The opinion of the court was delivered by: WALKER
1. The plaintiffs originally instituted suit in the New Jersey Supreme Court to recover the benefit under certain policies of insurance issued by the Metropolitan Life Insurance Company on the life of Richard Ettelson, deceased. Defendant removed the case to this court on the ground of diversity of citizenship and thereafter filed an answer and counterclaim.
3. The counterclaim charges that Richard Ettelson in the master application
failed to disclose certain facts which were material and which if known by Metropolitan Life Insurance Company would have resulted in a refusal by said company to issue the policies of insurance, that statements made by Richard Ettelson in the master application and specifically referred to in paragraphs 8, 9, 10 and 11 of the counterclaim were false in fact and that Richard Ettelson failed to disclose material facts.
The historic grounds for bills to cancel insurance policies allegedly procured by fraud were the possibility of loss of legal defenses because of uncertainty when a claim under the policy might arise, the danger that witnesses might die or disappear, and when incontestability clauses were in use, the danger that a policy could become incontestable after a limited period unless a bill was filed by the insurer in time to create a contest.
The principles governing the equitable remedy of cancellation were concededly part of the body of equity law "being administered by the English Court of Chancery at the time of the separation of the two countries" and which Section 11 of the Judiciary Act of 1789
, prescribed for the guidance of the Federal Courts in granting or withholding extraordinary relief in equity.
Certain restrictions were, however, imposed upon the Federal Courts in administering equitable relief:
1. By Section 16 of the Judiciary Act of 1789
, Congress as the creator of the Federal Courts with power to define and limit their jurisdiction and the exercise thereof prescribed that "suits in equity shall not be sustained in either of the courts of the United States, in any case where a plain, adequate and complete remedy may be had at law."
2. Five days later, September 29, 1789, the same Congress proposed to the legislatures of the several states
the Article afterwards ratified as the 7th Amendment to the Constitution which declares that, "in suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved."
As a result the Supreme Court early enunciated and thereafter consistently applied the principle that "whenever a court of law is competent to take cognizance of a right, and has power to proceed to a judgment which affords a plain, adequate, and complete remedy, without the aid of a court of equity, the plaintiff must proceed at law, because the defendant has a constitutional right to a trial by jury."
In suits for cancellation of insurance policies on the ground of fraud the foregoing limitations on the Federal Courts have been applied to prevent relief in equity where the loss insured against has occurred, and especially where an action has been instituted to recover on the insurance, therefore; the motion of the plaintiffs for an order striking out and dismissing the Counterclaim filed by the defendant rests on the following:
(b) An action at law has been instituted to collect the proceeds of the four policies of ...