HARVEY v. UNION CENTRAL LIFE INS. CO., 45 F.2d 78

WATKINS, District Judge. In order to understand and determine the issues in this case, it is necessary to set out a detailed and somewhat lengthy statement of facts. Appellant was named as the beneficiary upon a policy of insurance issued by appellee upon the life of her father, Willie Lawrence Brant. The application was dated October 22,1918, was approved November 7, 1918 and the policy signed on November 9-, 1918. The policy provided for a premium of $151.60 to be paid annually on October 22.

The first premium was paid on the date of the application, and a receipt, incorporated in and forming a part thereof, was issued by the company’s agent containing, inter alia, the following: “It is agreed and understood that if said application is received and is approved on the plan and for the amount applied for, by said company at its home office, the said applicant will be insured from the date of such approval subject to the terms and conditions of the policy contract of said company; otherwise, there will he no liability upon the part of the company,” etc.

This application was made a part of the policy contract. The insured died on June 25, 1929, having paid all premiums up to the - one falling due October 22,1928. Meanwhile, he had procured on June 26, 1926, a loan of $700 and evidenced the same by his policy lien note. He had also borrowed on October 22, 1927, for the purpose of meeting the premium then due the sum of $94.22, evidencing the same by his premium lien note. The aggregate amount due on October 22, 1928 on these two notes, including interest, was $825.-' 36. He defaulted in tho payment of the 1928 premium.

On that date the policy value in excess of tho indebtedness was, excluding from consideration tho dividend of 1928, $42.-64, and it is admitted that this amount was applied by the company in accordance with the provisions of the policy to the purchase of extended term insurance for a period of 237 days. It is admitted further that an additional sum of $33.48 accrued on the 1928 anniversary of the policy as an annual dividend. Appellant contends that this sum should have been applied to the purchase of extended term insurance upon the lapse of the policy, while appellee contends that it was payable only in cash.

So far as the record shows, tho company held this dividend and made no offer to pay it in cash until July 16, 1929, some weeks after tho insured’s death.

Meanwhile, on December 6, 1928, the insured was notified by the company through its state manager as follows: “You have a premium unpaid on policy #585106 of $151.60 less dividend of $33.48, •leaving a net premium of $118.12 which was due October 22. “Because of tho indebtedness on the policy we can only offer to accept a note for $180.51 which will leave a balance in cash of $31.83, plus interest on note of $5.65, making a total of $37.48. “Please let us hear from you and arrange a settlement to keep your policy in force.

We inclose a note for your signature and trust it is convenient at this time to send us the cash necessary, also ask that you fill out and return the blank 356 inclosed.” This letter was followed by another letter from the home office, dated January 15, stating that the policy had been allowed to lapse and urging the importance of continuing the policy.

Again on February 2, the home office wrote the insured renewing the offer to make a new loan for $906 upon the payment of $37.48 in cash, stating that this arrangement would provide for the payment of the premium and include all other indebtedness on tho policy and provide for all payments up to the following October. This loiter contained the following paragraph: “If the policy is not reinstated, its present value, in excess of the indebtedness, will be applied to tho purchase of extended insurance in accordance with the terms of the policy.

This extended insurance will expire and the policy will he absolutely null and void on Juno 16, 1929.” Following this and other correspondence, the appellant on March 12 wrote the company as follows: “Inclosed you will find ok $40.00 amount asked with, dividend to reinstate W. L. Brant’s life insurance policy. Your letter to my father has just reached me and as you know I am trying to carry this for him. Please send Drs. certificate to him at once.” This letter, with inelosures, was referred to the state manager of the company in South Carolina, who on April 18 wrote Mrs.

Harvey, forwarding form for the completion of the transaction and requesting that the insured call on one of the company’s medical examiners. ■ Following this, several letters were written by the company’s manager to Mrs. Harvey urging the completion of the transaction.

Thereafter the insured was examined by one of the company’s physicians who testified at the trial that he examined the insured on June 11, 1929, and reported on June 15, 1929, that he was not “a standard risk now.” Notwithstanding the above negotiations, the secretary of the company on June 24 forwarded to the insured an acknowledgment of a partial payment of interest on loan, stating: “Your remittance of $40.00 has been applied as partial payment of interest on the loan on your policy.

