Summary
In John Hancock Mut. Life Ins. Co. v. Hicks, 183 N.E. 93 (Ohio Ct.App. 1931), the court considered whether an incontestability clause barred an insurer from requiring proof from the insured that a disabling disease was contracted subsequent to the issuance of a permanent disability policy.
Summary of this case from McDaniel v. Medical Life Ins. Co.Opinion
Decided October 14, 1931.
Insurance — Policy a voluntary contract — Life policy, with disability clause — Beneficiary must prove disability postdated policy date, notwithstanding incontestable clause — Insurer must plead and prove exceptions to risks covered — Insurer's defense not waived by accepting premiums after disability claims presented.
1. Insurance policy is voluntary contract which may be made upon such terms and conditions, not conflicting with public policy, as parties agree.
2. Beneficiary seeking to recover on life policy containing disability clause must establish disease causing insured's disability was contracted after date of policy, notwithstanding incontestable clause.
3. Insurer must plead and prove exceptions to risk covered by policy.
4. That insurer accepted premiums on disability clause after claim thereunder was made held not waiver of right to require proof that insured's disability was caused by hazard covered by policy.
ERROR: Court of Appeals for Franklin county.
Mr. Webb I. Vorys, for plaintiff in error.
Mr. Horace Kerr and Mr. James F. O'Rourke, for defendant in error.
This is a proceeding in error seeking to reverse a judgment of the trial court rendered in behalf of the defendant in error.
Plaintiff in error was defendant below, and defendant in error, Alice F. Hicks, was plaintiff, and we refer to the parties as they there appeared.
On the 19th day of February, 1927, and the 7th day of March, 1927, respectively, policies of life insurance in the sum of $5,000 each were issued to Harry C. Carr, and appended to each policy was a supplemental contract covering total and permanent disability of the insured. Alice F. Hicks, the plaintiff, was named beneficiary in the policies. The original petition alleged the issuing of the policies, the payment of premiums, and particularly the total and permanent disability provisions thereof, and set out verbatim so much of the provisions as was deemed pertinent, as follows: "Total and Permanent Disability Benefit Provision.
"1. If after the first premium or regular instalment thereof shall have been paid hereunder and under the policy, the insured prior to the anniversary of the policy nearest his sixtieth birthday shall become wholly and permanently disabled by bodily injury or disease sustained or contracted after the date hereof, so that thereby he will be wholly, continuously and permanently prevented from the pursuit of any form of mental or manual labor for compensation, gain or profit whatsoever, then, if there is no premium in default, and the policy is not being continued as paid-up or extended insurance under the non-forfeiture provisions thereof, the Company will upon receipt of due proof of such disability, grant the following benefits subject to the terms and conditions, herein set forth.
"Beginning with the anniversary of the policy next succeeding the commencement such disability, the Company will waive the payment of further premiums, during the continuance of the disability, and will pay to the Insured, from the date of the commencement of such disability, or to the beneficiary if disability results from insanity, subject to the conditions and limitations of this provision, with the written consent of the assignee, if any, a sum equal to one per centum of the face amount of the policy exclusive of any policy additions, and a like sum monthly thereafter during the continuance of the disability, until the maturity of the policy."
The petition further averred that the insured on the 31st of May, 1928, had been adjudged to be an insane person in the probate court of Franklin county, Ohio; that he was then and at the time of filing the petition, by reason of said insanity, wholly, permanently and continuously prevented from the pursuit of any form of mental or manual labor for compensation, gain or profit. Thereafter, and before the cause came on for trial, the plaintiff filed a second petition against the defendant, seeking to recover the amount claimed to be due under the permanent and total disability clauses of the policies, from the date of the original petition to the date of the second petition. These cases were consolidated under one number in common pleas court and come here as one case.
Certain motions were filed by defendant, which are not germane to the question presented, and two demurrers, one to each petition, were argued and sustained by Judge Scarlett of the common pleas court before the cases came on for trial. Without stating in detail the allegations tested by the demurrers, suffice to say that the effect of the rulings was to require the plaintiff to set out that the insured, Carr, contracted the disease known as dementia praecox after the date of the issuing of the policies.
