A-27882, JULY 17, 1929, 9 COMP. GEN. 15

A-27882, JULY 17, 1929, 9 COMP. GEN. 15

VETERANS' BUREAU - INSURANCE - REFUND OF PREMIUMS PREMIUMS PAID ON WAR-RISK INSURANCE CANCELED FOR FRAUD ON THE PART OF THE INSURED MAY NOT BE REFUNDED.

COMPTROLLER GENERAL MCCARL TO THE DIRECTOR, UNITED STATES VETERANS' BUREAU, JULY 17, 1929:

THERE IS BEFORE THIS OFFICE IN THE PREAUDIT OF ACCOUNTS THE QUESTION OF THE LEGALITY OF A PROPOSED PAYMENT OF $688.70 TO THE GARFIELD STATE BANK, CONSERVATOR OF THE ESTATE OF ALBERT H. HUNDERTMARK, REPRESENTING REFUND OF PREMIUMS FROM SEPTEMBER, 1925, TO DECEMBER, 1928, INCLUSIVE, ON THE $10,000 WAR RISK CONVERTED INSURANCE POLICY ISSUED EFFECTIVE SEPTEMBER 1, 1925, IN FAVOR OF ALBERT HERMAN HUNDERTMARK, T-1951719, K 492873.

ON JANUARY 31, 1924, THE TERM INSURANCE WAS REINSTATED UNDER THE REGULATIONS OF THE VETERANS' BUREAU NO. 14, REQUIRING A SHOWING OF AS GOOD HEALTH AT DATE OF REINSTATEMENT AS AT DATE OF LAPSE. EFFECTIVE SEPTEMBER 1, 1925, THE TERM INSURANCE WAS CONVERTED INTO A $10,000 ORDINARY LIFE POLICY ON WHICH PREMIUMS WERE PAID TO INCLUDE THE MONTH OF DECEMBER, 1928.

ON MARCH 24, 1928, THE VETERAN WAS RATED PERMANENTLY AND TOTALLY DISABLED FROM MARCH 24, 1928, FOR INSURANCE PURPOSES ONLY, THE RATING SHEET SHOWING THE DISABILITY TO BE "GENERAL PARESIS CEREBRAL TYPE" AND THAT HE WAS INCOMPETENT AND INSANE FROM AUGUST 26, 1927. THE CONSERVATOR FOR THE VETERAN FILED CLAIM FOR PERMANENT AND TOTAL DISABILITY BENEFITS UNDER THE CONVERTED INSURANCE POLICY. IN THE EXAMINATION OF THE RECORD INCIDENT TO THE DETERMINATION OF THE CLAIM THE BUREAU FOUND AND DETERMINED THAT THE REINSTATEMENT OF THE TERM INSURANCE WAS PROCURED THROUGH FRAUD ON THE PART OF THE INSURED AND CANCELED THE CONVERTED INSURANCE POLICY, IT APPEARING THAT THE INSURED HAD CONCEALED AND MISREPRESENTED HIS PHYSICAL CONDITION IN HIS APPLICATION FOR REINSTATEMENT OF TERM INSURANCE.

THE QUESTION PRESENTED IS WHETHER PREMIUMS PAID ON WAR RISK INSURANCE CANCELED FOR FRAUD ON THE PART OF THE INSURED MAY BE REFUNDED. THE BUREAU HAS APPARENTLY TAKEN THE VIEW THAT AS THE REINSTATEMENT AND CONVERSION WERE INVALID, THE CONVERTED POLICY WAS VOID AB INITIO, AND THAT ALL PREMIUMS SHOULD BE REFUNDED.

NEITHER THE CONTROLLING STATUTE NOR THE POLICY OF INSURANCE EXPRESSLY COVERS THE POINT. HENCE, THE GENERAL RULES APPLICABLE IN COMMERCIAL INSURANCE CASES ARE FOR APPLICATION HERE. IN 32 CORPUS JURIS, 1234 (PAR. 407), IT IS STATED:

