Court Opinion

ID: 6867904
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:57:02.513412+00
Date Added: 2024-06-11T16:05:21.204128
License: Public Domain

PHILLIPS, Circuit Judge
(dissenting).
Stewart, the insured, died May 31, 1932. Thereafter, the Insurance Company notified the beneficiaries that it elected to cancel the policies on the ground of fraud and tendered them the amount of the premiums paid, with interest. After waiting a reasonable time for the beneficiaries to bring actions at law on the policies, it filed its bills in equity on September 3, 1932, for cancellation of the policies.
Paragraph eight of each bill read as follows :
“8. That the said policy contains a clause in words and figures as follows, to-wit:
“ ‘Incontestability: This policy shall be incontestable, except for non-payment of the premium, after one year from its date of issue if the Insured be then living, otherwise after two years from its date of issue, except as to provisions and conditions (if any) relating to benefits in event of total and permanent disability and those granting additional insurance against death by accident.’
“That by the foregoing provisions said policy is incontestable after two years from its date of issue; that by reason of said provision said policy of insurance must be *795contested by this complainant on or before the expiration of the said period of con-testability, notwithstanding the intervening death of the insured; that the defendant herein, the beneficiary under said policy, may delay the commencement of an action at law for the enforcement and collection of said policy until after the expiration of said contestable period * * *, so as to prevent this complainant from defending its liability under the policy on the ground of misrepresentation and fraud, as has been above set out, and this complainant is without adequate remedy at law in the premises and the only protection it has against the effects of said misrepresentation and fraud is in a court of equity.”
Paragraphs eight and ten of each answer read as follows:
“8. Defendants admit that the policy issued and delivered to the said Reese Smith Stewart, as aforestated, contained an ‘Incontestability Clause’ as set forth in paragraph numbered eight (8) in complainant’s bill of complaint herein, but defendants deny any knowledge or information sufficient to form a belief as to any of the other allegations contained in said paragraph eight (8).”
“10. Defendants deny each and every allegation in the bill not herein admitted, controverted or specifically denied.”
I.
Whether the trial court had jurisdiction in equity must be determined by the facts and circumstances existing when the bills were filed. Lincoln National Life Ins. Co. v. Hammer (C.C.A.8) 41 F.(2d) 12, 17. If jurisdiction in equity then existed, it was not lost because an adequate remedy at law thereafter became available.1
.At the time the bills in equity were filed, no actions at law had been brought on the policies. Since the contestable period was much shorter than the period fixed by the Kansas statute of limitations for bringing actions on the policies, 2 it was then within the power of the beneficiaries to postpone the commencement of actions at law on the policies until the expiration of the contestable period.
Where the insured under a policy of life insurance has died, and the obligation to pay a stated sum has become certain, a suit to cancel the policy on the ground of fraud will not lie in the absence of special circumstances making the preventive remedy necessary to avoid irreparable injury. Ordinarily the right to interpose the fraud as a defense affords an adequate remedy. Phoenix Mut. Life Insurance Company v. Bailey, 13 Wall. 616, 623, 20 L.Ed. 501. In that case the facts were these: The insured in two policies of life insurance had died, notice thereof had been given and the required proof furnished to the Insurance Company. The beneficiary’s claims were purely legal demands. The Insurance Company refused payment on the ground the policies were obtained by false misrepresentations and fraudulent suppression of material facts, and instituted a suit in equity to enjoin the beneficiary from transferring the policies and for the cancellation thereof. Thereafter an action at law was commenced on the policies. The court said:
“Where a party, if his theory of the controversy is correct, has a good defence at law to ‘a purely legal demand,’ he should be left to that means of defence, as he has no occasion to resort to a court of equity for relief, unless he is prepared to allege and prove some special circumstances to show that lie may suffer, irreparable injury if he is denied a preventive remedy. Nothing of the kind is to he apprehended in this case, as the contracts, embodied in the policies, are to pay certain definite sums of money, and the record shows that an action at law has been commenced by the insured to recover the amounts, and that the action is now pending. * * *
