INSURANCE DEPARTMENT

In the Matter of the Application of THE NEW YORK Life InsurANCE COMPANY for Leave to Insert in Its Insurance Policies a Restrictive Clause against Aviation

(Ruling made August 8, 1917)

A proposed clause to be inserted in insurance policies restricting the insured from engaging in aviation or aeronautic ascensions is in violation of the Insurance Law.

The New York Life Insurance Company has drawn up and submitted to the Department for approval a new clause for insertion in its future policies. This clause restricts the insured from engaging in aviation or aeronautic ascensions, and provides that if the insured shall die as a result, either directly or indirectly, of so engaging, the liability of the company shall be limited to the reserve held by it on the policy less any indebtedness on said policy to the company. In Massachusetts the Insurance Commissioner has sustained this clause but in Ohio the clause has been disapproved by the Commissioner. Held, that in this State, apart from the provision relating to military or naval service, the Legislature evidently intended that after policies had been in force two years, if the premiums were duly kept up, the policy holder would be absolutely assured that in the event of his death from any cause whatsoever the amount of the policy would be paid without contest. Held, also, that a clause restricting liability where death occurs by reason of aviation cannot be permitted as the statute now permits one exception relating to the occupation of the assured, to wit: military or naval service in time of war. The clause submitted by the New York Life Insurance Company is in violation of subdivision 2 of section 101 of the Insurance Law and cannot be approved.

PHILLIPS, Superintendent.- Pursuant to section 101 of the Insurance Law, the New York Life Insurance Company has submitted to me for approval the following clause to be inserted in its policies hereafter issued:

"This policy does not insure against death resulting from engaging in aviation or aeronautic ascensions. If the insured shall die as a result either directly or indirectly of so engaging, the liability of the Company shall be limited to the reserve held

569

by the Company on this policy, less any indebtedness hereon to the Company."

The request for approval of the clause above mentioned presents a question whether the same is in violation of subdivision 2 of section 101, commonly known as the "incontestability" provision. So far as I have been able to ascertain, this precise question has never been presented to the court for determination, and we are compelled to give consideration to the question without the guidance of a court decision.

The States of Massachusetts and Ohio have laws similar to the law in this State regarding standard provisions to be inserted in life insurance policies.. The Commissioner of Massachusetts has approved the precise form now under consideration, and holds that the same is not in conflict with the incontestability provision.

The Superintendent of Insurance of the State of Ohio has taken an opposite position, disapproved the clause, holding that the same is in violation of the incontestability provision of the statute, and, in a memorandum filed with such disapproval, states as follows:

"The Standard Provision Law of Ohio provides that life insurance policies issued in this State shall be incontestable after two years, except for two things and two things only, viz: non-payment of premiums and violation of the provisions relating to military and naval service in time of war. Red Cross service, aeronautics, submarine service and work in munition factories are not necessarily included in military and naval service. References to such service should be limited to the first two years of the policy during which time the policy is contestable. After two years this company is not permitted to pay less than the face of the policy in case of death from Red Cross service or aeronautics or submarine service, or work in munition factories, provided of course that all premiums required by the company have been paid by the insured up to the time of death."

In view of the conflicting opinions rendered by the distinguished Commissioners of Massachusetts and Ohio, the situation requires us to examine as thoroughly as possible the circumstances and reasons governing the use of the incontestability clause. I am

not advised as to the practice which prevailed prior to the so-called Armstrong legislation of 1906. Presumably there were as many different methods pursued upon this subject as there were companies engaged in the business. By chapter 326 of the Laws of 1906, section 101 of the Insurance Law was enacted, requiring standard forms of life insurance policies. Four standard forms of policies were prescribed therein, each of which contained the following relating to incontestability:

"Incontestability. (The policy shall here provide that it shall be incontestable, except for non-payment of premiums, either from its date or after one or two years, in the following form.) This policy shall be incontestable, except for non-payment of premiums, * * from this date."

