A-21941, APRIL 9, 1928, 7 COMP. GEN. 642

A-21941: Apr 9, 1928

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RETROACTIVELY EFFECTIVE AS OF A DATE PRIOR TO THE CONVERSION AT A TIME WHEN THE INSURED WAS RATED LESS THAN PERMANENT AND TOTAL. EXCEPT THAT IN CASES WHERE THE EVIDENCE ON WHICH SUCH A RETROACTIVE RATING OF PERMANENT TOTAL DISABILITY WAS BASED WAS IN THE VETERANS' BUREAU AT OR PRIOR TO CONVERSION. REQUESTING DECISION OF A QUESTION PRESENTED AS FOLLOWS: THE VETERANS' BUREAU HAS BEFORE IT FOR CONSIDERATION TWO CLAIMS UPON WHICH YOUR DECISION IS REQUESTED. AFTER THE ACCEPTANCE OF A CONVERSION OF TERM INSURANCE AND A SUBSEQUENT RATING OF PERMANENT AND TOTAL DISABILITY EFFECTIVE PRIOR TO THE CONVERSION AND AT A TIME WHEN THE TERM INSURANCE WAS IN FORCE. THE INSURED MAY BE GIVEN THE RIGHT TO CHOOSE WHETHER HE WILL TAKE THE TOTAL AND PERMANENT DISABILITY BENEFITS UNDER THE TERM INSURANCE.

A-21941, APRIL 9, 1928, 7 COMP. GEN. 642

VETERANS' BUREAU - INSURANCE - CONVERSION - INCONTESTABLE CLAUSE THE INCONTESTABLE CLAUSE IN SECTION 307 OF THE WORLD WAR VETERANS' ACT HAS NO RELATION TO THE CONVERSION OF TERM INSURANCE NOT COUPLED WITH A REINSTATEMENT OF TERM INSURANCE. A RATING OF PERMANENT TOTAL DISABILITY MADE EITHER DURING OR SUBSEQUENT TO THE PERIOD OF SIX MONTHS IMMEDIATELY FOLLOWING A CONVERSION, RETROACTIVELY EFFECTIVE AS OF A DATE PRIOR TO THE CONVERSION AT A TIME WHEN THE INSURED WAS RATED LESS THAN PERMANENT AND TOTAL, DOES NOT VOID THE CONVERSION AND MATURE THE TERM INSURANCE, BUT INSURANCE RIGHTS SHOULD BE DETERMINED UNDER THE CONVERTED POLICY, EXCEPT THAT IN CASES WHERE THE EVIDENCE ON WHICH SUCH A RETROACTIVE RATING OF PERMANENT TOTAL DISABILITY WAS BASED WAS IN THE VETERANS' BUREAU AT OR PRIOR TO CONVERSION, INSURANCE BENEFITS SHOULD BE DETERMINED UNDER THE TERM INSURANCE AND NOT UNDER THE CONVERTED POLICY.

COMPTROLLER GENERAL MCCARL TO THE DIRECTOR, UNITED STATES VETERANS' BUREAU, APRIL 9, 1928:

CONSIDERATION HAS BEEN GIVEN TO YOUR LETTER OF MARCH 3, 1928, REQUESTING DECISION OF A QUESTION PRESENTED AS FOLLOWS:

THE VETERANS' BUREAU HAS BEFORE IT FOR CONSIDERATION TWO CLAIMS UPON WHICH YOUR DECISION IS REQUESTED. BOTH CASES PRESENT THE QUESTION WHETHER, AFTER THE ACCEPTANCE OF A CONVERSION OF TERM INSURANCE AND A SUBSEQUENT RATING OF PERMANENT AND TOTAL DISABILITY EFFECTIVE PRIOR TO THE CONVERSION AND AT A TIME WHEN THE TERM INSURANCE WAS IN FORCE, THE INSURED MAY BE GIVEN THE RIGHT TO CHOOSE WHETHER HE WILL TAKE THE TOTAL AND PERMANENT DISABILITY BENEFITS UNDER THE TERM INSURANCE, OR WHETHER HE WILL BE LIMITED TO TAKE THE PERMANENT AND TOTAL BENEFITS UNDER THE CONVERTED INSURANCE. AT THE OUTSET IT SHOULD BE NOTED THAT IF THE INSURED IS LIMITED TO THE TOTAL AND PERMANENT DISABILITY BENEFITS UNDER THE CONVERTED INSURANCE THESE BENEFITS COULD BE PAID NOT EXCEEDING SIX MONTHS PRIOR TO THE RECEIPT OF DUE PROOF OF TOTAL PERMANENT DISABILITY, WHEREAS IF THE INSURED MAY BE PERMITTED TO TAKE THE BENEFITS UNDER THE TERM POLICY SUCH BENEFITS COULD BE PAID FOR ANY PERIOD BACK TO THE INCEPTION OF THE PERMANENT TOTAL DISABILITY.