“Courts of equity unquestionably have jurisdiction of fraud, misrepresentation, and fraudulent suppression of material facts in matters of contract, but where the cause of action is ‘a purely legal demand,’ and nothing appears to show that the defence at law may not be as perfect and complete as in equity, a suit in equity will not be sustained in a Federal court.”
Subsequently to the decision in Phoenix Mut. Life Insurance Company v. Bailey, supra, it became common practice to incorporate in life insurance policies incontestable clauses under which, after the expiration of a stated time, the insurer is barred from *796contesting liability on the policy except for non-payment of premiums.
While the earlier decisions were in conflict, 3 it is now generally held that a mere repudiation by the insurer is not sufficient; and that there must be a contest by judicial proceeding within the time specified, either by way of an affirmative suit brought by the insurer or by a defense asserted by the insurer in an action on the policy. 4
In Lincoln National Life Ins. Co. v. Hammer (C.C.A.8) 41 F.(2d) 12, 16, the court said:
“It is established by the great weight of authority * * * that the contest * * * must be initiated by an appropriate action brought, or by a pleading filed in a suit pending, within the time limited.”
Where a policy of life insurance contains an incontestable clause, although the insured has died and the obligation of the policy to pay a stated sum of money has become certain, if the beneficiary may delay bringing an action on the policy until after the expiration of the contestable period, and the beneficiary fails to commence an action on the policy within a reasonable time after the obligation to pay has arisen, it has been held in a long line of federal and state decisions, that the requisite special circumstances exist to give a court jurisdiction of a suit in equity for cancellation on the ground of fraud. 5 The remedy at law in such a case is subject to the will of the beneficiary who may give it by bringing an action on the policy or withhold it by delaying the bringing of such action until the contestable period has expired, and thereby deprive the insurer of the defense of fraud. A remedy at law is in*797adequate, if it may be given or withheld at the will of the opposing party. 6
Has the doctrine of the cases cited in note five been disapproved or limited by the recent decisions of the Supreme Court referred to infra?
In Enelow v. New York Life Insurance Company, 293 U.S. 379, 55 S.Ct. 310, 312, 79 L.Ed. 440, and Adamos v. New York Life Ins. Co., 293 U.S. 386, 55 S.Ct. 315, 79 L. Ed. 444, the beneficiaries had brought actions at law on the policies and the Insurance Company sought to interpose in the pending actions at law equitable counterclaims for cancellation on the ground of fraud. That the Supreme Court did not intend to disapprove the doctrine of the cases cited in note five, is clearly shown by the following quotation from the opinion in the Enelow Case:
“The instant case is not one in which there is resort to equity for cancellation of the policy during the life of the' insured and no opportunity exists to contest liability at law. Nor is it a case where, although death may have occurred, action has not been brought to recover upon the policy, and equitable relief is sought to protect the insurer against loss of its defense by the expiration of the period after which the policy by its terms is to become incontestable.2 Here, on the death of the insured, an action at law was brought on the policy, and the defendant had opportunity in that action at law, and before the policy by its terms became incontestable, to contest its liability and accordingly filed its affidavit" of defense. That defense was solely that the defendant had been induced to issue the policy by false answers in the application which were alleged to have been made by the applicant ‘with knowledge of their falsity and fraudulently’ in order to obtain the insurance. The affidavit of defense showed nothing whatever as a further ground for equitable relief, and the respondent is necessarily confined to the case it made. In such a case, the defense of fraud is completely available in the action at law, and a bill in equity would not lie to stay proceedings in that action in order to have the defense heard and determined in equity.” (Italics mine.)
In note two to the Enelow opinion the court cites many of the cases cited in note five, supra.
