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Crawford v. Equitable Life Assurance Soc'y





Appeal from the Appellate Court for the Third District; heard in that court on appeal from the Circuit Court of Rock Island County; the Hon. Richard Stengel, Judge, presiding.


This appeal presents the question whether an incontestability clause contained in a group life insurance policy bars the insurer from defending against a claim on the ground that the insured was not an employee eligible for insurance under the terms of the policy. The question is one of first impression in this court.

The plaintiff, Harvey A. Crawford, brought an action in the circuit court of Rock Island County against the defendant, The Equitable Life Assurance Society of the United States, to recover the sum of $10,000 as the beneficiary of his wife under a group insurance policy issued by the defendant. The case was heard upon the complaint, the defendant's answer, the motion of the plaintiff for summary judgment, and affidavits and stipulations filed by the parties. The circuit court granted the motion for summary judgment, and the appellate court affirmed. (7 Ill. App.3d 691.) We granted the defendant's petition for leave to appeal. Leave was also granted to three other life insurance companies to file a joint brief amici curiae.

The undisputed facts are that effective January 1, 1965, the defendant issued a group life insurance policy to the Warm Air Heating and Air Conditioning Group Insurance Trust. The trust was established by the Warm Air Heating and Air Conditioning Association, for the purpose of providing insurance on the lives of employees of companies which were members of the association, as authorized by section 230(e) of the Insurance Code. Ill. Rev. Stat. 1971, ch. 73, par. 842(e).

One of the members of the association was the Crawford Heating and Cooling Company, Inc., whose president was the plaintiff. In December, 1964, shortly prior to the issuance of the policy, the plaintiff executed and delivered to the association an enrollment form which requested insurance for three persons, each of whom he represented to be employees of his company. Among the three were the plaintiff himself and his wife, Rose A. Crawford. A certificate of insurance was thereafter issued to Mrs. Crawford in the face amount of $10,000. The certificate also provided for certain hospital and medical expense benefits. The plaintiff was named as the beneficiary. The premiums were paid by the Crawford Heating and Cooling Company. Mrs. Crawford died in February, 1969.

The master policy contained a provision that only a "full time employee" would be eligible for insurance, subject to a proviso that any employee "whose work week calls for a schedule of less than 32 hours shall not be eligible for insurance hereunder."

The insurance certificate issued to the decedent, while stating that the insurance provided under the policy was effective "only if the Employee is eligible for insurance," did not contain the specific full-time employment requirement found in the master policy. The enrollment form executed by the plaintiff, however, did state that an employee must work at least 32 hours a week, and the plaintiff marked the form in such fashion as to indicate that each of the three persons listed did meet that requirement. The same representation was made in regular monthly statements submitted by the plaintiff to the trustee with his premium payments from February, 1965, until February, 1969.

An individual application for insurance executed by the decedent also included a representation by her that she worked 32 hours a week or more. She stated further in her application that her position with the company was that of Secretary-Treasurer, and that she earned $7500 or more a year. Information as to position and salary was significant under the policy because these factors affected the amount of death benefits payable.

In point of fact the representations made by the plaintiff and by the decedent were false. Neither at the time when the policy issued nor at any time thereafter did the decedent ever complete a week in which she worked 32 or more hours. According to the complaint the extent of her duties was to spend several hours a month in assisting the plaintiff in drawing up proposals for contracts, and in taking night telephone calls when he was on a job or out of town. She received no compensation for these functions.

It is admitted that the defendant made no inquiry into the circumstances of the decedent's employment until after her death. The facts came to light when the plaintiff submitted his claim to the trustee accompanied by a death certificate, which listed the decedent's occupation as that of housewife. The trustee notified the defendant, and requested it to verify the decedent's eligibility. An employee of the defendant then made a single call to the bookkeeper of the plaintiff's company, from whom the decedent's employment status was ascertained. The defendant thereafter wrote to the plaintiff denying the latter's claim.

The master policy contains an incontestability clause which reads as follows:

"The validity of this policy shall not be contested, except for the non-payment of premiums, after it has been in force for two years from the date of issue; and no statement made by any employee insured under this policy relating to his insurability shall be used in contesting the validity of the insurance with respect to which such statement was made, after such insurance has been in force prior to the contest for a period of two years during such employee's lifetime nor unless it is contained in a written application signed by such employee and a copy of such application is or has been furnished to such employee or his beneficiary."

The provision quoted above incorporates portions of section 231 of the Illinois Insurance Code (Ill. Rev. Stat. 1971, ch. 73, par. 843), which specifies certain provisions which must be contained in any policy of group life insurance issued or delivered in this State. Subsection (a) of section 231 requires inclusion of "A provision that the policy shall be incontestable after two years from its date of issue during the lifetime of the insured, except for nonpayment of premiums and except for violation of the conditions of the policy relating to military or naval services in time of war." Subsection (b) requires inclusion of "A provision * * * that all statements made by the employer or trustee or by the individual employees shall, in the absence of fraud, be deemed representations and not warranties, and that no such statement shall be used in defense to a claim under the policy, unless it is contained in a written application."

As presented by the parties, the basic issue in this case is whether the eligibility of an employee relates to the "coverage" of the policy and may, therefore, be challenged notwithstanding the incontestability clause. Each party apparently considers that only the first portion of the incontestability clause in the policy, reading "The validity of this policy shall not be contested, except for non-payment of premiums, after it has been in force for two years from the date of issue," is relevant in determining this issue. This view is presumably based on the assumption that the succeeding ...

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