Mutual Benefit Life Ins. v. First National Bank

74 S.W. 1066, 115 Ky. 757, 1903 Ky. LEXIS 157

• Court: Court of Appeals of Kentucky
• Decided: June 3, 1903
• Status: Published

Opinions

Opinion op the court by

JUDGE PAYNTER

Reverstng.

On July 30, 1897, the appellant issued to Watson A. Sud-doth a policy insuring his life in the sum of $5,000 for the benefit of his executors or assigns in consideration of the payment of a semi-annual premium of $63.50. He paid the premiums for twelve years. On July 14, 1898, he borrowed of the company on the policy $549.60, executing a note due in six months. At maturity, an additional loan being made, the note was renewed for $599.32, payable July 30, 1899. On May 6, 1899, Sudduth, for value, assigned the policy to the appellee, the First National Bank of Louisville. The assignment was assented to by the company in writing. but it was stipulated therein that the assignee agreed that any indebtedness to the company on the policy should be a valid and prior lien thereon. The semi-annual premium falling due on July 30, 1899, was not paid, nor was the: note due by Sudduth to the company; and he died the following November. This action was brought to recover on the policy.

Among other provisions the policy contained the following: “Provided, that in case the said premiums shall not be paid on or before the several days hereinbefore mentioned for the payment thereof at the office of the company in the city of Newark or to agents when they prduce receipts signed by the president or treasurer, then in every such case this policy shall cease and determine, subject to the provisions of the company’s nonforfeiture system, as indorsed hereon with accompanying table.” Sudduth failing to pay the semi-annual premium falling due on July 30, 1899, the policy, by its terms, ceased, unless it was saved by the nonforfeiture provisions thereon indorsed. The nonforfeiture clause, as originally indorsed on the policy, was, on March 24, 1896, changed by the consent of parties, and another substituted for it. The rights of the parties must be determined by the substituted agreement, which is in these words:

“In consideration of the release (copy of - which is indorsed hereon) of the nonforfeiture provisions hereto applicable to policy No. 137,661, on the life of Watson A. Sudduth, the.Mutual Benefit Life Insurance Company hereby agrees that the following nonforfeiture provisions shall apply thereto as if originally incorporated in and indorsed upon said policy:

“ ‘Nonforfeiture Provisions.

“ ‘When, after two full annual premiums shall have been paid on this policy, it shall cease or become void solely by the nonpayment of any premium when due, its entire, net reserve by the American Experience Mortality and interest at four per cent, yearly (provided there be no loan on the policy) shall be applied by the company as a single premium at the company’s rates published and in force at this date, either, first, to the purchase of nonparticipating term insurance for the full amount insured by this policy, or, second, upon the written application by the owner of this policy and the surrender thereof to the company at Newark within three months from such nonpayment of premium, to the purchase of a nonparticipating paid-up policy payable at the time this policy would be payable if continued in force. Both kinds of insurance aforesaid will be subject to the same conditions, except as to payment of premiums, as those of this policy. Third, if preferred, the company will, on surrender of the policy fully receipted within the said three months, pay as a cash surrender value its entire net reserve by the American Experience Mortality and interest at four and one-half per cent, yearly, less a surrender charge equal to one per cent, of the sum insured by the policy.

.“‘If there be any loan on the policy such indebtedness shall be paid off out of the cash surrender value, and the remainder paid in cash by the company; or a value will be allowed by the company in the form of extended or paid-up insurance as above provided, the amount to be applied to the purchase of such insurance being correspondingly reduced in the ratio of the indebtedness to the full cash surrender value.

“ ‘If death shall occur within one year after the nonpayment of premium and during the term of extended insurance, there shall be deducted from the amount payable any premium that would have become due on this policy if it had continued in full force; also the amount of any indebtedness on this policy at time of such nonpayment of premium.

“ 'The company will at any time the policy is in full force loan up to the limit secured by its cash surrender value upon a satisfactory assignment of the policy to the company as collateral security.

“ 'The figures given in the following table are based upon the assumption that all premiums (less current dividends) have been fully paid in cash. The indebtedness, if any, may be paid off in cash, in which case the figures in the table will apply.”

