Wholey v. the Columbian N.L. Ins. Co.

I think that the case at bar and the equity suit are different causes of action. It is, therefore, immaterial what issues were involved in the equity suit provided that the issue mainly involved in the case at bar was not passed upon in such suit. "The doctrine of res adjudicata does not apply to a subsequent proceeding based on a different cause of action unless the issues therein were both involved and passed upon in the former proceeding." Matteodo v. Pesce, 68 R.I. 188,27 A.2d 109, 111.

Now it is quite proper to inquire in what respect the case at bar differs from the equity suit. That question may be answered, in my opinion, by briefly stating the gist of each case. In the equity suit the complainant assumed in its bill that its negotiations with the insured were directed toward a reinstatement of the policy which had lapsed and that such negotiations had resulted in a reinstatement. On this assumption it went on to allege that such reinstatement was voidable because it had been procured by fraud in that the insured had concealed a material change in the condition of his health. The main issue, therefore, was whether the insured was guilty of fraud in the procurement of what the complainant assumed to be a reinstatement of the lapsed policy. Whatever other issues arose at the hearing of the suit were plainly subsidiary.

The true nature of complainant's cause of action in that suit is, perhaps, nowhere, in the whole history of this protracted litigation, better illustrated than in the opinion of this court in 53 R.I. 334. There the court reversed a decree of the superior court sustaining a demurrer to, and a motion to dismiss, complainant's bill. "The demurrer to the bill", this court said, "is based on the ground that Wholey's illness and his failure to disclose it were immaterial and constituted no defense to a recovery under the policy." And it further said that the motion to dismiss was "on the ground that the issue in this case might be raised in the law action and that it was one which, under the statute, must be determined by a jury." It then summarized the questions thus raised as follows: (1) "Is the reinstatement of the policy voidable? (2) Has equity jurisdiction to cancel the reinstatement?"

Thus the court assumed, but it was not called upon to decide, that there had been a reinstatement, and that the cause of action was one alleging fraud in its procurement. That the court confined itself to a consideration of those grounds is clearly evident from the language of its decision as follows: ". . . we hold that this reinstatement contract was voidable at the option of the insurer and that equity has jurisdiction of the cause." The case was thereupon remanded to the superior court for trial on the only issue remaining, namely, was the insured guilty of fraud? That issue was tried in the superior court and resulted in the entry of a decree in that court in favor of the complainant, which was upheld here in 57 R.I. 325. Nothing that was said therein changed, or could change the case into one involving anything more than a single issue of fraud in the negotiations for a contract of insurance, which was assumed by the complainant to be a reinstatement of the lapsed policy.

The case at bar, on the other hand, does not assume that there was any reinstatement of a lapsed policy. Plaintiff's declaration is laid on the ground that the refusal of the insurer to reinstate the policy, in accordance with its terms, at the premium named therein precluded the idea of a reinstatement as a matter of law, and that the later meeting of the minds of the insured and the insurer on January 15, 1932 resulted in a new contract of insurance in consideration of a new and higher premium based upon insured's attained age at that time. The gist of this action was, therefore, an alleged independent contract, not dependent upon the continued existence of any prior contract nor derivative thereof, as was the assumed reinstatement before the court in the equity suit.

The fact that plaintiff, who was a respondent in the equity suit, did not contend in such suit that the agreement was a new contract of insurance and not a reinstatement of the lapsed policy seems to me to be of no consequence. In this respect her position is no different from that of one of the petitioners inMerrill v. Boal, 47 R.I. 274, 285, against whom a plea of estoppel based on res adjudicata was raised because she had, in a former proceeding touching the same subject matter, made a contention inconsistent with the one that she was then making in the case before the court, and which was decided against her. This court held that there was no estoppel, saying: "While a person who has gained an advantage in one suit by having his contentions upheld is sometimes estopped in another case from asserting the opposite to his former claim a person is always permitted to change his contention when he finds his former position untenable."

The rule against splitting causes of action does not seem to me to be applicable here even in connection with the principle ofres adjudicata. That rule exists mainly for the protection of the defendant and rests on reasons of public policy. It did not have its origin in law but arose in equity; yet it is not always strictly applied there. In special circumstances it has been waived to avoid injustice, and it does not prevent an unsuccessful party from bringing suit a second time on a new theory. 1 C.J.S. 1306-1310.

Different causes of action may arise out of the same set of facts or circumstances. See Matteodo v. Pesce, supra; and also the following comparatively recent cases from other jurisdictions: Susi v. Davis, 133 Me. 354 and 134 Me. 308;Phillips v. Phillips, 119 N.J. Eq. 497; Martin v. City ofAsbury Park, 114 N.J.L. 298; Mitchell v. Mitchell, 136 Me. 406; Robertson v. Robertson, 117 N.J.L. 607.

