Terry v. New York Life Ins. Co.

• Decision Date: 19 June 1939
• Docket Number: No. 11360.,11360.
• Parties: TERRY et al. v. NEW YORK LIFE INS. CO.
• Court: U.S. Court of Appeals — Eighth Circuit

104 F.2d 498 (1939)

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

No. 11360.

Circuit Court of Appeals, Eighth Circuit.

June 19, 1939.

William H. Wilson, of Kansas City, Mo. (John T. Harding, David A. Murphy, R. Carter-Tucker, and John Murphy, all of Kansas City, Mo., on the brief), for appellants.

Richard S. Righter, of Kansas City, Mo. (Horace F. Blackwell, Jr., of Kansas City, Mo., Louis H. Cooke, of New York City, and Lathrop, Crane, Reynolds, Sawyer & Mersereau, of Kansas City, Mo., on the brief), for appellee.

Before SANBORN, THOMAS, and VAN VALKENBURGH, Circuit Judges.

THOMAS, Circuit Judge.

This is an appeal by the defendants from a decree in equity canceling the double indemnity and the total and permanent disability provisions of a life insurance policy issued by the insurance company upon the life of Homer C. Terry.

The policy in suit was issued October 15, 1928, and delivered to the insured in Missouri. By its terms the insurance company agreed to pay to the named beneficiaries upon receipt of due proof of the death of insured $3500; or, in case such death resulted from accident, $7000. It provided further that if the insured should become totally and permanently disabled before age 60 to pay to the insured a monthly income of $35; but if such disability should result from insanity, payment would be made to the beneficiary in lieu of the insured.

The policy contained an incontestability clause as follows:

"Incontestability. — This Policy shall be incontestable after two years from its date of issue except for nonpayment of premium and except as to provisions and conditions relating to Disability and Double Indemnity Benefits."

Terry, the insured, was a single man at the time the policy was issued. He was afterwards married. In May, 1933, he entered into a Settlement Agreement with the company by the terms of which the proceeds of the policy upon his death should be paid to his wife, Katherine L. Terry, in 144 monthly installments and in case of her death before all the installments were paid then to his son Lynn Clark Terry. In case of the death of both his wife and son, the Agreement provided that the remainder of the payments should be paid in one sum to his sister and brothers, Ruth Pauline Terry, Augustus G. Terry, William F. Terry, Gifford C. Terry and James H. Terry, share and share alike.

The right to change the beneficiaries was reserved in the policy and also in the Settlement Agreement.

On March 7, 1936, the insured was adjudged to be of unsound mind and his wife, Katherine L. Terry, was by the probate court appointed guardian of his person and curator of his estate. She was thereupon entitled to receive all disability benefits payable under the provisions of the policy in her own right as beneficiary and not in her capacity as guardian.

On December 24, 1936, the insured by his guardian filed a petition at law as plaintiff against the company in the Circuit Court of Jackson County, Missouri, seeking to recover the total and permanent disability benefits accrued under the policy for the period from November, 1934, to December 31, 1936, and for statutory penalties and attorneys' fees. The total amount demanded was less than $3000. The company's answer, filed July 14, 1937, pleaded a general denial, and as an affirmative defense alleged that the insured had been insane during all the period of time for which disability benefits were claimed; that the policy provided that in the event the insured's disability resulted from insanity the disability benefits were to be payable to the beneficiary; and that by reason of these facts the guardian had no interest in the disability benefits and was not a proper party plaintiff.

On February 16, 1938, an amended petition was filed in the action in the state court substantially similar to the guardian's petition of December 24, 1936, except that Katherine L. Terry, individually, was also made a party plaintiff.

The bill in the present suit was filed in the district court February 25, 1937, more than two years after the date of the policy. In this suit Katherine L. Terry, both as guardian of the insured and individually, was made a defendant. Lynn Clark Terry, a minor, is also joined as a defendant. The company prayed in substance for the cancellation of the double indemnity and the total and permanent disability provisions of the policy on the ground of alleged false, incomplete and untrue answers to certain questions in the application for the policy, which amounted to legal fraud; and alleged that it had no adequate remedy at law and that it would suffer an irreparable injury unless afforded relief in equity. No reference was made in the bill to the action then pending in the state court.

The defendants moved to dismiss the bill on the grounds among others (1) that the plaintiff had a full, complete and adequate remedy at law available in the action at law pending in the state court, and (2) that the incontestable clause in the policy had long since expired and that the plaintiff's cause of action was barred by laches. The motion was overruled and the defendants answered denying the alleged fraud and renewing the motion to dismiss upon the grounds alleged in the original motion.