The question involved here is one of contract. The language which evidences the contract is plain and unambiguous. This being true, the court should have but little difficulty in determining the rights of the parties to it. By the terms of the policy, where there is. a loan upon it after two full premiums are paid, it shall cease and become void solely by nonpayment of any premium when due; and its entire net reserve by the American Experience Mortality and interest at 4 per cent, yearly shall be applied by the company as a single premium at the company’s rate published and in force at that date, to the purchase of nonparticipating term insurance for the full amount insured by the policy. By the second nonforfeiture provision the owner of the policy had the option to apply to the company and surrender the policy to it within three months from such nonpayment of premiums, and have the net reserve and interest at 4 per cent, yearly applied to the purchase of a nonparticipating paid-up policy payable at the time the policy would be payable if continuing in force. The insured had paid the premiums for twelve years, and, if he had not secured a loan upon the policy the net reserve so calculated would have carried the policy for something more than eleven years. On July 30, 1899, there was a loan upon the policy then amounting to $617.30, and which matured on that day; it also being the day upon which the semi-annual premium was due, which he failed to pay. The first and second nonforfeiture provisions were not available because of the loan. The third nonforfeiture provision reads as follows: “If preferred the company will, on surrender of the policy, fully receipted within the said three months, pay as a cash surrender value its entire net reserve by the American Experience Mortality and interest at 4% per cent, yearly, less a surrender charge equal to 1 per cent, of the sum insured by the policy. If there be any loan upon the policy, such indebtedness shall be paid off out of the cash surrender value, and the remainder paid in cash by the company; or a value will be allowed by the company in the form of extended or paid-up insurance as above provided, the amount to be applied' to the purchase of such insurance being correspondingly reduced in the ratio of the indebtedness to the full cash surrender value.” This is the provision of the policy which must control in determining the rights of the parties.

It will be observed by the nonforfeiture provisions that-, where there is no loan upon the policy, the net reserve and interest at 4 per cent, purchases the extended insurance. Where there is a loan upon the policy, it is not the net reserve and interest which forms the basis for extended insurance, but the cash' surrender value of the policy. The cash surrender value is defined by the policy to be “its entire net reserve by the American Experience Mortality and interest at 4y2 per cent., less a surrender charge equal to 1 per cent, of the sum insured by the policy.” The table on thé policy shows this to be $617.30; besides, the evidence likewise establishes that to be the correct amount. On July 30, 1899, the.day Sudduth failed to pay the semi-annual premium on the policy, he owed exactly the amount of the cash surrender value of his policy. The net reserve under the first clause is computed on the basis of interest at 4 per cent., but under the third clause, to get the cash surrender value, on the basis of interest at the rate of 4y2 per cent. From a casual examination it might seem that, the greater the rate of interest, the greater the amount would be; but it is just the contrary, as the purpose is to find the present value of the policy, which has not matured, and the present value of a sum due in the future is smaller at 4% per cent, than at 4 per cent. The net reserve of the policy by the American Experience Mortality and interest at 4% per cent, is $666.30. The amount of the policy being $5,000, if there be deducted 1 per cent, of the sum insured, $50, from the net reserve at 4% per cent., there is left $617.30, the amount stated in the table. There was, therefore, on July 30th, after the payment of the note, nothing left of the cash surrender value to be applied to extended insurance.; and, the premium which was then due not being paid, by the terms of the contract the policy ceased. It was understood by Sudduth and the company when the loan was made that the cash surrender value of the policy on July 30, 1899, would be $617.30; therefore the company loaned him that amount, as it agreed to do under the nonforfeiture provisions of the policy, for it is there provided that it will “at any time while the policy is in full force loan up to the limit secured by its cash surrender value, upon a satisfactory assignment of the policy to the company as collateral security.” Sudduth anticipated the cash surrender value of the policy, and drew it in advance. The basis for settlement, after the nonpayment of the premiums, when a loan has been made to the insured by the company is, as plainly stated in the nonforfeiture provisions, as it is when no loan has been made and the insured requests that he be given “a nonparticipating paid-up policy.” He had the right to elect which nonforfeiture right he would accept. When he concluded to borrow from the company an amount, the exact equivalent of the cash surrender value of the policy, he could not fail to pay it and the premium, and then claiml the right to extended or paid-up insurance. By borrowing the money under the terms of the policy he had exhausted the entire amount of the cash surrender value of it, and. in failing to pay it and the premium he elected to settle on the basis of the cash surrender value of the policy. This is necessarily so, because he had nothing due him to purchase extended or paid-up insurance. Suppose Sudduth on July 30, 1899, had elected to take, under second option for settlement, a paid-up policy payable at his death. He certainly could not afterwards have had the right to exercise the first option, and get “nonparticipating term insurance for the full amount insured by the policy.” If he could not do this, it is manifest he could not take the cash surrender value of the policy, and then claim insurance under either of the other plans. The election to exercise one of the options for settlement excludes the right to a settlement under either of the others provided in the policy. Sudduth did not demand a' settlement under either the first or second nonforfeiture clause. Suppose he had done so. Presumably, the parties would have read from the nonforfeiture provisions the clause as follows: “If there be any loan on the policy, such indebtedness shall be paid off out of the cash surrender value, and the remainder paid in cash by the company; or a value will be allowed by the company in the form of extended or paid-up insurance as above provided, the amount to be applied to the purchase of such insurance being correspondingly reduced in the ratio of the indebtedness to the full cash surrender value.” Then they would have ascertained the insured’s indebtedness to the company to be $617.30. After deducting the surrender charge equal to 1 per cent, of the sum insured by the policy, the cash surrender value would have been found to be exactly $617.30. It would have demonstrated that he did not have one cent coming to him with which to pay for extended insurance or a paid-up policy. Of course, the company would have refused to have given him extended insurance or a paid-up policy, because there was nothing due the insured to purchase the same. After making the deduction there was no cash due the insured, so there was no value for the company to allow in the form of extended or paid-up insurance ; hence the policy was not in force when he died. To so hold does not work a forfeiture of any of the insured’s rights, but gives him all the rights which the company contracted to give him, and such as he agreed to accept. There is no element of forfeiture in the case. The three options given by the nonforfeiture provisions presumably were of equal monetary value. As to whether the insured would take one or the other depended entirely upon himself. If he did that which, by the express terms of his contract, showed he elected to take one instead of another, it can not be said he forfeited any right, but rather that he made a choice of rights or privileges thereunder. Sudduth simply withdrew from the company, and used money which he might have left with it as a protection for the future in case he failed to pay a premium. It does not claim a forfeiture of the policy for the failure to pay the nofe, but that the policy ceased to bind it upon the nonpayment of the premium. When this took place, then the nonforfeiture provisions became operative, and the rights of the parties should be determined thereby. That he might exercise the right as fully as he did, he procured the company to substitute the present nonforfeiture provisions for those which the policy originally contained. Appellant seeks the enforcement of the terms of the contract, which are not doubtful or uncertain in meaning. Judge Peckham delivered the opinion of the court in Holly v. Metropolitan Life Insurance Company, 105 N. Y., 442, 11 N. E., 510, in which it is said: “If language as plain and unambiguous as this is not only to be twisted out of its natural meaning, but is to be wholly ignored, by the courts of justice, it will be useless in the future for companies to make any effort to bind policy holders to perform their contracts. The use of language is to express ideas, and writing is resorted to in order to furnish conclusive proof of what language was used. Being certain of the language used, and the case being free from fraud or mistake, if such language is plain and susceptible of but one meaning, that meaning, even in cases of contracts regarding life insurance, must control.” T’here was nothing unjust in the fact that the policy allowed 4 percent. reserved, or $718.30, if that sum be used for extended or paid-up insurance; whilst it fixed a value of $617.30 to be paid to the policy holder in case of lapse. The company doubtless regarded -the benefit which it hoped to derive by the policy holder taking extended or paid-up insurance instead of cash, as being a good business reason for allowing $718.30 in the purchase of such insurance. The cash surrender value of the policy was not diminished because of the loan which the company made to Sudduth. If it was not, then the transaction was not usurious. If no loan had been made, the cash surrender value of the policy on July 30, 1.899, by its terms, was $617.30, and Sudduth could -.only have withdrawn that amount.

