Tracy Loan & Trust Co. v. Mutual Life Ins. Co. of New York

• Decision Date: 25 January 1932
• Docket Number: 4962
• Citation: 79 Utah 33,7 P.2d 279
• Parties: TRACY LOAN & TRUST CO. v. MUTUAL LIFE INS. CO. OF NEW YORK et al
• Court: Utah Supreme Court

7 P.2d 279

79 Utah 33

TRACY LOAN & TRUST CO. v. MUTUAL LIFE INS. CO. OF NEW YORK et al

No. 4962

Supreme Court of Utah

January 25, 1932

Appeal from District Court, Third District, Salt Lake County; J. W McKinney, Judge.

Action by Warner Olson against the Mutual Life Insurance Company of New York, in which the Tracy Loan & Trust Company was substituted on plaintiff's death, and in which Frederica Olson intervened. From an adverse judgment, defendant appeals.

AFFIRMED.

Van Cott, Riter & Farnsworth, of Salt Lake City, for appellant.

H. L Mulliner, of Salt Lake City, for respondents.

FOLLAND J. CHERRY, C. J., and STRAUP, ELIAS HANSEN, and EPHRIAM HANSON, JJ., concur.

OPINION

FOLLAND, J.

This is an action to recover on two policies of life and disability insurance each of which contained a so-called incontestable clause as follows:

"This policy shall be incontestable after two years from its date of issue except for non-payment of premiums."

From a judgment in favor of plaintiff and plaintiff in intervention, defendant appeals.

Two policies were issued March 16, 1925, to Warner Olson, one for $ 1,000 and the other for $ 1,500, payable on death of the insured, and also covered payments of $ 10 and $ 15, respectively, monthly upon proof of total permanent disability of the insured. The action was commenced by the insured in the district court of Salt Lake county April 27, 1926, wherein he sought to recover $ 175 claimed to be then due as disability benefits under the policies and praying that the policies be declared valid and subsisting contracts. May 18, 1926, the defendant filed a motion and bond for removal of the action to the United States District Court, alleging the amount in controversy to be more than $ 3,000, since the action involved the validity of the policies of the face value of $ 1,000 and $ 1,500, together with monthly payments for disability which would accrue for the expectancy of the life of the insured, alleged to be more than twenty- one months. The state court ordered the removal of the cause. The transcript of the case was timely filed in the United States District Court for the District of Utah, Central Division. May 25, 1926, the insurer filed an answer and counterclaim in the federal court alleging the policies had been secured by fraudulent representations made by the insured. September 10, 1926, plaintiff filed a motion to remand the case to the state court and in this motion alleged that the plaintiff had died July 31, 1926. Letters of administration, upon application of the insurer, were issued February 25, 1927, the Tracy Loan & Trust Company on the estate of Warner Olson, deceased. On March 10, 1927, an order was made by the federal court on motion of defendant, acquiesced in by the administrator, to revive the action and substitute Tracy Loan & Trust Company as plaintiff in the action and as defendant to the equitable defense and counterclaim theretofore interposed. The same date an order was made adding as a party by intervention Frederica Olson, the beneficiary named in the policies. No service, however, was had on this party. Plaintiff renewed the motion to remand March 21, 1927, and on May 10, 1928, the federal court sustained this motion and made and entered its order remanding the cause to the district court of the Third judicial district of Utah in and for Salt Lake county. Transcript of the proceedings had in the federal court, together with copies of pleadings filed therein, were on May 11, 1928, filed in the state court. A complaint in intervention by Frederica Olson was, on October 24, 1928, by permission of court, filed in the state court, where she asked payment to her as beneficiary of the amount of the two policies, to which complaint the defendant filed its answer and counterclaim November 20, 1928, setting up the alleged fraudulent representations of the insured in securing the policies and praying cancellation thereof.

The case was tried in the state court with a jury. The plaintiff and plaintiff in intervention adduced evidence in support of their complaints and rested. The defendant offered evidence in support of its allegations that the policies had been secured by false and fraudulent representations, to which offers plaintiff and plaintiff in intervention objected on the ground that it was an attempt to contest the policies of insurance after the expiration of two years from the date of issue, contrary to the provisions of the policies and of the statute, Comp. Laws Utah 1917, § 1154, subd. 2, and that the evidence offered was incompetent, irrelevant, and immaterial. The objections were by the court sustained and the evidence excluded. After each party had rested, the court directed a verdict in favor of the plaintiff administrator for the disability benefits which had accrued on the policies prior to the death of the insured and in favor of plaintiff in intervention for the full amount of the policies. Judgment was entered on the verdict. The assignments of error, of which there are 59, challenge the correctness of the order of the trial court in sustaining the objections to its offered evidence and in directing the jury to return verdicts in favor of plaintiff and plaintiff in intervention and in entering judgment on such verdict. All the points raised are directed to the question whether the insurer failed to contest the policies within two years from March 16, 1925, the date of issue of such policies.

