Citation Numbers: 162 A. 139, 111 N.J. Eq. 166
Judges: BERRY, V.C.
Filed Date: 8/5/1932
Status: Precedential
Modified Date: 4/15/2017
The motion to strike the bill of complaint is based upon five separate and distinct grounds, all of which may be combined into the contention that the bill does not state an equitable cause of action and that this court is without jurisdiction to entertain the bill because complainant has an adequate remedy at law. The bill seeks the rescission and cancellation of a certain contract and policy of life insurance issued by the complainant company on the life of one William H. Baker, the president of the defendant corporation, on the ground that it was obtained by fraud. There is also a prayer for an injunction against the assignment of, or action at law on, said policy.
The bill alleges that complainant was induced to issue its policy by the false and fraudulent statements of fact by the insured which they believed were true and upon which they relied; that if the insured had truthfully answered the medical examiner's questions the complainant would have declined to issue the policy; that the insured was not in good health at the effective date of the policy and that the policy is, therefore, void. Facts constituting the alleged fraud are set out in detail and if true there can be no question as to complainant's right to relief. The bill also alleges that the policy contained a two-year incontestability clause; that no action at law on said policy is pending; the death of the insured on May 13th, 1932, and proof thereof; tender to the defendant of all premiums paid with accrued interest, refusal of such tender and complainant now tenders payment of such sum into court.
On this motion all facts well pleaded are admitted by the defendant.
The argument in support of this motion is that the fraud alleged in the bill may be pleaded in defense to an action at law on the policy, and, if proved, would bar any recovery thereon; and that the remedy at law, therefore, being complete, this court has no jurisdiction. In other words, since complainant alleges legal or conscious fraud, instead of equitable fraud, unwittingly committed, it is entitled to *Page 168
relief only in a legal forum. In support of this argument the defendant cites Metropolitan Life Insurance Co. v. Sussman,
This court has inherent jurisdiction in all cases involving fraud. Eggers v. Anderson,
"In contracts of insurance a representation differs from a warranty, and from a condition expressed in the policy, in that the former is part of the preliminary proceedings which propose the contract, and the latter is part of the contract when completed. The validity of the entire contract depends upon the truth or fulfillment of the warranties and conditions expressed therein; and non-compliance is a breach of the contract which makes it void; but a misrepresentation, to avoid the policy, must have been in a material matter, or have been made with a fraudulent intent."
It was also there held that "conditions of insurance annexed to a policy, and by the terms of the policy made part of the contract, have the same force and effect as if contained *Page 171
in the body of the policy." And in Carson v. Jersey CityInsurance Co.,
"A warranty in a policy of insurance excludes all argument in regard to its reasonableness or the probable intent of the parties. If the policy contains a condition which in law amounts to a warranty on the part of the assured, he can derive no benefit from the policy unless the condition has been literally performed. And it is immaterial to what cause non-compliance is attributable; for, if it be not in fact complied with, the assured will forfeit all his rights under the policy unless the forfeiture has been waived by the insurer."
The act referred to requires the policy to contain the entire contract and the insured's application must be attached to and becomes a part of it. Under these circumstances, and in view of the previous condition of the law as stated above, all "preliminary" statements in the application would, ipso facto, have been converted into warranties the breach of which, however immaterial, would have avoided the policy, except for the statutory provision. It was therefore provided that notwithstanding the inclusion of the application as a part of the contract itself, these "preliminary" statements should still be considered as "representations and not warranties." There was no intent to change the substantive law as to warranties and representations. And note that this provision has no application except "in the absence of fraud." The design of the statute was evidently to put an end to the unconscionable practices of insurance companies in avoiding liability on their policies for immaterial representations which had become warranties under the law as it previously stood. Our statute is a reproduction of the New York act (N.Y.L. 1906 ch.
"The result of this provision is that in order to produce a *Page 172 warranty in an application for insurance whereof a breach would necessarily and ipso facto avoid the policy, the statement claimed to constitute or have the effect of a warranty must be characterized by and include the element of fraud, and which ordinarily would be established by proof that the person making it knew that the statement was false, and wherefrom could be inferred an intent to deceive and cheat. A misstatement, even though stated in the form of a warranty, if made in good faith and without this element of fraud, passed into the same class as an ordinary representation and became a defense to the policy only if it was material. On the other hand, the effect of a misrepresentation was left unchanged by the statute. If material it constituted a defense, although made innocently and without any feature of fraud; it was sufficient that it was material as an inducement for the issue of the policy, and was untrue."
See, also, Minsker v. John Hancock Mutual Life InsuranceCo.,
I am inclined to the belief that our statute was not intended to restrict the avoidance of life insurance contracts on the ground of fraud to those cases in which legal, as distinguished from equitable, fraud could be proved. The word "fraud" as used in the phrase "in the absence of fraud" is all inclusive. It undoubtedly means actual fraud which at law does not exist without moral culpability; but in equity there may be actual fraud "without the knowledge and wrongful intent which constitute the immorality at law." 2 Pom. 1807. The distinguishing element of actual fraud is untruth which at law must be virtually intentional — a falsehood; in equity the intention is not so essential (Ibid. 1933); it will be presumed without proof. The cases cited by Vice-Chancellor Bigelow in the Shapiro Case on the construction of the word "fraud," it will be noticed, were all law cases in which only legal fraud was involved.
In Kerpchak v. John Hancock Mutual Life Insurance Co.,
This same motion is addressed to ten other bills of complaint by other insurance companies, nine of which are against the same defendant, and the tenth of which is against the executors of the insured. (Docket and page numbers 90/668; 90/669; 90/671; 90/672; 90/681; 90/682; 90/692; 90/693; 90/694.) The policies involved in these several suits aggregate $1,000,000. The surrender and cancellation of all of said policies is sought upon the same grounds of fraud. There is no material difference in the terms of the several policies. Some of them contain one year incontestability clauses, others two-year clauses, and two of them no such clause. I consider this of no importance on this motion. My decision in the instant case is dispositive of the motions to strike in all the other cases. *Page 174