In the Mutual Life Insurance Company of New York v. Johnson case in 1934, the U.S Supreme Court ruled that a life insurance company could not avoid paying out on a policy due to misrepresentation or concealment by the insured if they had died within two years of taking out the policy. The court held that under Alabama law, which was applicable in this case, an insurer cannot contest a life insurance policy after it has been in force for two years during the lifetime of the person insured even though there may have been false statements made when applying for coverage. This decision upheld lower courts' rulings and affirmed that insurers must pay benefits as agreed upon unless fraud can be proven within those first two years.

In the dissenting opinion for Mutual Life Insurance Company of New York v. Johnson, Justice Stone argued that the majority's decision was inconsistent with previous rulings and violated principles of federalism. He contended that state law should govern insurance contracts because they are fundamentally local matters. The majority's ruling, he believed, improperly expanded federal jurisdiction into an area traditionally reserved for states by interpreting a clause in the contract as creating a federally enforceable right to payment upon death rather than simply defining conditions under which such payment would be made according to state law. This interpretation not only contradicted precedent but also undermined states' ability to regulate their own insurance industries effectively.