The defendant answered, and in so far as is relevant here set up a general denial and a cross-petition seeking the recovery from the plaintiff of payments made by the company to the plaintiff under the disability clauses from April 1, 1928, to March 1, 1929. The cross-petition averred that if the insured was afflicted with a disease known as dementia praecox, which defendant denied, the same was sustained or contracted by him prior to February 19, 1927. The plaintiff filed replies to the answers, and answer to the cross-petition, setting up the incontestable clauses in the policy, which read: "This policy * * * shall be incontestable after it has been in force during the lifetime of the insured for a period of one year from its date of issue except for non-payment of premium."
This was the state of the pleadings when the case came on to be heard. The trial court at the time the jury was impaneled, upon consideration of some phases of the law of the case, was of opinion that the incontestable clauses in the policies prevented any contest of the claim of the plaintiff under the policy except that of nonpayment of premiums; that it was not incumbent upon the plaintiff to establish that the insured contracted the disease of dementia praecox resulting in insanity after the date of the policy; and that an allegation that the plaintiff was suffering from the disease of dementia praecox as of May 31, 1928, and the date of filing the petition was sufficient. Thereupon the plaintiff conforming to the rulings of the court amended her petitions by striking out the allegation thereof "that said disease was contracted by the insured after the date of said policy of insurance." Demurrers were interposed to the petitions as amended, and overruled. Motions to dismiss, and motions to arrest the case from the jury, and that the jury be instructed to return a verdict for the defendant, were all overruled. The tendered answer of the defendant setting up a defense that the disease from which the plaintiff claimed insured was suffering was contracted before the date of the issuing of the policies was stricken upon demurrer thereto by the plaintiff. The amended reply and amended answer to the cross-petition were tendered and demurrers thereto overruled.
We have stated as briefly as possible the various and involved steps relating to the making up of the issues, in so far as germane to the narrow questions presented to the court.
The testimony offered and accepted by the trial court was to the effect that the insured had been adjudged an insane person by the probate court of Franklin county on the 15th of May, 1928, and that continuously thereafter and at the time of trial he was totally and permanently disabled and thereby prevented from pursuit of any mental or manual labor for compensation. The defense tendered the testimony of Dr. Tarbell to the effect that in 1926, months prior to the issuing of either policy, he had examined the insured and diagnosed the illness from which he was then suffering as dementia praecox simplex. This was refused under exception of counsel for the defendant. The court rendered judgment for the plaintiff against the defendant in the full amount claimed and against the defendant on its cross-petition.
The legal proposition which we are called upon to determine is whether or not the incontestable clause in the policies prevents the defendant putting the plaintiff upon proof that the disease of dementia praecox resulting in permanent and total disability of the insured was contracted subsequent to the issuing of the policies.
It is the claim of the defendant that the incontestable clause has no effect whatever upon the obligation enjoined upon the plaintiff to prove that there has been a breach of the conditions of the policy or contract.
A policy of insurance is a voluntary contract, and may be made upon such terms and conditions as are agreed upon by the parties thereto so long as they are not in conflict with public policy. The gist of many of the decisions of our Supreme Court in recent pronouncements has been to direct attention to the fact that policies of insurance are but simple contracts, and that it is the obligation of the courts to interpret them as such. "Insurance" has been defined as "a contract by which one party promises on a consideration to compensate * * * the other if he shall suffer loss from a specified cause * * *." 32 Corpus Juris, 975.
It is incumbent upon the plaintiff, in seeking to recover upon an insurance contract such as we have under consideration, to establish that the disease from which the permanent and total disability results was the subject of the contract, namely that it was covered by the policy. The clause in question defining the subject-matter insured against reads as follows: "If * * * the insured * * * shall become wholly and permanently disabled by * * * disease * * * contracted after the date hereof, so that thereby he will be wholly, continuously and permanently prevented from the pursuit of any form of mental or manual labor for compensation," etc., "the payments provided will be made."
