Weems v. American National Insurance Co. , 197 Ga. 493 ( 1944 )

1. As a general rule, equity does not have jurisdiction of a suit by an insurer to cancel a policy of life insurance on the ground that the insurance was procured upon false and material representations by the insured as to his physical condition, because the insurer has an adequate and complete remedy at law in defending any suit that may be brought upon the policy.

(a) But where a policy of insurance provides that it "may be contested only within two years next after its issue date," and the insured dies within such period, there is an exception to the rule above stated, since the death of the insured does not stop the running of the limitation stated in the incontestable clause, and the insurer's ability to defend on the ground of fraud in the procurement is dependent upon the will of the beneficiary in bringing a suit on the policy within the contestable period.

2. Where, under the exception to the general rule as above stated, an insured is permitted to bring a suit in equity to rescind and cancel a policy of insurance after the death of the insured thereunder, the legal representative of the insured is a necessary party.

(a) In such circumstances, the restoring or offer to restore to the other party the premiums received by the insurer, as required under the law, must be made to the legal representative of the insured.

No. 14770. MARCH 8, 1944. REHEARING DENIED MARCH 20, 1944. The American National Insurance Company filed an equitable petition against Asa F. Weems, alleging that on June 9, 1941, it issued to Robert H. Weems, pursuant to his application of May 26, 1941, its industrial policy of life insurance. In the written application, Robert H. Weems stated, as representations and warranties of fact for the purpose of securing the insurance, that he had no physical or mental defects and had not suffered from any illness or disease during the past five years. The policy provided that the company, "In consideration of the advance payment of the weekly premium on or before each Monday from the date of this policy for the premium-paying period, while this policy continues, upon receipt of satisfactory proof of the death of the insured, will pay the face amount to the beneficiary . . provided that at the date hereof the said insured is alive and in sound health." Asa F. Weems, the father of the insured, was named as beneficiary. It further provided that the original validity of the policy, except as to certain named benefits, "may be contested only within two years next after its issue date." On July 10, 1941, the beneficiary presented to the insurance company a written statement, signed by him, to the effect that the insured had died on June 20, 1941, and containing the name and address of the only physician who attended or was consulted by the deceased during his last sickness. A sworn statement in writing by the physician was also filed, in which it was stated that the immediate cause of the death of the insured was malnutrition from tuberculosis; that the contributing cause was pulmonary tuberculosis; and that the duration of illness was approximately one year. It was further averred that the policy did not, according to its terms, go into effect for the reason that at the date of the policy the insured was not in sound health; that the representations and warranties in the application were false and fraudulent, were made for the purpose of cheating and defrauding the petitioner by securing the issuance of the policy; and that if true statements had been made, they would have disclosed that the insured was suffering from tuberculosis at the time of the application and within five years thereof, and that the policy would not have been issued. On or about January 1, 1942, the defendant was notified that the policy was null, void, and of no effect, and that the plaintiff would not pay the same. It is charged that the defendant has not further asserted liability against the plaintiff, but at the expiration of the period stated in the incontestable clause, the defendant might then undertake to do so; and that the plaintiff has no adequate remedy at law, in the absence of a proceeding by the defendant claiming liability on the policy, and therefore must resort to a court of equity to obtain relief and avoid the suffering of irreparable loss. The plaintiff has tendered to the defendant $1.76, the premium paid, which was refused, and a further tender thereof, together with interest, is made. The petition prayed for a rescission and cancellation of the policy and that it be declared null, void, and of no effect, and for general relief. The defendant filed both general and special demurrers, which were overruled, and the case is before this court on exceptions to that order and judgment. 1. While the general demurrer challenges the petition as being without equity, it is not contended that the insurance company is not entitled to maintain an action of this particular nature. It is well settled that a court of equity is open to an action by an insurer against the beneficiary of a deceased insured to rescind a policy of insurance on the ground that the insurance was procured by the fraud of the insured, where the policy provides that its validity may be contested within a specified time next after its issue date, and the insured dies within the contestable period. Lockett v. National Life and Accident Ins. Co.,193 Ga. 372 (18 S.E.2d 550); National Life and Accident Ins.Co. v. Preston, 194 Ga. 583 (22 S.E.2d 157). This relief in equity is recognized, since the death of the insured within the contestable period does not stop the running of the limitation stated in the incontestable clause (Riley v.Industrial Life Health Ins. Co., 190 Ga. 891, 11 S.E.2d 20;Lockett v. National Life and Accident Ins. Co., supra), and the insurer's ability to defend on the ground of fraud in the procurement is subject to the will and pleasure of the beneficiary in bringing a suit on the policy within the contestable period.

