October 10, 1934.
Before FOSTER, J., County Court, Spartanburg, May, 1933. Reversed.
Action by Lawrence E. Love against the Prudential Insurance Company of America. From an order sustaining a demurrer to the answer and striking certain paragraphs therefrom, defendant appeals.
The complaint was as follows:
The plaintiff, Lawrence E. Love, complaining of the defendant, the Prudential Insurance Company of America, a corporation, alleges:
1. That plaintiff is a natural person.
2. That the defendant is a corporation, duly organized, chartered, and existing under and by virtue of the laws of one of the several States of the United States, and is engaged in the conduct of a health and life insurance business in the State of South Carolina, subject to the laws thereof, with place of business and agents in the County of Spartanburg, State aforesaid.
3. That, heretofore, on or about the 1st day of April, 1931, the plaintiff was visited at his home in the City of Spartanburg by one Marion D. Malone, agent of the defendant corporation, and was solicited by the said agent to make application for a certain policy of insurance, issued by the defendant insurance company; that, in the course of the solicitation, the said agent represented to plaintiff that, in consideration of the payment of a monthly premium of $2.64, the defendant insurance company would issue its policy to plaintiff, which would insure plaintiff against the risks of permanent and total disability and death, under the terms of which the defendant insurance company would pay to plaintiff immediately upon becoming totally and permanently disabled the sum of $500.00 in cash, and in addition to the payment of the aforesaid sum in cash as a disability benefit, the defendant company would waive the payment of further premiums by the insured after the happening of such contingency, and would pay to the named beneficiary upon the death of the insured the further sum of $500.00; that, relying upon the aforesaid representations to be true, the plaintiff was induced by the representations of the said agent to make formal application for the issuance of a policy of insurance to him as insured, which plaintiff was led to believe, by the representation of the said agent, contained an embodiment of the above-stated features of insurance; and that, in due course, on or about the 20th day of April, 1931, the defendant insurance company issued and delivered to plaintiff its certain policy contract (Policy No. M 1360777), which plaintiff accepted and placed away in safekeeping upon being assured by the said agent that the said policy contained an embodiment of the insurance represented and applied for.
4. That, as plaintiff is informed and believes, the said representations were made by the said agent with full knowledge that the policy of insurance issued and delivered by the defendant insurance company did not contain the features of insurance represented; and that, in reliance upon the false and fraudulent representations of the said agent that the said policy contained a formal embodiment and expression of the features of insurance applied for, the plaintiff has been induced to pay to the defendant insurance company the stipulated monthly premium of $2.64 since April 20, 1931.
5. That, during the late autumn of 1932, the plaintiff became totally and permanently disabled on account of the loss of sight of both eyes, and upon making application to the defendant insurance company for the immediate payment of the disability benefit of $500.00 in cash, which the said agent of the defendant company had represented would be paid in such cases, plaintiff was apprised by the defendant company, and so for the first time discovered that by the terms of the printed policy contract the insurance company had only bound itself to pay to the insured in event of total and permanent disability the face amount of insurance under the policy ($500.00) in forty quarter annual installments during ten years, each installment to be in the amount of $14.71, beginning after such total disability has existed continuously for a period of one year, and that the total amount of insurance under the policy, exclusive of the accidental death benefit, at any time after one or more of such installments have been paid, does or shall not exceed the commuted value of such said installments as are not then due, computed at the rate of 3 1/2 per cent. interest per annum, compounded annually, which provision, as plaintiff is informed and believes, means that the amount payable as a death benefit upon the death of the insured is diminished by such amount or amounts as has been paid as disability benefits during the lifetime of the insured with the commuted adjustment for interest allowance on the unpaid installments above stated.
6. That the provisions of the said policy do not embody the features of insurance, which plaintiff has been fraudulently induced by the defendant company to apply for and on which he has been induced to pay the stipulated monthly premium above stated; that plaintiff would not have applied for the issuance of, nor would he have accepted the delivery of the said contract or policy of insurance had it not been for the false and fraudulent representations of the defendant insurance company that the policy actually contained an embodiment of the features of insurance represented; that by reason of plaintiff's reliance upon the wrongful, false, and fraudulent representations of the defendant insurance company that he had been properly insured as represented, plaintiff has been induced to place himself in such position that he is no longer eligible for this type of insurance, which plaintiff would have otherwise secured had he not been wrongfully misled to believe that he had been insured by the defendant company as represented; and that, as a direct result of the aforesaid facts, fraud, and wrongful misrepresentations of the defendant insurance company, plaintiff has suffered actual damages in an amount equal to the actual difference between the value of the policy represented and the value of the policy actually delivered.
