Lockett v. National Life & Accident Insurance

1. Where a policy of life insurance contained a clause providing in effect that it would be incontestable after two years from its date of issuance, and after expiration of this period and after lapse for non-payment of premiums the policy was reinstated on application of the insured, and there is nothing either in the policy or in the contract of reinstatement requiring a different construction, such incontestable clause is renewed by the reinstatement and will apply thereto as it did to the original policy, thus making the reinstatement itself vulnerable for fraud for the period limited, but no longer.

2. Under the terms of the instant policy, where the insured died after such reinstatement, but within the period specified in the incontestable clause, his death did not stop the running of such period. Nor was the beneficiary obliged to sue on the policy within the period.

3. The insurance company having within such period filed suit against the beneficiary, to cancel such reinstatement upon the alleged ground that it was procured by fraud on the part of the insured, and it appearing from the petition that if the company had waited upon the election or pleasure of the beneficiary, its right of contest as limited by the incontestable clause might expire before action on the policy, the company had no adequate remedy at law, and could resort to equity for cancellation.

4. Under the foregoing principles, the petition of the insurer for such relief stated a cause of action, and the general demurrer was properly overruled.

No. 13884. JANUARY 22, 1942. On February 24, 1941, National Life and Accident Insurance Company filed a suit in equity against Mrs. Esther Mae Lockett, praying for cancellation of four reinstatements of a described policy of life insurance for $1000, issued on the life of Herbert E. Lockett, deceased husband of the defendant, she being the beneficiary therein named; and for other relief. A demurrer containing four general and two special grounds was filed by the defendant, Mrs. Lockett. In response to a ground of special demurrer, the petitioner attached a copy of the policy in question. The court then overruled all grounds of demurrer, and the defendant excepted.

The petition alleged: The policy was issued on June 18, 1931, the premium being $1.90 monthly. The insured failed to pay the premiums due October 1 and November 1, 1939, and the policy lapsed according to its terms. On December 12, 1939, the insured signed an application to reinstate the policy. In this application he stated: "As the basis of this application, and as a part of the contract of reinstatement applied for, in behalf of myself and of every person who shall have or claim any interest in the reinstated policy, I hereby warrant and agree: (1) That all statements and answers contained in either section of my application for insurance, in consequence of which said policy was originally issued, were, on the date of said application or section thereof, full, complete, and true as therein written; (2) that all my statements hereinafter contained are full, complete, and true, each printed statement to which no written exception is made being wholly true without exception; (3) that said policy shall not be reinstated, and the insurance therein provided for shall not be in force, until the company shall signify its acceptance of this application by mailing to me a notice thereof during my life and good health; (4) that if my death shall occur within two years after the reinstatement of said policy, the insurance thereby provided shall be avoided by any breach of any of my warranties or agreements herein contained."

In the application for reinstatement, Herbert E. Lockett made also the following statement: "Since the date of my original application, I have not been attended by any physician and have not consulted any physician regarding my health, excepting: None." Relying on the truthfulness of said representation made by Lockett, petitioner reinstated said policy of insurance on or about January 11, 1940. The petition then sets out three subsequent lapses and reinstatements, on the same bases as the foregoing, the last reinstatement having been made on September 13, 1940. Other allegations were as follows: Said "policy of insurance contains a grace period of thirty-one (31) days, during which time the insured may pay a premium, but it expressly provides in paragraph 6: ``In the event of default of premium payments, unless the cash surrender value has been paid, it is agreed that this policy may be reinstated upon presentation at its home office of evidence of insurability satisfactory to the company and payment of arrears of premium and payment or reinstatement of any indebtedness to the company hereon or secured hereby, with interest at a rate not exceeding six per cent. per annum.'" After the reinstatement in September, 1940, said insured continued to pay the monthly premium of $1.90 through November, 1940. On December 29, 1940, the insured died of a cerebral hemorrhage. The defendant herein, the beneficiary, did furnish to petitioner certain forms showing the cause of death, and petitioner then learned for the first time that the insured had suffered a cerebral hemorrhage which was secondary to a fracture of the skull sustained by the insured in July, 1938. "Your petitioner learned for the first time that the insured had suffered a fall from a truck in July, 1938, from which injury he was sent to a hospital on July 30, 1938, and that he remained there constantly under the treatment of a physician until August 14, 1938, and that he was subsequently treated by said physician at various times after August 14, 1938, all of which was well known to the insured and none of which had been disclosed to your petitioner in any of the various applications for reinstatement of said policy which he had made. . . A copy of the first application for reinstatement of said policy is attached hereto, marked Exhibit A and made a part hereof. The remaining applications for reinstatement are identical except as to dates. . . That your petitioner had no notice or knowledge of said accident sustained by the insured on July 30, 1938; that said injury was a serious one; that the information about it was material to the risk; that the insured, in his application for reinstatement, wilfully concealed said information from your petitioner, and that by reason thereof, each one of said reinstatements granted the insured upon said applications for reinstatements, is null and void, and that said policy lapsed as of October 1, 1939."

