Case Name: EMMA K. HARDY v. PHOENIX MUTUAL LIFE INSURANCE COMPANY
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1920-10-13
Citations: 180 N.C. 180
Docket Number: 
Parties: EMMA K. HARDY v. PHOENIX MUTUAL LIFE INSURANCE COMPANY.
Judges: 
Reporter: North Carolina Reports
Volume: 180
Pages: 180–186

Head Matter:
EMMA K. HARDY v. PHOENIX MUTUAL LIFE INSURANCE COMPANY.
(Filed 13 October, 1920.)
1. Insurance, Life — Policies—Noncontestable Clause — Actions.
Under a clause in a life insurance policy mating it incontestable after a year from its date, except for nonpayment of premiums, the insured has a right of action against the designated beneficiary after the death of the insured within that period, -and living, to declare the policy void for fraud or material representations as to the health of the insured in his application, and being concluded by-the express terms of the policy, the company may not thereafter maintain his action, except for the nonpayment of premiums due it thereunder. Trust Oo. v. Ins. Oo., 173 N. C., 568, cited and applied.
3. Insurance, Life — Noncontestable Clause — Conditions—Pleadings.
The provisions of a life insurance policy that it is incontestable after a stated time, etc., are conditions upon which the contracts are made, and not a waiver, and not being in strictness “a short period statute of limitation,” it is sufficiently pleaded when the policy sued on containing them is set out in the complaint as a part thereof.
3. Insurance, Life — Policies—Noncontestable Clause — Contracts—Interpretation — Ambiguity.
A clause in a life insurance policy making it incontestable after one year from its date, except for tbe nonpayment of premiums, is for tbe benefit of tbe insured in tbe acquisition of business, and being unambiguous, tbe courts wili not interpolate additional words to tbe effect tbat it was necessary for tbe policy to bave been in force for a year before tbe death of tbe insured.
4. Insurance, Life — Policies— Noncontestable Clause— Actions— Limitations of Actions — Statutes.
Where, under a clause in a policy of life insurance, it is uncontestable after a year from its date, with certain exceptions, and tbe insured has died within tbe period, leaving tbe designated beneficiary alive, tbe insured is not relieved of bis obligations to bring its action to declare the policy void for matters falling without tbe exceptions, within tbe year from tbe date of tbe policy, either against tbe insured in his lifetime, or tbe beneficiary thereafter; and there having always been a party against whom tbe insurer could bave brought its action, tbe provisions of Rev., 367, extending tbe time in certain instances, bave no application.
ApReax, by defendant from Connor, Jat the March Term, 1920, of Pitt.
This is an action on an insurance policy issued by the defendant upon the life of Isaac Carson Hardy for the benefit of the plaintiff. The policy was attached to and made a part of the complaint, and contained an incontestable clause which is hereafter set out in the judgment rendered.
The defendant filed answer in which the issuing of the policy was admitted, but the defendant alleged that the insured was suffering from an.incurable disease at the time of its issuance; that the statements in the. application for the policy were false; that the agent who issued the policy committed a fraud upon the company, and that the policy was procured by fraud.
The action was tried two or three times in the Superior Court without final determination, and at the last trial the plaintiff moved for judgment upon the pleadings, contending that the incontestable clause shut off the defenses alleged in the answer, and his Honor rendered the following judgment upon said motion:
“This cause coming on to be heard before his Honor, George W. Connor, judge, and a jury, at the March Term, 1920, of the Superior Court of Pitt County, and being heard upon motion of plaintiff, as set out in the record made at the close of all the evidence, that the plaintiff have judgment upon the pleadings and admissions, and it appearing to the court that the plaintiff is entitled to judgment upon the pleadings, and the following admissions made by the parties hereto, as follows, to wit:
“1. That the policy in suit, a copy of which is attached to both complaint and answer, was issued on 1 November, 1910, by the defendant upon the life of Isaac Carson Hardy, and that the plaintiff, his daughter, is the beneficiary named therein, and that she paid the first premium thereon; that said policy was delivered to the plaintiff upon the payment of said premium.
“2. That'Isaac Carson Hardy died on 27 October, 1911, and before the expiration of one year from the date of said policy.
“3. That the said policy provided that the defendant company would pay the sum of one thousand dollars ($1,000) to the plaintiff upon the death of Isaac Carson Hardy, and that said policy contained a clause as a part thereof in the following words: Tncontestibility: This policy shall constitute .the entire contract between the parties hereto, and shall be incontestable after one year from its date except for nonpayment of premium as stipulated, subject, however, in case of understatement of age, to an adjustment of the insurance proportionate to' premium at true age; in case of overstatement of age overpayments of premiums will he returned to the owner of this policy.’
“4. That no action of law or suit in equity was brought by defendant to cancel or annul said policy within one year from its date; the defendant, in the spring of 1911, and before the expiration of one year from the date of said policy, did request plaintiff to surrender said policy that it might be canceled, which offer and request was refused by the beneficiary; that defendant was able, willing, and ready to return the premium paid by plaintiff, and did pay same into clerk’s office upon filing answer herein.
