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Ruhlin v. New York Life Ins. Co.

September 27, 1937

RUHLIN ET AL.
v.
NEW YORK LIFE INS. CO.



Appeal from the District Court of the United States for the Western District of Pennsylvania.

Author: Davis

Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.

DAVIS, Circuit Judge.

This case is before us on reargument.

This is a suit by the appellee to rescind the double indemnity and disability provisions in certain policies of life insurance issued by it to John G. Ruhlin, one of the appellants, because of fraud alleged to have been practiced by him in procuring the insurance, and to enjoin him from prosecuting a suit previously commenced by him in a state court to collect the disability benefits.

The questions in issue are whether or not the company is barred from rescinding these provisions because of the "incontestability" clause contained in each of the policies, and whether or not the insured should be enjoined from prosecuting the suit in the state court.This clause reads as follows: "This policy shall be incontestable after two years from its date of issue except for the non-payment of premiums, and except as to provisions and conditions relating to Disability and Double Indemnity Benefits."

In our former opinion, filed October 6, 1936, disposing of this case, and also the case of Gatti v. New York Life Insurance Company,*fn1 which involved the same questions as are here in issue, we held that the company was not barred by the incontestability clause from rescinding the disability and double indemnity provisions, though the action was commenced more than two years after the policy was issued, and that the District Court erred in enjoining the prosecution of the suit in the state court.

In the recent decision in the case of Stroehmann et al. v. Mutual Life Ins. Co. of New York, 300 U.S. 435, 57 S. Ct. 607, 609, 81 L. Ed. 732, the Supreme Court held that the incontestability clause there involved did bar an action to rescind the double indemnity and disability provisions after the period of contestability had passed because it was ambiguous. The clause in that case read as follows: "Incontestability. -- Except for non-payment of premiums and except for the restrictions and provisions applying to the Double Indemnity and Disability Benefits as provided in Sections 1 and 3 respectively, this Policy shall be incontestable after one year from its date of issue unless the Insured dies in such year, in which event it shall be incontestable after two years from its date of issue."

In its opinion the Supreme Court said:

"The Circuit Court of Appeals followed its earlier opinion in New York Life Ins. Co. v. Gatti (Oct. 6, 1936),*fn1a where the company employed different language. Certain life companies undertake to make exceptions to the incontestibility clause by words more precise than those now under consideration, and opinions in cases arising upon their policies must be appraised accordingly.

"Without difficulty respondent could have expressed in plain words the exception for which it now contends. It has failed, we think, so to do. And applying the settled rule, the insured is entitled to the benefit of the resulting doubt."

The "language" employed in the incontestibility clause here involved is the same as that used in the Gatti Case, but, as the Supreme Court pointed out, differs from that used in the Stroehmann Case. The language used in the clause here in question is "more precise" than that employed in the Stroehmann Case, and "expressed in plain words the exception for which" the company now contends. Furthermore, both the Court of Appeals of New York and the Supreme Court of Pennsylvania have held that the incontestability clause here involved clearly excepts the double idemnity and disability provisions from its operation. Steinberg v. New York Life Ins. Co., 263 N.Y. 45, 188 N.E. 152, 90 A.L.R. 642; Manhattan Life Insurance Co. v. Schwartz, 274 N.Y. 374, 9 N.E.2d 16; Guise v. New York Life Ins. Co., 127 Pa. Super. 127, 191 A. 626. We have read the recent opinion of the Supreme Court of California in the case of Coodley v. New York Life Insurance Co., 70 P.2d 602, and the opinion of Judge Coughlin in the case of New York Life Insurance Co. v. Thomas, 27 Pa.Dist. & Co.R. 215, but are not persuaded that the learned District Judge erred. Since the company is domiciled in New York and the insured lives in Pennsylvania, and "all that is here for our consideration is the meaning, the tacit implications, of a particular set of words," "for the sake of harmony and to avoid confusion" we shall follow the decision of those courts and hold that the insurance company is not barred by the incontestability clause from rescinding the double indemnity and disability provisions. Mutual Life Ins. Co. v. Johnson, 293 U.S. 540, 55 S. Ct. 86, 79 L. Ed. 646; Trainor Co. v. Aetna Casualty & Surety Company, 290 U.S. 47, 54, 54 S. Ct. 1, 2, 78 L. Ed. 162.

The second question raised is whether or not the company was entitled to an order restraining the insured from further prosecuting his action in the state court to collect disability benefits.

The company contends that its remedy at law is inadequate, and that the insured should therefore be enjoined from further prosecuting his suit in the state court, for the reasons that the insured could discontinue his action at law at any time, and refuse to bring another action on the policy until all opportunity to prove fraud against him had gone; that the suit in the state court might possibly end in general verdict in its favor, which would not settle the issue of fraud for such verdict might be based alone on the issue of disability; and that even if the issue of fraud ...


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