Philadelphia Life Ins. v. Arnold

The opinion of the Court was delivered by Mr. Justice Hydrick. This action was brought to have two policies of insurance, issued by the plaintiff on the life of the defendant, Q. L. Arnold, in favor of his wife, Mattie IT. Arnold, can-celled on the ground that they were obtained by fraud. The policies were issued and dated June 11, 1910. The premiums were duly paid. The policies contain this clause: “This policy shall be incontestable, except for nonpayment of premiums, after one year from its date.” This action was commenced June 3, 1913, more than a year after the date of the policy. On motion of defendants, issues were referred to a jury, -jvhich answered them all in favor of defendants. But the Court set aside the verdict, holding that the fraud alleged had been proved, and adjudged the policies void. „ 1 From the view that we take of the case, it will be necessary to consider only one question: Is the incontestable clause above, quoted a bar to the action? The language is plain — so plain that it does not require interpretation. There can be no doubt of its meaning, and unless there is some reason why an insurance company cannot lawfully make such a contract, this action is barred. The Courts, with practical unanimity, hold such a *421 stipulation valid. It is called by some of them a short statute of limitations in favor of the insured, and it is sustained on the analogy of the cases which hold that the parties to a contract may, by stipulation therein, fix a reasonable time within which action thereon must be brought, or claims made. We cannot agree that such a stipulation conflicts with the statute of limitations, only in the sense that by its terms of action must be brought within a shorter period than that allowed by law. But the statute of limitations does not expressly or impliedly prohibit sucli an agreement. It merely fixes the maximum time within which actions may be brought. 2 No doubt the clause was inserted in the policy as an inducement to the public to insure with the plaintiff company. It is matter of common knowledge that insurance companies have, in the past, so frequently defended against claims under their policies, and tried to defeat payment of them on various grounds — sound and unsound — and especially on the ground of alleged false representations and warranties, that the legislature of this State deemed it necessary to take the matter in hand, and in 1878 (16 St. at Large, p. 530) a statute was enacted (Civ. Code 1912, secs. 2722, 2723) which provides that, when a company receives the premiums on a policy for the space of two years, it shall' be deemed to have waived any right to dispute the truth of the application, or to allege that the insured made false representations. The same statute authorizes the companies to bring actions to vacate policies on that ground, but limits the time to two years from date of the policy. This legislation goes far to prevent these companies from, taking a man’s hard-earned money as long as he lives, and then slandering his memory after he is dead. While it is true in this case that the insured is alive, that circumstance does not make the meaning of the clause or the application of the law different from what it would be if he were dead. To hold that the clause means only *422 that the company cannot defend for any cause, except nonpayment of premiums, after the death of the insured, is to read into the contract, by construction, what the parties did not write into it. The objection to taking insurance, arising out of the probability of such a defense being set up, whether founded in truth or not, grew to be such that the insurance companies found it to their advantage to insert in their policies certain stipulations specifying the grounds upon which they could be contested, and limiting the time within which such contest must be made. Of course, other things being equal, the more favorable to the insured these 'stipulations are, the more attractive will the policies be to insurers, and we have no doubt the clause in question was inserted for that purpose, and that the company has received the benefit of it in that intending insurers have been thereby induced to take its policies. By the stipulation, the plaintiff practically agreed that it would take a year to investigate and determine whether any fraud had been perpetrated in procuring the policies, and, if it failed within that time to discover any, it would make no further investigation, and would not thereafter contest the validity of the policies on that ground. The evidence in the case shows that, if plaintiff had been diligent, it could have discovered the fraud within the year. Therefore, we do not feel that we are condoning the fraud by enforcing the stipulation. The following authorities sustain the validity of such a stipulation: Kline v. Nat. Ben. Ass’n, 111 Ind. 462, 11 N. E. 620, 60 Am. Rep. 703; Wright v. Mut. Ben. Ass’n, 43 Hun. (N. Y.) 61, affirmed 118 N. Y. 237, 23 N. E. 186, 6. L. R. A. 731, 16 Am. St. Rep. 749; Clement v. Insurance Co., 101 Tenn. 22, 46 S. W. 561, 42 L. R. A. 247, 70 Am. St. Rep. 650, and note; Massachusetts Ben. Life Ass’n v. Robinson, 104 Ga. 256, 30 S. E. 918, 42 L. R. A. 261; Murray v. State Mut. Life Ins. Co., 22 R. I. *423 524, 48 Atl. 800, 53 L. R. A. 743; 25 Cyc. 873, 881; 19 A. & E. Enc. L. (2d ed.) 79, et seq.