Opinion
No. 74-092
Decided March 18, 1975.
In action in two life insurance policies, trial court entered judgment denying relief under the complaint and awarding insurance company rescission on its counterclaim. Plaintiff appealed.
Reversed
1. JURY — Action On Life Insurance — Factual Issues — Triable to Jury — Demand by Plaintiff. Whether an issue of fact must, upon demand, be tried to a jury depends upon the character of action in which the issue is joined; and where action was one to recover moneys claimed to be due under a contract of life insurance; the factual issues raised were required to be tried to a jury, upon demand by plaintiff.
2. INSURANCE — Action — Life Insurance — Defense — Fraud in Inducement — Intent — Factual Question — Remained at Issue. In action to recover upon contract of life insurance, where insurer interposes as a defense fraud in the inducement of the contract, whether or not insured had the intent to defraud the insurer in her application for a life insurance policy presents a factual question which must be established before the insurer can avoid payment of the policy; hence, contrary to the insurers' contention, following its admission of facts alleged in the complaint there did remain factual determinations at issue.
3. EQUITY — Action on Insurance Policy — Defense of Fraud — Re-Alleged — Equitable counterclaim — Rescission — Substance of Action — Unchanged. Merely re-alleging a defense of fraud asserted to a legal claim for recovery under insurance policies as grounds for an equitable counterclaim for rescission of the policies does not change the substance of the lawsuit from a claim for moneys due under a contract to an equitable suit for rescission.
4. INSURANCE — Action on Policy — Legal Suit — Not Transformed — Equitable Suit — Interposition — Equitable Defense — Denial — Jury Trial — Error. In an action to recover under an insurance policy, the nature of the suit was not transformed from a legal to an equitable suit by the insurer's interposition of an equitable defense and thus the trial court's denial of plaintiff's demand for a jury trial was reversible error.
Appeal from the District Court of the County of Adams, Honorable Oyer G. Leary, Judge.
C. Thomas Bastien, Richard Nathan, for plaintiff-appellant.
Phelps, Hall Dunn, Richard P. Hall, Alan Gary Dunn, for defendant-appellee.
In an action by Harold C. Jacobs to recover as beneficiary on two life insurance policies issued by Prudential Insurance Company of America, the trial court denied plaintiff's request for a jury trial and, after a trial to the court, denied relief under the complaint and awarded judgment of rescission on Prudential's counterclaim. Asserting that the trial court erred in refusing to allow the factual issues to be determined by a jury, plaintiff appeals. We reverse.
Plaintiff's complaint alleged simply that Prudential had entered into two insurance contracts on the life of his wife, Linda, that the insured had died, and that Prudential had refused to pay plaintiff, the designated beneficiary under the policies. Prudential answered admitting all the facts contained in the complaint, except that it denied that valid contracts had been entered into between it and Linda. As to that issue, it alleged as an affirmative defense that the purported contracts were void because Linda had willfully and knowingly failed to disclose a prior medical condition and resulting hospitalization which would have been material to the risk. Prudential also filed a counterclaim seeking rescission of the contracts and, as grounds therefor, incorporated that part of the answer which set forth the defense of fraud. Plaintiff replied to the counterclaim setting out four defenses: (1) Denial of the material allegations of deceit; (2) laches; (3) estoppel; and, (4) the contractual provision of incontestability.
Plaintiff made a timely demand for a trial to a jury and tendered payment for the required jury fee. Before the commencement of trial, Prudential moved to proceed upon a trial to the court and to dispense with the jury. As grounds for that motion, it asserted that the case was one essentially in equity for rescission of the insurance policies and that, therefore, there was no right to a jury trial. The trial court granted Prudential's motion, and at the conclusion of the resulting trial to the court, the trial court found for the defendant and entered judgment permitting rescission by the defendant.
[1] The primary issue raised on appeal is whether the trial court erred in determining that the lawsuit was equitable in nature and in thereby discharging the jury. Whether an issue of fact must, upon demand, be tried to a jury depends upon the character of the action in which the issue is joined. Setchell v. Dellacroce, 169 Colo. 212, 454 P.2d 804. The instant action was one to recover moneys claimed to be due under a contract and, as such, the factual issues raised were required to be tried to a jury, upon demand by plaintiff. C.R.S.P. 38(a).
Prudential argues that since it admitted all the facts alleged in the complaint, there were no fact determinations at issue and the only determinations left were its equitable counterclaim and the equitable defenses of plaintiff to that claim. We disagree. Implicit in this complaint is the allegation that a valid and binding contract has been entered into. This fact has not been admitted by Prudential, and, in fact, in its answer, Prudential denies the validity of the contract by interposing as a defense fraud in the inducement of the contract.
[2] One of the four elements of fraud which must be proven is the intent of the defrauding party that the misrepresentation or concealment be acted upon by the defrauded party. Morrison v. Goodspeed, 100 Colo. 470, 68 P.2d 458. Whether or not Linda K. Jacobs had the intent to defraud Prudential in her application for a life insurance policy presents a factual question which must be established before Prudential can avoid payment of the amount of the policy. Gomogda v. Prudential Insurance Co., 31 Colo. App. 154, 501 P.2d 756.
[3] The grounds supporting Prudential's counterclaim are the same as those establishing its asserted defense, namely, fraud in the inducement of the contract. Merely re-alleging a defense asserted to a legal claim as grounds for an equitable counterclaim does not change the substance of the lawsuit from a claim for moneys due under a contract to an equitable suit for rescission. As a general rule, the complaint fixes the nature of the suit. Miller v. District Court, 154 Colo. 125, 388 P.2d 763; Miller v. Carnation Co., 33 Colo. App. 62, 516 P.2d 661. Here, the procedural aspects have not effectively converted this action to one in which only a court of equity could grant full and complete relief. The ultimate outcome herein depends upon a determination of the dominant issue of whether the policy is invalid because of fraud and deceit in its procurement. That issue has been put in dispute by the complaint and answer. When it has been resolved all rights of the parties will have been fully adjudicated.
We agree with the general statement of law in 5 J. Moore, Federal Practice ¶ 39.12 (2d ed.):
"A certain confusion has arisen where the claim is for the cancellation of an insurance policy because of fraud or misrepresentation and the counterclaim is for recovery thereunder. These cases should be treated in the same manner as those involving a claim for recovery under an insurance policy and a counterclaim for cancellation, where the courts have said that the counterclaim should be treated as an answer, and that all issues should be tried to a jury. The basic nature of the issues is 'legal' and the case is hence a jury action, where a timely demand has been made."
[4] Therefore, we hold that the nature of this suit was not transformed from a legal to an equitable suit by Prudential's interposition of an equitable defense and that the trial court's denial of plaintiff's demand for a jury trial was reversible error.
Judgment reversed and cause remanded for a new trial of all issues to a jury.
JUDGE PIERCE and JUDGE KELLY concur.