Case Name: HUGH L. MAUNEY v. METROPOLITAN LIFE INSURANCE COMPANY
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1936-02-26
Citations: 209 N.C. 499
Docket Number: 
Parties: HUGH L. MAUNEY v. METROPOLITAN LIFE INSURANCE COMPANY.
Judges: Devin, J., took no part in the consideration or decision of this case.
Reporter: North Carolina Reports
Volume: 209
Pages: 499–504

Head Matter:
HUGH L. MAUNEY v. METROPOLITAN LIFE INSURANCE COMPANY.
(Filed 26 February, 1936.)
1. Insurance K f — Effect of incontestability clauses in general.
An incontestability clause in a policy of life insurance precludes insurer, after tbe lapse of tbe time therein stipulated, from setting up tbe defense of fraud in tbe procurement of tbe policy, and all other defenses except nonpayment of premiums.
2. Courts B b — Recorder’s court held to have no jurisdiction to grant affirmative equitable relief.
Tbe Superior Courts are given exclusive original equity jurisdiction, except such equity jurisdiction as is directly given courts inferior to tbe Superior Courts by statute, and a recorder’s court not given equity jurisdiction, cb. 390, Public-Local Laws of 1931, is without power to decree the cancellation and rescission of an insurance policy for fraud upon such defense raised by insurer in an action instituted by insured to recover disability benefits in a sum within tbe jurisdiction of the recorder’s court, since such decree affords affirmative equitable relief and goes beyond tbe power of tbe court to consider equitable matters raised merely as a defense to an action within its jurisdiction.
3. Insurance K f — Held: Insurer failed to set up fraud in court of competent jurisdiction within time allowed in incontestability clause.
In order for insurer to rescind for fraud a policy containing an incontestability clause, it is necessary that insurer, within the time allowed in the incontestability clause, bring an action therefor or set up such defense in an action instituted in a court having jurisdiction to grant the affirmative relief of rescission, and such defense set up by insurer within the time allowed in the policy in an action on the policy instituted by insured in a recorder’s court having no equitable jurisdiction, is insufficient, and the incontestability clause will prevent the insurer from setting up the defense in a second action in the Superior Court thereafter instituted by insured after expiration of the time provided in the contract in which insurer might contest the policy. In this case judgment was rendered in the recorder’s court decreeing rescission, and insured appealed, took a voluntary nonsuit in the Superior Court, and instituted a new action.
4. Judgments Ii b — Judgment rendered by court without jurisdiction is void and will not bar subsequent action.
In an action for disability benefits instituted by insured in a recorder’s court, within the time allowed in the incontestability clause for rescission by insurer, judgment was rendered in insurer’s favor adjudging that insured recover nothing, and that the policy be canceled and rescinded for fraud in its procurement. Insured appealed, but took a voluntary nonsuit in the Superior Court, and thereafter instituted a new action, after the expiration of the time allowed in the policy for rescission by insurer, to recover disability benefits accruing since the rendition of the judgment in the recorder’s court. Held: The recorder’s court was without jurisdiction to grant the affirmative equitable relief of rescission, and its judgment of recission was void and does not bar insured from setting-up in the second action the incontestability clause in the policy to prevent insurer from setting up the right to rescind the policy for fraud in its procurement.
Devin, J., took no part in the consideration or decision of this case.
Appeal by tbe defendant from Wcurlich, Jat February Term, 1935, of Buncombe.
No error.
Tbe issues submitted to and answers made by tbe jury were as follows:
“1. Did tbe defendant issue and deliver to tbe plaintiff its policy No. 6809832-A, and were all premiums due on said policy paid or either tendered up to and including 2 November, 1932? Answer: ‘Yes,’ by consent.
“2. Has tbe plaintiff been continuously totally disabled as tbe result of bodily disease from engaging in any business or occupation and performing any work for compensation or profit from 19 November, 1931 ? Answer: ‘Yes.’
“3. Did tbe plaintiff, on or about 21 March, 1932, file with tbe defendant due proof of bis disability? Answer: ‘Yes.’
“4. Is tbe defendant, by reason of tbe incontestability clause in tbe policy and in tbe disability clause attached thereto, precluded from setting up the defenses of fraud pleaded in the answer ? Answer: ‘Yes.’
