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Wilmington Trust Co. v. Mutual Life Ins. Co.

decided: September 21, 1949.

WILMINGTON TRUST CO.
v.
MUTUAL LIFE INS. CO. OF NEW YORK.



Author: Biggs

Before BIGGS, Chief Judge, and McLAUGHLIN and KALODNER, Circuit Judges.

BIGGS, Chief Judge.

The appeal at bar is from the denial of the plaintiff's motion for summary judgment and from the granting of a similar motion made by the defendant. The issue presented is the recovery on two life insurance policies. The pertinent facts, none of which is in dispute, follow.

In 1935 Richard C. duPont and the defendant entered into two separate but identical life insurance policies covering the life of duPont. From the applications and from the answers made by duPont on a form signed by him which preceded the issuance of the policies it appeared that duPont was the owner of his own plane, a pilot of motor-driven planes and of gliders or sail planes. Each policy contained an "aviation rider" which provided: "Death as a result of operating or riding in any kind of aircraft, whether as a passenger or otherwise, except riding as a fare paying passenger in a licensed passenger aircraft provided by an incorported passenger carrier and operated by a licensed pilot on a regular passenger route between definitely established airports, is a risk not assumed under this policy and if the Insured shall die as a result, directly or indirectly, of such operating or riding in an aircraft the amount payable shall be limited to the reserve held at the date of death for the face amount of this Policy and for any dividend additions. Any accumulated dividend deposits will be payable in addition to such reserve."

This rider was stamped on the bottom of the first page of each policy and the policies were issued with each first page so stamped. The stamping of the riders on the policies was expressly agreed to by duPont in a letter written by him to the defendant. The policies also contained a clause stating that the policy was free from restrictions as to occupation, viz., "This Policy is free from restrictions as to occupation." There was no mention of military service in the policies. There were clauses, as required by statute, providing that each policy should be "incontestable" after a stated period. The contents of these clauses are discussed more fully later in this opinion.

In 1943 duPont became a "Special Civilian Assistant" to General Arnold of the Army Air Corps. He was placed in charge of the Army Air Corps Glider Program. A few months later while on a test flight in California in a glider piloted by a Colonel Gabel, duPont was forced to bail out and was killed when his parachute failed to open.

The plaintiff, as executor for duPont's estate, seeks to recover the full face value of the policies which totals $100,000. The defendant seeks to limit its liability to the reserve value of the policies plus dividends as the language of the rider provides. The defendant tendered and paid the reserve value of the policies and the dividends to the plaintiff, the parties nonetheless reserving their respective rights. The plaintiff bases its case below on three principal contentions: (1) the Delaware statute, Rev.Code Del, 1935, Section 496(3),*fn1 providing that a life insurance policy shall be incontestable under the conditions specified prevents the exemption of an aviation risk from a life insurance policy after the period provided by the statute has passed as here; (2) duPont was within the coverage of the policies since he was engaged in occupational flying when he was killed in view of the cause which put no restriction on occupation; and (3) the aviation riders were not intended by the defendant or duPont to extend to military flights in time of war. The trial judge rejected the first contention of the plaintiff at D.C.1946, 68 F.Supp. 83, but held that the pleading as then drawn did not permit the adjudication of the second and third points. The plaintiff was permitted to amend and, after further argument, the court below concluded that the riders covered the military flight during which duPont met his death. The ruling in substance was that the plaintiff was not entitled to recover even if it were assumed that he was engaged in military service or on a military flight and that the occupational clause of the policies did not impose liability on the insurer. See D.C.1948, 76 F.Supp. 560.

We shall deal first with the fundamental question inherent in all diversity cases: What law governs? Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188, 114 A.L.R. 1487, and Klaxon Co. v. Stentor Electric Mfg. Co., Inc., 313 U.S. 487, 489, 496, 61 S. Ct. 1020, 85 L. Ed. 1477. It is stipulated that the policies were issued and delivered and that the premiums due thereon were paid in Delaware. Each policy provides, however, under the heading, "Policy Settlement", that "All sums payable by the Company under this Policy shall be payable at the Home Office of the Company in the City of New York." While it is the great weight of authority that "The law of the place of performance governs as to matters of performance. * * *", it is also well established that "The question of what is the obligation imposed by a contract of insurance, what are its terms and provisions, has usually rightly been held to be governed by the law of the place of contracting." See Beale, The Conflict of Laws, pp. 1213 and 1210.It is, we believe, the conflict-of-laws rule of Delaware that the law of the state where the insurance contract was made shall govern. See Kane v. Chrysler Corporation, D.C.Del. 1948, 80 F.Supp. 360, citing, inter alia, Lams v. F. H. Smith Co., 6 W.W.Harr. 477, 178 A. 651, 105 A.L.R. 646. It is generally the law that the place where a policy of insurance is delivered shall be deemed to be the place where the contract was made, here Delaware. Restatement, Conflicts, Sections 317 and 318. We believe that Delaware would adopt this rule. Indeed, such a principle is distinctly hinted at, if not enunciated, in Harris v. New York Life Ins. Co., Del.Ch. 33 A.2d 154. It is our duty, therefore, to determine the instant case in accordance with what we believe the Delaware law would be if it were before the Supreme Court of Delaware.*fn2