THE TWO CASES ARE THOSE OF ANDY STEVENS, C-443,936, AND HOMER DOW PRITCHARD, C-390,394. IN THE ANDY STEVENS CASE THE VETERAN HAD KEPT IN FORCE $5,000 TERM INSURANCE UNTIL THE CONVERSION THEREOF ON MAY 1, 1926. PREMIUMS WERE PAID ON THE CONVERTED INSURANCE THROUGH NOVEMBER, 1926. THE DATE OF THE CONVERSION OF THE INSURANCE THE VETERAN WAS RATED BY THE BUREAU LESS THAN PERMANENT AND TOTAL BUT ON OCTOBER 18, 1926, WITHIN SIX MONTHS OF THE EFFECTIVE DATE OF CONVERSION, THE VETERAN WAS DECLARED BY THE BUREAU TO BE PERMANENTLY AND TOTALLY DISABLED FROM DECEMBER 17, 1923, A DATE PRIOR TO THE CONVERSION AND A DATE WHEN THE TERM INSURANCE WAS IN FORCE.

IN THE HOMER DOW PRITCHARD CASE THE VETERAN WHILE IN SERVICE HAD CARRIED $5,000 TERM INSURANCE WHICH WAS KEPT IN FORCE THROUGH JUNE, 1926. EFFECTIVE JULY 1, 1926, THE VETERAN CONVERTED THIS INSURANCE AND PAID PREMIUMS THEREON THROUGH MARCH, 1927. AT THE DATE OF THE CONVERSION HE WAS RATED LESS THAN PERMANENTLY AND TOTALLY DISABLED AND WAS SO RATED FOR MORE THAN SIX MONTHS AFTER THE DATE OF CONVERSION. ON FEBRUARY 5, 1927, HE WAS RATED PERMANENTLY AND TOTALLY DISABLED FROM MAY 12, 1926, THE LATTER DATE BEING PRIOR TO THE EFFECTIVE DATE OF CONVERSION BUT A DATE WHEN THE TERM INSURANCE WAS IN FORCE.

IN CONCLUSION SECTION 307 OF THE WORLD WAR VETERANS' ACT AS AMENDED MAKES ALL POLICIES OF INSURANCE INCONTESTABLE IF THE INSURANCE HAS BEEN IN FORCE SIX MONTHS FROM THE DATE OF ISSUANCE OF THE POLICY. IT IS BELIEVED THAT THIS SECTION IS WELL SUSCEPTIBLE OF A SUFFICIENTLY BROAD INTERPRETATION TO POSTPONE THE VESTING OF RIGHTS IN AN INSURED UNDER A CONVERSION WHICH WAS MADE IN IGNORANCE OF THE STATUS OF INSURED AT THE TIME OF CONVERSION. IF, THEREFORE, THE CONVERSION IS NOT INCONTESTABLE AND THE TERM INSURANCE HAS BEEN MATURED BY TOTAL PERMANENT DISABILITY, THE RIGHT OF AN INSURED TO CLAIM BENEFITS BY REASON OF THE TOTAL AND PERMANENT DISABILITY INCURRED PRIOR TO THE CONVERSION WOULD SEEM TO BE UNQUESTIONED, AND THIS HAS BEEN THE GENERAL EFFECT OF THE POLICY ADOPTED BY THE VETERANS' BUREAU IN THE PAST RELATING TO CASES OF THIS TYPE.