2. One of the questions raised by the demurrer is a nonjoinder of parties defendant, on the contention that the representative of the estate of Robert H. Weems, the deceased insured, should have been named as a party defendant, and that the tender of the premium paid on the policy should have been made to such representative, and not to Asa F. Weems, the beneficiary. As far as we have been able to determine, this precise question, with a single exception, has not been considered by this court. InJefferson Standard Life Ins. Co. v. Fendley, 182 Ga. 661 (186 S.E. 722), the question was raised by the court in determining whether it had jurisdiction of the case. A beneficiary of an insurance policy had brought suit against the insurer on the policy after the death of the insured, and prayed for a judgment for the amount of the policy. In its answer the defendant alleged an election to rescind the policy of insurance on the ground of alleged misrepresentation of facts by the insured in procuring the policy, and prayed for a judgment and decree canceling the policy of insurance, and adjudging it to be void and of no effect; for an injunction preventing the plaintiff from filing any other suit on the policy; and for general relief. The representative of the estate of the insured was not a party to that case. After a verdict for the plaintiff and the overruling of a motion for new trial, the case came to this court, which held that the matters relied on could be set up by the insurer as a defense, and if successful, the judgment would be conclusive against further enforcement of the insurance policy. It was further held that the relief sought by way of rescission and cancellation of the policy, injunction to prevent the plaintiff from filing any further suit on the policy, etc., was affirmative in character; and that to have rescission, the legal representative of the insured would be a necessary party. In the instant case, the defendant in error contends that the ruling there made was purely obiter dicta. With this contention we can not agree. An examination of the record in that case, on file in the office of the clerk of this court, discloses that counsel there were invited to file special briefs on the question of jurisdiction. After the judgment of this court transferring the case to the Court of Appeals, the plaintiff in error filed a motion for rehearing attacking the ruling on this very point. The motion was denied. Whether or not the case was properly transferred, the question was passed upon. While we are not bound to follow the ruling there made, since it was a decision of only five justices (Rogers v. Carmichael, 184 Ga. 496, 508, 192 S.E. 39), yet if it enunciates a correct and sound rule, this court will not hesitate to follow and reiterate it.

If the insurance contract in the instant case was valid, the beneficiary upon the death of the insured had a vested interest in the policy. Conversely, if for any reason the policy is held to be void, the beneficiary is without any right or interest therein. The beneficiary's rights and interest depend upon the existence and validity of the contract. If there is rescission, there is no contract. If there is no contract, there is no right. If it should be adjudged in a proceeding that the contract was infected with fraud, and the policy of insurance would not have been issued, it would thereby also be adjudicated that the beneficiary would have no right whatever in the policy. Now, before a rescission can be had at the instance of the insurer, the insurer must restore or offer to restore to the other party whatever it has received by virtue of the contract, if it be of any value. Code, § 20-906. An election to rescind because of fraud in the procurement is an assumption of a position that the contract was void ab initio, or that it never in fact existed, and under such contention the beneficiary, never having acquired any right because of the non-existence of the contract, would not have the right to the premium paid by the insured for the purchase of the insurance. Unless the policy itself provides for the disposition of the premiums paid by the insured in the event of the failure of the contract to go into effect, the only person entitled to the return of the premium paid would be the insured himself. If the insured is dead, his legal representative would be so entitled. And upon an election by the insurer to rescind, the offer to restore, as required by the Code, § 20-906, must be made to the other party, or if he be dead, to the person legally entitled to act in his behalf. By the same process of reasoning, in an action to rescind by the insurer, the other party or his legal representative, as the case may be, should be made a party to the proceeding in order that he may be afforded an opportunity to defend against the accusation that he had committed a fraud. We think the rule laid down in the case of Jefferson StandardLife Ins. Co. v. Fendley, supra, is fundamentally sound, and that the principle there stated is applicable to the present case.

The insurer having failed to allege a tender of the premiums to the legal representative of the deceased insured, and having failed to make such representative a party to the case, and no reason having been shown why he was not named a party, the lower court erred in overruling the demurrer complaining of a nonjoinder of parties defendant and a failure to tender the premium to the legal representative of the insured's estate. Under this ruling, it becomes unnecessary to pass upon the other grounds of demurrer.

Judgment reversed. All the Justices concur.