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Equitable Life Assurance Society of United States v. New Horizons Inc.

Decided: December 1, 1958.

THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, PLAINTIFF-RESPONDENT,
v.
NEW HORIZONS, INC., A CORPORATION, DEFENDANT-APPELLANT



On certification granted.

For affirmance -- Chief Justice Weintraub, and Justices Heher, Wachenfeld, Burling, Jacobs, Francis and Proctor. For reversal -- None. The opinion of the court was delivered by Wachenfeld, J. Weintraub, C.J., concurring in result.

Wachenfeld

This is an action for rescission and cancellation of a policy of insurance issued on the life of one Stephen Yafchak by the plaintiff, the Equitable Life Assurance Society of the United States. Defendant, New Horizons, Inc., is the assignee of the policy and counterclaimed to recover its full amount. The material facts are undisputed and in the trial court both parties moved for summary judgment. Judgment was granted in plaintiff's favor, and the defendant appealed. We granted certification of the appeal to the Appellate Division on our own motion.

The policy in question is sometimes referred to as "key man" insurance. This type of insurance is usually taken out by an employer upon the life of an essential employee. Although the employee is the "insured," the employer is the applicant for, and owner and beneficiary of, the policy. The purpose of the insurance is to compensate the employer for the economic detriment occasioned by the loss, through death, of the important services of its employee.

In 1955 Stephen Yafchak was the general manager of Linden Tool Company, Inc. He supervised sales, production, design and general operations and was, without doubt, the key employee of the enterprise. When New Horizons, Inc., purchased Linden Tool, it insisted that the contract of sale be conditioned upon Yafchak's agreeing to remain as general manager.

The subject policy, in the face amount of $20,000, was issued to Linden Tool on June 10, 1955 and contained a clause providing for a two-year contestability period. The application for the policy was signed by both Yafchak and Linden Tool Co., Inc., through its president, Herman Nathanson, and consisted of two parts. The second part relates to the medical history of the insured and the information

contained therein was supplied by Yafchak, who affixed his signature immediately beneath a stipulation reading:

"I have read the foregoing answers which are true, full and complete, and agree that such answers shall be part of the application, which shall consist of both Part I and Part II, and that such answers shall also become part of any policy contract that may be issued on the strength thereof."

The first part of the application was signed by Nathanson, in his capacity as president of Linden Tool, as well as by Yafchak. It contained in the body the assertion that:

"It is hereby agreed that any policy issued hereon shall not take effect until the first premium thereunder has been paid during the good health of the person whose life is proposed for insurance; * * *. All of the foregoing statements and all those contained in Part II hereof are true, and are offered to the Society as an inducement to issue the policy or policies for which application is hereby made."

Additionally, above the signature of Nathanson appears a clause providing:

"The undersigned hereby applies for the insurance herein specified and certifies that the statements herein contained are correct."

And over Yafchak's signature on Part I is found the agreement:

"I hereby consent to the insurance herein specified and certify that all the representations and statements made herein are true."

Defendant concedes that Yafchak gave false negative answers to all of the following questions, which are found ...


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