Board of Insurance Commissioners
Austin, Texas
Gentlemen:         Attention of Mr. George Van Fleet
                  OplnFon No. O-1364
                  Re: Is the phrase "any reinstatement of
                       this policy shall be incontestable
                       after the same period following rein-
                       statement and with the same condi-
                       tions and exceptions," a per mlssible
                       inclusion in the incontestable clause
                       in a life insurance policy to be ls-
                       sued in Texas?
        Your letter of August 30, 1939, requesting this de-
partment's opinion on the above question, has been received.
        A foreign Insurance corporation Is subject to.the.
statutes of Texas governing such subjects, Article 5068,
Vernon's Annotated Texas Statutes, 1925. This, regardless
of the import of Article 4734, the latter granting merely
a permissive right which falls before regulatory measures.
Therefore, among other such regulatory statutes, the poll-
ties of such company must conform to Article 4732, subdlvi-
sion 3 tbereof, whLch provldes:
       "That the policy, or policy and applica-
   tion, shall constitute the entire contract be-
   tween the parties and shall be incontestable
   not later than two years from Its date, except
   for non-payment of premium; and which provision
   may or may not, at the option of the company,
   contain an exception for violation of the con-
   ditions of the policy relating to naval and
   military services in time of war."
        A life insurance policy Is a contract between the parties
thereto, the insurer and the insured, subject only to the reg-
ulatory statutes such as Article 4732, subdivision 3, supra,
It is the accepted rule that the parties can make such contract
as they desire, in the way of conditions, penalties, etc., with
reference to the reinstatement of a lapsed olicy. Bankers
Life and Loan Ass'n. vs. Chase, 114 SW (2ndP 374; Lowry vs.
Board of Insurance Commissioners, page 2         O-1364


Etna Life InsUranCe Company, et al, 120 SW (2nd) 505; South-
western Life Insurance Company vs. Houston, 121 SW (2nd) 619;
Freedman vs. Mutual Benefit Health & Accident Ass'n; 119 2~
 2nd 1017; Burchfleld vs. Home Benefit Association, 73 SW
 2nd 559; and Texas Prudential Insurance Company vs. Wiley;,
LoIS.W. (2nd) 1024. Of course such contracts cannot contra-
vene the existing statutes.

        In the reinstatement transaction, there may be one
of two situations; that Is, the right to reinstatement may
be a matter of right under the orIgIna contract of Insurance,
or, It may be a matter of grace. If the original contract of
Insurance provides forreinstatement, upon certain named condl-
tlons, which Is the usual situation, such Is a matter of right
to the insured, which, when complied wlth, automatically en-
titles him to reinstatement. In this connection we auote from
the case of Burchfleld vs. Home Beneflt Ass'n., supra, as fol-
lows:
        "There Is a very well-established rule
    that where a lapsed policy contains provisions
    authorizing the Insured to renew same upon his
    furnishing proof satisfactory to the insurer
    that he Is in good health and upon his perform-
    ing other specified conditions, and the insur-
    ed, after the lapse of his policy, makes the
    necessary application for relnstatement and
    meets the other requirements of the policy and
    Is actually In good health at the time of the
    making of the application for reinstatement,
    and there then exists no valid objection to
    the form or substance of such application, his
    policy thereby in effect becomes automatically
    reinstated, and his beneficiary Is entitled to
    recover under sala policy In the event of his
    death from causes arising subsequent to the
    filing of said application for reinstatement
    even though said application was never acted
    upon nor accepted by the Insurer prior to the
    death of the applicant. See, In this connec-
    tion, Prudential Ins. Co. v. Union Trust Co.
    56 Ind. App. 418, 105 H. E. 505; Muckier v.
    Guarantee Fund Life Ass'n, 50 S.W. 140, 208
    N.W. 787; Leonard v. Prudential Ins. Co.,
    128 wis. 348, 107 Ii. w. 646, 116 AM. St. Rep.
    50; HlnchclIffe v. Minnesota Commercial Men's
    Ass'n. 142 Mlnn. 204, 171 N. W. 776."
Also see the case of Missourl State Life Insurance Company vs.
Rearne, 226 SW 789. We therefore shall treat at this point of
Board of Insurance Commissioners, page 3          O-1364


the situation where the matter of reinstatement 15, under
the contract, a matter of right to the Insured.
        Under this situation we have the following questions:
        If reinstatement Is a matter of right under the
original contract, when the Insured shall have complied with
the conditions prerequisite thereto, Is there a new contract
between the parties? Or, Is the old contract merely restored?
Or, are there two contracts, the original one and a contract
of reinstatement? Furthermore, would the Incontestable per-
iod run as of the original date? Or,as of the date of rein-
statement? Or, may there be two Incontestable periods, to-
wit, one from the date of the original contract, and one from
the date of reinstatement, the former applying only to those
matters relating to the orIgIna transaction, the latteiionly
to the matters relating to the reinstatement? And, finally,
what effect does Article 4732, subdlvlslon 3 thereof, supra,
have on the conclusions reached?
        In this connection we quote from the well consldered
and often cited case of State Mutual Life Insurance Company vs.
Rosenberry, 213 SW at page 245:
        "After the lapse of the policy on accoiint
   of the failure to pay the premium no contract of
   Insurance between the parties existed. The In-
   sured and the company, however, had the rlght'to
   make a contract by which the company should waive
   the forfeiture and reinstate the policy. When
   thus reinstated, the policy as originally ls-
   sued became as effective as If no forfeiture
   had been declared, unless the contract for re-
   instatement Itself was tainted with such fraud
   as would justify the company In repudiating it.
   Under the Incontestable clause of the policy
   the company was precluded~from any defense which
   It might otherwise have had based on anything
   which occurred at the time of or prior to the
   Issuance of the policy, and also of any defense
   based upon any breach of warranty on the part
   of the Insured contained In the original appll-
   cation or policy. It, however, had the right
   to assert and prove that the contract by which
   the policy was reinstated was Induced by material
   false representations or warranties, and thus
   defeat llabFllty on the @ollcy. As we understand
   the record, this La what the Insurance company
   attempted to do In this case.
Board of Insurance Commissioners, page 4          O-1364