We are of opinion that only permanent and total disability from diseases contracted after the date of the issuing of the policies is the subject of insurance in this contract. The incontestable clause does not have the effect of enlarging the diseases or bodily injuries for which the company agrees to compensate the insured or his beneficiary. Had this policy named the specific diseases and injuries the suffering of which would have been compensated, it would not be claimed that any other disease or injury would obligate the company to any liability under the policy. The incontestable clause only prevents the contest by the company respecting any liability incurred by it by the terms of the contract, and does not relieve the plaintiff in the first instance of establishing its right to recover under the specific language of the policy. The incontestable clause would have prevented the company from contesting any answer made by the insured in his application to the effect that he was free from any mental disease, although he then knew that he was so afflicted, unless the claim was asserted by the company during the period in which the incontestable clause was not to be affected; but this would not affect that part of the policy setting forth the nature and extent of the coverage. The clause of indemnity relates to the policy or contract. When it is established by the claimants that the hazard against which the company has insured has been suffered by the insured, then the policy by its terms in that respect is effective and can not be contested. However, until such proof is made the plaintiff has not established a substantive right to recover. In other words, the company by the incontestable clause has not waived the necessity of allegation and proof that the injury, loss or risk claimed is the subject of the contract. It was incumbent upon the plaintiff to plead and prove that the insured was at the time of the filing of the petitions suffering from a disease contracted after the date of the issuing of the policies. And the defendant company had the right without respect to the incontestable clause to put the plaintiff upon such proof.
Inadvertently, no doubt, the trial court permitted the inconsistency of a reply to a general denial. Had the incontestable clause applied to the facts pleaded, it would properly have appeared in a reply to an affirmative defense of the answer of the company. In fact, the incontestable clause could not be material in the case until the company had undertaken to set up a defense, which, because of the incontestable clause of its policies, it was prevented from asserting. Our determination is a matter of first impression, as, strange as it may seem, there is no case in Ohio in which the identical question here presented has been considered. However, in other jurisdictions we find support for our position in the cases which are cited in the brief of counsel for defendant, notably Sanders v. Jefferson Standard Life Ins. Co. (C.C.A.), 10 F.(2d), 143, where the question of the scope and effect of the incontestable clause of a policy under consideration was directly raised. The second proposition of the syllabus is: "Incontestability clause does not prevent insured from disputing that insured's claim is covered by the policy."
At page 143 the court said: "By the policy the insurer promised to pay specified sums of money in specified contingencies."
And at page 144: "A provision for incontestability does not have the effect of converting a promise to pay on the happening of a stated contingency into a promise to pay whether such contingency does or does not happen. It cannot properly be said that a party to an instrument contests it by raising the question whether under its terms a liability asserted by another party has or has not accrued."
And in Brady v. Prudential Ins. Co., 168 Pa., 645, 32 A. 102, it is said: "The provision in the ninth clause which was relied upon to show that the policy was incontestable did not amount to a confession of judgment. It did not deny to the company the right to defend against an action brought upon the policy, except in so far as the defense might rest on a denial of the validity of the policy itself. All other lines of defense remained open to it."
And in Scarborough v. American National Ins. Co., 171 N.C. 353, 88 S.E. 482, L.R.A., 1918A, 896, Ann. Cas., 1917D, 1181, wherein the incontestable clause was invoked against a defense asserted by the company, on the ground that the cause of death of the insured was not covered by the policy, the court discussing the question said: "By the use of the term `incontestable' the parties must necessarily mean that the provisions of the policy will not be contested, and not that the insurance company agrees to waive the right to defend itself against a risk which it never contracted to assume."
See, also, Mayer v. Illinois Life Ins. Co., 211 Ill. App. 285; Lee v. Southern Life Health Ins. Co., 19 Ala. App. 535, 98 So. 696; Collins v. Metropolitan Life Ins. Co., 27 Pa. Super. 353; Flannagan v. Provident Life Accident Ins. Co., (C.C.A.), 22 F.(2d), 136; Head v. Hartford Accident Indemnity Co., (C.C.A.), 43 F.(2d), 517.