IN VIEW OF THE DISALLOWANCES ENTERED IN THESE TWO CASES BY THE REPRESENTATIVES OF THE GENERAL ACCOUNTING OFFICE, YOUR DECISION IS REQUESTED SPECIFICALLY WHETHER, IF A CONVERSION IS MADE, THE INSURED THEN BEING RATED LESS THAN PERMANENTLY AND TOTALLY DISABLED, HE MAY BE GIVEN THE RIGHT UPON A SUBSEQUENT RATING OF PERMANENT AND TOTAL DISABILITY PRIOR TO CONVERSION AND WHEN THE TERM INSURANCE IS IN FORCE, TO CHOOSE TO TAKE THE PERMANENT AND TOTAL DISABILITY BENEFITS UNDER THE TERM INSURANCE (A) IN THE CASE WHERE THE RATING OF PERMANENT AND TOTAL DISABILITY WAS MADE WITHIN SIX MONTHS AFTER CONVERSION (ANDY STEVENS) AND (B) WHERE THE RATING OF ANTECEDENT PERMANENT TOTAL DISABILITY WAS MADE MORE THAN SIX MONTHS AFTER CONVERSION (HOMER DOW PRITCHARD).

THE CASES SUBMITTED INVOLVE THE GENERAL QUESTION WHETHER A RATING OF PERMANENT TOTAL DISABILITY BY THE VETERANS' BUREAU RETROACTIVELY EFFECTIVE AS OF A DATE PRIOR TO CONVERSION OF TERM INSURANCE MAY BE CONSIDERED AS DEFEATING THE CONVERSION SO AS TO AUTHORIZE OR REQUIRE PAYMENT OF INSURANCE UNDER THE TERM POLICY. THE QUESTION HAS BEEN ANSWERED GENERALLY IN THE NEGATIVE BOTH BY THE ATTORNEY GENERAL AND THIS OFFICE. SEE 32 OP.ATTY.GEN. 380 (SYNOPSIS), 382 (4, FACTS), 389 (STATEMENT OF PRINCIPLE); 1 COMP. GEN. 756, 758; 7 ID. 248. THE PRINCIPLE ANNOUNCED WAS MORE PARTICULARLY WITH REFERENCE TO CASES WHERE THERE WAS A RATING OF DISABILITY LESS THAN PERMANENT AND TOTAL IN FORCE AT AND PRIOR TO CONVERSION, AND THE BUREAU SUBSEQUENTLY ATTEMPTED TO MAKE A RATING OF PERMANENT TOTAL DISABILITY, ON THE BASIS OF SUBSEQUENTLY DISCOVERED EVIDENCE, EFFECTIVE AS OF A DATE PRIOR TO THE CONVERSION. IT IS UNDERSTOOD THAT THE TWO CASES PRESENTED FALL WITHIN THIS CLASS. IT WAS PROPERLY HELD IN THE CITED DECISIONS THAT THE CONVERSION MAY NOT THUS BE DEFEATED IN SUCH CASES, THE HOLDING BEING ON THE BASIS OF ESTOPPEL OF BOTH THE GOVERNMENT AND THE INSURED, AND ON THE BASIS THAT THE CONVERSION REGULARLY AUTHORIZED AND COMPLETED IMMEDIATELY VESTS RIGHTS IN BOTH THE GOVERNMENT AND THE INSURED.

THE NEW POINTS SUGGESTED IN THE PRESENT MATTER ARE (A) THE EFFECT OF THE INCONTESTABLE CLAUSE OF THE STATUTE ON CONVERSIONS; (B) WHETHER THERE COULD BE CONSIDERED TO BE AN ELECTION OR CHOICE IN FAVOR OF THE INSURED AS BETWEEN TERM AND CONVERTED INSURANCE IN THE EVENT OF MATURITY BY PERMANENT TOTAL DISABILITY; AND (C) WHETHER AN EXCEPTION TO THE GENERAL RULE ABOVE STATED WOULD BE JUSTIFIED IF THE EVIDENCE ON WHICH THE RETROACTIVE RATING OF PERMANENT TOTAL DISABILITY WAS BASED IN THE VETERANS' BUREAU PRIOR TO THE CONVERSION.

