Commercial Life Insurance v. Schroyer

Cox, J. Appellee, being the beneficiary in a policy of insurance issued by appellant on the life of her husband, brought this action, following his death, against appellant to recover thereon. From a judgment for appellee this appeal is prosecuted, and error on the part of the trial court in overruling appellant’s motion for a new trial is relied on for a reversal. Under this assignment of error, it is contended that the verdict was not sustained by the evidence and that the court erred in giving and refusing to give instructions. 1. Appellant answered the complaint by a general denial and by a second and third paragraph of answer. In the second paragraph the execution of the policy was admitted, but it was alleged that the policy was void and of no effect, and in no way binding on appellant, for the reason that the insured in his application for the insurance made certain statements as to his occupation, and declared [656] and. warranted them to be true; that the statements were false, and were made by insured to deceive appellant, and to induce it to issue the policy; that appellant did not know and had no means of knowing the truth or falsity of the statements, but relied on them and issued thereon the policy in suit. The allegations of the third paragraph are identical with the second, except that the false statements alleged therein were in regard to former applications made by the insured for insurance in other companies and rejections by them. Appellee replied specially to the third paragraph of answer, admitting that the statements of the insured set forth therein were false, but averring that appellant had knowledge of their falsity before it issued the policy and received the premium thereon. It is not contended by counsel for appellant that the evidence does not sustain a verdict for appellee on the general issue, or that on such issue there was any error in giving or refusing to give instructions. Appellant’s whole defense proceeds on the theory that its second and third paragraphs of answer were good, and that the evidence given thereunder made a ease entitling it to a verdict. These answers were not good. They fail to allege that appellant, upon discovering the alleged fraud, took any steps to rescind the contract, by tendering back or offering to return the premium paid by insured or otherwise. No evidence was given or offered that appellant had done this. It is conceded that it had not, and it is contended that it was not necessary for it to do so. The contract of insurance involved provides that fraudulent and untrue statements, such as those pleaded, shall render the policy void, and work a forfeiture of all premiums paid by insured. The rule, as settled by the decisions of the courts of this State, is that contracts of insurance with such provisions are not rendered absolutely void by a breach of warranty, or byj [657] reason of false answers to questions affecting the risk, contained in the application as a part of the contract of insurance, such as are involved in this ease, but that they are voidable at the election of the insurer; that before a defense on such ground can defeat a recovery by the beneficiary in a suit on the policy, the insurer must take proper steps to exercise its election to avoid and rescind the contract, and that tendering back the premiums received is one of the necessary steps in making the election to rescind. Glens Falls Ins. Co. v. Michael (1907), 167 Ind. 659, 8 L. R. A. (N. S.) 708; American Cent. Life Ins. Co. v. Rosenstein (1910), 46 Ind. App. 537; State Life Ins. Co. v. Jones (1911), 48 Ind. App. 186. See, also, 18 Harvard Law Review 364. Answers to a complaint to recover on a policy in such cases must, to be sufficient, allege the facts showing the condition, its breach, and the election to avoid or rescind the contract. And to defeat a recovery by reason thereof proof must be made of the facts so alleged. 2. But counsel for appellant contend that the rule, as laid down in the cases cited, does not apply to this, because of the provision in the contract that the insured shall in such case forfeit premiums paid. Of course it is obvious that if the insurer elect to avoid or rescind the policy, it is as if no contract had been made. The termination of the contract, in case the insurer elects to rescind it, does not date from the time of the election, but from the breach of the condition. In this case the breach was before the consummation of the contract, and at the election of the insurer the contract became null from its inception, leaving no obligation resting upon either party to it. Appellant could not renounce the contract for the purpose of refusing to pay to the beneficiary the amount it called for, and in the same breath claim it to be in force for the purpose of enabling it to retain the premium paid. [658] Finding no error in the record warranting a reversal, the judgment of the lower court is affirmed.