7. That, as a direct result of the wrongful acts of the defendant insurance company, the plaintiff has suffered damages, actual and punitive, in the full and just amount of $2,000.00.
Wherefore, plaintiff prays for judgment against the defendant for damages, actual and punitive, in the amount of $2,000.00, together with the costs and disbursements of this action, and for whatever other relief may appear to the Court to be just and proper.
The order of Judge Foster sustaining the plaintiff's demurrer and striking out various defenses set up in the defendant's answer is as follows:
This is an action commenced by the plaintiff, Lawrence E. Love, against the defendant, the Prudential Insurance Company of America, a corporation, in the County Court for Spartanburg County, by service of summons and verified complaint on the defendant on the 17th day of May, 1933. It is an action instituted by the plaintiff against the defendant for the recovery of damages, actual and punitive, for an alleged fraudulent and tortious breach of an alleged contract of insurance on the part of the defendant.
In due course thereafter, the defendant filed its answer, denying generally the material allegations of the complaint and setting up as special defenses to the action, first, the defense that there was fraud practiced by the plaintiff in the application for and the procurement of the contract of insurance; and, second, the defense that the plaintiff was not in sound health at the date of the issuance of the policy, an alleged condition precedent to the liability of the defendant for the risks insured against, in which event the liability of the defendant was to be limited to the amount of the premiums paid on the contract, which were to be returned by defendant. Based partly on allegations of fraud in the procurement of the policy of insurance on the part of the plaintiff, the answer of the defendant sets up generally an alleged counteraction for the cancellation of plaintiff's contract of insurance.
Thereafter, the plaintiff filed a special demurrer, demurring specially to the defense that fraud had been practiced by plaintiff in the procurement of the contract of insurance to the defense that the plaintiff was not in sound health at the date of issuance of the policy, and to any alleged cause of action set up in defendant's answer for the cancellation of plaintiff's contract of insurance on the grounds of fraud in the application for and the procurement of the insurance contract. Contemporaneously with service of the demurrer, the plaintiff served on defendant notice of motion to strike the objectionable allegations from the defendant's answer on the grounds that the allegations enumerated are matters which the defendant has conclusively waived the right to assert and are prejudicial to the rights of the plaintiff. The demurrer and motion to strike both came before me for hearing at the same time, and both matters will be disposed of in the within order.
The plaintiff demurs to the defense of fraud in the application for and procurement of the contract of insurance on the grounds that the facts alleged are insufficient to constitute a defense, in that it appears on the face of the pleadings that the defendant insurance company has received the premiums on the policy of insurance forming the subject of the action for a period of two years and is now conclusively bound by the application and representations as true. The contract of insurance in question is a contract of life insurance, with certain health and accident provisions, issued by the defendant insurance company under date of April 20, 1931. Premiums in the amount of $2.64 each were payable monthly and are admitted to have been paid by plaintiff up to and including the premium due March 20, 1933, which fully paid the premiums for a space of two full years. These matters being true, it seems that the case falls squarely within the application of Section 7986, Code of Laws of South Carolina, 1932. This section provides that any insurance company that issues a policy of insurance on the life of any person, and shall receive the premiums on any policy for a space of two years, shall be deemed and taken to have waived any right they may have had to dispute the truth of the application for insurance, or that the assured person had made false representations, and the application and representations shall be deemed and taken to be true. Having received the premiums on the policy of insurance in issue for a space of two full years, under the authority of this section and the case of Beard v. North State Life Insurance Company, 104 S.C. 45, 88 S.E., 285, cited in L.R.A., 1917-E, 343, the facts alleged are insufficient to constitute a defense to plaintiff's alleged cause of action and plaintiff's demurrer to the special defense of fraud in the application for, and the procurement of the contract of insurance in issue must be sustained.