There is a balance of $43.37 payable.” Although this was signed in the name of the secretary, the assistant secretary of the company testified that this acknowledgment was made by the remittance clerk through error because of his failure to note that the policy was in a lapsed condition and that it was sept because it was the customary notice of the company acknowledging receipt of interest payments where the policy is in good' standing.

It must be observed, however, that previous acknowledgment of the receipt of the $40 had been made and that the cheek had been held pending negotiations for the reinstatement of the policy and that this receipt was made out and forwarded to the insured after the’ receipt of the medical examiner’s certificate which was forwarded under date of June 15 and at a time when the company had in its hands all the data upon which to reinstate or deny reinstatement of the policy.

It will be observed further that the evidence shows that with all the facts before it the company did not offer to return this $40 until July 25, one month after insured’s death, when the assistant secretary advised the appellant that the $40 was accepted under the condition that Satisfactory evidence of good health should be furnished, and therein returned the amount by cheek which bore date July 3, 1929. The company had been notified of the insured’s death by letter of June 25, 1929.

Briefly stated, the contention of the appellant at the trial was, and is now: First, that the effective date of the policy being November 7, the extended term insurance purchased by the admitted reserve of $42.64 ran for 237 days from that date and carried the insurance beyond the date of the death of the deceased; second, that the dividend accruing on the anniversary date of the polieyin 1928 in the sum of $33.48 should have been applied to the purchase of extended term insurance, thus carrying the policy forward for an additional period of approximately 186 days; third, that the company’s receipt and application of the $40 remittance to the reduction of the loan thereby increased the reserve on the policy to an amount sufficient to extend the insurance for an additional period of approximately 222 days, and that in any event there was a substantial question of fact as to the application of these amounts which the court erred in not submitting to the jury.

Appellee contends: First, that the extended term insurance purchased by the $42.-64 reserve ran from October 22 and expired on June 16; second, that the 1928 dividend of $33.48 was payable under the terms of the policy only in cash; and, third, that the application of the $40 to the payment of interest on the loan was through error,' without right, and that it cannot be held, therefore, to have reduced the loan or extended the term of its insurance.

A further outlining of the facts in stating the provisions of the policy will be necessary, but will be more appropriately discussed in considering the law of the case. At the conclusion of the testimony the trial judge sustained the contention of the appellee and directed a verdict in its favor. The appeal is based upon some fourteen exceptions, including subdivisions; but these may be comprehensively discussed under the three issues above set out.

Preliminary to a discussion of the spe^ ciñe issues involved, we call attention to the fact that an insurance policy, such as here under consideration, is a contract for life, that forfeitures are not favored by the law, and that ambiguous clauses should be construed most favorably for the insured, and that in case of repugnant clauses, that favorable to the insured must be adopted.

And it is a fact universally recognized that policies of insurance are prepared by the companies and that if ambiguity exists in their provisions so that either one of two views may be reasonably adopted by the courts, that view will be sustained which is most favorable to the insured. First National Bank v. Insurance Co., 95 U. S. 673, 24 L. Ed. 563; Moulor v. American Life Ins. Co., 111 U. S. 335, 4 S. Ct. 466, 28 L. Ed. 447; Liverpool, etc., Ins. Co. v. Kearney, 180 U. S. 132, 21 S. Ct. 326, 45 L. Ed. 460; Hunt v. Springfield, etc., Ins. Co., 196 U. S. 47, 25 S. Ct. 179, 49 L. Ed. 382; Kelsey v.

Union Central Life Ins. Co. (C. C. A.) 196 F. 195. Beating these general principles in mind, wo proceed to a discussion of the three main issues in the ease. 1. Anniversary date from which the extended insurance purchased by the policy reserve of $42.64 began. Three separate dates are mentioned in the policy. October 22 is definitely fixed as tbe date upon which annual premiums must be paid in advance. It was agreed, however, that the policy should not become effective until the application was approved by the com pany and the date of such approval is November 7.

