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July 24, 1950


The opinion of the court was delivered by: Miller, District Judge.

  A comprehensive recapitulation of the pleadings in this case would unduly prolong this opinion, and the court feels that the following brief statement will suffice to present the questions for determination.

Civil No. 499 was originally filed in the Union Chancery Court to recover judgment for the amount of an alleged loan to H.P. Robison, deceased; to foreclose a mortgage given as security for the loan; and to reach the proceeds of a life insurance policy in the sum of $6,000.00 issued by John Hancock Mutual Life Insurance Company (hereinafter referred to as John Hancock) on the life of the said H.P. Robison and allegedly assigned to the plaintiff Munn as security for the loan. Writ of garnishment was issued against John Hancock, which company subsequently removed the case to this court on the ground of a separate and independent claim. Thereafter John Hancock filed its answer, counterclaim and cross claim, denying liability on the allegedly assigned policy for $6,000.00 and another policy in the sum of $1,000.00 issued by it upon the life of the said Robison on the ground that said policies had lapsed for non-payment of premiums and, because of fraud in the applications for reinstatement, were never effectively reinstated; tendering into court certain premium payments; and praying that should the court determine that the policies were in force at the death of the said Robison that plaintiff Munn and defendant Mrs. Ora V. Robison be required to interplead and settle between themselves their rights to any moneys due. The interpleader was directed at both policies issued by John Hancock, Policy No. 4483188, issued May 7, 1947, in the face amount of $6,000.00, and Policy No. 4492471, issued June 4, 1947, in the face amount of $1,000.00. By her answer and counterclaim Mrs. Ora V. Robison admits that she is a citizen of Louisiana (the pleading says "resident", but by virtue of discussions with the attorneys the court is certain that "citizen" was intended and is acting herein accordingly), and since more than $500.00 is involved the interpleader properly falls under Section 1335 of Title 28 U.S.C.A., giving the court jurisdiction to adjudicate the respective rights of the parties to both policies.

Upon motion of the plaintiff, E.J. Munn, all issues of the case other than those raised by the interpleader proceeding were remanded to the State court, and in the event it should be determined that John Hancock is liable on Policy No. 4483188, the final determination of the rights of Munn and Mrs. Robison to the proceeds thereof will be withheld pending a decision by the State court as to the validity of the claim of Munn against Mrs. Robison, and if valid, the amount of the policy proceeds necessary to satisfy that debt after the proceeds of the foreclosure sale are applied thereto. Munn has withdrawn any claim to the proceeds of Policy No. 4492471, with the result that in the event her motions are sustained, Mrs. Robison will be entitled to the entire proceeds of that policy.

There is now pending for determination by the court a motion by Mrs. Robison for judgment on the pleadings under Rule 12(c), or for summary judgment under Rule 56(a), Fed.Rules Civ.Proc., 28 U.S.C.A., it being the contention of Mrs. Robison that under the undisputed facts set forth in the pleadings, John Hancock is liable on both policies as a matter of law. Specifically, her contention is that since two years have elapsed from the issue date of both policies, John Hancock is barred by the incontestable clause in each policy from asserting the only defense made in the pleadings, that of fraud in the applications for reinstatement.

Both policies contain the following provision:

"This policy, except any supplementary provision hereof granting any benefit for total and permanent disability, or granting any additional insurance specifically against death caused by certain bodily injuries sustained through accidental means, shall be incontestable after it has been in force during the lifetime of the insured for two years from its date of issue, except for non-payment of premium, and except that if the insured's age has been misstated the amount payable hereunder shall be that which the premium paid would have purchased at the correct age."

Due to certain factual differences in the execution of the two policies which bear on the question of the governing substantive law, Policy No. 4492471 will be discussed first. That policy provides:

"At any time after default in payment of premium (unless the cash surrender value has been paid, or the term of any extended insurance has expired), this policy may be reinstated upon production of evidence of insurability satisfactory to the Company, and upon payment or reinstatement of any indebtedness to the Company hereon and payment of arrears of premiums, with interest at the rate of five per cent per annum."

