Appeal from the District Court of the United States for the Middle District of Pennsylvania; Albert L. Watson, Judge.
Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.
This is an appeal from an order of the District Court dismissing the bill of complaint by which the appellant sought to have the provisions for disability benefits in three policies of insurance issued by it to the appellee, Stroehmann, rescinded on the ground that he had made false and fraudulent misstatements in response to questions in his medical examination. The appellant also prayed that the appellees be restrained from bringing any action at law or otherwise upon the policies. The appellees filed a motion to dismiss the bill. The District Court, after issuing an order (6 F. Supp. 953) on May 17, 1934, denying the motion reversed its position, and on July 2, 1935, issued the order dismissing the bill, on the authority of the decisions in Ness v. Mutual Life Ins. Co., 70 F.2d 59 (C.C.A. 4), and Mutual Life Ins. Co. v. Markowitz, 78 F.2d 396 (C.C.A. 9).
Policies No. 2,646,105 and No. 2,677,078, hereinafter referred to as policies Nos. 1 and 2, were issued in 1919. Both of these policies are for the face value of $5,000, and contain provisions for "Benefits in the event of total and permanent disability before age 60," which entitled the insured to annual payments so long as the disability continued, of "a sum equal to one tenth of the face amount of the policy." On February 9, 1928, Stroehmann signed two applications requesting that the above policies be changed to what is known as the "1926 Increasing Disability Benefits in event of Total and Permanent Disability. * * *" These applications included the provision that if "the statements or answers in said medical examination shall be in any respect untrue, * * * any disability benefits granted under said policy shall be only those, if any, provided for in said policy before the change herein requested was made." After the medical examination was made, the change requested was effected on February 23, 1928, and the new disability provisions were attached to the original policies in riders.
On October 11, 1932, the appellant filed a bill of complaint, in which it prayed that the "Increasing Disability" provisions, added to policies Nos. 1 and 2, and the disability provision of policy No. 3 be rescinded because of fraudulent misstatements made in answer to questions in the medical examination, and that the defendants be restrained from bringing any action at law or otherwise on the policies. It will be noted that the insurer does not seek to rescind the disability provisions under the original policies, Nos. 1 and 2.
The appellees contend that the disability provisions are no longer contestable by the complainant on the ground that the incontestability clause included in the original policies is applicable to the riders attached in 1928. The incontestability clause reads as follows: "This policy shall be incontestable after two years from its date of issue except for the non payment of premiums."
The only authority for the position of the appellees lies in the analogy in cases dealing with reinstatement of lapsed policies. Under these cases an incontestability clause begins to run anew as of the time that the lapsed policy is reinstated. Lincoln National Life Ins. Co. v. Hammer, 41 F.2d 12 (C.C.A. 8); New York Life Ins. Co. v. Seymour, 45 F.2d 47, 73 A.L.R. 1523 (C.C.A. 6).
But the company expressly reserved the defense of fraud by the provision in the application to the effect that in case the answers were in any respect untrue, the disability benefits should be those in the policy before the change.
The appellees further contend that even if the incontestability clause is inapplicable, under the Act of May 17, 1921 (P.L. 682, 701, 721, art. 3, § 318, 40 P.S. Pa. § 441, and article 4, § 410 (d), 40 P.S. Pa. § 510 (d), the application and report of the medical examination cannot be introduced in evidence to prove fraud because it was not attached to the policy.
The applicable provisions of the Act of May 17, 1921, read as follows:
"All insurance policies, issued by stock or mutual insurance companies or associations doing business in this State, in which the application of the insured, the constitution, by-laws, or other rules of the company form part of the policy or contract between the parties thereto, or have any bearing on said contract, shall contain, or have attached to said policies, correct copies of the application as signed by the applicant, or the constitution, by-laws, or other rules referred to; and, unless so attached and accompanying the policy, no such application, constitution, or by-laws, or other rules shall be received in evidence in any controversy between the parties ...