Duvall v. National Insurance

SULLIVAN, C. J. This action was brought by the widow of the insured, as beneficiary, to recover upon a policy of — 359 — life insurance issued by the appellant company and delivered about the 10th of December, 1913, to the deceased, Luther F. Duvall, who died about the 14th of March, 1914. A copy of the insurance policy, which was for $2,000, is attached to the complaint and made a part thereof, $100 having been paid thereon. The prayer is for judgment for $1,900 with interest and costs. The answer denied liability and set up five affirmative defenses, alleging false and fraudulent answers made by the deceased to material questions contained in his application and in the examination by the medical examiner; that the answers were made with intent to defraud the company, were believed and relied upon by the company, were material and known by the deceased to be untrue; that the truth of the statements was warranted by the deceased and was a consideration for the contract, and that such falsity and fraud rendered the policy null and void; that the deceased when making application for the policy, and when examined by the defendant’s medical examiner, and when he received the policy, had tuberculosis of the lungs and had had such disease for a long time prior to his said application, and from which disease bronchial pneumonia developed, from which the insured subsequently died; that the appellant had offered to return to the plaintiff the $111.94, together with interest from the date of payment. To this answer and each affirmative defense the plaintiff interposed a demurrer upon the ground that the facts stated in said answer and defenses did not constitute a defense to the plaintiff’s cause of action. Said demurrer was sustained by the court and the defendant refused to plead further. Upon the facts found the court entered judgment in favor of the plaintiff for $1,900, with interest and costs of suit. The appeal is from the judgment. The policy contained the following incontestable clause: “This policy is incontestable from its date, except for nonpayment of premiums.” — 360 — The only point involved on this appeal is the right of defendant to set up and prove fraud committed by the plaintiff in making material and false warranties and statements in his application for the policy, and whether this incontestable clause deprives the defendant of the right to set up the defense of fraud. It will be observed that it is provided that said policy was incontestable from its date, with the one exception, namely, for the nonpayment of premiums. Sec. 42 (Sess. Laws 1911, p. 732) of an act relating to the insurance department in and for the.state of Idaho, as amended by Laws of 1913, p. 406, provides, among other things, as follows: “That the policy, so far as it relates to life or endowment insurance, shall be incontestable after two (2) years from its date of issue, except for nonpayment of premiums, and except for violation of the conditions of the policy relating to military or naval service in time of war.” The latter exception is not involved in this ease. Under the provisions of said statute, the contestability of the policy is limited to two years, but that does not prevent the parties from contracting that the period of contestability shall be less than two years, or from agreeing that the policy shall not be contestable after it is delivered. It does, however, prohibit the parties from extending the time of contestability beyond two years. In 25 Cye., at p. 873, it is stated as follows: “A clause, now often inserted in policies, that after being in force a specified time they shall not be disputed or shall be incontestable precludes any defense after the stipulated period on'account of false statements which were warranted to be true, even though they were made fraudulently.” The policy under consideration is stipulated to be absolutely incontestable from its date, except for nonpayment of premiums and for violation of the condition of the policy relating to military and naval service in timé of war. It was held in Patterson v. Natural Premium Mut. Life Ins. Co., 100 Wis. 118, 69 Am. St. 899, 75 N. W. 980, 42 L. R. A. 253, under an incontestable clause such as in the case at bar, that — 361 — in determining the rule that should be-adopted by the court there were numerous considerations which deserve attention; that it must be borne in mind that the suicide clause has become so universal in policies that its absence at once attracts attention; that it can hardly be otherwise than that the agent soliciting insurance under such a policy as the one under consideration would at once call attention to this apparent liberality in that there was no suicide clause, and further, that there was in addition an absolute incontestable clause and that the average layman, not to say lawyer, in looking it over would conclude that it was in fact a very favorable policy to the insured; that such provisions were all carefully framed by the insurance company and expressly framed to induce people to insure; that it is a familiar rule of construction that where an insurance policy is capable of two meanings, that which is the more favorable to the insured should be adopted; that it was claimed by the defendant in that case that the evidence tended to show a fraudulent scheme on the part of Patterson when he took out his policy, to obtain insurance on his life for the purpose of thereafter committing suicide and defrauding the company for the benefit of"his children; that doubtless this would be a good defense, if shown, unless it was cut off by the incontestable clause; that it should be a defense not based on suicide alone; but on the whole fraud of which the act of suicide was only the ultimate step, but that the difficulty was that that court had been unable to find any evidence which would justify the submission of that question to the jury; that it is said that the insured falsely represented his state of health in his application and concealed some of the grounds upon which he had previously made application for a pension; that there does not seem to be much merit in this claim; that he submitted himself for examination to