Stiegler v. Eureka Life Insurance

⁶³⁶ Parke, J., delivered the opinion of the Court. Alfred Stiegler was a doctor of chemistry in the employ of the United Piece Dye Worts, an industry for dyeing silk at Hawthorne, near Patterson, New Jersey. On January 14th, 19'21, the Eureka Life Insurance Company, appellee, issued a policy of insurance for $5,000 on his life, payable at death to his wife, Gabrielle ¡Stiegler, the appellant. The insurance policy was granted in consideration (a) of a written application, which was signed by the assured and made a part of the policy; and (b) of the payment in advance, on delivery, of the first annual premium.

The policy provided, however, that, in the .absence of fraud, all the statements made by the assured should be representations and not warranties, and that no such statements should void the policy or be used in defence of a claim under the policy, unless it be embraced in the application whose copy should be attached to the policy when issued. ■The application was signed by the assured .as of November 29[th, 1920, and a copy thereof was duly 'attached to the policy bearing] date of January 14th, 1921, and the first premium was paid on February 12th, 1921. The policy was then in full force and effect, counting from January 14th, 1921. . The application required the person seeking insurance (a) to state if he had ever applied to any company, order or association without receiving insurance in the amount, or on the plan applied for, or at his actual .age, or at the proper premium therefor, (b) and, if so, to give the particulars; (c) and to say if he had ever applied or negotiated, signed an application, or undergone a medical examination for insurance with any company, order or association other than is covered by his former answers already recorded, and, if yes, to give particulars. These questions were printed, and space was allotted for the appropriate answers.

In a bracket directly opposite the place for the signature of the assured Was this plain statement: ⁶³⁷ “And it is further declared and agreed that the foregoing statements and answers and also tlie statements and answers to the medical examiner are correct and wholly true, and that they shall form the basis of the contract of insurance if one be issued.” The materiality of the answers to these questions was •affirmatively determined by the stipulation of the policy and by this agreement contained in the application; and the • extrinsic evidence on this record, also, made it indisputable that these inquiries and their written replies were material representations by the applicant for insurance. It is furthermore beyond controversy that, before making his application for the insurance with the appellee, the assured had applied for other insurance, and thereupon had undergone a medical ■ examination, and thereafter had been refused insurance, and, in one instance, his advance payment of one hundred dollars on account of his premium had been returned to him, on December 1st, 1919, because of his rejection as an insurable risk. Notwithstanding these facts, the proof is conclusive ■that the assured, in corrupt and fraxtdulent combination with the soliciting ag;ent of the insurance company, deliberately •denied his former application for life insurance in another company, his medical examination, and his failure to secure insurance, by answering “no” to the questions put, with full ’knowledge of the falsity of his answers, and with the express .and declared purpose of deceiving the insurance company, so as to procuro the insurance sought. The question of the bad faith of the applicant or of the falsity and materiality of the representations contained in the application for a life insurance policy is generally a question for the finding of the jury, that will not be withdrawn from their consideration if the evidence on the point is -conflicting or doubtful, but, if the fraud of the applicant or the falsity and materiality of the representation is shown by clear, convincing .and uneontradieted evidence, the court may so rule as a matter of law.

Mutual Life Ins. Co. v. Willey, 133 Md. 665, 669 ; Metropolitan Life Ins. Co. v. Jennings, 130 Md. 622, 625 ; Aetna Life Ins. Co. v. Millar, ⁶³⁸ 113 Md. 686, 693 ; Forwood v. Prudential Ins.

Co., 117 Md. 254, 259 ; Mutual Life Ins. Co. v. Robinson, 115 Md. 408, 420 ; Mutual Life Ins. Co. v. Rain, 108 Md. 353, 355 ; Mutual Life Ins. Co. v. Mullan, 107 Md. 457, 460 ; Dulany v. Fidelity & Casualty Co., 106 Md. 17, 38 ; Banker’s Life Ins.

Co. v. Miller, 100 Md. 1, 6 ; Maryland Casualty Co. v. Gehrman, 90 Md. 634, 651 ; Fidelity Mutual Ins. Co. v. Ficklin, 74 Md. 172, 183 . The fact tbat the agent of the insurance company cooperated in the fraud" does not prevent the application of this principle. It was not within the scope of the agent’sauthority deliberately to deceive and mislead his principal by confederating with the assured to substitute falsehood' where truth was vital to prevent the perpetration of a fraud’ on his principal.

On a policy so obtained no- recovery is permitted, unless the insurer has; otherwise agreed, or has lost its defense through a waiver or an estoppel. Globe Reserve Life Ins. Co. v. Duffy, 76 Md. 293, 300, 301 ; Forwood v. Prudential Ins. Co., 117 Md. 254, 261, 264 .