Two causes of action are identical for the purpose of applying the doctrine of res adjudicata only if the same evidence will support either action, or, as stated in 2 Freeman on Judgments, § 687, p. 1447: ". . . the judgment in the former action will be a bar, provided the evidence necessary to sustain the judgment for the plaintiff in the present action would have authorized a judgment for him in the former." If we apply this language to a successful plaintiff in the prior case, who is a defendant in the second case, it is obvious that, on the record here, the defendant insurer cannot prevail on the evidence on which a decree in its favor was obtained in the equity suit. There it was distinctly held that the insurer was not obliged to show either that the alleged misrepresentation was made by the insured with intent to defraud or that the subject of it contributed to the death of the insured. In the case at bar it is not denied that the burden of proving at least one of those elements is vital to the insurer's defense. Furthermore, it is necessary for it to meet the issue of whether a new contract of insurance was entered into on January 15, 1932, which was not controverted in the equity suit.

The real difference existing between these causes of action could be elaborated upon further, but enough has been said to make clear wherein I think such difference exists. I might add that in laying down the premises upon which my conclusion rests I have, of course, assumed for the purpose of this discussion that, in law, there is no reinstatement of insurance where a new and higher rate of premium, based on the attained age of the insured at the time of the reinstatement, is demanded by the insurer before consenting to such reinstatement. A reinstatement presupposes that the policy, without change in terms or conditions, may be revived upon proof by the insurer of the required state of health to establish insurability. Such a right to revive the policy is unilateral and exists independently of a new contract. The insurer must reinstate the lapsed policy if the insured complies with the condition for reinstatement set out in the policy. In other words, the right of reinstatement has its source in the original contract and not in any so-called newcontract of reinstatement. This court in Columbian NationalLife Ins. Co. v. Industrial Trust Co., 53 R.I. 334, 341, recognized this difference when it said, "the reinstatement of insurance was in reality a new contract." But the court was not therein called upon, in considering and deciding the questions then before it, to make any application of this distinction, and it did not.

Because of the view expressed in the preceding paragraph, I cannot agree with the majority that Sussex v. Aetna LifeAssurance Co., 33 D.L.R. 549, is not authority for the plaintiff's contention "that where there is a different and higher rate of insurance there is no reinstatement but a new contract of insurance." I think that case is authority for such a proposition. The policy involved therein provided a right of reinstatement. The insured sought to avail himself of such right. He met the condition precedent to the enjoyment of such right by establishing insurability, but the insurer refused to consent to reinstatement except at a higher rate, because the insured was a soldier and war had been declared. The court rejected the insurer's claim of right to require the insured to pay a higher rate and compelled it to reinstate the policy at the old rate, that is, in accordance with the original contract of insurance as evidenced by the policy. In doing so it bluntly stated that the company's insistence upon a higher rate because of changed conditions of war and insured's change of occupation to that of a soldier, events not guarded against in the original contract, "would be to issue an entirely new policy insuring the respondent at a different and higher rate."

The essence of that decision is that the insurer was required to reinstate the policy in accordance with the terms of its contract with the insured, as set forth in the policy, and that to require him to agree to pay a higher rate would be such a departure from those terms as to amount to a new contract. That decision, of course, does not stand for the proposition that the insured could not, if he wished, enter into such a new contract. But in such case, though the parties themselves called their new agreement a reinstatement, it would not, in law, be a reinstatement of the old contract of insurance, but a new contract. That is the limit of the contention which I understand the plaintiff is making here. And she is applying the ruling principle of the cited case as a rule of construction or interpretation in order to determine the legal relationship existing between her insured and the insurer after the consummation of their negotiations into the agreement of January 15, 1932; not what the insurer called it, nor even what the insured supposed it to be, but what it actually was in contemplation of law.

For the reasons stated, I think the plaintiff's exception to the granting of the defendant's motion for a directed verdict should be sustained. Technically a directed verdict was not the proper method for obtaining a decision on the issue of resadjudicata. That should have come by way of a ruling by the trial justice on the plaintiff's replications to the defendant's special pleas in which that defense was set up as a matter of record, since there was thus raised an issue of law for the court to decide. Fitz-Simon v. Fitz-Simon,29 R.I. 358. Strictly speaking, there was no room for a verdict on such an issue. Only if the special pleas had been overruled and the case had proceeded to trial under the general issue would a motion for a directed verdict have been legally and logically in order. What the trial justice did was, in effect, to overrule the replications and sustain the pleas. I think that on this record he was in error. In my opinion, the plaintiff's replications should be sustained, the defendant's special pleas overruled, and the case remitted to the superior court for further proceedings.

ON MOTION FOR REARGUMENT.