Policy No. 4492471 was issued June 4, 1947; lapsed for non-payment of premiums September 4, 1948; application for reinstatement was made on October 30, 1948, and approved November 5, 1948; lapsed for non-payment of premiums on December 4, 1948; application for reinstatement made on January 13, 1949, and approved January 20, 1949; and premiums paid from then until death of insured, H.P. Robison, on October 5, 1949.

In each application for reinstatement the insured represented that he was in sound health and since the first premium in default became due had no injury, ailment, etc., and had not consulted a physician. The application provided that reinstatement would not be effective until approved by the defendant at its home office in Boston, Massachusetts, and provided "the terms and conditions of the incontestable provision in said policy shall apply to a reinstatement thereof made upon this application, but the period of time specified in said provision shall run from the effective date of the reinstatement endorsed hereon."

Preliminary to a determination of the rights of the parties under this insurance contract, it is necessary to ascertain the governing substantive law. The question whether the substantive law of Arkansas or the substantive law of Massachusetts applies is raised by the contentions of the parties. Jurisdiction of the court is based upon diversity and the requisite amount, and, therefore, the conflict of laws rule of the State of Arkansas will be followed.

An examination of the Arkansas decisions reveals that the substantive law of the place of making is applied in determining rights under insurance contracts. Massachusetts Protective Association v. Oden, 186 Ark. 844, 56 S.W.2d 425; Leflar, Conflict of Laws, Arkansas, Section 103, and cases cited therein. And, an insurance contract is made at the place where the last act necessary to the completion of the contract is done. In the instant case, the acts necessary to a completion of the contract are set forth in the application:

"* * * If payment of the said premium was not made when this application was signed, any such policy will take effect as of the date of issue, and only if the proposed insured has not consulted or been treated by a physician or other practitioner since the date of the completion of said Part B, and only if the policy is delivered to and received by the applicant and the first premium or instalment thereof is actually paid while the proposed insured is alive and in sound health, and in any case, such delivery and payment shall constitute an acceptance of the policy and of all its conditions." (Emphasis added.)

The pleadings reveal that the policy was mailed by John Hancock to its resident agent at Smackover, Arkansas, who delivered the policy to the insured, H.P. Robison, and accepted the first premium paid by Robison at the time of delivery. Thus, the contract was made in Arkansas, and the Arkansas substantive law is applicable in determining the rights of the parties.

John Hancock contends that regardless of where the original contract was made, it lapsed, and but for the reinstatement unquestionably would be void and of no effect, and, therefore, the claim of Mrs. Robison depends upon the effect of the reinstatement, which, by the terms of the application for reinstatement, was not effective until approved by John Hancock in Massachusetts. The substance of this contention is that the last act necessary to the completion of a valid and enforceable contract, the approval of the application for reinstatement, took place in Massachusetts, with the result that the substantive law of Massachusetts is determinative of the rights of the parties under the insurance contract.

Among the provisions of the policy is one giving the insured the absolute right, under the facts of this case, to reinstate. John Hancock accepted and approved each application for reinstatement, which, under the Arkansas law, is conclusive that the condition "production of evidence of insurability satisfactory to the Company" was satisfied. Thus, while the policy may have lapsed for non-payment of premiums, it was, by virtue of this provision, not a "dead" contract, because the reinstatement was made under a then existing right of the insured conferred thereby rather than a gratuitous privilege conferred by John Hancock. And, it is settled beyond dispute in Arkansas that "the reinstated policy is not a new contract, but is the same old policy." N. Y. Life Ins. Co. v. Dandridge, 202 Ark. 112, 149 S.W.2d 45, 48, 134 A.L.R. 1519. As expressed in N. Y. Life Ins. Co. v. Campbell, 191 Ark. 54, 57 83 S.W.2d 542, 544:

"It necessarily follows from what we have said and the cases cited in support thereof that the reinstatement of the insured by appellant created no new contract between them, but simply revives and reinstates the original contract and all provisions thereof and subsequently the rights ...

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