The plaintiff next demurs to the special defense set up by the defendant's answer that plaintiff was not in sound health at date of policy, in which event the liability of the insurer is limited to the return of the amount of premiums paid, on the grounds that the facts alleged are insufficient to constitute a defense. As stated above, the policy of insurance in question was issued by the defendant under date of April 20, 1931, on the application of the plaintiff. It is admitted that, according to the statements contained in the application upon which the policy was issued, the plaintiff was in sound health at that time. Having received the premiums on the contract of insurance for a period of two full years, under the statute and authority above cited, the insurer cannot now deny the truthfulness of the statements contained in the application for insurance that the general health of the plaintiff was good and that he was in sound health at that time. Moreover, it appears that the defendant insurance company had notice of plaintiff's claim of disability during the late part of the year 1932, and that, after knowledge of plaintiff's condition and claim of disability, the defendant continued to accept payment of premiums from plaintiff unconditionally for a period of several months, up to and including the premium due March 20, 1933, which paid the premiums in full for a space of two full years. The insurance company has denied that plaintiff is disabled as claimed, has retained all premiums paid, and has not even alleged any tender of return of premiums to the plaintiff. These facts, taken collectively, unquestionably, as a matter of law, constitute a waiver on the part of the defendant of the right to assert this clause of the contract as a defense to plaintiff's cause of action, and plaintiff's demurrer to this defense on the ground that the facts stated are insufficient to constitute a lawful defense must be sustained. This seems to be in accord with the rule uniformly announced and followed. New York Life Insurance Company v. Dumler (C.C.A.), 282 F., 969; Fair v. Metropolitan Life Insurance Company, 5 Ga. App. 708, 63 S.E. 812; Mutual Life Insurance Company v. Hoffman, 77 Ind. App. 209, 133 N.E. 405; American Bankers' Insurance Company v. Thomas, 53 Okla. 11, 154 P. 44; Ames v. Manhattan Life Insurance Company, 40 App. Div. 465, 58 N.Y.S. 244, 37 Corpus Juris, 406.
Lastly, the plaintiff demurs to any alleged cause of action set up in defendant's answer for cancellation of plaintiff's contract of insurance on the grounds of fraud in the application for and the procurement of the policy of insurance on the ground of demurrer that insufficient facts are alleged to constitute a basis for cancellation for this cause, in that it appears on the face of the pleadings that more than two years have elapsed from the date of the policy. In view of the conclusions above expressed, after receiving the premiums from plaintiff for a period of two full years, during part of which time premiums were received by the defendant unconditionally with knowledge of plaintiff's claim of disability, the defendant is now bound conclusively by the truthfulness of the statements contained in the application for insurance, and under Sections 7986 and 7987, Code of Laws of South Carolina, 1932, the defendant cannot maintain an action under the facts alleged for cancellation of the contract of insurance on the grounds of fraud in the application. The plaintiff's demurrer must, therefore, be sustained.
Being of the opinion that plaintiff's demurrer should be sustained in every particular, and that the inclusion of the objectionable allegations of defendant's answer is and would be prejudicial to the rights of the plaintiff, plaintiff's motion to strike the objectionable allegations enumerated in notice of motion from the pleadings must also be granted.
It is therefore ordered that plaintiff's demurrer to the defendant's answer be, and the same is, hereby sustained in every particular.
It is further ordered that the allegations contained in paragraphs two, three, four, five and six be, and the same are, hereby stricken from the defendant's answer.
Messrs. Osborne Butler, for appellant, cite: As to total disability: 120 So., 450; 62 A.L.R., 999. Contestable period: 88 S.E., 285; 75 S.C. 315; 55 S.E., 762; 120 S.C. 490; 113 S.E., 310; 168 S.C. 30; 166 S.E., 786; 169 S.E., 837. Defect at time of delivery of policy bars recovery: 150 S.E., 793; 124 S.C. 492; 117 S.E., 720. Waiver is question for jury: 160 S.C. 386; 158 S.E., 727; 161 S.C. 96; 159 S.E., 506; 164 S.C. 80; 161 S.E., 867; 165 S.C. 427; 164 S.E., 6; 170 S.C. 329; 170 S.E., 451.
Messrs. Johnson Johnson and Samuel N. Burts, Jr., for respondents, cite: Contracts: 25 Ala., 465; 149 Ill., 343; 36 N.E., 1029; 23 L.R.A., 611; 92 A., 633; L.R.A., 1916-C, 886. Waiver: 37 C.J., 537; 104 S.C. 45; 88 S.E., 285; L.R.A., 1917-C, 343; 161 S.C. 286; 159 S.E., 617; 63 S.C. 192; 41 S.E., 90; 67 C.J., 313; 149 N.E., 243.
October 10, 1934. The opinion of the Court was delivered by
On or about April 1, 1931, the plaintiff herein, who is the respondent, applied to the defendant-appellant for a policy of insurance. No medical examination was required and upon the application as filed the policy was issued on April 20, 1931. In the fall of 1932 the complaint alleges that the plaintiff became totally disabled and applied to the defendant for the disability benefit of $500.00 in cash. The defendant declined to pay this amount, claiming that the policy provided for the payment of quarterly sums of $14.71 for ten years and that the amount of the disability payments should be deducted from the life insurance portion of the policy in case of the death of the insured. This was most unsatisfactory to the plaintiff as, he alleged, the agent of the defendant had misled him into taking a policy entirely different from the one he had contracted to take and that the conduct of the agent was fraudulent in that the agent had induced him to pay premiums for that which he had not contracted to receive. The suit brought by the plaintiff was in tort and demanded actual and punitive damages against the defendant, the real cause of action being that by the fraudulent misrepresentations of the defendant he had been induced to accept and pay the premiums upon a policy which he had never agreed to purchase. As this appeal is from an order sustaining a demurrer to the answer of the defendant, it will be necessary to set forth the defenses with some degree of particularity.