The appeal presents for solution two questions: (1) Does the action at law pending in the state court to recover benefits under the disability provisions of the policy afford the insurance company a full, complete and adequate remedy? and (2) Is this suit seeking cancellation of the double indemnity and disability provisions of the policy barred by the incontestability clause?

First. Does the plaintiff have an adequate remedy at law? Counsel for appellee say it does not have such a remedy for three reasons: (1) Because the adequate remedy at law which will deprive a federal court of jurisdiction is an adequate remedy in the federal court. The fact that plaintiff may have a remedy in an action at law in the state court does not afford it an adequate remedy at law within the meaning of the federal rule.

(2) Because the relief plaintiff seeks is so much broader than the issues raised by the action in the state court that the remedy there would be inadequate even if the action were pending in the federal court.

(3) Because the state court action was not brought by a proper party plaintiff and could not be maintained by her, and hence afforded plaintiff no remedy whatever.

The first contention of the plaintiff insurance company is based upon an erroneous conception of the law. It is now settled that the issue in such a case as this is not one of jurisdiction but is one of the need and propriety of equitable relief. The mere fact that the suit at law which is imminent can be brought only in the state court, or that it is pending there, is immaterial. Cable v. United States Life Insurance Co., 191 U.S. 288, 24 S.Ct. 74, 48 L.Ed. 188; Enelow v. New York Life Insurance Co., 293 U.S. 379, 55 S.Ct. 310, 79 L.Ed. 440; Di Giovanni v. Camden Insurance Ass'n, 296 U.S. 64, 56 S.Ct. 1, 80 L.Ed. 47; Atlas Life Insurance Co. v. W. I. Southern, Inc., 59 S.Ct. 657, 661, 83 L.Ed. ___, decided April 17, 1939. In the Atlas Insurance Co., case the court say: "It is no ground for equitable relief that the suit at law is brought in a state rather than a federal court, for the insurance company's defense may be protected there as well as in a federal court, and in that case there is no threat of irreparable injury." The real questions for consideration in a case of this kind, as pointed out in the Atlas case supra, are whether there are special circumstances in the case entitling the insurance company to equitable relief; whether there are peculiarities of local procedure which might impair the insurance company's defense; or whether, under local law, a defense once interposed will be sufficient to preserve the insurer's rights for all purposes.

These questions in respect of special circumstances and local procedure are presented by the second and third contentions of appellee. If the inquiry upon these points leads to any doubt as to the adequacy of the insurer's remedy in the law action pending in the state court a federal court of equity will not decline cognizance of the present suit. The plaintiff will not be compelled to speculate upon the chance of its obtaining relief in the action at law. Union Pacific Railroad Company v. Com'rs of Weld County, 247 U.S. 282, 285, 286, 38 S.Ct. 510, 62 L.Ed. 1110; Davis v. Wakelee, 156 U.S. 680, 688, 15 S.Ct. 555, 39 L.Ed. 578; American Life Ins. Co. v. Stewart, 300 U.S. 203, 214, 57 S.Ct. 377, 81 L.Ed. 605, 111 A.L.R. 1268. Under the circumstances of this case we have grave doubt as to the adequacy of the remedy afforded by the pending action at law.

With an exception to be noted the rights of none of the beneficiaries named in the policy are vested because the right to change the beneficiary is reserved in the policy by the insured. Clarkston v. Metropolitan Life Ins. Co., 190 Mo.App. 624, 176 S.W. 437, 439; McKinney v. Fidelity Mutual Life Ins. Co., 270 Mo. 305, 193 S. W. 564; Missouri State Life Ins. Co. v. California State Bank, 202 Mo.App. 347, 216 S.W. 785. The exception is in the case of the beneficiary Katherine L. Terry. Under the provision of the policy that "If disability results from insanity, payment will be made to the beneficiary in lieu of the Insured" her right to accrued payments for disability is vested. But her right to future payments is not unalterable. In the event the insured recovers from his present disability her rights cease; and in case the insured should be totally disabled again for some reason other than insanity he will be entitled to the payments.

In State ex rel. National Council of Knights and Ladies v. Trimble, 292 Mo. 371, 239 S.W. 467, 470, the Supreme Court of Missouri say: "it has been expressly decided in this state that after the death of the insured an action in equity to cancel the policy is not...