“5. What amount, if any, is the plaintiff entitled to recover of the defendant on account of the disability benefits pleaded in the complaint \ Answer: ‘$1,074.15, and interest at 6 per cent.’
“6. What amount, if any, is the plaintiff entitled to recover of the defendant on account of premiums paid under protest, subsequent to the plaintiff’s disability ? Answer: ‘$104.82.’ ”
Erom judgment based on tbe verdict, tbe defendant appealed, assigning errors.
Johnson, Rollim & Uzzell for plaintiff, appellee.
Harkins, Van Winkle & Walton and P. W. Garland for defendant, appellant.

Opinion:
Schenck, J.
There is no conflict in tbe evidence. It all tends to show tbe issuance of tbe policy, tbe payment of premiums, tbe total and permanent disability of tbe insured from tbe date claimed, tbe notice to tbe insurance company of such disability, and tbe institution of this action after tbe expiration of two years from tbe issuance of tbe policy. Tbe two-year incontestability clause in tbe policy sued on is made applicable to tbe "Supplemental Contract" for "Total and Permanent Disability" by these words: "No other provisions of said policy shall be held or deemed to be a part hereof, except (a) tbe provisions of said policy as to incontestability shall apply hereto, . . ." Tbe amounts contained in tbe answers to tbe fifth and sixth issues were agreed upon by tbe parties.
Tbe controversy centers around tbe fourth issue.
Tbe defendant issued an income policy, fifty-three-year endowment, upon tbe life of tbe plaintiff for six thousand dollars, dated 2 February, 1931, by tbe terms of which tbe defendant agreed to waive further payment of premiums and to pay certain benefits to tbe plaintiff, should be become totally and permanently disabled, tbe terms and conditions under which said benefits were payable being fully set forth therein. About May, 1931, tbe plaintiff permitted said policy to lapse for nonpayment of premiums, and, upon application, tbe policy was reinstated 28 September, 1931. About March, 1932, plaintiff made application to tbe defendant for benefits under tbe policy, and tbe defendant tendered to tbe plaintiff tbe return of all premiums, with interest, and notified him that it would resist and contest any payment under tbe policy, which return premiums tbe plaintiff declined to accept.
On 1 September, 1932, tbe plaintiff instituted an action in tbe recorder's court of Cleveland County to recover tbe amount of benefits under said policy on account of alleged total and permanent disability from 19 November, 1931, till tbe institution of tbe action, namely, $480.00. Tbe defendant filed an answer in said recorder's court, in wbicb it alleged tbat.it bad been induced to issue tbe policy by reason of false and fraudulent statements as to tbe condition of tbe bealtb of tbe plaintiff, wbicb were made in his written application for insurance dated 26 January, 1931, and that tbe defendant bad been induced to reinstate said policy by reason of similar false and fraudulent statements made in tbe plaintiff's application for reinstatement of tbe policy dated 28 September, 1931.
Tbe cause came on for trial in tbe recorder's court on 7 October, 1932, and judgment was rendered in favor of tbe defendant, from wbicb tbe plaintiff appealed to tbe Superior Court of Cleveland County. Tbe case pended on appeal in tbe Superior Court of Cleveland County until tbe March Term, 1934, thereof, when tbe plaintiff took a voluntary nonsuit, and thereafter, on 8 June, 1934, instituted this action in tbe Superior Court of Buncombe County.
At tbe trial of tbe instant case bis Honor, War lick, J., held that tbe judgment in tbe recorder's court of Cleveland County was a bar to tbe recovery by tbe plaintiff of tbe amount sued for in that court, but was not a bar to tbe recovery of additional benefits accruing after that suit was instituted, and permitted tbe plaintiff to offer evidence tending to establish that such additional benefits bad accrued.
Judge Warlick refused to permit tbe defendant to introduce evidence to sustain its alleged defense based upon tbe procurement of tbe policy by false and fraudulent statements as to tbe condition of tbe plaintiff's bealtb, made in bis applications for insurance and reinstatement, for tbe reason that tbe instant action was commenced after tbe time limit in tbe incontestability clause bad elapsed, and charged tbe jury that if they found tbe facts to be as shown by all tbe evidence they would answer tbe issues as shown in tbe record.
Tbe court's ruling denying tbe defendant tbe right to introduce evidence tending to establish its defenses based upon allegations of fraud in tbe procurement of tbe policy, and bolding that tbe incontestability clause was applicable to this case, were made tbe bases of tbe defendant's exceptive assignments of error.
