Manhattan Life Insurance v. Hennessy

99 F. 64, 39 C.C.A. 625, 1900 U.S. App. LEXIS 4122

• Court: Court of Appeals for the Fifth Circuit
• Decided: January 9, 1900
• Docket: No. 821
• Status: Published

Opinion

SHELBY, Circuit Judge,

after stating the case as above, delivered the opinion of the court.

An insurance policy is a chose in action, and, if without restrictive words, is assignable under the general principles of: law. The policies in question here are assignable by their terms, because the underwriter has contracted with and promised to pay the “assured, his executors, administrators, and assigns.” It was in the contemplation of the parlies to the contract that it might be assigned, and in that event the express contract is to pay the amount of the policies to the assignee. This would not, of course, authorize an.assignment, or make one valid that was against public policy and in conflict with principles opposed to wagering or speculative insurance. To make the assignment invulnerable to proper attack, the assignee must have an insurable interest, in the life of the insured. The J. L. Mott Iron Works was a creditor of Patrick H. Hennessy to the amount of 812,000 when the policies were assigned to it. The policies in the aggregate amounted to only ft),000. Unquestionably, the creditor has an insurable interest in the life of his debtor to the amount of his debt. As the creditor himself may insure the life of his debtor, he can, on the same principle, accept an assignment of a policy on his life. The assignments of these policies, therefore, were not, at tlieir inception', open to the objection that the transaction was against public policy.

No question is raised as to the insurable interest of the J. L. Mott Iron Works in the life of Patrick H. Hennessy at the time of the assignment of the policies, but it is claimed that it had no insurable interest at the date of Hennessy’s death. If it be assumed that the debt of Hennessy had been discharged or released by the acceptance by the J. L. Mott Iron Works of the benefit of the general assignment, would that affect the decision of this case? The doctrine once prevailed in England that in life as well as in fire and marine insurance there must be an insurable interest at the time of the loss as well as at the time of the insurance to support the policy. Godsall v. Boldero, 9 East, 72. But the'later English cases hold1 that this rule is not good as applicable to life policies. The English rule now is that, if the insurable interest in the life existed at the time of the insurance, the contract is valid, and enforceable, even if there was no interest at the time of the loss. Dalby v. Assurance Co., 15 C. B. 365; May, Ins. (3d Ed.) § 115. In this country there is much conflict in the cases on this point, many of them refusing to adopt the later English rule. May, Ins. (3d Ed.) § 117. Justice seems to favor the view that the policy is good if an insurable interest existed when the contract of insurance was made, because otherwise, in cases like the one here under consideration, actual loss would result to the holder of the policy without fault on his part. If the debt of Hennessy to the J. L. Mott Iron Works had been paid, as claimed, there is no pretense that the premiums paid by the latter to the insurance company have ever been returned. The sum of the premiums would be a complete loss if the assignment of the policy is to lose all validity by the payment of the debt. Justice could only be reached by permitting a recovery by the assignee on the policy, so that he could be indemnified for the premiums paid by him. As to what claim the representatives of the insured would have on the fund in excess of the premiums, the debt having been paid, is not a question in this case. If the debt were in fact paid, the premiums not having been returned, the assignment would stand to secure the assignee for this outlay. The assignment, in that event, would at least be a designation by the insured of a person to receive the amount of the policy from the insurance company. Warnock v. Davis, 104 U. S. 775, 781, 26 L. Ed. 924. The assignee could retain "what was due him, but would be liable to account to the representatives of the insured for the remainder, Page v. Burnstine, 102 U. S. 664, 26 L. Ed. 268. In Insurance Co. v. Bailey, 13 Wall. 616, 619, 20 L. Ed. 501, there is an approval of the later English doctrine. After stating that, to recover in fire and marine insurance, the insured must have had an interest in the property at the time of the loss, the court said:

“Life insurances have sometimes been construed in the same way, hut the better opinion is that the decided cases which proceed upon the ground that the insured must necessarily have some pecuniary interest in the life of the cestui que vie are founded in an erroneous view of the nature of the contract; that the contract of life insurance is not necessarily one merely of indemnity for a pecuniary loss, as in marine and fire policies; that it is sufficient to show that the policy is not invalid as a wager policy, if it appear that the relation, whether of consanguinity or of affinity, was such between the person whose life was insured and the beneficiary named in the policy as warrants the conclusion that the beneficiary had an interest, whether pecuniary or arising from dependence or natural affection, in the life of the person insured.”