The policy itself was not signed by the company nor dated until November 9. The result of the agreement between the parties was to require the insured to prepay his premiums sixteen days before receiving any benefit therefrom. It was an apparently somewhat insignificant and perhaps unforeseen hardship to which he became bound. In the matter of lapse it might have been serious, and if appellee’s contention is correct, it results in the tragedy of forfeiture.

While giving full effect to the stipulation and the eon-sequent liability of early lapse because of this agreement, it will nevertheless appear from a study of the application and of the policy that such a construction would do violence to the plainly expressed agreements of the parties. It will be observed that the word “lapse” as used in the policy is given a. limited meaning. In

article 8 it is provided that failure to pay any of the fust three years’ premiums or installments thereof shall avoid and nullify the contract. It is further provided, however, that after throe full years’ premiums have been paid, on failure to pay any subsequent premium the policy shall lapse and its value shall be applied as set forth in

article 13. This

article defines policy values and directs the manner of their application at the option of the insured. After payment of three full years’ premiums, it is provided that the reserve value of the policy may, at the election of the insured, be used m any one of four ways provided there is no indebtedness or advanees on the policy. Automatically, if no option is exercised by the insured, the company is required to apply any policy reserve value to the purchase of extended participating term insurance.

There can be no doubt under the decisions that the requirement to pay premiums annually in advance on October 22 was a valid and binding agreement. The minds of the parties definitely met upon that point, and there is nothing in the record to indicate that the insured was in any way misled. Failure to pay any annual premium on that date resulted, after thirty days’ grace, in lapse. This only meant, however, that thereafter the insured had forfeited his right to keep the policy alive by subsequent payment of premiums. To restore such right required reinstatement under the rules and regulations of the company.

Such lapse, however, in no way avoided his right to extended insurance if entitled thereto under the other conditions of tlie policy. There are numerous cases, among them Wilkinson v. Commonwealth Life Ins. Co., 176 Ky. 833, 197 S. W. 557, 6 A. L. R. 774; Davis v. Home Insurance Co., 125 S. C. 381, 118 S. E. 536; Halsey v. American Life Ins. Co., 258 Mo, 659, 167 S. W. 951; Schwartz v. Northern Life Ins. Co. (C. C. A.) 25 F.(2d) 555; Burner v. American Ins. Co., 221 Mo. App. 1193, 300 S. W. 556; Stinchcombe v. New York Life Ins. Co., 46 Or. 316, 80 P. 213; Stramback v. Fidelity Mutual Life Ins.

Co., 94 Minn. 281, 102 N. W. 731, which hold that by agreement a policy may become effective and the policy year begin at a date prior to the approval of the application, or at the date of the actual issuance of the policy, or on a date on which the premium is actually paid. This was true in the case of Sellars v. Continental Life Ins. Co. (C. C. A.) 30 F.(2d) 42, wherein application was made on July 18; the policy was dated August 7 but the insured delayed acceptance of it, and it was not delivered to him until November 19.

During the interval Sellars had no insurance, but the policy, which had been held in abeyance from the date of its execution, was finally accepted by the insured and it provided that after delivery to the insured it should take effect as of the date of August 7. It also provided that tho insurance was granted for the term ending on August 7 and should be continued thereafter on the payment of the annual premiums on that date in every year during the continuance of the policy. It will be seen, therefore, that the effective date of the policy year was agreed upon as beginning August 7.

In that case, as in a number of other decided eases, a special reason for accepting the policy as delivered was the fact that the insured’s age at the time of delivery would have called for a higher premium and perhaps would have excluded him from obtaining insurance at all. Johnson v. Mutual Benefit Life Ins. Co. (C. C. A.) 143 F. 950; McCampbell v. New York Life Ins. Co. (C. C. A.) 288 F. 465. In the ease of Wilkie v. New York Life Ins. Co., 146 N. C. 513, 60 S.

E. 427, which is greatly emphasized by counsel for appellee, the court based its decision upon the ground that it was clear under the terms of the policy that the parties intended to make the date of the payment of the premium the beginning of each insurance year. There was no stipulation as in the instant case that it should begin on the date of approval of the application.

A review of the numerous authorities cited in appellee’s brief will disclose no case, nor do we think any canche found, of persuasive force, in which the mere provision for payment of premiums in advance was construed to overcome the plain provisions of a policy that it should take effect on a subsequent date. Had the parties agreed that the policy should not become effective until approved but that if and when approved the insurance year should run from October 22, appellee’s contention would be sustained by the weight of authority.

