Opinion
Decided November 15, 1935.
Insurance — Life — Construction of policy — Insured died within two-year contestable period — Action on policy after two years — Running of contestable period not affected by death of insured, when — Duration of enforcibility of insurance contract — Right of contest during contestable period means court action — Ambiguities in policy construed against insurer, when — Conflicts between policy and statutes resolved in insured's favor.
1. Where a life insurance contract is written by the insurer, courts will resolve any ambiguity therein against the insurer; and that is especially so where various judicial constructions had been placed upon the language in question before the contract under consideration was written.
2. A contract of life insurance remains in force until it is abandoned, reduced to judgment, or performed; it is not terminated merely by the death of the insured.
3. Where a policy of life insurance contains, among other things, a provision that the policy shall be incontestable by the insurer after a certain time, and is silent, as are also the statutes, as to any effect the death of the insured before that time should have on the running of the contestable period, such death of the insured does not affect the running of the contestable period.
4. The right of "contest" of a life insurance contract which the insurer has before the beginning of "incontestability," contemplates some affirmative or defensive action in court, wherein the insurer, and the insured or his representatives or beneficiaries, are parties.
5. Where there is a conflict between a provision of a life insurance contract and a statute, the one most favorable to the insured or those claiming under him will govern.
ERROR: Court of Appeals for Lorain county.
Mr. G.A. Resek and Mr. Wilbur E. Benoy, for plaintiff in error.
Messrs. Glitsch, Stack Moon, for defendant in error.
Error is prosecuted to this court from the Court of Common Pleas of Lorain county, where the positions of the parties were the reverse of those now occupied by them. Reference will be made to the parties as they appeared in the trial court.
Plaintiff is the widow of Franklin E. Snyder, deceased, and, during the lifetime of said decedent, was named as a beneficiary in a life insurance policy in the principal sum of $5000, issued by defendant upon the life of decedent.
The policy was executed and delivered by defendant to decedent upon October 28, 1931, and the required premium payments were made by decedent up to the time of his death on May 7, 1933.
Thereafter, proof of death and proof of claim were duly filed by plaintiff with defendant, and on July 29, 1933, defendant offered to return the premiums paid, demanded the return of the policy, and refused to pay the face of the policy.
Nothing further was done by the parties until plaintiff filed her petition against defendant on November 20, 1933.
To that petition an amended answer was filed by defendant, wherein, as a second defense, fraud upon the part of the insured in the answering of questions contained in the application for insurance was alleged, and a cross-petition was also filed at that time, seeking the cancellation of the insurance contract on the ground of fraud.
Plaintiff demurred to said second defense, for the reason that the facts stated therein did not constitute a legal defense to plaintiff's cause of action, and a demurrer was also interposed to the cross-petition of defendant, upon the ground that the facts stated therein did not constitute a valid cause of action against plaintiff.
The demurrers were sustained by the trial court, and the cause went to trial upon the issues created by the petition and the first defense contained in the answer.
Trial to the court, a jury having been expressly waived, resulted in a judgment in favor of plaintiff for the full amount sought to be recovered.
The case squarely presents the question as to whether fraud of the insured in obtaining a policy, excepting from consideration such fraud as renders the policy void ab initio, may be utilized by the insurer as a basis for a defense, or for affirmative action seeking a cancellation of the policy, after the expiration of the contestable period, where the insured has died prior to the expiration of that period.
The contestable period herein was two years from the date of issue of the policy. The insured died within that period, and action to recover upon the policy was brought by the beneficiary after the expiration of said period; no action was brought by defendant to cancel said policy within said 2-year period, nor was any defense of fraud interposed by defendant during said period in any litigation concerning said policy.
The policy contained the following with reference to incontestability:
"This policy shall be incontestable after it has been in force for two years from its date of issue, except for nonpayment of premium * * *."
Section 9420, General Code, provides as follows:
"No policy of life insurance in form other than as provided in sections ninety-four hundred and twelve to ninety-four hundred and seventeen, both inclusive, shall be issued or delivered in this state or be issued by a life insurance company organized under the laws of this state unless the same shall contain the following provisions: * * *
"(3) A provision that the policy and the application therefor, a copy of which must be endorsed thereon, shall constitute the entire contract between the parties and shall be incontestable after two years from its date, except for nonpayment of premiums and except for violations of the conditions of the policy relating to naval and military service in time of war * * *."
It will be observed that the incontestability clause of the policy, and of the statute, supra, do not contain the same wording, the policy containing the words "in force," which words do not appear in the statute.
Cases involving an interpretation of the wording used in the incontestability provision of the instant policy have been before many courts of last resort in the several states of this country, with a contrariety of holdings. See 31 A.L.R., 108, annotation.
Such situation requires the application by this court of the rule of construction announced by the Supreme Court of Ohio in Geo. H. Olmsted Co. v. Metropolitan Life Ins. Co., 118 Ohio St. 421, 161 N.E. 276, wherein the syllabus reads:
"1. Where the language of a clause used in an insurance contract is such that courts of numerous jurisdictions have found it necessary to construe it and in such construction have arrived at conflicting conclusions as to the correct meaning, intent and effect thereof, the question whether such clause is ambiguous ceases to be an open one.
"2. The rule that ambiguous language is to be construed most strongly against the party selecting the language and most favorably toward the party sought to be charged, is especially applicable to contracts executed subsequently to such conflicting judicial constructions."