The court adds (the italics are ours) the following:

“Insurers in such a policy contract to pay a certain sum, in the event therein' specified, in consideration of the payment of the stipulated premium or premiums, and it is enough to entitle the insured to recover if it appear that the stipulated event has happened, and that the party effecting the policy had an insurable interest, such as is described, in the life of the person insured at the inception of the contract, as the contract is not merely for an indemnity, as in marine and fire policies.”

In Insurance Co. v. Schaefer, 94 U. S. 457, 24 L. Ed. 251, the case of Dalby v. Assurance Co., supra, is cited with approval. The court said:

“But supposing- a fair and proper insurable interest, of whatever .kind, to exist at the time of taking out the policy, and that it be taken out in good faith, the object and purpose of the rule which condemns wager policies is sufficiently attained; and there is then no good reason why the contract should not be carried out according to its terms. * * * In our judgment, a life policy, originally valid, does not cease to be so by the cessation of the assured party’s interest in the life insured.”

These expressions of the supreme court seem very pertinent to the question here examined, hut neither case on the facts was exactly in point. In each case the insurable interest involved depended on the relationship between the insured and the beneficiary in the policy, but did not involve a question of debtor and creditor. The principles stated, however, sustain the view that an insurable interest existing at the time of the issuance of the policy is sufficient to sustain the contract. In Grotty v. Insurance Co., 144 U. S. 621, 624, 12 Sup. Ct. 750, 36 L. Ed. 568, the policy sued on was made payable to a named creditor if living, and, if he should die, to the executors, administrators, or assigns of the insured. Suit on the policy was brought by the creditor, alleging in his declaration the existence of the debt at the time of insurance and at the time of loss. The court held that to recover lie must prove the continuance of the relation of debtor and creditor and the amount of the debt. In the course of the opinion the court said:

“If a policy of insurance be taken out by a debtor on his own life, naming a creditor as beneficiary, or with a subsequent assignment to a creditor, the general doctrine is that on payment of the debt the creditor loses all interest therein, and the policy becomes one for the benefit of the insured, and collectible by his executors or administrators. * * * But whatever doubts may exist as to the law applicable to such cases, or the rights of action on such a policy, the plaintiff in this case put his own construction on the contract, and tendered an issue which was accepttd by the company. He alleged that he was a creditor at (lie time of the contract and at the time of the death. Upon the issue thus presented the case went to trial. The promise of the policy is to pay to Michael Grotty, his creditor, if living; and it is contended that this is an admission on the part of the company sufficient to justify a verdict against it. If an admission at all, it is good only as an admission of ihe date at wliieh it was made, to wit, the date of the policy. The relation of debtor and creditor is not a permanent one, like that of parent and child, but one which may vary from day to day, changing botli -in fact and amount, according- to the successive business transactions between the parties.”

. In the case last quoted the policy was made payable on its face to Michael Grotty, his creditor, if living, and, if he should die, then to the executors, administrators, or assigns of the insured. On the trial no evidence was furnished of the plaintiff’s interest in the policy except the policy it self. There was no evidence that the creditor had paid any premiums on the policy, or that the debt equaled in its sum the amount of the policy, or that the debt in faut ever existed. The creditor suing on the policy alleged the existence of the debt at the time of the contract and at the time of the death.- Issue was joined on these allegations, and the plaintiff failed for want of evidence. We do not find in the result of this case any departure from the doctrine of Dalby v. Assurance Co., supra, which was previously cited with approval by the supreme court.