Di Giovanni v. Camden Fire Ins. Ass’n, 296 U.S. 64, 56 S.Ct. 1, 80 L.Ed. 47, was a suit in equity to cancel two policies of fire insurance after losses had occurred. One policy for $3,000, was issued to Di Giovanni and his wife and covered a two-story brick building owned by them jointly. One policy for $1,500 was issued to Di Giovanni and covered personal property solely owned by him. The bill charged that pursuant to a conspiracy, the Di Giovannis overinsured the property and caused its destruction by fire. Two grounds for equitable jurisdiction were set up, the want of a remedy at law in the Federal Courts, neither claim being in excess of $3,000, and the necessity of defending separately, two groundless actions at law. The bill alleged that the Di Giovannis threatened and were about to bring actions at law on the policies. Thus it will be seen that no incontestable clause was involved and the grounds of equitable jurisdiction were entirely different from those relied on by the Insurance Company in the instant cases. It is true the Supreme Court used language in the opinion which, if literally construed, would limit the doctrine of the cases cited in note five. However, language of an opinion should be read in the light of the facts and circumstances of the particular case under consideration;7 and in view of Lhe fact that the court, in the Enelow opinion had so recently tacitly approved the cases cited in note five, the general language in Di Giovanni v. Insurance Associa*798tion should not be construed as disapproving or limiting the doctrine of such cases.
There are 'persuasive reasons why an insurer should not be compelled to wait until the incontestable period is about to expire before bringing its suit in equity for cancellation. The beneficiary might absent himself from the jurisdiction or otherwise prevent service of process and thus frustrate an effort to initiate a contest until after the contestable period had expired. See New York Life Ins. Co. v. Panagiotopoulos (C.C.A.1) 80 F.(2d) 136. It is my view that the insurer should only be required to wait a reasonable time for the beneficiary to bring an action at law on the policy, and if the beneficiary fails so to do, that the insurer should then have the right to seek equitable relief. In the instant cases, the Insurance Company waited a reasonable time and the beneficiaries failed to sue at law. I think the Insurance Company was entitled to invoke the equitable jurisdiction.
The views expressed in our original opinion did not have my entire approval. The arguments and briefs on the petition for rehearing have led me to the conclusion that we should not depart from the doctrine of tha cases cited in note five unless and until the Supreme Court, in a case where the point is actually involved, disapproves the doctrine of those cases.
II.
Where the court has jurisdiction of the subject matter and the parties are before it and the case is within the general field of equitable jurisdiction, the objection that the plaintiff has an adequate remedy at law may be waived. 8
It is only when the want of equity jurisdiction is obvious that the court should notice it of its own motion. 9
In American Mills Company v. American Surety Company, 260 U.S. 360, 43 S.Ct. 149, 67 L.Ed. 306, the plaintiff moved to dismiss respondent’s cross-bill in equity on the ground respondent had an adequate remedy at law. The motion was overruled. The court held the plaintiff thereafter waived the objection by failing to renew it and by answering and introducing proof on the merits.
After the trial court had overruled the motions of the defendants to dismiss the bills on the ground that the Insurance Company had an adequate remedy at -law, the defendant's answered over. In their answers they did- not again challenge the equity jurisdiction. Nor did defendants challenge the allegations of paragraph eight of the bills by any proper pleading, since the facts averred in paragraph eight of the bills, concerning which they alleged want of sufficient knowledge or information to form a belief, were clearly within their knowledge;10 and equity rule thirty abolishes the plea of general denial and an allegation of a bill not specifically denied will be taken as admitted. Hass v. U. S. (C.C.A.8) 17 F.(2d) 894.
Instead of continuing to challenge the jurisdiction in equity, the defendants filed answers properly raising issues going solely to the merits, and stipulated that the equity suits might be tried in advance of the actions at law. This conduct, in my opinion, constituted a waiver of the objection to the equity jurisdiction on -the ground ‘that the Insurance Company had an adequate remedy at law.
For the foregoing reasons, it is my conclusion that our original opinion should be withdrawn and the decrees below affirmed; and I respectfully dissent from the opinion of the court on the petition for rehearing.