It is also urged that the insurance company, having assented to the assignment to the appellee, is estopped to make the defense now relied on. Appellee had no notice there was a loan on the policy, and'was informed by Sudduth, when he assigned the policy to it, that the policy was good for something over eleven years if he paid nothing more on the premiums, but there were then the following indorsements on the policy: “July 14, 1898, the existing indebtedness to the company on this policy is $549.60 (interest at 6 per cent, from July 30, 1898), as evidenced by the certificate of loan in the company’s possession. Paid off January 30, 1899, out of new loan. M. B. L. I. Co., per G. H. C.” “January 30, 1899, the existing indebtedness to the company on this policy is $599.32 (with interest at 6 per cent, from January 30, 1899), as evidenced by the certificate of loan in the company’s possession.” Appellee’s agents failed to observe these indorsements, but being on the policy at the time of the assignment, appellee took subject to them. While the contract above quoted stipulated that the company would loan on a proper assignment of the policy, it was not required to take an assignment. The policy was the obligation of the company to the assured. It was, therefore, properly held by him, and the indorsements on it were notice to all persons dealing with it that a loan had been made on it. No notice was given to the bank as to the maturity of the premium. It was given to Sudduth, which was sufficient, if a notice was necessary at all. Counsel relies upon section 653, Kentucky Statutes, 1899, as prescribing how policies shall be valued; but this is only for the guidance of the insurance commissioner in determining the solvency of the company, and has no application to a contract like the one under consideration. The cases of St. Louis Mutual Life Insurance Company v. Grigsby, 73 Ky., 310; Northwestern Mutual Life Insurance Company v. Fort’s Adm’r, 82 Ky., 269, 6 R., 271; New York Life Insurance Company v. Curry, 24 R., 1930, 72 S. W., 736, and other cases resting upon the same principle, áre not in conflict with the conclusions in the case at bar. In those cases the default was in the payment of a note or interest, not in the nonpayment of the premium. In this case the insured received the full amount he was entitled to under the plan of settlement which he elected to adopt, which does not appear to have been done in those cases. In this case the settlement is made in conformity to the contract of insurance.

The judgment is reversed for proceedings consistent with this opinion.