On certification to the Superior Court, Appellate Division.
Chief Justice Poritz and Justices Handler, Pollock, O'hern, Garibaldi, Stein, and Coleman join in the Court's opinion.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Menichelli v. Massachusetts General Life Insurance Co. (A-35-97)
Argued October 20, 1997 -- Decided December 17, 1997
This case concerns the general rule that permits an insurer to rescind a life insurance policy within the two-year contestability period when the insured made material misrepresentations on the application for the policy. The question is whether an exception from the rule is warranted if the policy is required by a divorce judgment to secure support obligations.
Plaintiff is the beneficiary, in trust for her minor son, of a $100,000 life insurance policy that her former husband purchased to comply with the terms of a divorce judgment. On his application, her former husband misrepresented that he was not a cigarette smoker. After his death, which occurred within the contestability period, the defendant insurance company learned of the misrepresentation and sought to rescind the policy.
Plaintiff does not dispute that a misrepresentation about whether an insured is a smoker materially affects the insurer's risk, permitting the insurer to rescind the policy. She urges, however, that when a life insurance policy is purchased pursuant to a court order, an exception to the rule of rescission should apply if the insurance company issuing the policy could have discovered the misrepresentation through a reasonable investigation.
The trial court and the Appellate Division declined to create such an exception and allowed rescission. The Appellate Division reasoned that the exception would create a disincentive to honesty on the part of matrimonial litigants required to obtain life insurance.
The Court granted plaintiff's petition for certification.
HELD : The Court declines to create an exception to the general rule permitting rescission of insurance policies for material misrepresentations on the application where the policy is required under a divorce judgment.
1. If such an exception existed, applicants for insurance could gamble that they would live until the policy became incontestable, risking only that their estates would bear the cost of any extra premiums required in the event the insurer discovered the misrepresentation. (P. 3)
2. The Court assumes that plaintiff and the minor child may have a remedy against her former husband's estate. Because this remedy may be of little practical value, the Court encourages family practitioners and Judges to closely examine the circumstances under which life insurance policies are used to secure support payments. A court might consider requiring the insured to furnish the beneficiary a copy of the policy and application. (Pp. 3-4)
3. The Court realizes that one may have no way of knowing whether a former spouse is behaving in a way that would permit rescission by an insurer based on the insured's misrepresentations. At oral argument, the parties discussed whether one might bargain for an incontestability clause in the insurance policy or demand that the insurance company examine a prospective insured to determine insurability. The record in this case is inadequate in this regard, and the ...