First, as to the argument based on the "Incontestable Clause" of the policies. The Delaware statute, Rev.Code Del.1935, Section 496(3), provides that all life insurance policies must contain "A provision that * * * the policy * * * shall be incontestable after it has been in force during the lifetime of the insured for a period of not more than two years from its date, except for non-payment of premiums and except for violations of the conditions of the policy relating to naval or military service in time of war and, at the option of the company, provisions relative to benefits in the event of total and permanent disability and provisions which grant additional insurance specifically against death by accident may also be excepted." This statute was enacted in 1931, 37 Del. Laws c. 52, a point which should be borne in mind. Both policies, as we have indicated, contained the provisions required by the statute set out in the following words: "Except for nonpayment of premiums, this Policy shall be incontestable after one year from its date of issue unless the Insured dies in such year, in which case it shall be incontestable after two years from date of issue."

The plaintiff argues that the statute and the incontestable clause in the insurance contracts must be read together to effect the meaning that after two years the insurer must assume all risks except those named in the statute as exceptions. The defendant contends that the incontestable provisions serve only to prevent the company from contesting the validity of the insurance contracts after the statutory period but that the provisions do not compel the insurer to assume all risks except those listed in the statute.Thus, the issue between the parties is clearly defined. The defendant asserts that the incontestable clause of the policies at bar must be interpreted in the light of Metropolitan Life Ins. Co. v. Conway, 1930, 252 N.Y. 449, 169 N.E. 642, 643. The plaintiff insists that the principle of Bernier v. Pacific Mutual Life Ins. Co., 1932, 173 La. 1078, 139 So. 629, 88 A.L.R. 765 must govern.

In the Conway case the Court of Appeals of New York adjudicated the question whether an aviation rider written into a life insurance policy should stand as valid, exempting the insurer from liability, in view of the provisions of the New York incontestable statute,*fn3 the Act on which the Delaware statute under consideration probably was patterned. Judge Cardozo speaking for an unanimous court pointed out that the incontestable clause was not a mandate from the legislature as to the coverage of a policy but only precluded the defense that the insurance contract was invalid at its inception or became so by reason of a condition broken. Judge Cardozo carefully drew a distinction between a denial of coverage and the defense of invalidity. The Conway case was fully considered by the court below and was quoted in extenso in its opinion. See 68 F.Supp. at pages 86-87. It formed the basis of the decision of the court below and what Judge Cardozo said need not be repeated again here.

The Bernier case, decided by the Supreme Court of Louisiana, represents the opposite view though in fact Louisiana has no incontestable statute. In the policy before the Louisiana court an incontestable clause was written into the policy which contained provisions*fn4 which exempted the insurer from liability for a loss arising from an aviation accident except under specified conditions.These provisions were substantially similar to those of duPont's policies. The Supreme Court of Louisiana took the view that the incontestable clause went to coverage, a definition of hazards to be borne by the insurer, stating, 173 La. at page 1084, 139 So. at page 631, 88 A.L.R. 765: "Our opinion therefore is that, inasmuch as only the one exception [relating to non payment of premiums or violation of conditions connected with military or naval service] was made in the provision making the policy incontestable after having been in force for a year, the intention, at least of the insured, was that there should be no other exception."

The Bernier case comes as close to supporting the plaintiff's position as any decision which has been cited to us or which we have found by independent research.*fn5 On the other hand in every case in which incontestability under a statute was the direct and unequivocal issue the decision has gone against the plaintiff's point of view and in favor of the defendant's.*fn6 Many States have incontestable statutes. Indeed only fifteen the forty-eight have not.*fn7 Some jurisdictions have statutes under which aviation risks are specifically exempted.*fn8 Others do not make such an exemption.*fn9 In all this range of the law there is no case which supports the plaintiff in the instant case.*fn10

The purpose of the incontestable statutes and their historical background is too well known to justify extended restatement in this opinion. The plaintiff and the defendant in the case at bar both agree that such statutes were required to prevent an insurance carrier from asserting frivolous defenses based on a contention that some condition of the policy had been broken by the insured. The Conway case was decided before the Delaware statute was enacted. The language of the New York statute, those of the other States and the Delaware Act are so similar that it must be presumed that the General Assembly of Delaware, there being no decisions of a court of Delaware to the contrary, intended that the Delaware statute should receive the legal construction and have the effect ascribed to such statutes by decisions similar to that of the Court of Appeals of New York in the Conway case. Such is the law of Delaware. See Chicago Corporation v. Munds, 20 Del.Ch. 142, 172 A. 452. Professor Williston has approved the rule of the Conway case. See Williston, Contracts, Rev.Ed. ...


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