And see cases- supra and infra. The insurance carrier had, in fact, agreed that the policyheld by Stiegler should be incontestable one year from itsdate of issue, except for non-payment of premium or for service in the army or navy in time of war without its written-consent. The law is definitely settled by the clear weight of authority that a life insurance policy may establish a reasonable period of limitation, as one or more years-, within which the insurer must discover and assert such defences to-the policy as may exist, even if these be fraud on the part of the insured and the agents of the insurer. 2 Williston, Contracts, sec. 811, pp. 1556, 1557; 14 Ruling Case Law, title “Insurance,” sec. 380, pp. 1199-1201; Mutual Life Insurance Co. v. Hurni Packing Co., 263 U. S. 167 , reported and annotated in 31 A. L. R., pp. 102-118. This case is not within any of the prescribed exceptions of’ the non-forfeiture clause, and the assured died beyond the term of one year from the issuance of the policy, so- the con- ⁶³⁹ troveirsy here hing'es on whether or not the insurance company ‘effectively rescinded the contract of insurance within the allotted year of investigation and discovery.

The insurance carrier remained in ignorance of the fraud •of the assured until some time during the first half of De■cember, 19²¹, when, as a result of an investigation begun in June or July, 1921, the insurer had enough information to justify it in terminating the contract of insurance. The discovery of this fraud was within the period of one year from, the date of the issuance of the policy and its incontestable clause had, therefore, not become effective. It was, •accor dingly, the privilege of the insurer to affirm the contract, •or, at its option, rescind the contract, as a contract induced by fraud is not void but voidable, at the election of the party defrauded. Rawlins v. Wickham (1853), 3 DeG. & J. 304, 322, 28 L. J. Ch. 188, and infra.

It has been urged by the appellant that the true interpretation of the non-forfeiture clause of the policy, on which this action is brought, limited the insurance carrier to a defence at law of fraud, if a loss occurred within the year and an action were brought thereon, or to a proceeding in ■equity, within the year, to cancel the policy. It is true that this contention of the appellant is supported by eases which have adopted the view of the Supreme Court of North Carolina in Amer. Trust Company v. Insurance Company, 173 N. C. 558 . See Mut.

Life Insurance Company v. Buford, 61 Okla. 158 ; Ramsey v. Insurance Company, 297 Ill. 592 ; Ebner v. Insurance Company, 69 Ind. App. 32 , 121 N. E. 315 ; Insurance Company v. McIntyre, 294 Fed. 886 ; Insurance Co. v. Pickering, 293 Fed. 496 . The Supreme Court of North, Carolina rested its, conclusion on this statement of its view of the law': “It follows, therefore, that the conduct of the defendant in notifying the insured that it would cancel the policy and in tendering the first premium which he had paid, did not rescind or cancel the contract, as the plaintiff did not consent, thereto, and amounted to no more than a breach, and that the remedy of ⁶⁴⁰ the defendant was to institute an action for cancellation-within the year, and as it did not do- so, the policy was in force 'at the expiration of the year.” Supra, p. 567. This Court is unable to agree that the rescission of a contract procured by deceit in a material matter cannot be effected on its discovery by the defrauded party except' through litigation, unless the defrauded party obtain the consent of - the wrongdoer.

The doctrine of rescission does not-' depend upon such an illusory and unstable basis as the concurrence of the defrauding party, but is the personal right of the victim of the fraud to be exercised or not of his own independent volition. A proceeding at law or in equity to enforce-the rescission of a contract is not of itself a rescission but is the result of a precedent act or election to rescind, and is a-method of communicating that fact to the defendant. Nor can the Court accept the other ground, which was further assigned for the conclusion, that the exercise of the right, at common law and in equity, of a defrauded party to rescind’ a contract obtained by a material misrepresentation is “no-more than a breach” of contract. It would seem logical to-hold that, if a timely notice to the assured of a rescission for fraud and an offer to return the premium, are “no more-than a breach” of contract, litigation to annul the contract' is simply another, but more efficacious breach.