 Dawson v. Kentucky Distilleries, etc., Co., 255 U.S. 288, 296, 41 S.Ct. 272, 65 L.Ed. 638; Lincoln Nat. Life Insurance Co. v. Hammer, supra; Brown v. Pacific Mutual Life Ins. Co. (C.C.A. 4) 62 E. (2d) 711; Jefferson Standard Life Ins. Co. v. Keeton (C.C.A. 4) 292 F. 53, 56.

 The period of limitation for action on contract in writing in Kansas is five years. Rev.St.Kan.1923, 60-306.

 New York Life Ins. Co. v. Hurt (C.C.A. 8) 35 F.(2d) 92, 95.

 New York Life Ins. Co. v. Hurt (C.C.A. 8) 35 F.(2d) 92, 95; New York Life Ins. Co. v. Truesdale (C.C.A. 4) 79 F.(2d) 481, 485; Densby v. Acacia Mutual Life Ass’n, 64 App.D.C. 319, 78 F.(2d) 203, 205, 101 A.L.R. 863; Rose v. Mutual Life Ins. Co. (C.C.A. 6) 19 F.(2d) 280, 282; Philadelphia Life Ins. Co. v. Burgess (D.C.S.C.) 18 F.(2d) 599, 603; Peake v. Lincoln Nat. Life Ins. Co. (C.C.A. 8) 15 F.(2d) 303, 306; Chun Ngit Ngan v. Prudential Ins. Co. (C.C.A. 9) 9 F.(2d) 340, 341; Scharlach v. Pacific Mutual Life Ins. Co. (C.C.A. 5) 9 F.(2d) 317, 318; Harnischfeger Sales Corp. v. National Life Ins. Co. (C.C.A. 7) 72 F.(2d) 921, 922.

 Jefferson Standard Life Ins. Co. v. Keeton (C.C.A. 4) 292 F. 53, 54, 55; New York Life Ins. Co. v. Seymour (C.C.A. 6) 45 F.(2d) 47, 48, 73 A.L.R. 1523; Jefferson Standard Life Ins. Co. v. McIntyre (C.C.A. 5) 294 F. 886; Jones v. Reliance Life Insurance Co. (C.C.A. 4) 11 F.(2d) 69; Peake v. Lincoln Nat. Life Ins. Co. (C.C.A. 8) 15 F.(2d) 303, 305; Harnischfeger Sales Corporation v. National Life Ins. Co. (C.C.A. 7) 72 F.(2d) 921, 923; Brown v. Pacific Mutual Life Ins. Co. (C. C.A. 4) 62 F.(2d) 711, 712; New York Life Ins. Co. v. Truesdale (C.C.A. 4) 79 F.(2d) 481, 485; Keystone Dairy Co. v. New York Life Ins. Co. (C.C.A. 3) 19 F.(2d) 68; New York Life Ins. Co. v. McCarthy (C.C.A. 5) 22 F.(2d) 241, 245; Shaner v. West Coast Life Ins. Co. (C.C.A. 10) 73 F.(2d) 681, 683; New York Life Ins. Co. v. Cobb, 219 Mo.App. 609, 282 S.W. 494, 495-497; Ætna Life Ins. Co. v. Daniel, 328 Mo. 876, 42 S.W. (2d)
584, 586, 587; New York Life Insurance Company v. Steinman, 103 N.J.Eq. 403, 143 A. 529; Ebner v. Ohio State Life Ins. Co., 69 Ind.App. 32, 121 N.E. 315, 321; Travelers Ins. Co. v. Snydecker, 127 Misc. 66, 215 N.Y.S. 276; Prudential Ins. Co. of America v. Tanenbaum, 53 R.I. 355, 167 A. 147; New York Life Ins. Co. v. Rigas, 117 Conn. 437, 168 A. 22, 91 A.L.R. 1122. See, also, American Trust Co. v. Life Ins. Co. of Virginia, 173 N.C. 558, 92 S.E. 706; Pacific Mut. Life Ins. Co. v. Parker (C.C.A. 4) 71 F.(2d) 872, 874; Massachusetts Bonding & Ins. Co. v. Anderegg (C.C.A. 9) 83 F.(2d) 622; Rose v. Mutual Life Ins. Co. of New York (C.C.A. 6) 19 F.(2d) 280; note 73 A.L.R. 1529.
In New York Life Insurance Company v. Seymour (C.C.A. 6) 45 F.(2d) 47, 48, 73 A.L.R. 1523, the Insurance Company, after the death of the insured, brought a suit to cancel the policy on the ground of fraud; thereafter, the beneficiary brought an action on the policy in the state court which was removed to the Federal Court.
In sustaining the jurisdiction in equity the court said:
“The policy involved in the Bailey Case did not have the incontestable clause; and, however long the beneficiary delayed the suit at law, the assured’s fraud in the application continued to be a good defense, which, if shown, would defeat the action. Manifestly, with the incontestable clause, the situation is different; the beneficiary has only to wait until the specified time expires; and, to the suit then brought, the defense is not available. This presents a situation within the exception of the Bailey Case, and gives equity the right to take hold.”

