Chun Ngit Ngan v. Prudential Insurance Co. of America

OPINION OF THE COURT BY PERRY, J. (Peters, C. J., dissenting.) This is an action at law to recover the sum of $5000 and interest upon a policy of insurance. The policy was issued on May 1, 1922, and the assured died of tuberculosis on February 5, 1923, at Leahi Home, an institution for the care of persons so afflicted. This action by the beneficiary, to recover the amount of the insurance provided for in the policy, was commenced in June, 1924, more than one year after its issuance. The policy sued upon contains a provision that it shall be “incontestable after one year from its date, except for nonpayment of *100 premium.” In connection with his application for the policy the assured represented to the insurance company that he did not suffer from certain ailments mentioned in the application and in the examination by the company’s physician and that he had not within a stated period last past .consulted any physician with reference to any such ailment. These representations were untrue in fact. They were material and were relied upon by the examining physician and the insurance company in concluding to issue the policy. The insurance company did not, within one year from the date of the policy, institute any judicial proceedings to test the validity of the policy; but on April 7, 1924, after the death of the assured and within the period of one year from the issuance of the policy, it made a tender to the sole beneficiary named in the policy of the' amount which it had received as, the first premium from the assured, notified the beneficiary of the misrepresentations of the assured and of the fact that it considered the policy invalidated by the fraud and that it refused to be bound by the policy or to pay the amount of the insurance covered thereby and demanded the return of the policy. In its defense in the present action, the company proved these facts, including the fraud, by undisputed evidence and they were in substance found to be true by the trial court. That court, however, held that, because of the clause relating to incontestability, the fraud could not now be availed of as a defense in this case and gave judgment for the plaintiff for the sum of $5508.33, including principal and interest to date of judgment. The only question presented by the parties for our consideration on this appeal is whether under the above-recited circumstances the clause relating to incontestability renders it impossible for the insurer to avail itself in this action of the defense of fraud and invalidity. Stated *101 in another way, the sole question is whether the steps taken by the insurance company within the year were such as to authorize the company to present them' by way of defense to the present action brought by the beneficiary. The rule sometimes referred to in construing policies of insurance, that their language, because it was chosen by the insurer,' is in case of ambiguity to be taken most strongly against the insurer is not applicable in this instance because there is a statute in this Territory requiring the inclusion in all policies of life insurance of a clause providing for incontestability after the lapse of two years from their issuance. S. L. 1917, Act 115, Sec. 50, Subd. 3. See, for example, Ebner v. Ins. Co., 121 N. E. (Ind.) 315, 319. The language under these circumstances is deemed not to be that of the insurance company. Another rule of construction, well settled in this jurisdiction, is that the words in an insurance contract “should be given their ordinary and popularly accepted meaning in the absence of anything to show that they were used in a different sense.” Alexander v. Home Ins. Co., 27 Haw. 326, 328. In our opinion the steps shown by the undisputed evidence to have been taken within the first year by the insurance company constituted a “contest” of the policy and render the defense of fraud available in the present action. 1. The ordinary everyday meaning of the word “incontestable” leads to this conclusion. Nor is there any difficulty in ascertaining what that ordinary meaning is. The men who, because of the superiority of their knowledge of the English language, were chosen to prepare our dictionaries are all agreed on the subject. “Incontestable. Not admitting of debate or contro *102 versy; * * * incontrovertible; as, incontestable facts or testimony. “Synonyms: * * * incontrovertible; indisputable; * * * unassailable.” Standard Diet. “Contest. To contend; to contend about in argument, especially in opposition; dispute; challenge; call in question; litigate.” Standard Diet. “Incontestable. Not contestable; not admitting of dispute or debate; * * * incontrovertible; indisputable. “Our own being furnishes us with an evident and incontestable proof of a Deity. “Synonyms: Indisputable; indubitable.” Cent. Diet. “Contestable. That may be disputed or debated; disputable; controvertible.” Cent. Diet. “Contestant. One who contests; a disputant; a litigant.” Cent. Diet. “Contest, v. To argue in opposition