In fhe present case the assignment of the policies was made in good faith. The assignee’s claim against Hennessy was much greater than the amount of the policies. The policies were delivered to the assignee. The underwriter was notified and assented. The assignee paid the annual premiums for a period of 20 years, paying in the aggregate $4,544.82. The assured, claiming that his debt to the assignee was discharged by law (it certainly had not been paid in fact), asserted no interest in the policy, but demanded its cancellation. The underwriter continued to receive the premiums from the assignee. On the death of the insured the assignee proved loss, and offered to deliver the assignments and policies on payment of the policies. On these facts the underwriter .could surely be forced by suit to pay the assignee. The insurance company, had agreed to pay him, and had received annual premiums for a number of years, paid on the faith of this agreement. In such case the law will enforce payment to the assignee, and, if others have equitable claims, — a question not for decision here, — they must be asserted in a suit to which the assignee is a party. Smith v. Insurance Co., 4 Dill. 353, Fed. Cas. No. 13,083; Insurance Co. v. Flack, 3 Md. 341; Cheeves v. Anders, 87 Tex. 287, 28 S. W. 274; 2 May, Ins. (3d Ed.) § 459d; Insurance Co. v. Armstrong, 117 U. S. 591, 6 Sup. Ct. 877, 29 L. Ed. 997; Investment Co. v. Baum, 29 Ind. 236; Swick v. Insurance Co., 2 Dill. 160, Fed. Cas. No. 13,692. The decisions of the New York court of appeals are to the effect that the assignee of the policy can collect and hold the proceeds even when he never had an insurable interest in the life of the insured. St. John v. Insurance Co., 13 N. Y. 31; Olmsted v. Keyes, 85 N. Y. 593. But the supreme court does not approve this doctrine. The rule established by the latter court is that the assignee must have an insurable interest. His position must be such that the policy could have been legally issued payable to him. Warnock v. Davis, 104 U. S. 775-782, 26 L. Ed. 924. On the undisputed facts we think that the assignee of these policies could have collected them by suit against the insurance company. The law that would enforce the payment to the assignee would be unjust and illogical if it failed to protect the insurance company in such payment against the claim of the assignor. The insurer has made no promise to pay twice. The appellee does not claim that the debt of Hennessy to the J. L. Mott Iron Works was actually paid. It is claimed that the acceptance by the latter of the benefit of the general assignment was equivalent to payment. This general assignment was executed on August 23, 1875. The J. L. Mott Iron Works proved its debt, amounting to $48,309, and received dividends on the same on November 11, 1875, of $3,381.03, and on March 2, 1876, $1,811.63. This left due on the debt $43,115.79. But the deed of assignment provided that those who accepted the benefit of it should release their claims in full. The validity of state laws permitting assignments on such terms is recognized. Livermore v. Jenckes, 21 How. 126, 144, 16 L. Ed. 55. But, in the absence of statutory provision, it is a rule of the common law that the payment of a less sum at the time and place where a greater undisputed sum is due is not a satisfaction of the greater sum, even thougli accepted as such, because there is no consideration for giving up the rest. In the absence of a statute to the contrary, this rule prevails in Texas. Lanes v. Squyres, 45 Tex. 382, 385; Bennett v. Butterworth, 11 How. 669, 674, 13 L. Ed. 859. No Texas statute is called to our attention prior to the law of March 24, 1879, which is subsequent to the date of the assignment and the receipt of the dividends. Cunningham v. Norton, 125 U. S. 77, 81, 8 Sup. Ct. 804, 31 L. Ed. 624. This statute could not affect the transactions here considered. But such statutes, when applicable, serve only as a defense when pleaded. Their application does not constitute payment in the full sense. The equitable obligation of the debtor to the creditor would not he discharged. Even after discharge in bankruptcy, there remains a moral obligation to pay the debt that will sustain a new promise of the banknipt. The fact that the debtor may he armed with a legal defense against the creditor does not destroy the insurable interest of the latter in the life of the former. The debtor may he an infant, and yet the fact that the plea of infancy might be interposed would not make the life policy in favor of his creditor void. 1 May, Ins. (3d Ed.) § 108. If the debt he barred by tlie statute of limitations, it nevertheless constitutes an insurable interest. Rawls v. Insurance Co., 27 N. Y. 282; 1 May, Ins. (3d Ed.) § 108.

The undisputed facts in the present case show that the J. L. Mott Iron Works had a continuing insurable interest in the life of Hennessy. Payment of the amount of the policies to the J. L. Mott Iron Works was, we think, a valid defense to this action. The circuit court erred in directing a verdict for the plaintiff. The jury should have been directed to find for the defendant. The judgment of the circuit court is reversed, and the cause remanded.