In some of the cases, stress has been laid upon the word' “incontestable.” The relevant clause is: “This policy is; free of conditions as to residence or travel, and shall be incontestable after one year from its -date of issue.” The word “incontestable” is said to- refer to litigation exclusively, and', if this be conceded, it must be borne in mind that the term-incontestable” is confined in its application to the period' ensuing after one year from the date of the issuance of the-'policy, and -has no application to the preceding term of one-year following the issuance of the insurance contract. There-is nothing in the policy itself or in any canon of construction-that would justify the extension of the application of “incontestable” beyond the limits clearly fixed by the contract itself.. ⁶⁴¹ Life insurance is a contract uberrimae fide% and the policy is governed by the general principles of law so as to be avoided not only by fraud, but also by the concealment or misrepresentation of a material fact inducing the contract, except to the extent modified or excluded by the provisions and stipulations; of the contract or by statute. There is no occasion, in a case of actual fraud, to extend by judicial construction the application of the clause providing for indefeasibility. Code, art. 23, sec. 213; 17 Halsbury’s Laws of England, p. 344; 14 R. C. L., “Insurance” sec. 380; Anctil v. Manufacturers Life Ins.

Co. (1899), A. C. 604, P. C. While fully sensible of the weight to be attached to the eases relied upon by appellant, we do not concur in their view, and it is our opinion that, under the clause in the instant case, the insurer is; allowed a year within which to discover any sufficient ground for avoiding the contract, and, if cause be found and it elects to rescind the contract, the carrier has at its command every method, at common law or in equity, of communicating its election to the assured, within the year reserved for that purpose. As was said by the Pennsylvania, Supreme Court in the case of Feierman v. Eureka Life Insurance Company, 279 Pa. 507 , 32 A. L. R. 646, where the period was two years: “The great weight of authority supports the position that the insurer must at least disavow liability within the contestable period, to be relieved — not necessarily by legal action, but some definite step, specifying the ground of complaint, in such form as to effect a cancellation of the contract. * * * The knowledge that false representations have been made must be ascertained within the two years, and, in the same time, the company, by some act, must rescind, cancel or notify the insured or the beneficiary that it will no longer be bound by the policy.” Mutual Life Ins. Co. v. Hurni Packing Co., 280 Fed. 18 . The method of communicating to the other party the insurer’s election to rescind the contract may be through litiga ■ ⁶⁴² tion or by some definite or conclusive word or act.

The first method is through a proceeding in equity to have the contract judicially declared at an end or by defense taken on the rescission if there be a suit on the contract within the period of one year. If the rescission is not declared in judicial proceedings^ the word or act giving! notice must be prompt, clear, decisive, and sufficient to manifest the election. It was by this third method that the appellee attempted to manifest to the assured its election to rescind, and the legal sufficiency of its words and acts is for determination, and requires a statement of the more important requisites of this third method of communication. The policy of insurance in this case contained no clause permitting cancellation by either the insurer or the assured.

It is important to bear this fact in mind, because a right conferred by the policy to cancel is exercisable at the option of the party, with or without a reason, while the right of rescission is implied and usable only when there exists some legally sufficient cause, as, for1 example, fraud, deceit or misrepresentation. It is, therefore, a corollary that the method of communicating a rescission is according, to the practice at common law, as it is here neither regulated by the terms of the policy or by statute. Kerr on Fraud and Mistake, (5th Ed.) 403, 404, 409; Wald’s Pollock on Contracts (3rd Ed.), 707, 710, 723, and infra; Ewart, Waiver Distribuied, pp. 111, 117, 205, 212, 215; 3 Williston, Contracts, secs. 1525, 1527; Reese River Silver Mine Co. v. Smith, L. R. 4 H. L. 64, 73; Clough v. London etc. Ry. Co., L. R. 7 Ex. 26, 34, 36; Bwlch-y-Plwm, Lead Mining Co. v. Baynes (1867), L. R. 2 Ex. 326. 1.

The injured party must proceed without unreasonable delay after the fraud is discovered to* rescind the contract, and to manifest its determination to the other party. Delay, after the discovery of the fraud but within the period of one year, will furnish evidence that it had decided to affirm the contract. If the defrauded insurance carrier does not communicate the fact of its election to avoid the contract to the ⁶⁴³ .assured within the period designated, its right of election is lost. Hennessy v. Bacon, 137 U. S. 78, 84 ; McLean v. Clapp, 141 U. S. 429, 432 ; Latrobe v. Dietrich, 114 Md. 8, 21, 22 ; Munich, Co. v. United Surety Co., 113 Md. 200, 218 ; German Fire Insurance Co. v. Clarke, 116 Md. 625, 626 ; Nat.

Union Ins. Co. v. Asbestos Co., 122 Md. 121, 124 ; American Fire Ins. Co. v. Brooks, 83 Md. 22, 34, 35 ; 3 Williston, Contracts, secs. 15291-1531; Ewart, Waiver Distributed, pp. 105, 108, 109, 117-121, 234-235, 240, 242; Sharpley v. South etc. Ry. (1876), 2 Ch.