to; controvert; litigate; oppose; call in question; challenge; dispute; as, * * * his right to the property was contested in the courts.” Cent. Diet. “Incontestable. Not contestable; not to be disputed, called in question, or controverted; incontrovertible; indisputable; as, incontestable evidence. “Specif., insurance, such by its terms that payment in case of loss cannot he disputed by the company for any cause except nonpayment of premiums; — said of a policy. “Synonyms: Incontrovertible; indisputable; irrefragable; undeniable; unquestionable.” Webster’s New Int. Diet. “Contest, v. To make a subject of dispute, contention or emulation; * * * to call in question; to controvert; oppose; dispute. “Synonyms: Dispute; controvert; debate; litigate; oppose; argue; contend.” Webster’s New Int. Diet. “Incontestable. Incontrovertible; indisputable; not contestable; not to be disputed; that which cannot he called in question or controverted.” 31 C. J. 405, 406. “Contest. The primary meaning of the verb 'to contest’ is to malee a subject of dispute, contention, or litigation; to call in question; to controvert; to oppose; to dispute. It is further defined as meaning, to defend, as a *103 suit or other judicial proceeding; to dispute or resist, as a claim, by courts of law; to litigate.” 7 A.. & E. Ency. L. 78. None of the dictionaries contains the slightest suggestion that the only correct meaning of the verb “contest” is to litigate in court or to oppose in court and not elsewhere. It can be used as meaning to dispute or oppose in court but that is not its only meaning. One of its well-known meanings is to dispute and to attack out of court. We rely upon these definitions. We believe that they are correct and that the ordinary meaning of the word “incontestable” is “indisputable,” “not to be disputed in any way” whether in court or out of court. 2. There is absolutely nothing in the policy to show that the word “incontestable” or its inferential antonym “contestable” was not used in its ordinary acceptation or was used only in its narrower meaning as importing á dispute or opposition or attack in court. 3. There is no provision in the policy to the effect that the “contest” which is permitted within the first year shall be by judicial proceedings only. The clause of incontestability was doubtless drawn by the ablest lawyers available to insurance companies — men who know the English language well and who were aware of the ordinary definitions given to the words “incontestable,” “contestable” and “contest” in the dictionaries. When under these circumstances they saw fit to provide simply that after a stated period the policy should be “incontestable” without specifying that within that period, the policy would be contestable by judicial proceedings only, the inference is certainly of the strongest that no such limitation was intended upon the methods open to the company within the period for contesting the policy. 4. The origin and the purpose of the clause of incontestability in policies are not open to doubt. Prospective *104 applicants for insurance learned from the expeifience of those who had gone before them and from the frequency of attacks by insurers upon policies after the death of the insured, that after all there was not a great degree of certainty that after their deaths and after their self-denial for long periods of year's in the payment of premiums the assurance of financial aid which was thought to be thereby conferred upon their children or other beneficiaries would be actually effectuated. Because of this uncertainty applications for policies became less frequent than could be desired by the insurance companies, hence the inclusion of clauses such as the one now under consideration whereby the companies waived the right which had been theirs to attack the validity of policies (except for one or two very limited causes) after the expiration of a short period, usually one or two years. This waiver brought to applicants the assurance that if an attack upon the policies for fraud or for causes other than the excepted ones was to be made it would be made within the very short period agreed upon and probably within the lives of the applicants and certainly while the evidence • contradicting the alleged fraud or other ground of attack relied upon was still in existence and easily available to the insured or, in the event of his early death, to his beneficiaries. They could rest assured that such an attack, necessarily prompt, would be brought to their knowledge so that preparations could be made by them to meet it, either by judicial proceedings to perpetuate the evidence available or by a suit in equity to establish the validity of the policy or by an action at law to recover the value of the policy at the time of the repudiation or by an action at law to recover the total amount of insurance after the death of the insured or by acquiescence in the repudiation, acceptance of the premium returned and the securing of insurance from some other *105 company. This history is recognized and these purposes are fully subserved by reading the permitted contestability (within the prescribed period) as referring to a contest or dispute in pais as well as to a dispute or contest in the courts. 