the company’s medical examiner, who reported that he had dyspepsia and was a second-class risk; that the company had full notice that he was not in first-class health, because the insured stated in his application that he had dyspepsia and had had malaria and had applied for a pension on the ground that he had — 362 — indigestion brought on by exposure in the army; that the incontestable clause would seem to effectually bar this defense; that if said incontestable clause be not altogether a glittering generality, put in for no other purpose than to induce men to insure, it would seem that it must cover such misstatements or omissions as are alleged; that no reason appears why an insurance company may not take the risk of ascertaining for itself the condition of the health of the insured. We think the above suggestions in the Patterson case apply with force to the facts of this case. The physician of the insurance company examined the defendant and reported that he was not a first-class risk by reporting simply that he was a “good risk,” when he was required to report whether the applicant was a “first-class risk,” a “good risk” or only a “fair risk”; that there were symptoms of asthma, etc., and recommended that said application for insurance in the amount of $3,000 be reduced to $2,000, and that a policy issue for that amount, which was done. The copy of the plaintiff’s application for insurance contained in the record shows that he applied for only $2,000 insurance, -but the report of R. G. Dun & Co. sent' to the insurance company, and the report of the company’s physician, Dr. T. C. Witherspoon, both show that the application was for $3,000, and that it was reduced to $2,000. The certificate of the chief medical director contains the following indorsement: “Will accept 2000. 20 End. G. C. R. (Signed) T. C. Witherspoon.” And immediately following is this indorsement: “Accepted Dec. 4, 1913. (Signed) T. C. Wither-spoon.” Immediately following the medical examiner’s indorsement, A. T. Morgan made the following indorsement: “No inspection necessary. Issue Policy. Date Dee. 5, 1913. (Signed) A. T. Morgan, General Manager.” It was also contended by counsel for respondent on the oral argument of the case that the application was for $3,000 and that it was reduced to $2,000, and that oral statement was not denied by counsel for appellant. — 363 — The insurance company had the application for the policy; it had its resident medical examiner’s report on the health of the applicant; it had the report of R. G. Dun & Co. as to the financial standing of the applicant, and it also had the chief medical examiner’s certificate and indorsements, as above stated. The company was evidently fully advised as to the condition of the health of the insured, and they issued the policy containing the incontestable clause above quoted. As was suggested in the Patterson ease, no reason appears why the insurance company may not take the risk of ascertaining for itself the condition of the health of the insured. The company had full notice that the insured was not in first-class health, and refused to issue him a policy for the amount for which he applied. The incontestable clause of the policy was evidently carefully framed by the company itself and expressly framed to induce people to insure, and reserved the right to contest a recovery on the policy on only one ground, aside from the military or naval one, and that was a failure to pay the premiums. If the insurance company intended by the incontestable clause to except the ground of fraud in the procurement of the policy, why did it not include it the same as it did the clause in the case of failure to pay premiums and in case of suicide within a year after the policy issued ? It was held in Insurance Co. v. Fox, 106 Tenn. 347, 82 Am. St. 885, 61 S. W. 62, that a condition in a life insurance policy that it shall be incontestable for fraud in the application therefor, or in the medical examination preceding it, is not void as against public policy. In the case at bar the insurance company has agreed not to contest the policy on any ground except those included in the incontestable clause, which we think the company had a right to do. It was stated in the Fox case supra, that if fraud may be waived at all, certainly the parties may stipulate the grounds on which the waiver may be made. It is clear to us that they may fix the conditions upon what incontestability may rest. They may agree that nonpayment of premiums may be the only ground of contest, and they may also — 364 — agree that such incontestable provision may take effect from the date of the delivery of the policy. Had the insurance company desired to reserve the right to contest for fraud, it was its duty to specify fraud as one of the grounds of contest. So far as the health of an applicant for life .insurance is concerned, the insurance company has competent physicians to thoroughly examine such applicants, and it is the company’s, duty, before issuing its policy, to thoroughly satisfy itself as to his physical condition. It is well recognized that many people have ailments that they know nothing of and that might have a tendency to make such applicant more readily subject to attacks of pneumonia and other diseases. The record shows that the insured died of pneumonia, and it is a well-recognized fact that pneumonia often attacks the most robust of men and causes their death in a very short time. While we are aware that there are many authorities that hold that an incontestable clause, although not specifying fraud as one of the grounds of contest, if that were included, such provision would be void as against public policy, we are not in accord with that line of decisions but are in accord with the rule laid down in the Patterson case, supra, and other eases which hold that misstatements or omissions of the insured respecting his health are covered by the incontestable clause in the policy, where it is provided that the policy is incontestable except for default in the payment of premiums. We therefore conclude that the judgment of the district court must be affirmed, and it is so ordered, with costs in favor of the respondent. Budge, J., concurs.