The petition alleged that certain loans were made to the insured on the policy, and that it had in addition thereto a paid-up insurance value of $116, and that petitioner had tendered this sum, together with premiums paid by the insured since October 1, 1939, and interest thereon, to the defendant, which tender she had refused. "Petitioner herewith tenders said sum into the registry of this court to the defendant." "That your petitioner has not been sued on said claim."

In addition to what was quoted in the petition, the application for reinstatement, as shown by an exhibit, provided, "that, except as modified by this application, the insurance provided for by said policy when reinstated shall be subject to all the terms and conditions thereof, as if no default had occurred in the payment of a premium thereon." Paragraph 7 of the policy contained the following: "Except for non-payment of premiums when due [and other exceptions not here material], this policy shall be incontestable after two years from its date of issue." The insurance company, as plaintiff, sought the equitable relief of cancellation of four reinstatements of a policy issued upon the life of the defendant's husband, and of which she was made the beneficiary; all of such reinstatements having been made within two years before the suit was filed. The court overruled a general and special demurrer filed by the defendant beneficiary, and she excepted. Still other relief was prayed, but in our view of the case it is sufficient here to deal with it as if cancellation had been the only relief sought; and even as to that we will limit our ruling to the last reinstatement. We may properly do this, because if the petition stated a cause of action for any of the relief prayed, that is, for cancellation of even the last reinstatement, as we think it does, it was not error to overrule the general demurrer.Blaylock v. Hackel, 164 Ga. 257 (5) (138 S.E. 333). It would seem that except for the last reinstatement the plaintiff could not be in need of equitable relief, as each previous reinstatement was followed by a lapse for non-payment of premiums.

The only contention presented in the brief of counsel for the beneficiary, the plaintiff in error, is that under the allegations of fact the plaintiff would have an adequate remedy at law, by contesting liability on the ground of fraud in the procurement of the reinstatement, by way of defense to an action at law upon the policy.

While in part one of the brief counsel did refer to one ground of special demurrer, and stated that this ground was not abandoned, still there was no reference to it in part two containing the brief of law and argument, and therefore it must be treated as abandoned.

The original policy contained a clause providing in effect that as to fraud "the policy shall be incontestable after two years from its date of issue." The policy having been attached to the petition as an exhibit and made a part thereof, the incontestable clause so appearing is pleaded sufficiently for this court to deal with it as a part of the petition. Hosher v.Fitzpatrick, 146 Ga. 525 (82 S.E. 1065); Hardy v. Phoenix Mutual Life Insurance Co., 180 N.C. 180 (104 S.E. 366); Mutual Life Insurance Co. v. Buford,61 Okla. 158 (160 P. 928).

If this clause is now applicable to the reinstatement just as it was to the original policy, then the case would be precisely the same as if the insurer on identical allegations of fraud was seeking to cancel the original policy within the period stipulated.

The effect of such an incontestable clause upon a reinstatement is a question which seems never to have been expressly decided by this court, although from the records of file the following appear to be physical precedents in favor of the view that the incontestable clause is renewed by the reinstatement and applies thereto, just as it did to the original policy. Phillips v. New York Life Insurance Co., 173 Ga. 135 (159 S.E. 696); New York Life Insurance Co. v. Hollis,177 Ga. 805 (171 S.E. 288). The problem here can not properly be solved without a direct ruling on such question, and in logical order it would seem to be the first point for determination.

