on his claim as a matter of law. Fed.R.Civ.P. 56(c).

There remains, however, the question of whether the incontestability clause bars the defendant from making a counterclaim against a beneficiary who is also its agent for breach of fiduciary duty under the field underwriter's contract. The legal question presented is a novel one. Neither the parties' nor my own research has discovered a New Jersey case or a case from any other jurisdiction squarely on point. Although a few courts have considered similar issues involving insurance policies allegedly obtained by the fraud of an agent, see e. g., Central States Life Insurance Company v. Byrnes, 375 S.W.2d 330 (Tex.Civ.App.1964); Kansas Life Insurance Co. v. First Bank of Truscott, 124 Tex. 409, 78 S.W.2d 584 (Com. App.1935); Cutler v. Hartford Life Insurance Co., 22 N.Y.2d 245, 292 N.Y.S.2d 430, 239 N.E.2d 361 (N.Y.Ct.App.1968), a majority rule for handling such cases is not discernible.

In determining how New Jersey would resolve the issue I have taken guidance from Judge Adams' instructive opinion in Becker v. Interstate Properties, 569 F.2d 1203 (3d Cir. 1977), cert. denied, 436 U.S. 906, 98 S.Ct. 2237, 56 L.Ed.2d 404 (1978). In that case, Judge Adams discussed the role of federal courts in answering novel questions of state law. According to Judge Adams,

Inasmuch as no New Jersey cases are squarely on point, it is important to make clear that our disposition of this case must be governed by a prediction of what a New Jersey court would do if confronted with the facts before us. Such an estimate cannot be the product of a mere recitation of previously decided cases. Rather, as in any diversity case, a federal court must be sensitive to the doctrinal trends of the state whose law it applies, and the policies which inform the prior adjudications by the state courts. A diversity litigant should not be drawn to the federal forum by the prospect of a more favorable outcome than he could expect in the state courts. But neither should he be penalized for his choice of the federal court by being deprived of the flexibility that a state court could reasonably be expected to show.
The federal tribunal is thus obligated to follow the course that it expects New Jersey courts would adopt in similar circumstances.
Because we are dealing here with a summary judgment, our analysis is limited to the inquiry of whether any state of facts reasonably inferable from the record could entitle the plaintiff to send the case to the jury under New Jersey law.

Id. at 1204-06 (footnotes omitted). See C. A. Wright, Handbook of the Law of Federal Courts § 58 (3d ed. 1976).

The facts, when viewed most favorably to New York Life, reveal that James Strawbridge, the plaintiff, is a Field Underwriter for the defendant New York Life Insurance Company and entered into a Field Underwriter's Contract with the defendant on or about October 20, 1965. Under the terms of the contract, the plaintiff was charged with the duty of "giving the Company any information or knowledge of facts which may affect the insurability of the Proposed Insured. This would include notifying the Company, regardless of whether or not cash has been paid, of any change in the insurability that occurs prior to delivery of the policy." Agents Manual, K-19, incorporated by reference in the Field Underwriter's Contract. The plaintiff processed the application of his father-in-law, John Henry Loch, for a $50,000 life insurance policy. This application omitted medical history which included a coronary thrombosis requiring a month's hospitalization in 1970, and hypertension and gout. Coronary thrombosis was listed on Mr. Loch's death certificate as a contributing cause of death.

The defendant contends that the omissions were material misrepresentations of which the plaintiff was aware and that Mr. Strawbridge fraudulently concealed the omissions in violation of his fiduciary duty as defendant's agent. This contention is supported inferentially by the facts viewed in a light most favorable to the defendant. The plaintiff, who normally used a Dr. Levine for insurance physicals, took Mr. Loch to a different doctor for the medical examination. Dr. Levine was Mr. Loch's personal physician and was well acquainted with his medical history. It could certainly be inferred, therefore, that Mr. Strawbridge intentionally had Mr. Loch avoid Dr. Levine in order to facilitate omission of relevant medical history. Moreover, as Mr. Loch's son-in-law, Mr. Strawbridge may certainly be inferred to have had knowledge of Mr. Loch's month-long hospitalization for coronary thrombosis.

Because of my prior determination on the applicability of the incontestability...

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