D. 685. 2. The communication must be accompanied by restitution or an offer of restitution, as¡ far .as- possible. The contract is not void but voidable and since the right of rescission is founded on equitable principles the injured party may not require the return of what has been obtained from him by deceit until he has in turn restored, or offered to restore, to the limit of possibility, what of value was received by him from the wrongdoer. The failure of the insurance carrier to return, or offer to return, the premiums received prior to the asserted election to rescind is evidence of its conclusion to ¡continue the contract; and, as a general rule, will justify the court in holding as a matter of law that the carrier has not proved its election to1 terminate.

New Jersey Rubber Co. v. Commercial Union Assurance Co., 64 N. J. L. 580; Metropolitan Life Ins. Co. v. Freedman, 159 Mich. 114 , 32 L. R. A. (N. S.) 298; Automobile Ins. Exch. v. Wilson, 144 Md. 249, 255 ; Renshaw v. Lefferman, 51 Md. 277, 284 ; New York Life Ins.

Co. v. Fletcher, 117 U. S. 519 ; Brotherhood of Railroad Trainmen v. Clark, 189 Ind. 373 , 18 A. L. R. 1190; 6 Pomeroy, Equity Juris., sec. 688, pp. 1164-1165; Kerr, Fraud and Mistake (5th Ed.), 386, 387; 1 Bacon, Insurance (4th Ed.), secs. 361, 362; Black, Cancellation and Rescission, secs. 476, 483; 3 Joyce, Insurance (2nd Ed.), sec. 1671, p. 2835, sec. 1640a, pp. 2776-2778. 3. Furthermore; the contract must be rescinded in its entirety. It may not be affirmed in part and rejected in part. When the choice is once made, it is conclusive, and the re ⁶⁴⁴ jected .alternative is precluded.

A contract cannot be valid and void at the same time. Accordingly, an election to rescind must become operative in the present and not in the future. German Fire Ins. Co. v. Clarke, 116 Md. 626 ; American Fire Ins.

Co. v. Brooks, 83 Md. 34 ; Munich v. United Surety Co., 113 Md. 200, 219 ; Cole v. Hines, 81 Md. 476, 479-482 ; Latrobe v. Dietrich, 114 Md. 8, 21 ; Foley v. Crow, 37 Md. 51, 62 ; Dellone v. Hull, 47 Md. 112, 115 ; Citizens Mutual Fire Ins. Co. v. Conowingo Bridge Co., 116 Md. 422, 438, 439 ; Grymes v. Sanders, 93 U. S. 55, 62 ; Kerr, Fraud and Mistake (5th Ed.), 401, 404, 409. 'The rights of the litigants in the case at bar .are to be ascertained by the application of these principles of law to these comparatively few indisputable facts. The fraud of the assured was uncovered in the first half of December, 1921, when, as a result of an investigation begun in June or July, 1921, the insurer had enough information to justify it in terminating the contract of insurance. Before the 15th of December, 1921, the proper representative of the company, at the home office in Baltimore, there entered upon the card record of the policy “Cane. 1-14-22,” meaning that the policy was cancelled as of January 14th, 1922, but no notice of this entry or of any intention to cancel the policy was given or attempted to be given the assured until about a month later.

Even then the information was the result of an inquiry from the assured, who, not having received a notice of the maturity of the annual premium, wrote on January 10th, 1922, to the appellee, stating that his premium was due on January 14th, and that he had not received a bill, and asking that it be mailed him at once. The company replied on January 12th by a letter which, omitting the formal opening and ending, was in these words: “This is to advise you that Policy No>. 12039-A, issued on your life, will be cancelled as of January 14th for the reason that you withheld certain information governing the issuing of this policy in your application for insurance and that no further premiums will be .accepted thereon.” The assured, ⁶⁴⁵ or some one for him, wrote on Jannary 16th to the insurer acknowledging receipt of the letter of January 12th, but there is no statement in the letter as to- when it was received by the assured, nor is there any direct proof as to the time of its receipt. In his letter of January 16th, the assured disclaimed any knowledge of the nature of the charge preferred in the letter of the company, and asked for the details. The company replied on January 21st that “we found you did not answer questions 19, 19a and 20 correctly in your application for insurance/ and wish to refer you to the copy of the application attached to yo-ur policy.” With this letter all correspondence during the life of the assured ended, and he received no- other communication of .any kind except when his representative, Erancis Oaminetti, was- sent to Baltimore on February 11th, 192-2, and made a tender, within the thirty days’ period of grace that were allowed -for that purpose, of the premium falling due on January 14th, 1922.