        "There is some conflict In the authorities
    as to the effect of a reinstatement of a policy
    after lapse for failure to pay the premium.
    Some courts hold that there Is a new contract
    of Insurance as of the date of the reinstatement,
    but containing all the terms of the original
    policy, and thus hold that the clause rendering
    the policy Incontestable applies to the new
    contract and authorizes a contest for the period
    named after the reinstatement. Paclflc Mutual
    Life Insurance Co. v. Galbralth, 115 Tenh. 471,
    91 S.W. 204, 112 AM. St. Rep. 862, and cases
    cited.
       "But we thlnk that the better rule and the
   one that would come nearer doing justice Is to
   regard the contract for relnstatement, not a5 a
   new contract of Insurance, but as a waiver of the
   forfeiture, thus restoring the policy and making
   It as effective as If no forfeiture had occurred,
   but reserving the right of the company to avola
   the effect of the reinstatement by showing, If It
   can, that the reInstatement was Induced by unfair
   and fraudulent means. Massachusetts Benefit Life
   Association v. Robinson, 104 Ga. 256, 30 S. E.
   918, 42 L. R. A. 274; Goodwin v. Provident, etc.,
   Life Association, 97 Iowa, 226, 66 N. W. 157,
   32 L.R.A. 473, 59 Am. St. Rep. 411; Monahan v.
   Fidelity Mutual Life Insurance Co., 242 Ill. 488,
   90 N.'E. 213, 134 Am. St. Rep. 337; Mutual Life
   Insurance Co. v. Lovejoy, 78 South. 299, L.R.A.
   191m, 864."
        To the same effect see the case of Rosenthal vs. New
York Life Insurance Company, 94 Fed. Rep., 2nd series, 675, In
an opinion by the Circuit Court of Appeals of the 8th circuit.
       These conclusions, therefore, appear correct:
        (1) The Insurer may not oontest a policy, other than
for non-payment of premiums, as to matters relating to the
original transaction, beyond the statutory Incontestable per-
lod.
        (2) Reinstatement being a matter of contractual right,
to which the Insured Is entitled, such becomes a question only
of'compliance with the conditions named In the orIgina con-
tract.
        (3)   The parties may, In the original contract, agree
Board of Insurance Commissioners, page 5          O-1364


upon a period beyond which the insurer cannot contest the
matters relating to reinstatement.

        The question at hand would thus be answered; namely,
that the provlslon under conslderatlon Is merely a period to
be agreed upon by the parties in the original Insurance con-
tract, relating only to the matter of reinstatement, having
no relation to, or effect upon, the statutory Incontestable
period as of the original contract; provided, we do not find
this In contravention of Article 4732, subdivision 3, supra.
        Manifestly, If reinstatement Is not a new contract,
but a restoration and a continuation of the old contract, the
regulatory provisions "shall be Incontestable not later than
two years from Its date," If strictly construed, would forbFd
the provision at hand, since, under such, the policy could be
contested on a ground,other than for non-payment of premium,
at a time more than two years from Its date.
        However, reinstatement being, as we have pointed out,
a matter of compliance or non-compliance with the contractual
provisions as to such, and, as said by the court In the case
of Texas Prudential Insurance Company vs. Wiley, 80 S.W. (2rrl)
1024, at p. 1026, the Insurer would not be seeking for any
cause to nullify the efficacy of the policy as orIgInally con-
tracted, but would be lnslsting that the very terms of the
policy knowingly contracted, should be enforced, the question
not being one of contesting the policy, but of enforcing It
according to Its specific provisions, It is believed that to
construe the statutes as forbidding the insurer from contest-
ing the compliance with the relnstatement requirements, If
more than two years have elapsed from the original date of the
policy, or after such shall have elapsed, would be placing a
construction on the statute not Intended by the Legislature,
and would result In compelling the Insurer to refuse to con-
tract upon the matter of reinstatement as a matter of right.
The hardship to the insuring public from such Is obvious.
        We therefore construe the phra~seat hand as relating
only to the transaction of reinstatement, and as having no
effect on the Incontestable period as of the original date of
the policy, and as being a valid contractual provision permls-
slble in'the incontestable clause of a life insurance policy,
to be issued in Texas.
        If, however, reinstatement, under the second sltuatlon
mentioned above, Is only a matter of grace, the reasoning would
be even stronger to the effect that the phrase at hand would
be a valid contractual provision. Indeed, It would seem to be
well taken that if the matter of reinstatement Is, under the
Board of Insurance Commissioners, page 6         O-1364


contract, a matter of grace, the contract of reinstatement
would be a new contract, authorizing, without doubt, the con-
tractual provisions at hand.
        We trust this answers your Inquiry satisfactorily.
                              Yours very truly
                             ATTORNEZYGENERALOF TEXAS


                              By a/wm. J. Fanning
                                   Wm. J. FannIng
                                        Assistant
WJF:AW:wc

APPROVED SEP 18, 1939
s/Gerald C.~Mann
ATTORNEYGENRRAL OF 'P.EUS
Approved Opinion Committee bs s/&WC Chairman