“5. That after the death of Isaac Carson Hardy, the defendant denied liability to the plaintiff on account of the said policy, and this action was begun by the plaintiff on 10 April, 1912, and the answer thereto having-been filed on 24 May, 1912; that the defense relied upon by the defendant appears in its answer, it being admitted that there was no premium due to the defendant on account of said policy at the time of the death of Isaac Carson Hardy.
“The court being of the opinion that by reason of the incontestable clause contained in the policy, and the facts admitted in the pleadings and in the record, the defense set up by the defendant in its answer is not available to the defendant.
“It is now, therefore, upon motion of W. F. Evans and Julius Brown, attorneys for the plaintiff, ordered, considered, and adjudged that the plaintiff recover of tbe defendant tbe sum of one thousand dollars ($1,000), witb interest from 10 April, 1912, and tbe cost of tbis action to be taxed by tbe clerk.”
Tbe defendant excepted, and appealed, assigning tbe following errors:
“First. Tbe first and only assignment of error, embracing tbe first and second exceptions, is to tbe action of bis Honor in granting plaintiff’s motion for a judgment upon tbe pleadings and the admissions, and to tbe judgment rendered, and tbat same is contrary to law, and for tbat defendant was entitled to bave tbe defense set up in its answer submitted to tbe jury for tbe reason tbat:
“1. Tbat insured died witbin one year from tbe date of tbe policy, and tbe true construction tbat tbe court ought to put upon tbe incontestable clause in tbe policy is ‘That if tbe policy has been in force one year, or if tbe insured should survive one year after tbe death of tbe policy, it should be incontestable.’
“2. Tbat in any event tbe clause in question is in tbe nature of a statute of limitations, and, therefore, ought to bave been pleaded to bave been available.
“3. For tbat tbe plaintiff having failed to plead tbe clause in question, and having met tbe issue of fraud upon its merits, and tbe case having been tried before two juries, and no such motion ever having been made before, tbe plaintiff, after nine years, by her laches, has waived her right to interpose any such defense at tbis late date.”
Evans & Eason and Julius Brown for plaintiff.
Albion Dunn for defendant.

Opinion:
AlleN, J.
Tbe incontestable clause in a policy of life insurance was' very fully considered in Trust Co. v. Ins. Co., 173 N. C., 558, and it was then held:
"1. A clause in a policy of life insurance, making it incontestable at tbe end of a year, covers tbe defense of tbe alleged bad health of the insured at the time of its delivery, and also tbat of false and fraudulent statements alleged to bave been made by tbe insured in bis application.
"2. Where a- policy of life insurance has been issued containing a clause making it noncontestable after tbe expiration of a year, except for nonpayment of premiums, after tbat period no defense is available to tbe insurer, in an action upon tbe policy, excepting tbe nonpayment of tbe premium, as therein stated..
"3. The noncontestable clause in a life insurance policy is for tbe benefit of tbe insurer in increasing its business by assurance tbat after tbe maturity of tbe policy, usually upon tbe death of tbe insuréd, its collection will not be subject to tbe uncertainty and delay of litigation, or questioned except as to matters therein stated — in this case, tbe nonpayment of tbe premiums.'
"4. Where a policy of life insurance containing a clause making it noncontestable after tbe expiration of a year, except for nonpayment of premium, has been delivered and tbe premium paid therefor, an attempt by tbe insurer within that time, upon notification to tbe insured, to cancel tbe policy with tender of repayment of tbe premium upon a different ground than that stated in tbe clause, but not consented to or accepted by tbe latter, is a breach of tbe contract by tbe former; and it is necessary for tbe insurer', within tbe stated time, to bring suit in equity for tbe cancellation of tbe policy, or it will remain binding and enforcible upon tbe insurer's death."
It is also said in that ease, and in others, that tbe effect of tbe clause is to create a short statute of limitations in favor of tbe insured, but speaking more accurately, it is contractual (Dibbrell v. Ins. Co., 110 N. C., 193), and is sufficiently pleaded when tbe policy containing tbe clause is made, a part of tbe complaint, as in this case.
Tbe point is decided in Mutual Life Insurance Company v. Buford et al., 160 Pacific, 928 (Okla.), and tbe Court says: "Where a policy of life insurance contains a provision that after two years from date of its issue, said policy is incontestable, such provision is not a waiver, but a condition; and where such condition is not specifically pleaded in tbe petition, but a copy of such policy of insurance is attached as an exhibit to and made a part of tbe petition, such condition as to incontestability of such policy of-insurance is sufficiently pleaded."
Nor does section 367 of tbe Revisal, which extends tbe time for tbe commencement of an action under certain conditions upon tbe death of a party, enlarge tbe time within-which tbe defendant could bring an action to cancel tbe policy, because tbe beneficiary in tbe policy, against whom tbe action could be brought, is still alive, and we find nothing in tbe record to prevent tbe plaintiff from taking full benefit of tbe incontestable clause in tbe contract of insurance.