The rule is now settled that under a policy containing an incontestable clause such as the one in these policies, the contest by the insurer is too late if begun after two years of date of issue, and this is true although within that period the insured has died. Mutual Life Ins. Co. v. Hurni Packing Co., 263 U.S. 167, 44 S.Ct. 90, 68 L.Ed. 235, 31 A. L. R. 102; Killian v. Metropolitan Life Insurance Co., 251 N.Y. 44, 166 N.E. 798, 800, 64 A. L. R. 956.

The decisions are not unanimous as to how a contest under an incontestable clause may be begun. Some courts hold that a mere letter or notice of rescission with offer to refund premiums paid is a sufficient act of contest. Mutual Life Insurance Co. v. Hurni Packing Co. (C. C. A.) 280 F. 18; Great Southern Life Insurance Co. v. Russ (C. C. A.) 14 F.2d 27. But the great weight of authority is that a mere letter of rescission is not a contest even if accompanied by an offer to return premiums paid, but that the insurer must make its contest in the courts, and that such a contest is nothing short of a proceeding where the parties are actually at grips with issues joined involving the invalidity of the policy. The cases hold " a contest begins when the contestant, satisfied no longer with minatory gestures, are at grips with each other in the arena of the fight. When the fight is a civil controversy, the arena is the court." Killian v. Metropolitan Life Insurance Co., supra. "A contest so provided for imports litigation, the invoking of judicial action to cancel or prevent the enforcement of the policy, either by a suit to that end or by a defense to an action on the policy." Northwestern Mutual Life Insurance Co. v. Pickering (C. C. A.) 293 F. 496, 499, certiorari denied 263 U.S. 720, 44 S.Ct. 229, 68 L.Ed. 524. "In order to contest the policy it (the insurer) was required to file an answer to the suit brought by the beneficiary within one year, or to have instituted an action of its own in equity to cancel the policy on the ground of fraud." Missouri State Life Ins. Co. v. Cranford, 161 Ark. 602, 257 S.W. 66, 69, 31 A. L. R. 93. Other cases supporting this rule are cited in 37 C. J. 540 and in the recent decisions of Killian v. Metropolitan Life Insurance Co., supra; New York Life Insurance Co. v. Hurt (C. C. A.) 35 F.2d 92; Rose v. Mutual Life Insurance Co. (C. C. A.) 19 F.2d 280; and Powell v. Mutual Life Insurance Co. of N.Y., 313 Ill. 161, 144 N.E. 825, 36 A. L. R. 1239 and note. It follows that the filing of an answer or counterclaim such as was filed in the federal court would be sufficient if the filing in that court is to be given the same effect as would follow had it been filed in the state court without removal, or had there been no remand to the state court from the federal court.

The appellant contends it commenced its contest of the policies within time because: (1) Of the filing of its answer and counterclaim in the federal court after removal within the two-year period; (2) by the filing within the two-year period in the state court of its petition for removal of this cause, which petition alleged that the insured made representations of facts known by him to be false but which were relied on by the insurer in issuing the policies of insurance. These, it claims, were sufficient acts of contest to meet the requirements of the law. It also contends it is within time because within one year after its counterclaim failed in the federal court it filed a similar counterclaim in the state court and such additional one-year time was authorized by Comp. Laws Utah 1917, § 6484.

The answer and counterclaim filed in the federal court allege facts sufficient to initiate a contest on the policies if such filing in that court is to be taken as the filing of an answer and counterclaim in the cause. It is claimed, however by the respondents that the filing of such answer and counterclaim in the federal court was a nullity because by its order to remand the federal court conclusively decided it had no jurisdiction of the cause, and therefore such order and counterclaim were not filed in a court having jurisdiction of the cause, that the cause was never in the federal court, and that the filing of such papers in that court did not amount to a contest. Respondents concede that the insurer clearly...