5. As the word “incontestable” is undoubtedly used in the policy as meaning indisputable “in any way whatsoever,” i. e., in court or out of court, so also the inferential antonym “contestable” means disputable by any or every method which constitutes a dispute or attack, i. e., in court or out of court. 6. The clause of incontestability relates to what may not be done after the prescribed period and does not attempt to prescribe what may be done within that period. As to the latter, the rights of the insurer are as broad as they would have been if the clause of incontestability were not in the policy. Without that clause those rights for the first year would certainly have included the right to dispute or attack out of court as well as to dispute or attack in court. 7. There is nothing in the requirement that after one year the policy shall not be contestable which prescribes or indicates how it may be contested within the year. Even the advocates of the sole judicial contest theory do not claim that the judicial proceedings must terminate in a decree or decision within the prescribed period. According to their view the filing of the suit and the service of summons on the last day of the prescribed period would constitute a contest such as would satisfy the requirements of the policy. If this is so, and undoubtedly it is, then the only purpose which could possibly be sub-served by the mere institution of the judicial proceedings would be that the contest was commenced, that notice was thereby served upon the insured or his beneficiary, within the prescribed time, that he had a contest *106 upon Ms bands and that be must ascertain, if be will, what evidence is available to him and preserve it and perpetuate it as far as possible if be does not acquiesce in tbe repudiation. All of these purposes are as well served by a contest or dispute out of court as by tbe judicial proceedings. If litigation after tbe expiration of tbe one year is not in violation of the policy, as it is not, merely because tbe judicial proceeding was instituted within tbe one year, then so also litigation after tbe one year is not in violation of tbe policy where it is in continuance or development of tbe contest in pais which was started before tbe expiration of tbe period. Of course, by tbe clause as to incontestability it was not contemplated by any of tbe parties to this contract that litigation after tbe one year could not be bad. It is always possible for parties to litigate although it is not always possible for them to succeed; and it is permissible and correct that there should be litigation after tbe prescribed period to establish rights which accrued and became fixed within tbe period. 8. Under tbe very clause of incontestability now under consideration it is entirely clear that tbe policy is contestable, for non-payment of premiums, even after tbe first year. Do advocates of tbe opposing theory mean that after tbe first year tbe only way in which tbe company can “contest” tbe policy is judicially? Such a contention would be wholly unsupportable. A repudiation by acts and words out of court would clearly suffice, throwing tbe burden upon tbe beneficiary or tbe insured, as tbe case might be, of suing if be wished to do so. If this is so in tbe respects in which tbe policy is contestable after one year, why is it not equally so in tbe respects in which it'is contestable during tbe first year? We think that it is. In bolding as we do, we appreciate that in point of *107 numbers the authorities are overwhelmingly against us; but with all respect, we think that, in reason, they are not. The case of Mut. Life Ins. Co. of New York v. Hurni Pkg. Co., 263 U. S. 167, is cited by the insurance company as sustaining its contention. If it were a decision on the point, our duty in the case at bar would be greatly simplified but we cannot find that in that case the court expressed any view upon the point now under consideration. What it held was that the “date of issue” referred to in the clause of incontestability in the policy then before the court was the one specified in the policy “although this (by agreement of the parties) was earlier than the dates of actual execution and delivery,” — a question entirely different from that now before us. In the same case upon a second trial (280 Fed. 18, 20) the lower court said: “We are equally of opinion that a repudiation of the claim of defendant in error” (the beneficiary) “such as that made in the letter of August 24th” (the steps taken by way of repudiation were wholly out of court) “was a sufficient act of contest, and that court proceedings were not essential to the assertion of the right, as counsel for defendant in error contend.” While this is an adjudication in favor of our construction of the policy, the reasoning which moved the court is