In at least one jurisdiction it is the view of the courts that where the reinstatement takes place after expiration of the period limited in the incontestable clause as applied to the original policy, the insurer no longer has the right of contest for any cause covered thereby, not even as to the reinstatement. New York Life Insurance Co. v. Dandridge (Ark.), 149 S.W.2d 45, 134 A.L.R. 1519. In another State it has been held, in effect, that such a clause is not applicable for or against either party in reference to a reinstatement; so that if the reinstatement itself has no incontestable clause, the insurer may attack it for fraud at any time. Chuz v. Columbian National Life Insurance Co. (N. J.), 162 A. 395. There may be still other variations in the authorities. The great weight of authority, however, is to the effect that in the absence of anything either in the policy or the reinstatement to require a different construction, the incontestable clause is renewed on reinstatement of the policy, and applies to the reinstatement as to both parties in the same manner and to the same extent as it applied to the original policy. As a typical statement of this view, we quote from Teeter v. United Life Assurance Association, 159 N.Y. 411 (54 N.E. 72), as follows: "Had the original application contained any false statements, the defendant [after the two years specified in the incontestable clause] would have been prevented by the terms of its contract from setting up their falsity as a defense to the action. . . And it seems to us, after an examination of the contract, that the defendant had two years after the reinstatement of the contract within which to investigate the condition of [insured's] health at the time of the making of the reinstatement certificate, and that after that time the policy again became incontestable." See also Pacific Mutual Life Insurance Co. v. Galbraith, 115 Tenn. 471 (91 S.W. 204, 112 Am. St. Rep. 862); Ash v. Fidelity Mutual Life Association, 26 Tex. Civ. App. 501 (63 S.W. 944); New York Life Insurance Co. v. Burris, 174 Miss. 658 (165 So. 116); Winerv. New York Life Insurance Co., 140 Fla. 534 (190 So. 894); Smith v. State Mutual Life Assurance Co., 331 Pa. 1 (199 A. 358); New York Life Insurance Co. v. Seymour, 45 F.2d 47 (73 A.L.R. 1523); New York Life Insurance Co. v. Odom, 93 F.2d 641. See also annotations in 94 A.L.R. 1200, and 134 A.L.R. 1525, where many decisions are cited and analyzed.

We here follow the weight of authority, believing that it represents the sounder view. Incidentally, it is in accord with the adjudications in Phillips v. New York Life Insurance Co., and New York Life Insurance Co. v. Hollis, supra. See also New York Life Insurance Co. v. Odom, 93 F.2d 641, dealing with a transaction which arose in this State.

The result is that the incontestable clause contained in the original policy must be now treated as if it were a part of the reinstatement, allowing the insurer to contest the reinstatement on the ground of fraud, for the period of two years after its date, but no longer. The insured died within the period, but under the terms of the policy his death did not stop the running of the period stated in such incontestable clause. Riley v.Industrial Life Health Insurance Co., 190 Ga. 891 (11 S.E.2d 20); Henderson v. Life Insurance Co. of Va., 176 S.C. 100 (179 S.E. 680); Mutual Life Insurance Co. v. Hurni Packing Co., 263 U.S. 167 (44 Sup. Ct. 90, 68 L. ed. 235, 31 A.L.R. 102). Nor under this policy was the beneficiary obliged to sue within such period. It follows that if the insurer waited upon her election or pleasure, the incontestable clause might ripen and foreclose its defense before action by the beneficiary. In this situation the insurer had no adequate remedy at law, and could resort to equity. American Life Insurance Co. v. Stewart, 300 U.S. 203 (57 Sup. Ct. 377,81 L. ed. 605, 111 A.L.R. 1268).

The plaintiff in error relies upon Barfield v. PacificMutual Life Insurance Co., 182 Ga. 704 (186 S.E. 735), and Enelow v. New York Life Insurance Co., 293 U.S. 384 (55 Sup. Ct. 310, 79 L. ed. 443). The present case differs on its facts from each of those cases. In the Barfield case the policy contained no limitation as to the time within which it could be contested for fraud in its procurement. The policy did provide that it should be "incontestable after one year from its date, as to the time of the happening of bodily injury or sickness causing disability commencing after such year and while this policy is in force," but this did not purport to be a stipulation of any kind as to fraud, or to prevent the insurer from contesting liability on that ground at any time. Accordingly, in that case the insurer could have awaited action by the beneficiary and could then have defended on the ground of fraud, no matter when such action might have been instituted; provided there was no waiver, estoppel, or other like bar, as against such defense. So in the Barfield case, it appeared that the insurance company would have had an adequate remedy at law to contest liability in an action at law on the policy; whereas, by reason of difference in the incontestable clauses, the company here did not have such remedy.

In Penn Mutual Life Insurance Co. v. Childs, 189 Ga. 835 (7 S.E.2d 907), it appeared from the petition that suit had already been instituted upon the policy at the time the suit in equity was filed. This was enough to show that the insurer in that case also had an adequate remedy at law by defending such action. The Enelow case, 293 U.S. 384, supra, is distinguished from the present case on the same ground as the Childs case.

Counsel for the beneficiary also asks that we decline to follow the decision of the Supreme Court in the Stewart case,300 U.S. 203, supra, saying that we are not bound thereby, inasmuch as it does not deal with a Federal question. Whether it is binding or not, we consider it sound.

The petition stated a cause of action, and the court did not err in overruling the general demurrer.

In the brief of counsel for the plaintiff in error it is stated that as a matter of fact "there is now pending" a suit on the policy. This, of course, can not affect the present inquiry, as the petition for cancellation alleged that no such suit was pending at the time the present suit was instituted. See American Life Insurance Co. v. Stewart, 300 U.S. 203, supra.

Judgment affirmed. All the Justices concur.