Jagoe v. Aetna Life Ins.

96 S.W. 598, 123 Ky. 510, 1906 Ky. LEXIS 171

• Court: Court of Appeals of Kentucky
• Decided: October 12, 1906
• Status: Published

Opinion

Opinion by

John D. Carroll, Commissioner

Affirming.

On the 3a day of May, 1900, the appellee issued to M. H. Jagoe a policy of insurance for $1,500 payable to appellant. He paid the first premium of $69.89, and on the 3d day of May, 1901, 1902, and 1903, paid the annual premium. He failed to pay the premium which became due May 3, 1904, and on September 6, 1904, died. The policy issued to him provides in section 3 that “when the premiums on this policy have been duly paid for two years or more, and default thereof occurs in the payment of any premium, this policy shall cease as to the right to pay further premiums; but shall, if there is no indebtedness to the company against it, continue in force as temporary life insurance for the full amount during the time specified in the following table A, at the expiration of which time this policy shall wholly cease and be void.. Should the death of the insured occur within three years from the first default in the payment of premiums, and while this policy is in force for the full amount, there shall be deducted from the amounts otherwise due the premiums that would have been paid liad there been no default in the payment of premiums, with interest thereon.” It further provided that if the premiums have been paid for two years or more, and the policy be surrendered to the company, and a paid-up policy applied for within three months, a participating stock policy would be issued for the amount stated in table B. And in another clause it provided that at the expiration of three years from the date of this policy, the premiums having’ been paid, the company would lend upon the same the amount shown in tabe C. There is a further provision as to the cash surrender value of the policy, but this did not become effective until five premiums had been paid. It further provided that “any indebtedness to the company on account of this policy shall first be deducted, provided that the title to the policy is unincumbered and that loan or surrender papers are first executed under such regulations as are prescribed by the company. ’ ’ On March -8, 1904, M. H. Jagoe and appellant borrowed from appellee $124. The note executed to it for this sum provided that they acknowledged.“the amount of this note, with any interest that may accrue thereon, to be an indebtedness to said Aetna life Insurance Company on. account of policy 288,848, issued by said company on the life of M. H. Jagoe, which policy, with all right, title and interest therein, and all benefit and advantages to be derived therefrom, is hereby assigned to and deposited with said company as security; and further agree that if this note shall remain unpaid sixty days after it becomes due, or if any premium under said policy shall become due and unpaid for sixty days or more, said company is hereby authorized to issue a paid-up policy in the amount provided for by the terms of said original policy, after deducting therefrom such a proportion as the indebtedness on account of the original policy bears to the net single premium for said paid-up policy. ’ ’ At the time of his death, Jagoe was in default in the payment of the premium due May 3, 1904, and in the payment of the note. On August 22, 1904, appellee wrote to M. P. Jagoe, informing him that the policy had lapsed for nonpayment of premium due on the 3d day of May, 1904; and that because of the indebtedness to the. company under the policy there would be no extension of the insurance; and that he. was only entitled to. a paid-up policy for $91, which was tendered to him. upon the execution of proper receipts. It does not appear that this offer was accepted by Jagoe, and after his death the appellee offered to pay to the beneficiary the amount specified in the paid-up policy, which she declined to accept, and brought this action against the appellee to recover from it the sum. of $1,500, less the amount of the note and the premium that was due on May 3, 1904. If Jagoe had not borrowed from the company in March, 1904, the sum mentioned, the premiums theretofore paid on the policy would have carried the full amount of the insurance under the option in table A for a period of something more than six years form May 3, 1904, without the payment by him of any further premium.

It is the contention of the appellant that M. H. Jagoe, when he executed to it the note mentioned, was entitled to what may be termed paid-up temporary insurance for $1,500, which would continue in force until July, 1910, without the payment of any additional premium, and that he also had the right under his contract of insurance to demand of the company a loan on its policy of the amount specified in table C, upon the execution by him of proper loan papers; that the company could not, in the loan papers, insert stipulations not in the policy that operated to forfeit the insurance he was entitled to if he failed to comply with the obligations of the note; and that Jagoe, having died within the term of his extended insurance, and while the same, according to the contract of insurance, was in force, lias a right to exact from the company the full amount of the insurance less the amount of the note and premium due. Appellee insists that on March 8,1904, Jagoe, under the terms of the policy, had tendered to him three options, either of which he might elect to receive the benefit of, that is to say ,if he declined to pay the primium due in May, 1904, he had the right to extended insurance for the full amount of $1,500 for the term of six years without the payment of additional premiums as provided in table A, or the right to a paid-up policy for the amounts specified in table B; or the right to obtain a loan for the amount specified in table C; and that, having before him these several options, he could exercise his own pleasure as to which of them he would accept, but he could not accept or take advantage of but one of them; and that, having elected to avail himself of the right to obtain a loan in the amount specified in table C, he surrendered his right to retain the benefit of or avail himself of the advantage of the options specified in tables A or B. Forfeitures are looked on with disfavor by the law, and this court has been as reluctant as any court in the country to enforce them. N. Y. Life Ins. Co. v. Curry, 115 Ky. 100, 24 Ky. L. R. 1930, 72 S. W. 736, 61 L. R. A. 268, 103 Am. St. Rep. 297; Montgomery v. Mutual Life Ins. Co., 14 Bush, 51; Mutual Life Ins. Co. v. Twyman, 122 Ky. 513, 92 S. W. 335, 28 Ky. Law Rep. 1153.