It seems to me to be very clear that when the Legislature enacted this statute it intended that, after the limited period fixed by the policy, every policyholder was to have the right to collect the whole amount provided on the face of the policy, except in case of non-payment of premiums.

Each of such standard policy forms also contained the following, immediately preceding the incontestability clause:

"Conditions. (The policy may here provide for restrictions of liability by reason of travel, occupation, change of residence and suicide, applicable only to one year after the issuance of the policy.)"

Clearly under this provision, had it been sought to make restrictions relating to aviation, such restrictions as to the recovery of the amount provided upon the face of the policy would be limited to one year after the issuance of the policy. In other words, under the standard policy law of 1906 the provision now proposed by the New York Life Insurance Company could not possibly have been used.

In his annual report to the Legislature in 1909, Superintendent Kelsey recommended the repeal of the standard policy law and the enactment of a law regulating the issuance of forms of life insurance policies. The Legislature thereupon, by chapter 301 of the Laws of 1909, adopted the so-called standard provisions.

law, making certain standard requirements as to provisions to be contained in all life insurance policies, among which subdivision 2 was in the form in which it is found to-day in the statute, as follows:

"2. A provision that the policy shall be incontestable after two years from its date of issue except for non-payment of premiums and except for violation of the conditions of the policy relating to military or naval service in time of war."

This provision seems to be a consolidation of the two provisions above quoted from the standard policy law of 1906 relating to "incontestability" and to "conditions," the provisions of the old law relative to "conditions" being omitted and the provision relating to military or naval service being added.

It is rather difficult to speculate just what created the demand for the enactment of a law compelling life companies to insert in their policies a provision that after a certain period of time the policy could not be contested except for the non-payment of premiums. I apprehend, however, that before the enactment of such a law, the practice had become general among all companies to contest liability under their policies on account of some misrepresentation made by the insured in the application. Necessarily, this contest would not occur until after the death of the insured, which, in many cases, is several years after the issuance of the policy. This rendered it extremely difficult for the bene ficiary to furnish proof in refutation of the claims made by the company, and led to abuses generally detrimental to the interest of the beneficiary. No doubt it was this evil which led to the enactment of the incontestability clause. It would seem to me that it was perfectly proper to compel the companies to insert in their policies a clause whereby the company was prevented from contesting the policy within a certain period of time for any fraud or misrepresentation which entered into the making of the contract, but I can see no good reason why the company should not be permitted under their power to write life insurance to insure such risks as they desired. This may have been the original intention of the Legislature, but, after a careful consideration of

the old statute and of the present statute, the clear language of the statute expresses the intention that, with the exception of the provisions relating to military or naval service, the full amount of the policy provided on the face thereof should be payable absolutely, upon the death of the insured, if the premiums had been duly paid. Apart from the provision relating to military or naval service, the Legislature, from the language employed in the statute, evidently intended that after a policy had been in force two years, if the policyholder kept up the payment of his premiums, he would be absolutely assured that, in the event of his death from any cause whatsoever, the full amount agreed to be paid would be paid, and that no contest could be made against his beneficiaries under the policy.

As further sustaining the idea that a clause restricting liability to pay the full amount provided on the face of the policy, where death occurs by reason of aviation, cannot be permitted, due consideration should be given to the fact that the statute now permits one exception relating to the occupation of the assured, to wit, military or naval service in time of war.

I have therefore reached the conclusion that the clause submitted by the New York Life Insurance Company is in violation of subdivision 2 of section 101 of the Insurance Law, and cannot receive my approval.

In the Matter of the MUTUALIZATION PLAN of the Equitable Life Assurance Society of the United States

(Ruling made February 6, 1918)

Outline of the principles upon which a proposed plan for the mutualization of an insurance company is properly approved.

Fair treatment of minority stockholders assured.

The Equitable Life Assurance Society of the United States, pursuant to section 95 of the Insurance Law, submitted for the approval of the Insurance Department a plan of mutualization for the acquisition of its capital stock, consisting of 1,000 shares of the par value of $100,000. The plan proposed has been adopted by the directors, approved by the