THE POINTS WILL BE CONSIDERED IN ORDER UNDER THEIR RESPECTIVE LETTERS AS FOLLOWS:

(A) IT IS UNDERSTOOD THAT BOTH OF THE CONVERTED POLICIES IN THE TWO CASES PRESENTED ARE OF THE ORDINARY LIFE PLAN, PARAGRAPH 7 OF WHICH PROVIDES THAT THE POLICY SHALL BE INCONTESTABLE FROM THE DATE IT TAKES EFFECT, EXCEPT FOR NONPAYMENT OF PREMIUMS. THIS WOULD SEEM TO BE CONTROLLING UNLESS IT MAY BE CONCLUDED THAT THE INCONTESTABLE CLAUSE, APPEARING IN THE STATUTE UNDER THE AUTHORITY OF WHICH ALL POLICIES ARE ISSUED, IS APPLICABLE. THE INCONTESTABLE CLAUSE APPEARING IN SECTION 307 OF THE WORLD WAR VETERANS' ACT OF JUNE 7, 1924, 43 STAT. 627, IS AS FOLLOWS:

ALL SUCH POLICIES OF INSURANCE HERETOFORE OR HEREAFTER ISSUED SHALL BE INCONTESTABLE AFTER THE INSURANCE HAS BEEN IN FORCE SIX MONTHS FROM THE DATE OF ISSUANCE OR REINSTATEMENT, EXCEPT FOR FRAUD OR NONPAYMENT OF PREMIUMS AND SUBJECT TO THE PROVISIONS OF SECTION 23: PROVIDED, THAT A LETTER MAILED BY THE BUREAU TO THE INSURED AT HIS LAST KNOWN ADDRESS INFORMING HIM OF THE INVALIDITY OF HIS INSURANCE SHALL BE DEEMED A CONTEST WITHIN THE MEANING OF THIS SECTION: PROVIDED FURTHER, THAT THIS SECTION SHALL BE DEEMED TO BE IN EFFECT AS OF APRIL 6, 1917.

THE CONTESTABLE PERIOD OF SIX MONTHS DATES FROM ONLY TWO HAPPENINGS, VIZ,"ISSUANCE" AND ,REINSTATEMENT.' CONVERSION OF TERM INSURANCE, AS DISTINGUISHED FROM THE ORIGINAL ISSUANCE OF A CONVERTED FORM OF POLICY, IS NOT EXPRESSLY INCLUDED AND MAY NOT BE INCLUDED BY IMPLICATION. THERE IS A REASON FOR ALLOWING A PERIOD FOR CONTEST OF THE ISSUANCE OR REINSTATEMENT OF A POLICY BUT NOT OF A CONVERSION, IN VIEW OF THE OTHER TERMS OF THE CONTROLLING STATUTE. AS TO THE ISSUANCE AND REINSTATEMENT OF A POLICY, THE STATUTE AND REGULATIONS ISSUED THEREUNDER HAVING THE FORCE AND EFFECT OF LAW REQUIRE THE DETERMINATION THAT THE INSURED IS AN INSURABLE RISK OR THAT HE COMES WITHIN THE CONDITIONS PRESCRIBED BY THE STATUTE, REQUIRING IN EACH INSTANCE A MEDICAL EXAMINATION OR A STATUS IN THE MILITARY OR NAVAL SERVICE FROM WHICH AN INSURABLE RISK MAY BE PRESUMED. AS TO CONVERSIONS OF TERM INSURANCE THE STATUTE SPECIFICALLY PROVIDES THAT SAME SHALL BE ACCOMPLISHED "WITHOUT MEDICAL EXAMINATION.' SEE SECTION 301 OF THE STATUTE, 43 STAT. 624. THUS THE PRIME ESSENTIAL ON WHICH A CONTRACT OF INSURANCE IS BASED IS NOT OPEN TO CONTEST IN THE ACTION OF CONVERSION OF TERM INSURANCE. IT HAS BEEN SUGGESTED THAT AS ALL POLICIES NOW ISSUED ARE OF A CONVERTED FORM, THE WORD "ISSUANCE" APPEARING IN THE INCONTESTABLE CLAUSE OF THE STATUTE WOULD NECESSARILY INCLUDE CONVERSION. THERE IS A DISTINCTION BETWEEN THE ORIGINAL ISSUANCE OF A CONVERTED FORM OF POLICY AND THE CONVERSION OF TERM INSURANCE; THE FORMER REQUIRES A MEDICAL EXAMINATION OR A STATUS FROM WHICH PHYSICAL AND MENTAL SOUNDNESS IS TO BE PRESUMED, WHEREAS THE LATTER DOES NOT REQUIRE MEDICAL EXAMINATION. IT MUST BE CONCLUDED, THEREFORE, THAT THE INCONTESTABLE CALUSE OF THE STATUTE HAS NO RELATION TO THE CONVERSION OF TERM INSURANCE NOT COUPLED WITH A REINSTATEMENT OF A LAPSED TERM POLICY.