It has been held in numerous eases that where the effective date of a policy is agreed upon as the beginning of the policy year, such date must govern though the premium may not have been paid until a later date nor the policy delivered until such time. In the instant case the parties were at liberty to agree, as they did agree, upon the payment of the premiums in advance, and that the policy should not be issued or become effective until a later date. They might have agreed, as has frequently been done, that the policy should be issued or become effective at a date prior to the payment of the premium.

Indeed, there is no reason, except as founded in the wise conduct of business, why an insurance company should not deliver a policy and.let it become effective on a certain date and credit the payment of the premium for a period of six months thereafter. Its right to require payment in advance was no higher than its right to extend credit. In such ease it is hardly conceivable that the insurance company would contend that the insurance year began at the time of the payment of the premium and ran one year from that date, in the face of the declaration of the policy that it ran from another date.

It will be observed that the premium was an annual one, that it paid for one full year’s insurance and not for one year less sixteen days as contended for by appellee. , A reference to the policy will clearly show 'that the date, October 22, related only to the day for paying premiums. In providing for ■ incontestability,

article 21 of the policy pro- ' vides that it shall be incontestable after one year “from date of issue, except for non-payment’ of premium,” and certainly the policy ' was not issued until the application was approved by the company. In

article 25 it is provided that the policy shall be avoided by, the suicide of the insured “within one year.” |We cannot conceive of the company’s assert- * ing that this limited the time to one year from the date of the application and the date of 1 the payment of premium. The expression “policy year” or “end of the policy year” is mentioned no less than three times in the ' policy, and there also appears the expression a “on the anniversary of the policy.” This evidently refers to the anniversary of the birth of the policy which occurred on the approval of the application. It is true that option 1,

article 14, of the policy states that the reserve value shall be applied to the extension of this policy as participating term insurance “from the date to which premiums have been paid.” It does not state, however, that this shall be from the date on which premiums are paid or are required to be paid. Subscriptions to newspapers and periodicals are frequently required to be paid in advance, but when an annual subscription is thus paid, it is paid to the anniversary date from which the subscription begins to run and not from the date on which payment was made.

The same is frequently applied to other business organizations, social clubs, etc. Where dues ,are paid in advance, they are universally recognized as covering the period from which the privilege, for which, payment is made, begins to run and not from the date of payment itself.. We think it clear, therefore, that the date to which premiums were paid as provided in the policy was the enfi of the policy year from which the insurance became effective. The ease of Mutual Life Ins. Co. v. Hurni Packing Co., 263 U. S. 167, 44 S. Ct. 90, 68 L. Ed. 235, 31 A. L.

R. 102, cited in appellee’s brief, is conclusive of this point. In that ease the court held that it was competent for the parties to agree that the effective date of the policy should he one prior to its actual execution and that that was what they did. A special provision of the application provided that tho applicant by request might have the policy antodated for a period not to exceed six months. This provided for his insurance at the age of forty-seven.

Under this agreement the policy was issued as of August 23 and tho insurance became effective from its date of issue, although it was not actually applied for until September 2 and not executed and delivered until September 7. The court held, in effect, that, although not delivered until a later date, the policy went into effect on the date agreed to by the parties as tho effective date and not upon the later date upon which it was actually delivered. To the effect that an annual premium is intended to pay for one full year’s insurance, see Davis v. Home Ins. Co., supra, and cases therein cited.

The case of McMaster v. New York Life Ins. Co., 183 U. S. 25, 22 S. Ct. 10, 16, 46 L. Ed. 64, is clearly in point and is controlling. In that case the applications, which were part of the policies, were dated December 12. The annual premium was fixed at $21, under the provision that on its payment and not before, the policies were to go into effect. The policies were issued on December 18, but not actually paid for until December 26, at which time the policies were delivered.

