American Life Ins. Co. v. Stewart, 300 U.S. 203 (1937)
Equitable jurisdiction is not removed when a party introduces a legal claim. The court can decide whether to address the equitable or the legal claim first.
A life insurance policy that American Insurance Co. issued to Stewart included a clause that prevented any challenge to an attempt to collect on the policy made after one year from its issuance if the insured was still alive or after two years if he was dead. The insured died three months later, and American Insurance sought to rescind on the grounds of fraud, while Stewart brought an action to collect the proceeds on the policy. The parties agreed that the equity action would be considered before the damages claim. Stewart failed to allege an adequate remedy at law in his answer to the American Insurance action.Opinions
- Benjamin Nathan Cardozo (Author)
- Charles Evans Hughes
- Willis Van Devanter
- James Clark McReynolds
- Louis Dembitz Brandeis
- George Sutherland
- Pierce Butler
- Harlan Fiske Stone
- Owen Josephus Roberts
There is a general rule that an action may not be brought in equity if there is an adequate remedy at law. However, the insurance policy allowed the beneficiary to wait two years, which would make the policy incontestable. Fraud may be raised as a defense in a legal action to collect the proceeds, but the insurer would have had to wait until that action was brought to raise the defense. This means that the legal remedy was inadequate, since the insurer would depend on the opposing party to bring the action. If an action in equity is filed before a legal remedy becomes available, the court retains equitable jurisdiction. The court could have considered the action at law first, however, if the parties had not stipulated to the contrary.Case Commentary
Since common law did not have trials in equitable actions, they are not covered by the Seventh Amendment's right to a jury trial. The insurer may have chosen to file an equitable rather than legal action because it would have been more difficult to establish fraud in a legal action.
U.S. Supreme CourtAmerican Life Ins. Co. v. Stewart, 300 U.S. 203 (1937)
American Life Ins. Co. v. Stewart
Argued January 15, 1937
Decided February 1, 1937*
300 U.S. 203
1. Fraud in the procurement of insurance is provable as a defense in an action at law upon the policy. P. 300 U. S. 212.
2. A "contest," within the purview of a provision of a life insurance policy that it shall be incontestable after a period defined, has generally been held to mean a present contest in a court, not a notice of repudiation or of a contest to be waged thereafter. P. 300 U. S. 212.
3. No action at law having been brought on the policy, an insurer whose attack upon the ground of fraud is endangered by the running of the time limited by the policy for contest may sue in equity for cancellation. P. 300 U. S. 212.
In the present cases, the period allowed for contest was two years from the date of the two policies. The assurance Company's suits for cancellation were brought when six months and ten days of that period had passed.
4. Where equity can give relief, plaintiff ought not to be compelled to speculate upon his chance of obtaining relief at law, or to incur the danger that witnesses may disappear and evidence be lost if he waits to be sued by his antagonist. P. 300 U. S. 213.
5. A remedy at law does not exclude one in equity unless it is equally prompt and certain and in other ways efficient. P. 300 U. S. 214.
6. A remedy at law is not adequate if its adequacy depends upon the will of the opposing party. P. 300 U. S. 214.
7. Equitable jurisdiction existing at the filing of the bill is not destroyed by the subsequent availability of an adequate legal remedy. P. 300 U.S. 215.
In these cases, the equity jurisdiction which attached on the filing of the bills by the Insurance Company was not lost when actions on the policies were brought in the same court; though the court, if requested, might have tried the law suits first.
80 F.2d 600, 85 id. 791, reversed.
Certiorari, 299 U.S. 536, to review the reversal of decrees for the cancellation and surrender of policies of life insurance.