Toulouse v. New York Life Insurance

245 P.2d 205, 40 Wash. 2d 538, 1952 Wash. LEXIS 357

• Court: Washington Supreme Court
• Decided: May 29, 1952
• Docket: 31771
• Status: Published

Opinions

Hill, J.

This appeal presents a challenge to the validity of an agreement between an insurer and an insured, where the insured, exercising one of the optional methods of settlement offered by an endowment policy on maturity of the policy, elected to leave the proceeds of the policy with the insurer, subject to withdrawal on demand, any amount remaining in the insured’s possession at the insured’s death to be distributed to designated third parties.

In this case the executor of the insured’s estate contends that the portion of the agreement which relates to distribution to the designated third parties on the death of the insured is void as an attempted testamentary disposition in violation of the statute of wills. He sues to recover the proceeds of the policy still in the possession of the insurer.

The insurance company takes the position that the agreement between the insurer and the insured constitutes a supplementary insurance contract and is a valid third-party donee-beneficiary contract.

When this appeal was first before us, the only parties before the court were the executor of the insured and the insurance company, and we refused to consider the issue presented, it being our view that the third parties named in the contract as distributees or beneficiaries were necessary parties to the litigation. Toulouse v. New York Life Ins. Co., 39 Wn. (2d) 439, 235 P. (2d) 1003. Since then all of the distributees or beneficiaries have entered into a stipulation agreeing to submit the issue to this court on the record made in the superior court.

The material facts are that December 1, 1923, the New York Life Insurance Company, hereinafter called “the company,” entered into a contract of insurance with Robert Sherlock, the same being a twenty-year endowment policy, No. 8 618 424. The beneficiaries named in the policy when it matured (December 1, 1943) were four nieces and a nephew of Mr. Sherlock; however, the policy was by its terms payable to Mr. Sherlock if he was alive on that date, and he therefore became entitled to the proceeds thereof.

Mr. Sherlock wrote a letter to the company, dated December 31,1943, and headed “Re Pol No. 8 618 424,” requesting “that $6000.00 of my maturity check be left with the Company under option 1,” and indicating his desire that each of the four nieces and the nephew named as beneficiaries in the policy have a one-fifth interest in any amount remaining with the company at his death. Option 1 of the policy was as follows:

“The proceeds may be left with the Company subject to withdrawal in whole or in part at any time on demand in sums of not less than one hundred dollars. The Company will credit interest annually on the proceeds so left with it at such rate as it may each year declare on such funds and guarantees that the rate of interest shall never be less than three per cent.”

After a statement of options 2 and 3 (with which we are not concerned) the policy provided:

“In the event of the death of a payee any unpaid sum left with the Company under Option 1 shall be paid, in one sum; any unpaid instalments payable under Option 2, or any instalments for the fixed period of twenty years only under Option 3 which shall not then have been paid, shall be commuted at three per cent compound interest, and unless otherwise agreed in writing shall be paid in one sum to the executors or administrators of such payee.” (italics ours.)

(We can appropriately at this point discuss an issue not raised by appellant but raised sponte sua by members of the court, i.e., whether, under Option 1, Mr. Sherlock and the company could agree in writing to the disposition to be made of any unpaid sum remaining in the possession of the company on his death. It seems to us that the concluding italicized phrase, beginning “and unless otherwise agreed in writing,” applied to Option 1 as well as to options 2 and 3. Unless it applied to Option 1, there was nothing to indicate to whom the “unpaid sum” left with the company under that option should be paid on the death of the payee. In any event, the parties to the agreement placed their own interpretation on Option 1. If there be any ambiguity in a contract, the interpretation which the parties have placed upon it is entitled to great, if not controlling, weight in determining its meaning. Thayer v. Brady, 28 Wn. (2d) 767, 770, 184 P. (2d) 50, and cases there cited. And that rule is applicable to contracts of insurance. Insurance Co. v. Dutcher, 95 U. S. 269, 273, 24 L. Ed. 410; Philadelphia Life Ins. Co. v. Daugherty, 23 Tenn. App. 311, 132 S. W. (2d) 224, 226; State ex rel. Northwestern Mut. Life Ins. Co. v. Bland, 354 Mo. 391, 189 S. W. (2d) 542, 549, 161 A. L. R. 423. We therefore proceed with further discussion of the case on the assumption that, in making the supplementary contract hereinafter referred to, the company and Mr. Sherlock proceeded under a right given Mr. Sherlock by the original policy of insurance.)

