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June 21, 1949


The opinion of the court was delivered by: KAUFMAN

This action was commenced by William Frad for a judgment declaring that three policies of life insurance issued by defendant on his life continue in full force and effect. Prior to the trial of the action and on September 16, 1944 the insured died, and Ella Frad, his widow, as executrix of his estate, was substituted as plaintiff in place and stead of the insured. At a pre-trial conference it developed that the widow of the insured was the beneficiary named in said policies. An order was thereupon made substituting Ella Frad, the beneficiary, as plaintiff in the action, in place and stead of herself as executrix of the estate of her deceased husband.

At the trial of the case, an order was made on consent of the parties that the executrix be regarded as a third-party defendant, against whom defendant The Columbian National Life Insurance Company is asserting a counterclaim for disability payments made by it to the insured during his lifetime and for certain premiums alleged by the insurance company to be due on said policies.

 The facts as developed at the trial are as follows:

 In 1928 and 1929, Frad applied to defendant for life insurance in the face amount of $ 20,000. In his applications for the policies, Frad described himself as a clothing salesman employed in New York City. According to the evidence, the insurance company had no information to the contrary and issued the three policies (Pltf's Exs. 5, 6 and 7), as follows:

 No. 182928, dated December 3, 1928, for $ 10,000.

 No. 190905, dated July 30, 1929, for $ 5,000.

 No. 192209, dated December 3, 1929, for $ 5,000.

 It is clear from the evidence that the representation as to the occupation of the insured, as stated in his application, was false and fraudulent. He was not employed as a clothing salesman, as he represented himself to be, but as a 'card sharp', in the pursuit of which activity he made trips on transatlantic liners and, together with certain confederates, engaged in card games for very large amounts of money, fleecing various of the victims whom he met on these ocean liners. For the purpose of carrying out his activities with his confederates, he traveled under various assumed names and carried passports that were fraudulently secured by him under such assumed names. He continued these activities until the time of his death, except during the periods when he was serving terms of imprisonment for violation of the law with respect to obtaining false passports and for income tax evasion.

 The policies provided for waiver of premiums and payment of disability benefits at the rate of $ 200 a month in the event of the insured's total and permanent disability. The definition of disability in the first of the policies is that the insured be 'wholly disabled by bodily injury of disease so that he is and thereby will be permanently and continuously unable to engage in any occupation whatever for remuneration or profit'.

 In the latter two policies, the definition is that the insured be 'totally disabled by bodily injuries or disease so that he is and will be permanently and continuously prevented thereby from performing any work and from conducting any business for compensation or profit.'

 On November 13, 1933, while traveling aboard the SS Bremen under the name of 'Swift', Frad suffered a heart attack and was taken from the boat to a hospital in Bremen, where he remained for some period of time. Approximately two years later, on or about November 15, 1935, he made a claim for disability benefits under the provisions of the aforementioned policies. After examination by its physicians, the defendant approved the claim, waived payment of premiums which became due in December 1935, and commenced to pay the disability benefits. The defendant continued to waive the premiums and to pay disability benefits until July 1937.

 In July 1937, having learned of a game in which Frad allegedly wrung some $ 36,000 from one Ritker, and having heard various rumors respecting the activities of the insured, defendant refused to make further disability payments under the policies. After waiting a few months, the insured brought suit in the City Court of the City of New York to recover the payments that were not made and to compel the payment of further disability payments. By reason of the insured's imprisonment, his case was not brought to trial until June 1939. At or about that time it was settled by payment by defendant to the insured of the sum of $ 4,696.56, which represented claims for disability payments and waiver of premiums from August 1937 through June 1939.

 After the settlement of the City Court action, the insurance company continued to make disability benefit payments, and to waive the payment of premiums, until March 1940. At that time it received some additional information as to the activities of the insured, particularly his participation in a game on the SS NIEU Amsterdam, and therefore defendant discontinued the payment of disability benefits. Frad then commenced an action in the Municipal Court of the City of New York to recover disability benefits under the policies for the months of April, May and June, 1940. In its original answer, the insurance company counterclaimed to recover not only the disability benefits it had paid both before and after the period covered by the City Court action and settlement, but also to recover the premiums which it had waived on the policies during the period from 1935 down to and including the time of its discontinuance of the waiver of such premiums in March 1940. Subsequently the defendant amended its answer in the Municipal Court action by omitting its claim for recovery of the premiums which it had waived, but asserted instead an equitable defense that the policies had lapsed for nonpayment of premiums.

 In January 1941, during the pendency of the Municipal Court action, the insured, using the three insurance policies as collateral, borrowed $ 4,000 from the Colonial Trust Company (hereinafter referred to as 'the bank'), an amount which, in September 1941, was increased to $ 6,300. Before making the loan, the bank inquired of the insurance company as to the status of the policies and in ...

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