 Bank of Kentucky v. Stone (C.C.Ky.) 88 F. 383, 391; Lincoln National Life Ins. Co. v. Hammer (C.C.A. 8) 41 F.(2d) 12, 16; New York Life Ins. Co. v. Seymour (C.C.A. 6) 45 F.(2d) 47, 73 A.L.R. 1523; New York Life Ins. Co. v. Sisson (D.C.Pa.) 19 F.(2d) 410, 412.

 In O’Donoghue v. U. S., 289 U.S. 516, 550, 53 S.Ct. 740, 750, 77 L.Ed. 1356, the court said:
“ ‘It is a maxim, not to be disregarded,’ said Chief Justice Marshall in Cohens v. Virginia, 6 Wheat. 264, 399, 5 L.Ed. 257, ‘that general expressions, in every opinion, are to be taken in connect ion with the case in which those expressions are used. If they go beyond the case, they may be respected, but ought not to control the judgment in a subsequent suit, when the very point is presented for decision. The reason of this maxim is obvious. The question actually before the court is investigated with care, and considered in its full extent. Other principles which may serve to illustrate it, are considered in their relation to the ease decided, but their possible bearing on all other cases is seldom completely investigated.’ ”

 Lyons Milling Co. v. Goffe & Carkener (C.C.A. 10) 46 F.(2d) 241, 245, 83 A.L.R. 501; Duignan v. U. S., 274 U.S. 195, 199, 47 S.Ct. 566, 71 L.Ed. 996; Twist v. Prairie Oil & Gas Co., 274 U.S. 684, 689-691, 47 S.Ct. 755, 71 L.Ed. 1297; American Mills Company v. American Surety Company, 260 U.S. 360, 363, 43 S.Ct. 149, 67 L.Ed. 306; Perego v. Dodge, 163 U.S. 160, 164, 16 S.Ct. 971, 41 L.Ed. 113; Reynes v. Dumont, 130 U.S. 354, 395, 9 S.Ct. 486, 32 L.Ed. 934; Kilbourn v. Sunderland, 130 U.S. 505, 514, 9 S.Ct. 594, 32 L.Ed. 1005; Tyler v. Savage, 143 U.S. 79, 96, 97, 12 S.Ct. 340, 36 L.Ed. 82; Southern P. R. Co. v. U. S., 200 U.S. 341, 349, 26 S.Ct 296, 50 L.Ed. 507; Brown B. & Co. v. Lake Superior Iron Company, 134 U.S. 530, 536, 10 S.Ct. 604, 33 L.Ed. 1021.

 Matthews v. Rodger, 284 U.S. 521, 524, 52 S.Ct. 217, 76 L.Ed. 447; Singer Sewing Machine Company v. Benedict, 229 U.S. 481, 484, 33 S.Ct. 942, 57 L.Ed. 1288.

 Fox Film Corp. v. Gross (D.C.N.Y.) 56 F.(2d) 457; Deseret Sav. Bank v. Walker, 78 Utah, 241, 2 P.(2d) 609, 612; Dietlin v. General American L. Ins. Co. (Cal.App.) 41 P.(2d) 979, 985; First Sav. Bank of Ogden v. Brown (Utah) 54 P.(2d) 237, 241.