While thei’e is involved a question of fraud on the part of the agent by having inserted a provision that the policy should take effect on the same date as the application and that annual premiums should be paid on that date, the court held that the effective date of the policy was December 18, the date when the policy was actually approved and issued, and the court said: “Taking all tho provisions together, and granting that the words included December 12,1894, nevertheless it would not follow that forfeiture could be availed of to cut short the thirteen months’ immunity from December 18, 1893, as the premiums had already been paid up to December 18,1894.” This shows conclusively that the mere fact of paying an annual premium in advance will not operate to penalize the insured by shortening the term of insurance to less than one year from tho agreed date upon which the policy becomes effective and from which the policy year begins to run.

The court was in error in sustaining the contrary view and must be reversed. In view of this ruling a determination of the other issues becomes somewhat unnecessary and they will be discussed but briefly. 2. Application of the 1928 dividend.

Article 10 of the policy provides as follows: “Dividends. This policy shall participate in profits, as apportioned by the Directors. Beginning at the end of the first policy year, provided the second year’s premium is paid, dividends shall be declared annually during its continuance.”

Article 11 provides as follows: “Disposition of Dividends.

Dividends may be withdrawn in cash; or applied to the payment of premiums; or applied to the purchase of paid-up participating additions to the policy; or left to accumulate with interest at three per cent., increased from surplus interest earnings as apportioned by the Directors, until the maturity of the policy, subject to withdrawal at any anniversary thereof. “If the owner of this policy shall not exercise any other option the dividend shall be applied, on the expiry of the days of grace, to the purchase of paid-up additions, except that if the policy shall lapse the dividend shall be paid in cash. “Paid-up additions are convertible into cash at any time at the request of the insured for amounts not less than the original dividends.” Neither of these articles pi-ovides the manner in which dividends shall be apportioned nor the manner in which options shall be exercised.

Article 10 does provide that tho dividends shall be declared annually at the end of the first policy year.

Article 13 provides that after three full years’ premiums hava been paid the reserve value computed according to the American Experience Table of Mortality with interest may be used at the option of the owner in any one of four several ways. It further provides, “If, on failure to pay a premium, no option is exercised, such value shall be applied as provided in Option 1,” and this option as set out in

article 14 is as follows: “Extended Insurance. Applied to the extension of this poliey as participating term insurance from the date to which premiums have been paid, without any further payment. (Table 1). The value of any paid-up additions will be used to increase the term of extension.” From year to year the loan value of the policy had been increased by the building up of the policy reserve, and since the policy expressly stipulated that the dividend was payable at the end of the policy year, that is to say, November 7, this amount was available as part of the loan value of the policy.

A significant fact is that the dividend in question was retained by the company for months without any offer to pay it in cash either before or after the expiration of the days of grace.

Article 16 of the policy provides that in ease of a loan or advances, failure to pay interest shall not avoid the policy until the total indebtedness and advances shall equal or exceed the loan value at the time of such failure. Whether we take the view that the dividend in question was used to increase the reserve of the policy or applied to extended term insurance, the result will be the same.

It should be borne in mind also that at the time this dividend accrued the company held two policy lien notes, and even if the dividend should have been paid in cash, it was a creditor in possession with the right to apply the money to the reduction of the loan, and that it was its general duty to use whatever legal means were in reach to keep the policy alive. Certainly we think that the f aets shown by the testimony are sufficient to require a submission of this question to the jury, even if we should hold that the dividend was payable in cash. 3. Application of the $40.00 remittance.

We have already referred to the facts controlling this transaction. While it is true that the assistant secretary of the company stated that the application of the $40 as a payment of interest on the loan was made by error, and while the negotiations up to the time of such application showed that it was held under instructions to be applied as a part of a scheme to reinstate the policy, it was not compulsory on the court or jury to adopt the testimony of the assistant secretary.

Bearing in mind the obvious desire of appellant to keep the policy alive by whatever means were necessary and the obligation of the insurer to do so, if legally possible, and further bearing in mind the retention of the application and of this remittance after the receipt of the medical examiner’s certificate without any notice being given of the rejection of the application for reinstatement, it might reasonably be assumed by the company that the applicant would acquiesce in such application.

Certainly no objection has been made by the applicant, and we think it should have been left to the jury to determine whether the application was binding or not. Hartford Fire Ins. Co. v. Garvin et al., 136 S. C. 307, 133 S. E. 29. Reversed.