On this occasion the company declined to aceep-t the money on the ground that Dr. - S-tiegler had made a false statement concerning his rej eotion by other insurance companies. Before this visit in February of Oaminetti, the insurer had made no effort, in any form, to return, or offer to return, the first and only premium it had received from the assured. -The only offer was made to Oaminetti and these were the- circumstances. The president of the appellee testified that the renewal department had instructions not to accept the tender of any new premiums, and to return the old p-re-mium, but he did not state when these instructions were given. The assistant treasurer and assistant secretary, A. Victor Weaver, asserted that the president instructed him “that if there were any tender of a premium in this case not to receive it, but to tender the premium back.” Nothing was. done, however, until Oaminetti came, on February 11th, 1922, to the office of the insurance company, and made .a tender of the premium falling due on January 14th, 1922, when Weaver declined ⁶⁴⁶ to accept the tender, and said to Oaminetti, “we were ready to return the premium paid on the policy.” Oaminetti replied that be bad not come for that purpose but to pay the premium.

After this interview in Baltimore on February 11th, nothing occurred until the death of the assured on March 27th, 19'22. The beneficiary made a demand upon the appellee, which refused to pay. The material question, therefore, is, Do these facts establish a rescission of the contract at law and within the' conditions of the policy ? We think not, and for the reason that there was no legally sufficient evidence to establish' that the appellee, within the year before the condition of the policy providing for indefeasibility became effective, rescinded the contract, with notice to the assured and with restitution or with an offer thereof.

The appellee knew of the fraud by the middle of December, and determined to cancel the policy as of the following J anuary 14th, as is irrefutably established by its own record entry on December 14th of “Cane. 1-14-22,” and its letter of January 12th to the assured advising him that the policy issued on his life “will be cancelled as of January 14th for the reason that you withheld certain information governing the issuing 'of this policy in your application for insurance, and that no further premiums will be accepted thereon.” The policy had no term permitting a cancellation by the assured, and its sole right to avoid the policy was its option of rescission. Instead of so electing, it recognized the validity 'of the contract for the period of one entire year, ending on January 14th, and retained the premium paid for the insurance for that period, and then declared the contract of no effect after January 14th, 1922. In other words, if the assured had died on any day in the year ending on J anuary 14th, 19)22, the contract was valid, but if he died an hour afterwards the insurance was void. It accepted and retained its benefit under the policy to an arbitrary date of its own selection, and then attempted to invalidate the contract from that day for .a fraud perpetrated in its very inception.

To ⁶⁴⁷ approbate and reprobate is fatal to rescission. New Jersey Rubber Co. v. Commercial Union Assurance Co., 64 N. J. L. 580, and other cases: cited. As the only communication to1 the assured of the insurer’s purpose to rescind the policy, within the year allotted, was its letter of January 12th, which was insufficient for that purpose, it is immaterial whether or not it was received by the assured on or before January 14th, but, as. the question was argued and is of practical consequence, it may be well to state the: Court’s position. If it be proved that a letter which was sufficiently prepaid in stamps, was correctly addressed and then mailed, this is evidence to establish that the letter was duly delivered to the person addressed.

The evidence was that such a letter, if mailed on January 12th in Baltimore, would be delivered in due course of mail at Hawthorne on January 13th. It is an indispensable condition that the letter be correctly addressed. Alfred Stiegler lived in Plater,son, New Jersey, and gave to the appellee his address as 328 E. 30th Street, and this was the one entered on its card record. He was, employed by the United Piece Dye Works, at Hawthorne, N. J., a city of 6,000 or 7,000 inhabitants,, six miles distant from Paterson.

The envelope containing the appellee’s, letter of January 12th was .addressed to “Dr. A. Stiegler, U. S. Piece Dye Works, Hawthorne, Neiw Jersey.” There Was no such concern as the “U. ¡S'. Piece Dye Works,” in Hawthorne. The assured’s name was Dr. Alfred. 'Stiegler, and his employer’s name was the United Piece Dye Works. The address was inaccurate and misleading, so, the condition precedent to, the mailing of the letter being evidence of its, .actual delivery on January 13th did not exist.

Equitable Life Assurance Society v. Frommhold, 75 Ill. App. 43 ; Phelan v. Northwestern Mut. Life Ins. Co., 113 N. Y. 147 ; Manhattan Life Ins.

Co. v. Fields (Tex.), 26 S. W. 280 ; Chicago etc. R. Co. v. Chickasha Nat. Bank, 174 Fed. 923 ; Henderson v. Carbondale Coal & Coke Co., 140 U. S. 25 ; Bostain v. De