evasion would be made possible in all cases by a holding that one convicted of a section 612 offense and serving a sentence without restoration to active duty is nevertheless entitled to apply for new insurance simply because the service department saw fit not to change his "active service" status. Thus, in effect, the right to apply for, and procure, a contract of insurance, after suffering a forfeiture under section 612, has been made to depend upon the subsequent performance of active duty and has not been regarded as continuing merely because, for military control or other purposes, the "active service" status was allowed to remain unchanged.

The inherent principle in these decisions, viz, that the subsequent performance of active duty brought about a new right to acquire insurance, received the approval of Congress in section 602 (m) (2), as added by Public Law 589, which makes restoration to "active duty” a condition precedent to invocation of the provisions therein set forth for saving insurance from lapse on account of discontinuance of premium deductions. By analogy, it would seem unreasonable to suggest imputing to Congress an intention to provide that a lesser requirement than the subsequent performance of "active duty" could become the basis of a right to insurance protection after conviction of a section 612 offense.

In connection with a service department program of rehabilitation of offenders, there may be instances of a conditional or probational restoration to an active duty status which fails to accomplish rehabilitation and ultimately results in a reimposition of the sentence with all that it implies. Whatever may be the rights of one who, after a forfeiture, applies for new insurance during a conditional restoration which turns out badly-a question not presently required to be answeredit is plain that the right to apply for new insurance cannot be made to extend into a later period during which the offender is required to serve the unremitted sentence, and, no subsequent change intervening prior to separation from service, the right to apply for insurance is not available under section 602 (c) (2).

HELD: A person who had active service between October 8, 1940, and September 2, 1945, but was convicted of one of the offenses specified in section 612, National Service Life Insurance Act of 1940, was not thereafter restored to active duty under conditions which ultimately resulted in what is, in effect, a remission of the sentence, and is now separated from service, is not eligible to apply for insurance under section 602 (c) (2), National Service Life Insurance Act of 1940, as amended.

HELD FURTHER: A person who, in the manner above stated, had active service, was convicted of a section 612 offense, was thereafter

restored to active duty under conditions which did not result in a reimposition of the sentence, and is now separated from service, is eligible to apply for insurance under section 602 (c) (2), National Service Life Insurance Act of 1940, as amended. (Opinion of the Solicitor, Veterans' Administration, dated Dec. 23, 1946, approved Jan. 9, 1947.)

ADMINISTRATOR'S DECISION, VETERANS' ADMINISTRATION, NO. 737 FEBRUARY 6, 1947.

Subject: Effect of conversion of National Service Life Insurance to an endowment policy when insured is totally disabled.

QUESTION PRESENTED: 1. In view of the provisions of section 602 (w) of the National Service Life Insurance Act of 1940, as amended, may the Administration question the validity of conversion to an endowment plan effected after the insured had become totally disabled?

2. Section 602 (f) of the act, as amended, specifically precludes conversion to an endowment plan while the insured is totally disabled. Is the policy protected as issued or would it be possible to construe the incontestable clause as a bar to denial of coverage, thus affording the basis for reformation of the contract in accordance with the terms of the act?

3. Section 602 (n) of the act, as amended, provides for waiver of premiums, if disability commenced subsequent to the date of application for insurance. In the event the policy as issued is held to be incontestable, would the premiums on such policy be subject to waiver under section 602 (n)?

FACTS: An application, accompanied by premium payment, for conversion to a 20-year endowment policy on Form 358 as modified by IB 9-3, dated September 9, 1946, requesting effective date of the policy to be September 23, 1946, was received on September 11, 1946. This conversion was processed and approved on September 23, and on September 28 the insured was duly notified that the requested conversion to a 20-year endowment policy had been approved.

On August 29, 1946, the insured had forwarded to Disability Insurance Claims Division a duly executed Form 357 (claim for waiver of premiums) in which he alleged total disability from August 13, 1945, to date. Development of this case was completed on October 1, 1946, and a decision rendered holding that the insured was totally disabled from August 13, 1945, to "continuing."

The application for conversion dated September 9, 1946, was processed and approved, without knowledge or information due to admin

istrative circumstances, that on August 29, 1946, an application had been made for waiver of premiums due to total disability of the insured. There does not appear to have been any attempt to defraud on the part of the insured.

COMMENT: Section 602 (f), as amended by Public Law 589, Seventyninth Congress, August 1, 1946, authorized for the first time conversion of a National Service Life Insurance policy to one of three endowment plans. It provides that "conversion to an endowment plan may not be made while the insured is totally disabled." The plain purpose of this limitation is to prevent the establishment of large reserves, subject to loan values, and ultimately even the possible receipt. of the full face value of a policy by an insured who has made no contribution whatever in the form of premium payments. [Italics supplied.]

The quoted provision of section 602 (f) is similar in some respects to one of the conditions of section 602 (n). The latter section authorizes a waiver of premiums for total disability "upon application by the insured and under such regulations as the Administrator may promulgate" provided certain specified conditions are met including the condition that such disability commenced subsequent to the date of the insured's application for insurance. The two sections make clear an intention not to allow a waiver of premiums upon any type of insurance where the total disability, upon which the claim for waiver would be predicated, antedated the application for insurance; and not to make possible a waiver of premiums upon an endowment policy if the total disability occurred subsequent to the original application for insurance but prior to its conversion. The legislative technique for the accomplishment of these intentions differed in that issuance of a policy but specific denial of the right to waiver was contemplated in the one and denial of the endowment type of policy was contemplated in the other. The underlying considerations were the same in each instance. It seems quite clear, for example, that endowment policies would not have been absolutely denied to a totally disabled insured if there had been no provision for premium waiver; that the primary purpose of the quoted provision of section 602 (f) could have been accomplished by a provision in section 602 (n) denying waiver upon an endowment policy for a total disability antedating conversion, although the method employed more clearly manifests the legislative intention in reference to the usual cases. In short, the expressed intent of the amendatory act is to preclude extension of the right to convert to an endowment policy to an insured who is totally disabled. Since this is a right not included in the original policy, nor the additional cost thereof reflected in the published premium rates,

it is obvious that such exclusion was necessary to protect the other policy holders.