(B) YOU STATE "THERE IS NOTHING IN THE TERMS OF THE CONVERTED POLICY WHICH PROHIBITS GIVING THE INSURED THE RIGHT TO CHOOSE WHERE HE HAS POTENTIAL RIGHTS UNDER EITHER THE TERM OR CONVERTED INSURANCE.' NEITHER IS THERE ANY PROVISION IN THE POLICY OR IN THE CONTROLLING STATUTES GRANTING A RIGHT TO CHOOSE OR TO ELECT AS BETWEEN THE TWO FORMS OF INSURANCE, IN THE ABSENCE OF WHICH, THE RIGHTS OF THE INSURED AND OTHERS CLAIMING UNDER THE INSURANCE MUST BE FOR DETERMINATION UNDER THE TERMS OF THE POLICY LAWFULLY IN FORCE AT THE TIME THE RIGHT ATTACHED. A CHOICE OR RIGHT OF ELECTION AS BETWEEN THE TWO FORMS OF INSURANCE MAY NOT BE IMPLIED SOLELY ON THE BASIS THAT THERE IS NOTHING IN THE POLICY OR CONTROLLING STATUTES PROHIBITING THE RIGHT OF CHOICE OR ELECTION. ON THE CONTRARY, SUCH A RIGHT WOULD LAWFULLY BE AUTHORIZED ONLY UNDER A SPECIFIC PROVISION OF LAW.

(C) AN EXCEPTION TO THE GENERAL RULE IS JUSTIFIED WHERE THE RETROACTIVE RATING OF PERMANENT TOTAL DISABILITY IS BASED ON EVIDENCE ON FILE IN THE VETERANS' BUREAU PRIOR TO THE CONVERSION OF THE INSURANCE. SEE 3 COMP. GEN. 582. IN SUCH CASES, IF THE RETROACTIVE RATING OF PERMANENT TOTAL DISABILITY IS EFFECTIVE AS OF A DATE WHEN THE TERM INSURANCE WAS IN FORCE PRIOR TO THE CONVERSION THEREOF, RIGHTS TO THE INSURANCE SHOULD BE DETERMINED UNDER THE TERM INSURANCE, NOT UNDER THE CONVERTED POLICY.

AFTER A CAREFUL CONSIDERATION OF ALL THE MATTERS THAT HAVE BEEN SUBMITTED OR SUGGESTED IN CONNECTION WITH THIS SUBMISSION, I AM CONSTRAINED TO HOLD THAT BOTH OF YOUR QUESTIONS MUST BE ANSWERED IN THE NEGATIVE.

IN VIEW OF THE LONG-ESTABLISHED ADMINISTRATIVE PRACTICE TO THE CONTRARY, IT IS BELIEVED TO BE IN THE INTEREST OF THE GOVERNMENT, IN ORDER TO AVOID EXTENDED LITIGATION, THAT THE PRINCIPLES OF THIS DECISION BE APPLIED ONLY TO CASES IN WHICH THE VETERANS' BUREAU HAS NOT AS YET NOTIFIED THE INSURED OF A RIGHT OF CHOICE OR ELECTION TO RECEIVE BENEFITS UNDER EITHER TERM OR CONVERTED INSURANCE. ALL CASES WHERE THE INSURED HAS BEEN NOTIFIED OF A RIGHT OF CHOICE OR ELECTION AS BETWEEN THE TWO FORMS OF INSURANCE, OR WHERE THE INSURED HAS MADE A CHOICE, OR WHERE AN AWARD HAS BEEN MADE, INCLUDING THE TWO CASES SUBMITTED, MAY BE ADJUDICATED UNDER THE TERMS OF THE POLICY CHOSEN BY THE INSURED.