IF NO BINDING CONTRACT OF INSURANCE IS EFFECTED, AND THE POLICY IF ISSUED IS VOID AB INITIO, SO THAT NO RISK ATTACHES AND THE COMPANY IS SUBJECTED TO NO LIABILITY, AND THERE IS THEREFORE NO CONSIDERATION FOR THE PAYMENT OF PREMIUMS, INSURED MAY AS A RULE RECOVER BACK THE PREMIUMS PAID BY HIM. THIS RULE IS SUBJECT TO EXCEPTIONS, HOWEVER, IN CASES OF FRAUD ON THE PART OF INSURED AND OF ILLEGALITY IN WHICH HE PARTICIPATES, * * *

IN A FOOTNOTE FOLLOWING THE EXPRESSED EXCEPTION RELATIVE TO FRAUD REFERENCE IS MADE TO PARAGRAPH 411, PAGE 1237, WHEREIN IT IS STATED AS FOLLOWS:

IF INSURED IS GUILTY OF FRAUD IN PROCURING THE POLICY THROUGH MISREPRESENTATIONS OR CONCEALMENT, HE CAN NOT RECOVER BACK THE PREMIUMS PAID. * * *

THERE ARE CITED IN SUPPORT OF THIS RULE THE FEDERAL CASE OF SCHWARTZ V. UNITED STATES INSURANCE CO., 21 F.CAS. NO. 12505, AND NUMEROUS STATE CASES, INCLUDING THE ILLINOIS CASE (THE RESIDENCE OF THE INSURED) OF AETNA LIFE INSURANCE COMPANY V. PAUL, 10 ILL. A. 431. IN THE ABOVE-CITED FEDERAL CASE IT IS SAID:

THIS COURT DOES NOT FEEL ITSELF DISPOSED TO COUNTENANCE A DISTINCTION BETWEEN DIFFERENT GRADES OF FRAUD, AS AFFECTING THE RIGHT OF THE PLAINTIFF, IN ACTIONS OF THIS KIND. IT IS BELIEVED, THAT UPON GENERAL PRINCIPLES OF LAW, AS WELL AS OF SOUND POLICY AND MORALITY, IT MAY BE SAFELY LAID DOWN AS A RULE, THAT IF THE INSURED, BY DECEPTION AND FALSE PRETENSES, INDUCES OTHERS TO UNDERTAKE A RISK, WHICH, HAD THE TRUTH BEEN DISCLOSED, THEY WOULD NOT HAVE TAKEN AT ALL, OR WOULD HAVE DONE SO ON DIFFERENT TERMS FROM THOSE AGREED UPON, THEREBY SECURING TO THE INSURED A CHANCE TO CLAIM AN INDEMNITY IN CASE OF LOSS, OR A RETURN OF PREMIUM IN CASE OF SAFE ARRIVAL; IT IS SUCH A FRAUD AS OUGHT TO DEFEAT HIS RIGHT TO MAINTAIN THIS ACTION, FOR THE PREMIUM * * *.

THE VETERANS' BUREAU APPARENTLY HAS SOUGHT TO FOLLOW THE RULE FIRST ABOVE STATED PERMITTING REFUND OF PREMIUMS WHERE THE INSURANCE WAS VOID AB INITIO IN CASES NOT INVOLVING FRAUD OR ILLEGALITY ON THE PART OF THE INSURED, RATHER THAN THE RULE APPLICABLE TO CASES OF FRAUD AND ILLEGALITY. A MISSTATEMENT OR CONCEALMENT IN AN APPLICATION FOR REINSTATEMENT OF WAR RISK INSURANCE OF THE MATERIAL FACT OF HEALTH CONDITION CONSTITUTES FRAUD. SEE DECISION OF JUNE 29, 1929, A-27602. FOLLOWING THE SETTLED RULE IN COMMERCIAL INSURANCE CASES IT MUST BE CONCLUDED THAT INSURANCE PREMIUMS PAID ON WAR RISK INSURANCE WHICH IS CANCELLED BECAUSE PROCURED THROUGH FRAUD ON THE PART OF THE INSURED MAY NOT BE REFUNDED.

THE VOUCHER IN THIS CASE WILL BE RETURNED TO THE VETERANS' BUREAU WITHOUT CERTIFICATION OR APPROVAL BY THIS OFFICE, AND SIMILAR ACTION WILL BE TAKEN IN ALL LIKE CASES NOW PENDING BEFORE THIS OFFICE FOR CONSIDERATION IN THE AUDIT.