In summary of the foregoing discussion, it is completely clear that it is the intention of the legislation that premium waiver be not allowed to the holder of an endowment policy by reason of a total disability antedating the conversion of his insurance to that plan. The problem here involved has arisen not because of any uncertainty as to the legislative intention but solely as a result of an inadvertent action explained in the statement of the circumstances, and because of the incontestability provisions of section 602 (w) added by the same amendatory act of August 1, 1946.

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Section 602 (w) expressly provides that "all contracts shall be incontestable from the date of * * * conversion * with stated exceptions not including an administrative failure to observe the limitations prescribed in section 602 (f). The purpose of section 602 (w) is so plain as to require no discussion to develop its full meaning. It has been held by the Supreme Court that an insured under a Government life insurance contract, who obtained his converted policy after he had become totally permanently disabled, is entitled to disability benefits under that policy. See United States v. Patryas, 82 L. ed. 883. The court cited the incontestable clause embodied in section 307 of the World War Veterans' Act, 1924, as amended (38 U. S. C. 518), which is identical in language with section 602 (w) of the National Service Life Insurance Act of 1940 as amended, and said (pp. 886-887):

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It is contended that the Government can contest liability on the ground that the veteran was totally and permanently disabled prior to the reinstatement, despite the provision that such policy "shall be incontestable except for fraud, nonpayment of premiums, or on the ground that applicant was not a member of the military or naval forces of the United States. * * It is urged that this provision "has no application where, as here, the validity of the policy is not questioned and liability under it is denied solely on the ground that a loss has not occurred during the period of insurance protection." However, it is admitted that this policy did not "expressly exclude total permanent disability occurring prior to insurance protection, as did the language of the original term contract."

This converted policy of insurance provided protection against loss from two causes: Namely, death and total permanent disability. A provision making a policy "incontestable" except for certain clearly designated reasons, is wholly meaningless and ineffective if, after proof of the loss insured against, the policy can be contested upon grounds wholly different from those set out in the exception. The object of the provision is to assure the insured that payment on his policy will not be delayed by contests and lawsuits on grounds not saved by the exceptions. Here, it has been established that the veteran is totally and permanently disabled. Yet his policy is contested on the ground that it does not insure against this disability because it existed before the policy was issued. If this defense can be interposed, his policy has never actually protected him against total permanent disability. Since permanent total disability is one of the two risks insured against in the policy, any contest (not based on the exceptions) which may prevent the policyholder's recovery for such admitted total permanent disability-existing while the policy is in force is a "contest" forbidden by the "incontestable" provision.

No legal obstacle prevents parties, if they so desire, from entering into contracts of insurance to protect against loss that may possibly have already occurred. Marine insurance and antedated fire insurance policies frequently afford protection against risks which, unknown to the parties, have already attached.

Even with the benefit of scrupulous good faith, it is not always easy to determine with complete certainty whether or not total permanent disability exists. This uncertainty may lead an insurer, after his own investigation, and for adequate compensation, to treat unknown past and uncertain prospective disability, upon the same basis. This case is an illustration. Here, the Government has never admitted that the veteran is totally and permanently disabled. It not only issued him a policy against such disability-with complete knowledge of his then condition-but in this continued contest has denied that the policyholder was totally and permanently disabled at any time before, when, or after the policy was issued. There was also a sharp conflict of evidence on this disputed fact.

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When a policy of disability insurance is issued after complete examination by the insurer and full and fair disclosure by both parties, there is no legal reason why the insurer cannot contract to afford full protection against loss resulting from past as well as prospective disability. This veteran's policy did not expressly limit liability to prospective total permanent disability. The provisions of the policy in this regard contain a promise to pay the veteran “in event of the total, permanent disability * (and) upon due proof of the total permanent disability while this policy is in force, Original policies issued under the War Risk Act expressly excluded liability for total permanent disability incurred before the policy "was applied for." The deliberate omission, in the converted policies, of this previous exclusion, the language and purport of the original act and its amendments, the administrative interpretations and legislative history, all throw a flood of light on the intention to include liability for disabilities existing prior to the issuance of the policies. [Italics in this paragraph supplied.]

This reasoning while judicially declaring the force and effect of congressional fiat fails, upon close analysis, to afford a satisfying rationale for assuming liability for that which has occurred. Substitute "death" for "permanent and total disability” and this hiatus appears clearly delineated. Even so, note the judicial insistence upon "adequate compensation," "complete examination by insurer," and "full and fair disclosure by both parties." It would seem clear that one should not be heard to insist upon the right to a policy conditioned on the nonexistence of total disability, and at the same time to claim a waiver of premiums conditioned on the existence of such disability. A brief recital of the history of the incontestability clause in antecedent laws, relating to World War I insurance, may assist in understanding the reason for the apparent inconsistency of a congressional prohibition against the issuance of a converted policy under certain circumstances in the same act with a provision making such a policy incontestable. Under the original War Risk Insurance Act, as amended to authorize insurance of persons in active service against permanent total disability and death, there was no incontestable clause. Moreover, it was specifically provided that in the event of a preexisting permanent and total disability the policy would be in effect as life insurance but not as insurance against such disability. In effect, this recognized the principle that insurance is ordinarily not granted against a contingency which has already occurred. By