We have likewise examined all cases cited by counsel for the plaintiff. It is urged that exceptions to risks covered by the policy must be pleaded and proven by the defendant. This is true, but as we interpret the language of this policy there is no exception or exemption involved. The case of Order of U.C.T. of America v. Watkins, 38 Ohio App. 420, at pages 429 and 430, 176 N.E. 469, 472, discusses the burden of proof where the policy contains exemptions and an exemption is asserted as an affirmative defense. This is manifest from the language employed: "and, when the evidence is such as to give rise to the presumption [namely a presumption against suicide], the effect of the presumption is that the plaintiff must recover in the absence of evidence by the insurer which overcomes the presumption, and therefore in a case like this one, where the insurance covers death caused by external, violent, and accidental means, and it is provided in an exemption in the policy that the insurer shall not be liable for death resulting from self-destruction while sane or insane, and the insurer pleads such exemption as a defense, and the evidence is such as to give rise to the presumption that the death was accidental, it is not error for the court to charge that the burden of proving death by suicide is upon the insurer."
In above case the plaintiff had made a prima facie case of death by external, violent and accidental means, which was expressly covered by the policy. The company would be absolved from liability only when and if it appeared that such death, though caused by external, violent, and accidental means, was within an exemption in the policy, namely, that it resulted from self destruction. Mutual Life Ins. Co. of New York v. Hurni Packing Co., 263 U.S. 167, 44 S. Ct., 90, 68 L. Ed., 235, 31 A.L.R., 102, decided only a disputed question of law as to when the incontestable clause in a policy became effective. The provision under consideration was to the effect that the policy should be incontestable when two years had elapsed from its date of issue, and the company was seeking to assert that it was not effective to operate against it until two years after issue if the insured lived so long, and it was in this connection that the court said that it was to be incontestable without qualification and in any event.
Repala v. John Hancock Mutual Life Ins. Co., 229 Mich. 463, 201 N.W. 465, also related to the time when the incontestable clause became effective. The terms of this policy other than that it was insurance on the life of Joseph Repala do not appear. That portion of the opinion quoted by counsel for the plaintiff relates particularly to fraudulent statements claimed to have been made in the application for the policy. The discussion wherein the court says that no injustice will follow in holding that the incontestable period is a short statute of limitations was in connection with the holding that the time after which the incontestable clause would be effective continued to run after the death of the insured and in favor of the beneficiary. We do not find that it is applicable to our question. After careful consideration of the other cases cited, we do not find any case which is in conflict with our decision here.
However, it is asserted by the plaintiff below that the company, having accepted the premiums on the permanent disability clause of the policies since the time when the claim thereunder was made by the beneficiary of the insured, has waived the right to the defense sought to be made. This position is not tenable if the permanent and total disability from which the insured suffers was not caused by any hazard covered by the policy.
We come now to the disposition of the case in this court. At the time that the plaintiff appeared in the trial court she had made the proper and necessary averments under the policies. Because of the action of the trial court she was caused to omit these material allegations. Upon this state of the pleadings there was no necessity of proof that the disease from which the insured was suffering was contracted subsequent to the policy. Whether or not such proof could have been forthcoming we do not know, the record does not disclose, nor was it necessary that it should appear. The testimony of Dr. Tarbell tends to sustain the claim of the defendant that the disease from which the insured suffered was incurred prior to the issuance of the policy. We are of opinion that to do justice between these parties the cause should be remanded to the trial court with instructions to order the pleadings reformed in accordance with this opinion, and that opportunity be given plaintiff to make proof, if it can be done, of the necessary averments of the petition as appearing at the time that the case was brought to the attention of the trial court. If this proof cannot be made, the petition should be dismissed. The judgment of the trial court will therefore be reversed, and the cause remanded.
Judgment reversed and cause remanded.
ALLREAD, P.J., and KUNKLE, J., concur.