defends on the ground that the contract never came into effect at all, because Berger did not have an insurable interest in Seppinni's life, and because a condition precedent to the policy's existence was not satisfied. These are defenses, and an insurer is not required to tender premium when it defends on these grounds. Secondly, however, American International has counterclaimed for rescission on these same grounds. Clearly, rescission requires that American Life tender back the premium. Although American International did plead in its answer that it would "do whatever else it ought to do for purposes of such rescission", there is no evidence of any actual tender of the premium.
The facts of the McClelland case, upon which plaintiff relies exclusively in support of this argument, are significantly different from those in the case at bar. In McClelland, an agent of the insurance company issued a life insurance policy and accepted a premium, with the knowledge that at the time of issuance, the proposed insured was ill. The insurance company sought rescission, claiming that no contract had ever come into existence. There was no defense of fraud or misrepresentation. The Court found that the knowledge of the agent was imputed to the insurance company, and the company had thereby waived the right to challenge the policy on the ground that the plaintiff had not satisfied a condition precedent clause regarding continued insurability very similar to the one in the American International contract. In contrast, in this case there has been no waiver by the insurance company of the condition precedent, and the plaintiff's failure to satisfy it remains a viable defense to plaintiff's claim of coverage.
The McClelland court went on to rule that the lower court's grant of non-suit against the plaintiff was also improper because the insurance company should not have been allowed to have the policy rescinded where it had pleaded tender, but there was no evidence of actual tender. In this regard, the Court stated that "if the defendant retained the premium paid, after knowledge of all the facts, it would be estopped from claiming that there was no contract." 151 A.D. at 271.
McClelland suggests that if American International demanded rescission only and made no defense regarding fraud or other grounds, the Court would be unable to grant rescission because, under equitable principles, the company would have had to make actual tender prior to this dispositive motion. The offer of tender in a pleading cannot be considered the same as actual tender, of which there is no evidence in this case.
The Court must therefore determine whether tender is necessary where an insurer both defends on the grounds of fraud and other grounds, specifically that no insurable interest existed and that a condition precedent was not satisfied, and also affirmatively demands rescission on these same grounds. The Court must confront this issue by virtue of American International's failure to actually tender return of the premium, which it stated it was willing to do in the answer.
We are unaware of any New York case squarely on point. The Court is guided by the reasoning in Austin v. Mutual Reserve Fund Life Ass'n, 132 F. 555 (D. Mass. 1904), a case applying New York law and cited with approval in Bavisotto, where the defendant insurance company did not demand rescission, but defended solely on the ground that a condition precedent had not been satisfied. There the court explained:
Only one issue is made by the defendant corporation. No claim is made by virtue of any alleged fraud, warranty or representation. Its case is rested entirely on the provisions in the applications and the policies that the policies were not to be in force, and that the contracts should not take effect, until the policies were delivered to [the insured], who was the applicant therefor, and whose life was insured, while he was in good health, nor until the first premiums were paid while also he was in good health.
The findings accompanying this opinion state the premiums received by the defendant corporation have never been returned, and no offer has ever been made to return them. This, however, is not of consequence, because, under the settled rule of law of insurance, if the policy was never in force, it, of course, never attached, and no action could be brought upon it whether the premiums were returned or not. The remedy for a return of the premiums, according to the same settled rules, would be by an action therefor.
The Austin court granted judgment for the plaintiff because the company had subsequently accepted a second premium on the policy, which served to extend the period of the policy past the date specified in the incontestability clause. Nevertheless, the Court finds persuasive the reasoning of the passage quoted above.
It would be unfair to penalize the defendant for not having made actual tender before the motion for summary judgment when its essential posture is one of defense against plaintiff's claim on fraud and non-fraud grounds, and not a posture of affirmatively seeking rescission of the contract. This is especially true where, in connection with its counterclaim for rescission, the defendant made clear its intent to tender.
Because the Court finds that American International has not waived its right to defend against the claim through delay or failure to tender, plaintiff's cross-motion for summary judgment must be denied. Furthermore, because American International has proven as a matter of law that the condition precedent to coverage was not satisfied, American International's motion for summary judgment dismissing the complaint is granted. Since American International clearly intended to tender the premium, and because the Court grants the motion on a ground other than fraud, it would be inequitable to allow American International to retain the premium. The Court therefore orders the defendant to tender the premium plus interest at this time.
For the above stated reasons, defendants' motions for summary judgment are granted in their entirety. Plaintiff's cross-motion for summary judgment is denied. Defendant American International is ordered to tender the premium plus interest to this date.
Dated: November 6, 1992
New York, New York
Leonard B. Sand