As the incontestable clause went through a period of evolution, there were various changes in wording from time to time, usually to nullify the unfavorable interpretations developed out of litigation. The earliest forms of the clause were quite simple, and one that became involved in a precedent-making court decision read as follows: "After two years, this policy shall be noncontestable except for the nonpayment of premiums as stipulated. . . ." It was the insurers� expectation that if the insured died during the 2 years, the policy would never become incontestable. This clause served satisfactorily for many years until the celebrated Monahan decision impaired its usefulness to insurance companies.

In that case the insured died within the 2-year period, and the company denied liability, alleging a breach of warranty. The beneficiary waited until the

2-year contestable period had expired and then brought suit against the company. The company defended on the grounds of breach of warranty. The beneficiary asserted that since the 2-year period for contesting the policy had expired, the insurance carrier was precluded from raising the breach of warranty as a defense. The Supreme Court of Illinois, agreeing with the beneficiary, held that the policy was incontestable and found for the beneficiary. This decision, which was accepted as a precedent in virtually all jurisdictions, established the far-reaching principle that the contestable period was not ended by the insured�s death but continued to run until the specified time had elapsed.

The practical effect of the Monahan decision was that if a policyowner died within the contestable period, the company was forced to go into court during the contestable period to seek a rescission if it wanted to deny liability for any reason. If no action was brought before the period expired, the company was estopped from erecting any defense other than lapse from nonpayment of premiums. Much litigation was thus thrust upon insurance companies to avert claims that they regarded to be unwarranted�to their detriment in the public esteem.

In an effort to avoid the undesirable consequences of the Monahan case, many companies adopted a clause that provided that the policy would be incontestable after it had been in force for a specified period. It was believed that with such a clause, the death of the insured would stop the period from running since the policy would no longer be in force. When the clause was tested in the courts, however, the decisions (with some exceptions) held that a policy does not terminate with the death of the insured but continues "in force" for the benefit of the beneficiary. In other words, the contract still has to be performed. Thus this clause had the same weakness as the incontestable clause litigated in the Monahan case. Despite this disadvantage, some companies have continued to use the clause or to simply omit the words "during the lifetime of the insured," since this permits suits in equity, which are usually tried without a jury.

Those companies that were willing to give up the advantage of suits in equity modified their incontestable clause to make the policy incontestable after it has been in force during the lifetime of the insured for a specified period. The courts have uniformly agreed that under this clause, the death of the insured during the contestable period suspends the operation of the clause and fixes the rights of the parties as of the date of death. Under such a clause, if the insured dies during the specified period, the policy never becomes incontestable, and the claimant cannot gain any advantage by postponing notification of claim until the specified period has expired. However, since a legal remedy is available�that is, a defense against a suit instituted by the beneficiary�the company cannot avoid a jury trial and obtain rescission of the policy by a suit in equity, except during the lifetime of the insured.

A final type of clause typically provides (with certain exceptions, to be noted), "This policy shall be incontestable after one year from its date of issue unless the insured dies in such year, in which event it shall be incontestable after 2 years from its date of issue." This clause does not solve the problem created by the Monahan decision since the death of the insured during the first year does not suspend the running of the period. However, should the insured die during the first year, the company will have a minimum of one year in which to investigate the circumstances of the case and, if desired, to institute a suit for rescission. Under all of the other types of clauses except the one requiring survivorship of the insured, it is possible for the company to have only a few days in which to investigate a suspicious death. In fact, it is quite likely that in many cases, the company would receive no notice of the of the insured�s death until the contestable period had expired. The clause described in this paragraph is more favorable to the insured than the usual clauses since, if he or she survives the first year, the policy becomes incontestable at that time, and if he or she does not, the company�s rights are no greater than they would have been under the typical clause. Note, however, that some companies limit the contestability of their policies to one year, whether or not the insured survives the period.