Tbe remaining question, and one not heretofore decided in this Court, is as to tbe effect on the incontestable clause of tbe death of tbe insured within one year from tbe date of tbe policy, and this depends largely upon tbe language used, and tbe purpose for which tbe clause was inserted in policies.
It says it "shall be incontestable after one year from its date, except for nonpayment of premium," and if we adopt tbe view of tbe defendant that this means, "That if tbe policy bad been in force one year, or if tbe insured should survive one year after tbe date of tbe policy, it sliould .be incontestable," we must insert in tbe contract, expressed in simple, unambiguous language, stipulations which do not appear there, and which materially affect the contract of the parties, which we are not at liberty to do.
Again, "This clause, which has been generally adopted by the insurance companies, is not primarily for the benefit of the insured, but for the benefit of the insurance company itself.
"It was adopted because, in many instances, insurance is taken out for the benefit of the wife and children, and frequently the hope of a reasonable income after death to those dependent upon him was defeatecl by defense which could not have been sustained if the insured had been alive.
"This deterred many from taking out insurance, and the 'companies adopted the incontestable clause for the purpose of increasing their business. .' . . No reasonable construction can be placed upon such provision other than that the company reserves to itself the right to ascertain all the facts and matters material to its risk, and the validity of their contract for one year, and if within that time it does not ascertain all the facts, and does not cancel and rescind the contract, it may not do so afterwards upon any ground then in existence." Trust Co. v. Ins. Co., supra.
If, therefore, there is nothing in the clause itself changing its terms or effect upon death of the insured within one year, if the clause was inserted for the benefit of the insurance company, to enable it to increase its business, if the period of one year after which the policy was to become incontestable, was to afford opportunity to the company to make its investigations and to commence an action for the. cancellation of the policy, and if during the whole of the year some one has been in existence, the beneficiary, against whom an action could be brought, we see no reason for refusing to give the plaintiff the full benefit of the clause as it is written.
The death of the insured did not place the defendant at any disadvantage under the policy, nor stop its investigations, nor did it-affect its right to commence an action, and in most cases death would inure to the benefit of the company, if it contemplated an action to cancel the policy by removing a hostile witness.
Our investigations, and those of counsel, indicate that the question has arisen very few times, and that the question, then, has been decided in accordance with this opinion. Ebner v. Insurance Co., 121 N. E. (Ind.), 315, and Manahan v. Insurance Company (Ill.), L. R. A., 1918, D 1196, are directly in point.
In the Ebner case the insurance company brought an action for the cancellation of the policy two days before the expiration of the incontestable period, and after the death of the insured', and the appellate court held that the proceeding was proper and legal, and said: "That if, as a result of sucb investigation, or of knowledge otherwise obtained, the insurer desires to contest the policy, appropriate steps to that end,, either by a defense to an action brought on the policy in case of death of the insured, or by proper affirmative action, must be taken within the year; otherwise that the policy becomes incontestable, save as to conditions excepted from the noncontestable clause."
And in the'McCnalum case: "Incontestable provisions of insurance policies have been held valid as creating a short statute of limitations in favor of the insured, the purpose of such provisions being' to fix a limited time within' which the insurer must. ascertain the truth of the representations made. Royal Circle v. Achterrath, 204 Ill., 549; 63 L. R. A., 452; Flanigan v. Federal L. Ins. Co., 231 Ill., 399; 83 N. E., 178; Weil v. Federal Life Insurance Co., 264 Ill., 425; 106 N. E., 246; Ann. Cas., 1915 D, 974. This being the purpose for fixing a specified'"time after which the policy shall be incontestable, it is not apparent, as plaintiff in error suggests, that the meaning of the clause-here involved is that the policy shall not become incontestable until it has been in force for two years. There is nothing in this clause to indicate that the parties were contracting that plaintiff in error should have two years during the lifetime of Fay in which-to investigate and determine whether false statements had been made in the application of the insurance. Plaintiff in error reserves two years time in which to make such investigation, and to determine whether there has been such a breach of warranty as would authorize it to rescind its contract.
"This clause can be construed as insisted upon by plaintiff in error only by reading into it that which is not there. This provision of the policy is in the language chosen by plaintiff in error, and constitutes a part of the contract which it entered into with Fay. . . . Some of the rights and obligations of the parties to a contract of insurance necessarily becomes fixed upon the death of the insured. The beneficiary has an interest in the contract, and as between the insurer and the beneficiary all the rights and obligations of the parties are not determined as of the date of the death of the insured. The incontestable clause in a policy of insurance inures to the benefit of the beneficiary after the death of the insured, as much as it inures to the benefit of the insured himself during his lifetime."'
We are therefore of opinion the plaintiff was entitled, to judgment on the pleadings.
Affirmed.