not set forth in the opinion. The only well-reasoned opinion which has come to our attention in support of the view that a non-judicial contest within the prescribed period will suffice to protect the rights of the insurance company is that of Judge Cochran of the United States District Court, reported in Mut. Life Ins. Co. of New York v. Rose, 294 Fed. 122, at pages 132, 133 and 134. In that case the insurer after the expiration of the period named in the incontestability clause brought suit to cancel the policy on the ground of *108 fraud. Within the time limited it had repudiated the policy, tendered the premium to the insured and demanded a return of the policy. The suit was brought in the lifetime of the insurer. The question as stated by the court was, “whether, if a policy of insurance has been rescinded for fraud in the way thus pointed out, during the period of contestability, may not such rescission be relied on as a ground of a suit in equity to cancel the policy, brought after the expiration of such period, or may it be pleaded as a defense to a suit brought on the policy after the expiration of such a period?” The question was answered by the court in the affirmative. It may be that in one respect as to the facts that case differs from the case at bar, for in that case the tender of the premiums already paid was made to the insured himself and from him the return of the policy was demanded. In the case at bar the tender would seem to have been made to the wrong party. The estate of the decedent and not the beneficiary of the policy was entitled to a return of the premium. Nevertheless it is far from clear that a tender of the premium was necessary in the case at bar in order to constitute a rescission in pais by the act of one party alone, to wit, the insurance company. A tender to the beneficiary certainly was not necessary, because she was not entitled to it. A tender to the administrator was probably not a prerequisite to a rescission as against the beneficiary, particularly in view of the undisputed evidence that by its acts the .insurance company made clear that it was not endeavoring to retain the premium while cancelling the policy. It was obviously anxious to return the premium to the person entitled to it. Again, it does not appear from the record that any administrator of the estate was ever appointed and in the absence of such an appointment there could be no tender to anyone representing the estate of the decedent. If a *109 tender to the beneficiary was not under the circumstances of this case a prerequisite to a completed rescission by the insurance company alone, the Rose case is parallel in its facts to the case at bar. However that may be and even assuming that a tender was an essential prerequisite and that there was no completed rescission by the insurance company, nevertheless it remains true that the Rose case is a direct authority to the effect that a non-judicial contest within the year will suffice to meet the requirements of the policy, and will justify the insurance company in pleading that contest as a defense to an action upon the policy brought by the beneficiary after the lapse of the prescribed period. The court held, after a careful consideration of the facts and the law, that the steps taken by the insurance company within the year, to wit, the tender, the repudiation on the ground of fraud and the demand for the policy, while they were admittedly not a judicial contest, nevertheless constituted a “contest” and were available in defense to the action at law brought by the beneficiary after the prescribed time limit. Once it is held or admitted that some acts out of court may constitute a contest within the inferential contestability provision of the contract then the judicial nature of the dispute can no longer be said to be the boundary or line of demarcation between a sufficient contest and an insufficient contest. One set of facts in pais is just as good as another set of facts in pais provided it constitutes an attack on the policy or a dispute. In this connection it must always be borne in mind that the ultimate test to be considered is not whether there has been a “rescission” but whether there has been a. “contest.” The word “rescission” does not appear in the clause under consideration or anywhere else in the contract in connection with this same subject. The fact that the company had gone so far in the Rose case as to make alone a com *110 pleted rescission and cancelation of the fraudulent contract was a good reason for holding that the company had contested the validity of the policy within the prescribed period; but it does not follow that such a completed rescission is an indispensable and tbe only method of constituting a contest in pais. A few comments will now be made with reference to tbe authorities bolding that a judicial contest alone will suffice to protect tbe insurance company. A writer in tbe Central Law Journal, Vol. 97* No. 3, after a review of the cases summarized bis own reasoning in these words: “To give tbe word ‘contest’ tbe meaning insisted upon by tbe companies would be treating it as if tbe word ‘dispute’ bad been used instead. Tbe courts Avill not attribute to tbe parties, in tbe selection of tbe language used in tbe clause, a futile or a useless purpose. Tbe clause certainly was intended to mean something and was intended to be enforced. Certainly there would be no means of enforcing tbe contract if tbe word ‘contest’ means ‘dispute.’ No one could prevent tbe company, notwithstanding its contract, from disputing liability. * * * since contracts may only be enforced by tbe courts, * * * it is logical to conclude that tbe parties * * * had in mind a contest in a court of competent jurisdiction.” Tbe weakness of this reasoning is that it is equally true that if “contest” means only a judicial dispute, no one could prevent tbe company from instituting judicial proceedings and thus disputing liability. Many of tbe courts base their construction of tbe clause in whole or in part upon tbe statement that tbe clause is “a statute of repose and limitation.” To a certain extent, it is; but only to tbe extent indicated by tbe language of tbe provision. In other words, tbe mere thought that the provision was intended as an assurance *111 of repose and limitation of the company’s rights does not throw light upon the meaning of the words “incontestable,” “contestable” or “contest.” Under onr view, as well as under the opposing view, the clause is similar to a statute of repose and limitation. By it, under our view, the company waives and abandons certain rights of dispute which it otherwise would have had beyond the prescribed period and is compelled to ascertain whether or not the policy was secured by fraud and to make its contest or dispute of the policy and necessarily to inform the insured or the beneficiary, as the case may be, of its repudiation, opposition and attack upon the policy,— all within the time limited. In other cases, as for example, Am. Trust Co. v. Life Ins. Co., 92 S. E. (N. C.) 706, 711 and Thistle v. Ins. Co., 261 S. W. (Tenn.) 667, repudiation, notice and tender, not acquiesced in by the insured, were held not to constitute a rescission or cancelation. It is there said that it takes two to rescind or cancel a contract and that if two will not agree to a rescission, then the only recourse is to a judicial tribunal having-jurisdiction to annul and that, therefore, a judicial proceeding must be instituted by the insurer within the period of contestability. These arguments presuppose that a rescission is an essential part of a contest or at least proceed on the theory that the test is whether there has been a rescission rather than whether there has been a contest. It would seem to be too obvious to require further comment that a rescission is not an essential ingredient of a contest. In a contract for the sale of goods, payment is. demanded. It is refused, not on the ground of fraud but on the sole ground that the purchase price has already been paid in full in coin. Under a building contract demand is made for the erection of servants’ quarters. Performance is refused, not on the ground of fraud, but on the sole ground that such erec *112 tion is not required by the terms of the contract. In neither instance is there a rescission and yet in both instances the contest is on in full force whether the refusal is conveyed by mere words out of court or in a formal answer in court. Moreover it does not always take two to effectuate a rescission of a contract for fraud. One alone can do so as pointed out by Bigelow on Fraud in passages quoted by Judge Cochran in Mut. Life Ins. Co. v. Rose, supra, at page 132. Other decisions, like that in Insurance Co. v. Cranford, 257 S. W. (Ark.) 66, are based solely upon precedents, upon the plea that there should be uniformity in policies of insurance both in form and in the interpretation of the language given. The authorities in favor of the judicial contest view are not in any proper sense to be regarded as a rule of property and if they are in error there is no good reason why the error should not noAY be departed from and correct principles adopted. In a number of cases it is said that under the clause of incontestability, the insurance company must within the time limited make a defense to an action on the policy “or take affirmative action/7 — without defining what that affirmative action should be. We do not understand that this is in itself a statement of any reason for holding that the contest required can be a judicial one only. It is at most a statement of that conclusion. If by affirmative action is meant any action in court or out of court, we agree with the statement; but if, as is probable, affirmative action in court only was intended, we thirik that the conclusion is incorrect, for the reasons outlined above. Still other cases, like that in 203 Pac. (Okl.) 192, held that the word “contest77 presupposes that the struggle will be before some tribunal with power to determine it and dispose of it. We do not