The first defense, after admitting the issuance of the policy, denied the remaining allegations of the complaint.
The second defense alleged the false and fraudulent answers to health questions set out in the application, such as health being good, never being sick, having no doctor attend him in three years, and having no physical or mental defect. In denial of the truth of these answers, the defendant alleged that at the time they were written the plaintiff was suffering from a mature cataract of the right eye which rendered him almost blind in that eye and an immature cataract of the left eye which seriously impaired his vision. It was further alleged that about a year before obtaining the policy the plaintiff claimed to have had an accident to his right eye which completely blinded it and that one or more physicians attended him at that time. That these representations were false, fraudulent, and unknown so to be to the defendant and that with knowledge thereof the policy would not have been issued.
The third defense alleged a condition of the policy providing that the policy would be of no effect, if on its date, the insured be not in sound health; and that the insured was not in sound health either on the date of the policy or on the date it was delivered.
The fourth defense denied the plaintiff has ever furnished proofs of his disability as required by the terms of the policy, or that he was totally and permanently disabled at all and certainly not for four months prior to the filing of proofs of disability.
The fifth defense alleged that the plaintiff continued to pay premiums after he had discovered he had not received the policy he intended to get and that by paying the premiums after knowledge of the character of the policy he thereby affirmed and ratified the contract which he did receive and was bound by its terms. It was further alleged that the policy lapsed for nonpayment of dues on March 20, 1933, the date of the last premium payment. The answer prayed for a dismissal of the complaint and that the policy be adjudged null and void and delivered up and canceled for failure to pay the premiums thereon.
To this answer the plaintiff demurred, the grounds of demurrer being three in number.
The first ground was directed against the second defense set up in the answer and charged that the defendant had received premiums on the policy for two years and was conclusively bound to the truth of the contents of the application.
The second ground of demurrer relates to the second defense and alleges that according to the answers in the application the insured was in good health when the policy was issued, the defendant being bound by the answers after two years. Further, that there had been no return of the premiums received or offer to return them.
The third ground of demurrer alleges that the defendant has no right to demand a cancellation of the policy on the ground of fraud in the application, for the reason that the policy was more than two years old. This ground of demurrer refers to the latter part of the fifth defense although it does not specifically so state. It seems that the demurrer was not addressed to the first and fourth defenses.
Following the demurrer, the plaintiff gave notice of a motion to strike from the answer Paragraphs 2, 3, 4, 5 and 6. These paragraphs contained the second and third defenses as outlined above. The motion was made upon the ground that these paragraphs contain allegations which contravene Sections 7986 and 7987 of the Code of 1932, these sections relating to the incontestable provision after receiving premiums for two years.
The order of the Judge of the County Court sustained the contentions of the plaintiff, sustained the demurrer to the answer, and struck from the answer the paragraphs listed in the notice and above set forth.
An appeal from the order followed.
The exceptions raise the following questions:
1. Did the County Judge err in holding that the action was for the alleged fraudulent and tortious breach of a contract of insurance?
2. Is the case governed by Sections 7986 and 7987 of the Code in various aspects?
3. Did the defendant waive its right to defend the suit on the ground of ill health of the insured on the date the policy was issued by acceptance and retention of the premiums?
We can discover in the complaint no allegations sustaining the holding that the cause of action therein stated is for "fraudulent and tortious breach of an alleged contract of insurance." The complaint proceeds in tort, the plaintiff being induced by fraud to enter into that certain contract, to receive that certain policy, and nowhere is it alleged that the contract of insurance, evidenced by the policy, was broken by the defendant fraudulently or otherwise. Standing alone, this holding might be considered immaterial, but it is very important in the consideration of the applicability of the incontestable statutes, Sections 7986, 7987. The demurrer to the answer was sustained solely upon the ground that those sections of the Code were directly applicable to the situation here presented and that the defendant could not deny the truth of the statements made in the application for insurance as the two-year provision in the statute applied, the defendant having admittedly received premiums for that length of time.
The statute in question, Section 7986, provides that any company which issues a policy upon the life of a person and shall receive premiums thereon for two years, shall thereby waive its right to dispute the truth of the statements made in the application.
