U.S. Supreme Court AMERICAN LIFE INS. CO. V. STEWART , 300 U.S. 203 (1937)

300 U.S. 203

AMERICAN LIFE INS. CO.v. STEWART et al. (two cases).

Nos. 440 and 441.

Argued Jan. 15, 1937.Decided Feb. 1, 1937.

[ American Life Ins. Co. v. Stewart 300 U.S. 203 (1937) ]

[Page 300 U.S. 203 , 212]

had an adequate remedy at law. 80 F.(2d) 600; 85 F.(2d) 791. We granted certiorari to settle an important question, and one likely to recur, as to the scope of equitable remedies.

No doubt it is the rule, and one recently applied in decisions of this court, that fraud in the procurement of insurance is provable as a defense in an action at law upon the policy, resort to equity being unnecessary to render that defense available. Enelow v. New York Life Ins. Co., 293 U.S. 379, 385, 312; Adamos v. New York Life Ins. Co., ; Phoenix Mut. L. Insurance Co. v. Bailey, 13 Wall. 616; Cable v. United States Life Ins. Co., 191 U.S. 288, 306. That being so, an insurer, though the victim of a fraud, may commonly stand aside and await the hour of attack. But this attitude of aloofness may at times be fraught with peril. If the policy is to become incontestable soon after the death of the insured, the insurer becomes helpless if he must wait for a move by some one else, who may prefer to remain motionless till the time for contest has gone by. A 'contest' within the purview of such a contract has generally been held to mean a present contest in a court, not a notice of repudiation or of a contest to be waged thereafter. See, e.g., Killian v. Metropolitan Life Ins. Co., 251 N.Y. 44, 48, 166 N.E. 798, 64 A. L.R. 956; New York Life Ins. Co. v. Hurt (C.C.A.) 35 F.(2d) 92, 95; Harnischfeger Sales Corp. v. National Life Ins. Co. (C.C.A.) 72 F.(2d) 921, 922. Accordingly an insurer, who might otherwise be condemned to loss through the mere inaction of an adversary, may assume the offensive by going into equity and there praying cancellation. This exception to the general rule has been allowed by the lower federal courts with impressive uniformity. [Footnote 1] It

[Page 300 U.S. 203 , 213]

has had acceptance in the state courts. [Footnote 2] It was recognized only recently in an opinion of this court, though the facts were not such as to call for its allowance. Enelow v. New York Life Ins. Co., supra, , at page 384, 312.3

[Page 300 U.S. 203 , 216]

the suits in equity till the other causes were disposed of, the District Court could have considered whether justice would not be done by pursuing such a course, the remedy in equity being exceptional and the outcome of necessity. Cf. Harnischfeger Sales Corp. v. National Life Ins. Co. (C.C.A.) 72 F.(2d) 921, 922, 923. There would be many circumstances to be weighed, as, for instance, the condition of the court calendar, whether the insurer had been precipitate or its adversaries dilatory, as well as other factors. In the end, benefit and hardship would have to be set off, the one against the other, and a balance ascertained. Landis v. North American Co., supra. But respondents, as already indicated, gave that possibility away. They stipulated that the issues in equity should be tried in advance of those at law, and that only such issues, if any, as were left should be disposed of later on. The cases were allowed to stand as if challenge to the suits had been made by a demurrer only. So challenged, they prevail.

The decree should be reversed, and the cause remanded to the Court of Appeals for a consideration of the merits and for other proceedings in accord with this opinion.

Reversed. Footnotes

Footnote 1 From the fourth circuit: Jefferson Standard Life Ins. Co. v. Keeton, 292 F. 53, 54Ä56; Jones v. Reliance Life Ins. Co., 11 F.(2d) 69, 70; Brown v. Pacific Mutual Life Ins. Co., 62 F.(2d) 711, 712; New York Life Ins. Co. v. Truesdale, 79 F.(2d) 481, 485; Pacific Mutual Life Ins. Co. v. Parker, 71 F.(2d) 872, 874. From the fifth circuit: Jefferson Standard Life Ins. Co. v. McIntyre, 294 F. 886, 888. From the sixth circuit: New York Life Ins. Co. v. Seymour, 45 F. (2d) 47, 48, 49, 73 A.L.R. 1523; Rose v. Mutual Life Ins. Co. of New York, 19 F. (2d) 280, 282. From the seventh circuit: Harnischfeger Sales Corp. v. National Life Ins. Co., 72 F.(2d) 921, 922, 923. From the eighth circuit: Peake v. Lincoln National Life Ins. Co., 15 F.(2d) 303, 305, 306; Lincoln National Life Ins. Co. v. Hammer, 41 F.(2d) 12, 17. From the ninth circuit: Massachusetts Bonding & Ins. Co. v. Anderegg, 83 F.(2d) 622, 625. From the tenth circuit: New York Life Ins. Co. v. Thompson, 78 F.(2d) 946, 947 (semble). From the District of Columbia: Densby v. Acacia Mutual Life Ass'n, 64 App.D.C. 319, 78 F.(2d) 203, 206, 101 A.L.R. 863.

Footnote 2 New York Life Ins. Co. v. Rigas, 117 Conn. 437, 168 A. 22, 91 A.L.R. 1122; Ebner v. Ohio State Life Ins. Co., 69 Ind.App. 32, 121 N.E. 315; Aetna Life Ins. Co. v. Daniel, 328 Mo. 876, 42 S.W.(2d) 584; New York Life Ins. Co. v. Cobb, 219 Mo.App. 609, 282 S.W. 494; New York Life Ins. Co. v. Steinman, 103 N.J.Eq. 403, 143 A. 529; American Trust Co. v. Life Ins. Co. of Virginia, 173 N.C. 558, 92 S.E. 706; Prudential Ins. Co. v. Tanenbaum, 53 R.I. 355, 167 A. 147.

Footnote 3 '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.'