NEW YORK LIFE INS. CO. v. HOLLENDER et al.
From a judgment entered in favor of defendant and cross-complaint, hereafter referred to as defendant, and against plaintiff and cross-defendant, hereafter referred to as plaintiff, in an action for the reformation of an insurance contract after trial before the court without a jury, plaintiff appeals.
Plaintiff issued a life insurance policy on the life of defendant which contained among others these provisions:
(a) That plaintiff company shall, upon receipt of due proof of the death of defendant, pay to the benficiary therein named the sum of $5,000.00;
(b) That upon receipt by plaintiff company of due proof that defendant had become totally and permanently disabled, which disability began before the anniversary of the policy on which defendant's age at nearest birthday was sixty, and prior to default in payment of premium and prior to the maturity of said policy, plaintiff company would pay defendant monthly income benefits in the sum of $10.00 per $1,000.00 of the face of the policy (in this case, the sum of $50.00 per month) for the fourth and succeeding completed month of such total disability and during its continuance, upon the happening of which event, plaintiff company would also waive the payment of each premium falling due after the commencement of such total disability.
(c) ‘Age. If the age of the insured has been misstated, the amount payable hereunder shall be such as the premium paid would have purchased at the correct age.’
(d) ‘The Contract. The Policy and the application therefor, copy of which is attached hereto, constitute the entire contract. * * *’
(e) ‘Incontestability. This policy shall be incontestable after two years from its date of issue except for non-payment of premium and except as to the provisions and conditions relating to Disability and Double Indemnity Benefits.’
The policy further provided that before the insured should be entitled to any disability benefits as provided therein such total and permanent disability must have begun before the anniversary of the policy on which the insured's age at nearest birthday was 60 and prior to the maturity of the contract.
Defendant set forth in his application for the policy that he was born on April 27, 1886. In this action plaintiff alleged that defendant was in fact born on April 27, 1884, and asked that the policy be reformed by changing the face value of the policy from $5,000 to $4,462, and reducing the semiannual premium due under the policy to $105.45. Question: Does the incontestable clause of the policy bar the right of plaintiff to adjust the amount payable under the contract in accordance with the provisions of the age adjustment clause thereof?
This question must be answered in the negative. In the present case plaintiff, the insurer, is seeking to enforce the terms of the contract as entered into by the parties which provides that if the age of the insured has been misstated the amount payable under the policy shall be such as the premium paid would have purchased at the correct age.
When an insurance policy by its terms is made incontestable after a designated period, the intent of the parties is to fix a limited time within which the company must discover and assert any reasons or grounds it might have to urge as justifying a rescission of the contract on account of any misrepresentations in the application. The insurer must make its contest within the specified period either by the institution of a suit to cancel the policy or by setting up misrepresentation or fraud in the procurement of the policy in an action brought by the insured or the beneficiary.
The insured's understatement of his age was not, under the terms of the contract, grounds for its rescission by the company for the reason that the contract expressly obligated the company to pay the amount of insurance which the premium paid would have purchased at the insured's correct age. A policy provision which measures the amount of recovery at the time of application does not avoid the obligation of the policy. It gives the insured what his money bought at his correct age. The denial of liability under a policy by reason of fraud or misrepresentation in the obtaining thereof is the ‘contest’ which is precluded by the incontestable clause and not the raising by the company of the question of coverage afforded by the contract under application of the age adjustment clause.
This is the first time so far as our research discloses that this precise problem has been presented to the appellate courts of California. It has arisen however in a number of other states and it has been held almost unanimously by the appellate courts of our sister states that an incontestable clause in a life insurance policy does not invalidate the enforcement of an age adjustment clause or provision.
In Metropolitan Life Ins. Co. v. Conway, 252 N.Y. 449, 169 N.E. 642, Chief Judge Cardozo in referring to an analogous situation thus states the rule:
‘The provision that a policy shall be incontestable after it has been in force during the lifetime of the insured for a period of two years is not a mandate as to coverage, a definition of the hazards to be borne by the insurer. It means only this, that within the limits of the coverage the policy shall stand, unaffected by any defense that it was invalid in its inception, or thereafter became invalid by reason of a condition broken. Like questions have arisen in other jurisdictions and in other courts of this state. There has been general concurrence with reference to the answer.’
In Murphy v. Travelers' Ins. Co., 134 Misc. 238, 234 N.Y.S. 278, 279 et seq., in passing upon a situation identical with that before this court, it was said:
‘The question of law which is presented by the facts is simply this: Is the defendant, in resisting payment of the full amount of insurance, contesting the policy in violation of the terms of the incontestability clause? The plaintiff asserts that, if her husband had died within one year from the date of the policy, the liability of the defendant would be limited on the contract to the amount which has been paid to her. But, since death did not occur until after the prescribed period, the incontestability clause has nullified that provision with respect to misstatement of age, and the liability of the defendant for the face amount of the contract is absolute. The defendant contends that it does not now nor has it ever questioned the validity of the contract of insurance, but in defending this action it is simply insisting that the contract be performed as the parties intended at the time of its creation.
‘It is argued by counsel that the incontestability clause and the condition as to misstatement of age are in no wise related to each other and in no respect dependent. The question of the survival of one over the other is not involved. It seems to me that little comfort is to be found by either party in the authorities which have been cited. I will not say that the problem is one of first instance, but I do not feel myself concluded by any decisions to which I have been referred, or which I have discovered. When the insured, Edward A. Murphy, applied for life insurance, no matter what age he may have stated in his application, he knew that he was entitled to no more than the amount which he could purchase for the stipulated premium at his true age. This was clearly what the defendant intended when it issued its policy. Can it be logically said that the defendant intended that this intent expressed in the contract should prevail for only one year? I do not think so. A contrary conclusion would of necessity involve an intentional injustice on the part of the defendant to every policyholder paying premiums predicated upon true age. This, it seems to me, was never contemplated.
‘The claim that defendant is contesting a contract contrary to its provisions is not well founded. The case might better be stated in this fashion: The plaintiff is attempting to enforce a contract which was never made, is seeking to obtain something which was never paid for, is striving to employ that which was designed for her protection as an instrment of injustice to the defendant and all its policyholders.’ (See also Unterberg v. New York Life Ins. Co., Sup., 172 N.Y.S. 241, 242; Grenis v. Prudential Ins. Co. of America, 154 Misc. 867, 278 N.Y.S. 137, 138; Stean v. Occidental Life Ins. Co., 24 N.M. 346, 171 P. 786; 787; Messina v. New York Life Ins. Co., 173 Miss. 378, 161 So. 462, 463; Sipp v. Philadelphia Life Ins. Co., 293 Pa. 292, 142 A. 221, 222 et seq.; Langan v. United States Life Ins. Co., 344 Mo. 989, 130 S.W.2d 479, 481, 123 A.L.R. 1409; Equitable Life Assur. Soc. of the United States v. First Nat. Bank of Birmingham, 5 Cir., 113 F.2d 272, 274, 135 A.L.R. 439; Metropolitan Life Ins. Co. v. Shalloway, 5 Cir., 151 F.2d 548, 550, et seq. Cf. 123 American Law Reports (1939) page 1416.)
We are of the opinion that the decisions in the foregoing cases correctly declare the law applicable to defendant's contention, and that the holding that the incontestable clause in a policy of insurance is not inconsistent with and does not vitiate an age adjustment clause contained in the same policy is correct. Therefore the trial court, in holding to the contrary, was in error.
The judgment is reversed.
MOORE, P. J., and WILSON, J., concur.