Case ID: ad_129/html/0332-01.html
Source: Caselaw Access Project
Author: {"author": "Laughlin, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Gustav H. Mincho, Respondent, v. Bankers’ Life Insurance Company of the City of New York, Appellant.
    First Department,
    December 11, 1908.
    Insurance — suit to restore canceled policy — pleading - - defenses fraud of insured — offsetting damages against premium received.
    In" a suit in equity to have a policy of life insurance which was canceled by the insurer restored as an existing contract, it is a good defense to allege that the plaintiff in his application falsely warranted that he had never made application for life insurance on a policy which was not issued or on which a policy was issued on a different plan, and that by reason of the false warranty the defendant canceled the policy and sustained damages in consequence thereof in a stated sum, which it asks to have deducted from the premium received.
    The fact that the damages claimed do not equal the premium received does not render the cancellation of the policy abortive, where the suit to restore the same is in equity, for in such suit the defendant may set up the rescission of the policy and also offset damages caused by the fraud of the insured.
    Appeal by the defendant, the Bankers’ Life Insurance Company of the City of New York, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the. 15th day of May, 1908, upon the decision of the court, rendered after a trial at the New York Special Term, sustaining the plaintiff’s demurrer to a separate' defense contained in the answer.
    
      Wilson B. Brice, for the appellant.
    
      Charles N. Morgan [George E. Morgan and Sidney Smith with him on the brief], for the respondent.
   Laughlin, J.:

The -plaintiff alleges that on the 19th of June, 1906, the defendant issued to him a policy of insurance on his life in consideration of a premium of $1,397.20, then duly paid, and of the agreement on the part of the plaintiff to pay a like annual premium thereafter for thirteen years, and that on or about the 12th day of June, 1907, the defendant declared the policy of insurance canceled and repudiated liability thereunder, and thereafter, and on the 19th day of June, 1907, refused to receive and receipt for the annual premium then due and duly tendered. The action is brought to have the policy declared in full force and virtue and to have it restored as an existing contract on the books of the defendant. That part of the 'answer to which a demurrer is interposed alleges, among other things, that plaintiff in his application for insurance falsely and fraudulently represented and warranted that he had never made application for life insurance on which a policy was not issued or on which a policy was issued on a different plan from the one for which he applied, whereas he had repeatedly applied for and been declined insurance in other companies; that the policy contained an express provision that the statements made in the application were warranted by the applicant to be true; that as soon as the defendant learned that the representations were false, and before the first anniversary of the policy, it duly notified the plaintiff that it had elected to cancel the policy, and it did thereupon cancel it; that the defendant has sustained damages in consequence of the false representations and breaches of warranty “ in the sum of thirteen hundred and twenty-three ($1,323) dollars and upwards,” and is willing to restore to the plaintiff the sum of $74.20 or such other amount as it may not be entitled to retain, and prays judgment adjudicating its damages and awarding judgment to plaintiff for such part of the premium paid as it may not be entitled to retain.

The learned court at Special Term held on the authority of Moore v. Mutual Reserve Fund Life Association (121 App. Div. 335) that the attempted rescission of the contract of insurance was ineffective on account of the failure of the defendant to return the premium paid. That was an action by the inswred to rescind the contract for fraud on the part of the company in inducing the insurance, and it was there held, the fraud being established, that plaintiff was entitled to have the contract rescinded and the premium paid returned, without deduction on account of the insurance afforded by the policy during the period prior to the rescission thereof. That case, however, is quite distinguishable from the one at bar. The court there properly held that the person guilty of the fraud was not entitled to retain the fruits of the contract. In the case now before the court, on the facts admitted by the demurrer, the plaintiff was guilty of fraud in obtaining the insurance, and the company was not fully protected by the rescission of the policy, for it sustained a large amount of damages which it claims the right to deduct from the premium paid. It is conceivable that such damages could, be sustained, for it may have paid the premium to agents from whom it cannot recover it. The company, on discovering the fraud, might have brought an action for a rescission of the policy and to have its damages determined by the court and deducted from the premium which it had received, manifesting a willingness to return the surplus premium over its damages, if any, to the insured. Instead of doing this, it stood on the annulment of the contract and awaited action by the insured, and when he brought this action in equity for a restoration of his rights under the policy, it meets him with his fraud, which justified it in rescinding the contract, and asks the court to determine its damages and to award the plaintiff the difference between the premium paid and the damages sustained by it, precisely as if it had brought an affirmative action for a rescission of the contract. We are not called upon to decide whether the rescission would have been gotid at law. The majority of this court on the former appeal in this case (121 App. Div. 578) expressed the view, which was doubtless obiter, that if the defendant actually sustained provable damage in consequence of the plaintiff’s fraud in inducing it to issue the policy, it was entitled to offset those damages against the premium received and could, in those circumstances, effectually rescind the contract as against a suit in equity without restoring the premium in toto. We now authoritatively affirm those views. If it was not obliged to return the entire premium, then the fact that it does not show that the damages do not equal the premium should not render its attempted cancellation abortive, for it may well be that the nature of the damages is such that it cannot be said that they were fixed and definite, and that it should not be prejudiced for having left the amount to the decision of the court.

It follows that the interlocutory judgment should be reversed, with costs, and the demurrer overruled, with costs, with leave to plaintiff to withdraw his demurrer on payment of costs.

Patterson, P. J., McLaughlin, Houghton and Scott, JJ., concurred.

Judgment reversed, with costs, and demurrer overruled, with costs, with leave to plaintiff to withdraw demurrer on payment of costs.