Tbe first question presented to us for determination is whether tbe judgment in tbe recorder's court of Cleveland County is a bar to tbe plaintiff's setting up tbe incontestability clause of tbe policy. That judgment is as follows:
"This cause, coming on to be beard before tbe undersigned recorder pro tem for tbe recorder's court of Cleveland County, on 7 October, 1932, and being tried, and after tbe introduction of evidence by tbe plaintiff and defendant and tbe argument of attorneys, tbe court is of the opinion that the plaintiff is not to recover anything from the defendant in this action, and the issues of fact are answered in favor of the defendant;
"Now, therefore, it is order, adjudged, and decreed by the court that the plaintiff take nothing by this action. It is further ordered that the policy of life insurance sued upon by the plaintiff be and the same is hereby canceled and this action dismissed, and the costs are taxed against the plaintiff."
It is well settled in this jurisdiction that a clause in a policy of life insurance making it incontestable after a given time covers the defense of alleged bad health of the insured at the time of delivery, and also that of false and fraudulent statements alleged to have been made by the insured in his application, as well as all other defenses except nonpayment of premiums. Hardy v. Insurance Co., 180 N. C., 180, and cases there cited.
The recorder's court of Cleveland County had jurisdiction of the amount sued for, namely, $480.00, by reason of alleged disability benefits accruing up to the time of the institution of the action therein, and the holding of the Superior Court that that portion of the recorder's judgment to the effect that the plaintiff take nothing was a bar to his recovery of that amount in this action is not appealed from. However, that portion of the judgment of the recorder's court which provides that the life insurance policy sued upon by the plaintiff be canceled was void, since it was an attempt to administer equitable relief, namely, cancellation or rescission, and the recorder's court of Cleveland County is without equitable jurisdiction.
Professor McIntosh, in his valuable work, N. C. Prac. and Proc., par. 62, p. 60, in speaking to the subject of the jurisdiction of our courts, says: "The Superior Court, prior to 1868, had exclusive equity jurisdiction, to be administered in accordance with the procedure existing in the English court of chancery. The new Constitution abolished the distinction between the two systems of procedure, but left the rights and remedies to be administered by the Superior Court, with all the powers formerly exercised by it as a court of equity. Such jurisdiction is still exclusive, in the absence of statutes conferring it upon some other court." The recorder's court of Cleveland County was created by chapter 243, Public-Local Laws of 1911, and an examination of this statute, and of the amendment thereto, chapter 390, Public-Local Laws of 1931, fails to reveal that any equitable jurisdiction has been conferred upon the court thereby created. While the recorder's court of Cleveland County, in like manner as a justice of the peace, may have the right to allow an equitable defense, this does not extend to it the right to affirmatively administer equitable relief. See cases cited under par. 62, N. C. Prac. and Proc., supra.
The setting up in the answer in the recorder's court of the defense of fraud in the procurement of the policy, and the tendering of the amount of premiums theretofore paid, was nothing more than notice by the defendant to the plaintiff of its intention to rescind the policy. It was not a rescission thereof for the reason that the company alone could not rescind it, nor could the company procure a valid judgment rescinding it from a court without equitable jurisdiction. It was necessary for the insurer, within the time allowed in the incontestability clause, to bring suit in a court of competent equitable jurisdiction for the cancellation of the policy to prevent it from remaining binding and enforceable by the insured. Trust Co. v. Insurance Co., 173 N. C., 558. "Like other written contracts, it (the policy) may be set aside or corrected for fraud or for mutual mistake; but, until this is done, the written policy is conclusively presumed to express the contract it purports to contain." Wilson v. Insurance Co., 155 N. C., 173 (175).
The court was correct in holding that the judgment of the recorder's court was not a bar to the plaintiff's setting up the incontestability clause in this action, and, since such clause was so set up, the court was also correct in ruling that the evidence tending to show the ill health of the plaintiff or false and fraudulent statements in his applications for insurance and reinstatement was incompetent, since under the two-year incontestability clause the policy could be contested in this action, instituted more than two years since the issuance of the policy, only upon the ground of nonpayment of premiums.
In the trial and judgment in the Superior Court we find
No error.
Devin, J., took no part in the consideration or decision of this case.