On appeal from Superior Court, Law Division, Atlantic County.
Antell, Long and Thomas. Thomas, J.s.c. (temporarily assigned).
In this appeal we are called upon to review the motion judge's interpretation of life insurance incontestability established by N.J.S.A. 17B:25-4. On cross motions for summary judgment he ruled, based upon the facts of this case, the insurance company was barred from raising equitable fraud to contest the validity of the policy. We disagree and reverse.
In February 1988, John J. Spilker applied for life insurance with William Penn Life Insurance Company of New York. In response to questions about his past medical history, the insured answered falsely. Specifically, he failed to disclose that he had been hospitalized within the year for an acute esophageal syndrome and had undergone an esophagogastroduodenoscopy and biopsy of the distal esophagus. The insured also failed to reveal that he had consulted a doctor for coughs, chills, sweats, loss of weight and fever of unknown origin.
William Penn, unaware of the insured's medical history, issued the life insurance policy on February 29, 1988. John J. Spilker died on June 9, 1989 from Acquired Immune Deficiency Syndrome.
On August 7, 1989, Nancy Spilker attempted to collect the proceeds under the policy as the named beneficiary. William
Penn refused to honor the policy on March 7, 1990, claiming the insured made material misrepresentations about his medical condition. The underlying suit ensued in which the defense of equitable fraud was raised.
The Legislature enacted N.J.S.A. 17B:25-4 in 1971 providing for incontestability clauses in life insurance policies. The section provides that:
There shall be a provision that the policy (exclusive of provisions of the policy or any contract supplemental thereto relating to disability benefits or to additional benefits in event of death by accident or accidental means or in event of dismemberment or loss of sight) shall be incontestable, except for nonpayment of premiums, after it has been in force during the lifetime of the insured for a period of 2 years from its date of issue. (emphasis added).
Here the insured died before the passage of two years but defendant's claim for rescission was not asserted until more than two years after the inception of the policy.
In denying contestability the motion judge based his decision on the fact that the policy had not been contested within two years from the date of issue. When doing so he relied upon Massachusetts Mut. v. Manzo, 122 N.J. 104, 584 A.2d 190 (1991). In Manzo, an insurance company sought to rescind a life insurance policy for equitable fraud because insured falsely denied having diabetes. Insured was shot to death two months after applying for the insurance. The lower court concluded the false statement constituted equitable fraud and ordered rescission.
The Appellate Division reversed, noting that diabetes did not cause the insured's death or make him uninsurable. The Supreme Court reversed the Appellate Division and held that equitable fraud "should be available as a grounds for post-loss rescission and that within the period of contestability (emphasis added) an insurer may rescind a policy if the insured knowingly misrepresented facts that would have affected the estimate of the risk and the premium charged." Id. at 111, 584 A.2d 190. However, the Manzo policy was ...