But the question of forfeiture is not presented in this ease. A forfeiture is a penalty for doing or omitting tó do a certain required act, and the appellee has not attempted to impose upon the insured any penalty, nor are the provisions of the contract harsh, unreasonable, or oppressive. Here the insured had the right to elect which of the three options he would accept. Generally speaking, where a forfeiture is attempted there is no election, and there is a wide difference between a regulation established as a matter of business, and a forfeiture imposed as a penalty upon a person in default. In this case the company provided in its contract of insurance that certain regulations prescribed by it should be performed by the insured, leaving to him the right to determine whether he would perf orm them or not. If advanced to the insured all that he was entitled to under the contract of insurance, and took as security for the note the policy, which at that time had no cash surrender value as the cash surrender value of the policy 'did not attach until five premiums had been paid. "When the note was executed the insured was not in default in the payment of any premium, and therefore under the contract of, insurance, was not entitled at that time to any extended insurance, because his right to extended'insurance only became effective when he was in default in the payment of a premium. There is no provision in this policy for the deduction of any indebtedness from extended insurance, as the policy provides that when there is an indebtedness there can be no extended insurance. It is stated in the contract of insurance in Section 3, that “if there is no indebtedness to the company against it, the policy shall continue in force for the full amount during the time specified in table A, ’ ’ and at the head of the tables we find this: “The figures given in the table are based on the assumption that there is no indebtedness to the company against the policy,” and that loan or surrender papers are to be executed under such regulations as may be' prescribed by the company. If the view advanced by counsel for appellant was accepted as correct, it would follow that the insured would have the unreasonable advantage of having the full amount of insurance in force for a period of six years, at the same time being indebted to the company in the full amount of the loan value of his policy without the payment of either premiums on the policy or interest on his note during the period for which,the extended insurance would run. To put it in another way; if he had outlived the period of extended insurance, the policy that the company accepted as security for the note would have lapsed entirely, and be of no value, and consequently the company would have no security for the money advanced on it if the insured was insolvent, and yet the insured during this time would have had in'his pocket practically the full.value of his policy, and on his life insurance for the full amount of policy.

Counsel further contend that he was entitled to extended insurance at the time the loan was made, in the face of the provision in the policy: First, that no extended insurance would be granted until there was a default in the payment of premium; second, that no extended insurance would be granted when there was any indebtedness against the policy; and if their theory is correct, it would follow that the insured was entitled to extended insurance for six years, and at any time during that period — even in the last month of it — he was entitled to demand from the company the full loan value of his policy. Policies of insurance, like other contracts, should be given a fair construction, and one in harmony with the meaning and intention of the contract when it is plain and unambiguous, and neither unreasonable nor against public policy, and it cannot be said that the contract upon which appellee relies is either doubtful in meaning or against public policy. In Dreury’s Adm’x v. N. Y. Life Ins. Co., 115 Ky. 681, 25 Ky. L. R. 68, 74 S. W. 663, 61 L. R. A. 714, 103 Am. St. Rep. 351, relied on by appellant, Dreury, after having, paid three premiums, •executed a note for the fourth premium, the note stipulating that unless it was paid when due the policy and its accumulations should be forfeited except as to the right to the surrender value of a paid-up policy, and that in the settlement of the claim or benefit under the policy the amount owing should be deducted from the sum otherwise payable by ..the «company. The court in the construction of the contract of insurance, and stipulations of the note, held that, under a reasonable construction, the failure to pay the note only forfeited the right of the insured to participate in certain benefits otherwise allowed by the policy, but did not surrender his right to extended insurance for the term earned by the premiums paid. In the Dreury case, as in this, the question was the proper construction of the policy, and the language of the policy here involved being free from uncertainty, we have found no difficulty in giving it a construction fair and reasonable to the parties concerned, nor do we doubt that under the contract the insured was bound by his eleettion and must stand by the terms imposed when he' made it. There is a marked difference between the right to elect between privileges coupled with a reasonable provision that when the election is made the •conditions imposed by the contract of election shall be performed, and a forfeiture, that is in the nature of a penalty, imposed for the non-payment ef money. N. Y. Life Ins. Co. v. Curry, 115 Ky. 100, 24 Ky. L. R. 1930, 72 S. W. 736, 61 L. R. A. 268, 103 Am. St. Rep. 297. While forfeitures have been condemned, or very reluctantly upheld, contracts involving the validity of elections with conditions imposed similar to those in this case have been approved and sustained. Mutual Benefit Ass’n v. Harvey, 117 Ky. 834, 79 S. W. 218, 25 Ky. Law Rep. 1992; N. Y. Life Ins. Co. v. Meinkin, 80 S. W. 175, 25 Ky. Law Rep. 2113; Mutual Benefit Life Ins. Co. v. First National Bank, 74 S. W. 1066, 25 Ky. Law Rep. 172.

It is further urged that the stipulations in the note executed by the insured are inconsistent with or in derogation of the terms of the original contract of insurance, and that therefore under section 656 of the Kentucky Statutes of 1903 the conditions in the note must yield to the terms of the policy. The stipulations in the note are not inconsistent with the terms of the policy, but' merely elaborate its meaning and carry out its purpose; and aside from this, the statute does not apply to the note. Fidelity Mutual Life Ins. Co. v. Price, 117 Ky. 25, 77 S. W. 384, 25 Ky. Law Rep. 1148.

The judgment of the lower court is affirmed.

NUNN, J., dissents.