understand this to be an *113 element in the meaning of the word. None of the lexicographers speak of it as a necessary element while all recognize by the meanings given that the word can refer to and include a contest or dispute out of court as well as a contest in court before a tribunal with power to decide it. To hold that under the policy before us in all cases of contestability the contest shall be had before a judicial tribunal would be adding to the policy a term or a condition not now contained therein. In other instances, as for example, in the same Oklahoma case last referred to, it is said that the insurance company is not sole judge of the falsity of the answers or of the question whether a fraud was committed upon it by the assured and that, therefore, a judicial decision is necessary and a judicial contest is contemplated. Undoubtedly the insurance company is not the sole judge of the falsity of the representations made to it by the insured. That is as true when the claim or defense of fraud is presented in a judicial proceeding as it is when the claim is made out of court. Whether the insurance company makes its claim by bill in equity or by defense of an action at law or by steps taken out of court by way of repudiation of the policy, it is not attempting in any of those instances to set itself up as the judge of the fraud. It is making its claim and in the making of it is presenting a dispute or contest; and that is all that the policy requires to be done within the period stated. In still other cases, like 257 S. W. (Ark.) 66, 69, it is said that “a contest in law implies an adversary proceeding in which matters in controversy may be settled by the courts upon issue joined.” A sufficient answer to this is to say that the policy does not specify a contest in law and does not specify any particular mode of contest whatever. All that it says inferentially is that within the period named the policy shall be contestable. *114 Iii some of the cases it is said that the purpose of the clause is to force the raising and settlement of any issue (by way of attacking the policy) during the assured’s lifetime and much is made of the point that after his death he cannot speak. But the contestability within the short period prescribed is not made to depend upon the continued existence of the insured. All of the modern cases are agreed on that point. The short period, whether one year or two years, óf contestability is granted and reserved to the insurance company wholly irrespective of whether the insured lives during the whole of that period or dies the day after the policy is issued. The company still has in the latter instance the remainder of the period in which to conduct its investigation and to make its contest. It may have been thought in the framing of the provision that in all probability most of the insured persons would survive the short period named and thus be able to take part themselves in preparing their defense to the charge of fraud; but it was doubtless also thought that even if he died within the period it was only the part of fairness to allow the insurance company at least the time námed within which to search for and find the fraud. There are other cases which are sometimes cited in support of the view more favorable to the beneficiary but which in reality, while deciding other questions of construction, do not decide the question as to what manner of contest within the period will satisfy the requirements of the policy. One of these is Wright v. Mut. Ben. Assn., 43 Hun 61, a case which has been often referred to in later cases as the one in which the line of decision began to the effect that by contest is meant a judicial contest only. The case as we read it decides nothing of the sort and confines itself to a consideration and decision of other questions, one being whether the expres *115 sion “no question as to the validity” was in terras broad enough to exclude the defense of fraud sought to be established and the other being “whether the provision so construed contravenes any rule of public policy and is for that reason void.” The court did say in the course of its discussion of the question of public policy: “The practical and intended effect of the stipulation is, as held by the trial court, to create a short statute of limitations in favor of the insured, within which limited period the insurer must test, if ever, the validity of the policy;” but it did not express itself as to what manner of test would be necessary in such cases. The question of whether certain steps out of court could constitute a test within the meaning of a clause of incontestability did not arise upon the facts of that case and was not in any wise considered by the court. M. F. Prosser and A. F. Steadman {Frear, Prosser, Anderson & Marx and A. E. Steadman on the briefs) for plaintiff in error. . E. H. Beebe and Marguerite K. Ashford (Thompson, Oatheart & Beebe and Marguerite K. Ashford on the brief) for defendant in error. The judgment is set aside and a new trial granted.