The policy in this case contained two separate contracts, one on the life of the insured and one covering disability which the insured might sustain. In either view of the case, whether it be a suit for fraudulent breach of contract, as held by the lower Court, or an action in tort, as we have held, there is nothing in the facts setting forth the cause of action which applies to life insurance. The statute limiting the defendant to two years in which it could deny the statements contained in the application is in clear derogation of the common law and must be strictly construed. A strict construction of the statute will disclose that it does not apply to any other than a life policy; in no place referring to a disability, accident, health, or other form of insurance. The case of Chattanooga Sewer Pipe Works v. Dumler, 153 Miss., 276, 120 So., 450, 452, 62 A.L.R., 999, is not exactly in point as to the facts, but the following quotation from that case appears applicable:
"In the case at bar, the money involved is in no proper sense the proceeds of a life insurance policy. It is true that it arises out of one of the provisions of a policy of insurance on the life of the appellee, but this provision is a contract of indemnity wholly separate from the contract to pay a fixed sum upon the death of the insured. * * * It thus appears that this contract of insurance contains two wholly separate contracts, one of life insurance, and the other a contract of indemnity against total and permanent physical disability, and that payments made under the latter contract in no wise affected the rights of the heirs and legatees of the insured, which are protected by the provisions of this statute."
The contention of the plaintiff that the policy intended to be bought provided that the disability benefits should be separate and distinct from the life insurance and that the life insurance should not be reduced by the disability payments shows that two separate contracts were claimed to be present in the same policy.
We, therefore, hold that the statute, under the strict construction which we deem necessary, does not apply to the disability contract contained in the policy, and that the lower Court was in error in so holding.
But should there be any doubt as to this holding, there is another reason why the statutory provision should not control the decision to sustain the demurrer to the several separate defenses set forth in the answer relative to the falsity of the answers to questions in the application.
It appears that within less than two years from the date of the policy, the plaintiff claimed to have received an injury to his right eye which rendered him totally disabled. This being the case, what were the rights of the defendant and what course, if any, could it pursue? The latest discussion of these questions is found in the case of New York Life Insurance Co. v. Greer, 170 S.C. 151, 169 S.E., 837. In that case Mr. Justice Stabler reviews all of the cases on the subject and holds, in effect, that the rights of the parties became fixed at the time of the death or disability of the insured and that the insurance company has no right to enter a Court of equity to seek a cancellation of the policy for fraud on the ground of false statements in the application, as the company would have an adequate remedy at law in using the same grounds to defend a suit upon the policy.
It is, therefore, perfectly clear that where the disability occurred within the two-year period, as the date in this case, the plaintiff could not withhold bringing his suit until after the expiration of the two-year period in order to obtain the benefit of the two-year incontestable statute. The disability having occurred within the two-year period, it follows that the statutory provisions are not applicable.
There are other interesting questions raised by this appeal to which we need not further advert although they have been carefully considered as they may properly come up on the trial of the cause.
It only remains to consider the question of waiver. The lower Court held that the defendant had waived its right to claim that the plaintiff was not in sound health on the date of the delivery of the policy. The appellant challenges this holding on the ground that waiver is always a question for the jury and cites numerous cases wherein this Court has so held. As we construe this ruling of the lower Court, the County Judge was merely following his construction of the two-year statute as being applicable to the case. If the statute had been applicable, then the question of waiver became a matter of law thereunder by the admitted facts. However, we have endeavored to show that the two-year statute was not applicable and, hence, the lower Court was in error in holding that the defendant had waived its right to contest the case on the ground of false statements in the application.
As to the point made concerning the retention of premium payments after notice of the disability of the plaintiff, as raised by the respondent, we do not see how this can be urged as a reason for the order sustaining the demurrer to the answer. The action was, as before stated, one in tort for the alleged fraud in inducing the plaintiff to take a policy which he had not contracted to take, thereby recognizing the existence of a contract although not the one the plaintiff says he was to receive. The defendant likewise recognizes the fact that a policy was issued and seeks a cancellation thereof because of the alleged fraud of the plaintiff in misleading the defendant by false answers in the application. The question of retention of premiums as constituting a waiver may come up in the trial of the cause along with other questions of law and fact growing out of the admitted evidence. A decision of such questions on this appeal from an order sustaining a demurrer to the answer is considered premature.
The order sustaining the demurrer is therefore, reversed.
The complaint and the order sustaining the demurrer should be reported.
MR. CHIEF JUSTICE BLEASE and MESSRS. JUSTICES STABLER, CARTER and BONHAM concur.