If the defendant company had used the words "in force for two years during the lifetime of the insured," it would have rendered its policy free from ambiguity. This it did not do, however. It omitted the words "during the lifetime of the insured," and thus subjected its policy to two possible constructions. As was said by the court in Kocak v. Metropolitan Life Ins. Co., 237 App. Div. 780, at page 784, 263 N.Y. Supp., 283, at page 287:
"The policy is the craftsmanship of the company, and any ambiguity therein must be construed against the company. * * *
"The contention that the policy is not in force after the death of the deceased, as it seems to us, cannot be sustained. We believe such a doctrine to be opposed to the fundamental principles upon which a contract rests. When the insured has met the terms of his contract up until the time of his death, only part performance may be claimed. There still remains proof of death to be submitted in behalf of the beneficiaries, and payment to be made by the company. A contract remains in force until it is abandoned, reduced to judgment, or performed according to its terms."
In this case the contract was neither abandoned, reduced to judgment nor performed according to its terms, nor was the contract even in the process of litigation, during the period of incontestability, and we conclude that such contract remained "in force" after the death of the insured, and that the running of the contestable period was not affected by the death of the insured.
There was nothing in the circumstances attendant upon the procurement of this contract which militated against established public policy. The most that could be claimed (and this was admitted for the purposes of the demurrers) was that the insured perpetrated a fraud upon the company when he failed to correctly and honestly answer the questions in the application for insurance.
It is our understanding that the very purpose of the contestable period is to give the insurer an opportunity to make inquiry into the question of whether or not fraud or misrepresentation on the part of the insured was present in the obtaining of the contract, and we further understand that if such conclusion was not reached and acted upon by the insurer within the contestable period, the insurer could not thereafter be permitted to defend an action upon the policy upon any ground other than as specified in the incontestable clause of the contract, except for such fraud as rendered the contract void ab initio.
"1. Insurance. — Insured's death does not affect running of contestable period fixed by life insurance policy.
"2. Insurance. — When insured dies within contestable period fixed by life insurance policy, on which no action is instituted within such period, insurer must contest policy by Court proceedings before expiration of such period to terminate running thereof.
"3. Insurance. — Defense of fraud and misrepresentation in application for life insurance policy sued on is unavailable to insurer after expiration of contestable period fixed thereby * * *." Henderson v. Life Ins. Co. of Virginia, 176 S.C. 100, 179 S.E. 680.
See also New York Life Ins. Co. v. Seymour, 45 F.2d 47; Mutual Life Ins. Co. of N.Y. v. Hurni Packing Co., 263 U.S. 167, 68 L. Ed., 235, 44 S. Ct., 90.
The action by the insurance company necessary to constitute a contest of the policy means some affirmative or defensive action taken in court to which the insurer and the insured or his representatives or beneficiaries are parties. This is in accordance with the great weight of authority on the question of what constitutes a contest within the meaning of an incontestable clause in an insurance policy. See annotation in 64 A.L.R., 959. See, also, Killian v. Metropolitan Life Ins. Co., 251 N.Y. 44, 166 N.E. 798, 64 A.L.R., 956, wherein paragraph 4 of the syllabus reads:
"4. A contention that a definitive notice of rejection, without more, will make out a contest within the meaning of the policy cannot be sustained. A contest begins when the insurer avoids, or seeks to avoid, the obligation of the contract by action or defense. If the insured or the beneficiary is plaintiff, suing to declare the policy in force or to recover money due, the contest takes its start when the insurer serves an answer disclaiming liability. If insured and beneficiary hold back, preferring to wait till the time for contest has expired, the point of beginning is the time when the insurer sues in equity to declare the policy annulled."
The circumstances herein do not, in our opinion, constitute such a situation as rendered the contract of insurance void ab initio, but rather one where the contract was voidable at the option of the insurer, if it acted to avoid the contract within the period specified by the terms of the contract itself.
No action to cancel or contest this contract having been instituted by the insurer within the contestable period, and the admitted fraud not being of such a character as to render the contract void from its inception, we hold that the insurer was precluded from setting up the fraud of the insured in an action upon the policy commenced subsequent to the expiration of the contestable period. The demurrers were therefore rightfully sustained.
This conclusion is also warranted by another consideration.
Under the insurance laws of this state, Sections 9412 to 9417, General Code, this insurer was authorized to issue policies containing standard form provisions, and if it did not choose to issue such policies, it might issue policies in conformity to the provisions of Section 9420, General Code.
Under Section 9412, General Code, the standard form prescribed provides that the policy "shall be incontestable from its date, except for the nonpayment of premiums and except as otherwise provided" in the policy.
If a standard form of policy is not issued, it is provided by Section 9420, General Code, that the policy shall contain an incontestable provision as follows: "shall be incontestable after two years from its date, except for nonpayment of premiums and except for violations of the conditions of the policy relating to naval and military service in time of war."
Defendant chose not to use the standard form policy, but instead adopted a policy different, in so far as the incontestability clause was concerned, from the provisions of Section 9420, General Code.
We hold that the provisions of Section 9420, General Code, must be read into the policy in question, and that the statutory provisions are controlling, even where opposed to the express provisions of the policy, unless the policy provisions are more favorable to the insured than are the statutory requirements. American Natl. Ins. Co. v. Welch (Texas), 22 S.W.2d 1063; Insurance Co. v. Leslie, 47 Ohio St. 409, 24 N.E. 1072; 9 Ohio Jurisprudence, "Contracts," 416, Section 189.
We further hold that Section 9392, General Code, has no application to the facts herein, and does not in any way affect the construction we have placed upon Section 9420, proviso "(3)", supra.
The judgment will be affirmed.
Judgment affirmed.
WASHBURN, J., concurs.
FUNK, P.J., dissents.