Pursuant to Mr. Sherlock’s election to leave six thousand dollars with the company under Option 1, the company issued to Mr. Sherlock a document captioned “Supplementary Contract No. 100 891,” dated January 7, 1944, by the terms of which it acknowledged that it was holding and agreed

“ . . . to continue to hold as a part of its general funds the sum of Six Thousand and 00/100 Dollars being part of the proceeds of Policy No. 8 618 424 issued by said Company on the life of Robert Sherlock.”

By that document the company further agreed to pay interest at a rate of not less than three per cent per annum; “to pay said sum with interest as aforesaid to Robert Sherlock (herein called the payee) on demand in sums of not less than $100 each”; and to pay the unpaid balance, if any, remaining in its possession at the death of Mr. Sherlock, as follows:

“Agnes Tooley, niece, 1/5, daughter of Mary Sherlock, sister of Robert Sherlock, Dominick Sherlock, nephew, son of Dominick Sherlock, brother of Robert Sherlock 1/5,' Bridget McCauley, niece, daughter of Madge Sherlock, sister of Robert Sherlock, 1/5 Bridget Sherlock, niece, daughter of Dominick Sherlock, brother of Robert Sherlock 1/5, and Margaret McCauley niece, daughter of Madge Sherlock, sister of Robert Sherlock, 1/5, if living, otherwise to the executors or administrators of said Robert Sherlock, upon receipt and approval of satisfactory evidence of their appointment and qualifications.”

This document remained in Mr. Sherlock’s possession, except when surrendered to have interest credited. At the time it was first forwarded to him, the company also forwarded to him for signature a form letter labeled “Form No. 1,” referred to by the company and found by the trial court to be an “acceptance certificate.” This letter was addressed to the company and was captioned

“Supplementary Contract No. 100 891 Re: —Policy No. 8 618 424.”

In it the desire of Mr. Sherlock that the company “hold $6000.00 of the proceeds of this policy” was expressed; also, his understanding of the conditions under which the money might be withdrawn and of the manner of calculating the interest was set forth in substantially the same language as in the document of January 7, 1944, with the addition of the following significant words: “It is understood and agreed that once your Supplementary Contract has been issued no change can be made in its terms.” These words, and all the rest of the body of the letter except the amount “$6000.00” in the first fine and the concluding paragraph, are part of the form acceptance certificate prepared by the company. The. concluding paragraph is as follows: •

“I further request that in the event of my death any balance remaining in the company’s possession is to be paid as follows, Agnes Tooley, niece 1/5, daughter of Mary Sherlock, my sister, Dominick Sherlock, nephew, son of Dominick Sherlock, my brother, 1/5, Bridget Me Cauley, niece, daughter of Doninick Sherlock, my brother, 1/5, and Margaret Me Cauley, niece, daughter of Madge Sherlock, my sister, 1/5, otherwise to the executors or administrators of my estate.”

This form letter or acceptance certificate was dated, in ink, “1/21/1944,” and was signed by Robert Sherlock and witnessed. It is stamped as having been received in the office of the company January 26, 1944.

Mr. Sherlock made no withdrawals, and the accumulated funds in the possession of the company on January 7, 1950, after Mr. Sherlock’s death and before the commencement of this proceeding, amounted to $7,164.31. The executor of Mr. Sherlock’s estate brought this action to recover that amount from the company.

The trial court concluded, as do we, that the original insurance policy (exhibit No. 3), supplementary contract No. 100 891 (exhibit No. 6), and the form letter or acceptance certificate of January 21, 1944 (exhibit No. 5) constitute the agreement between Mr. Sherlock and the company. (Inasmuch as one of the documents which we hold constitute the agreement between Mr. Sherlock and the company is captioned “Supplementary Contract,” we will, to avoid confusion, refer to that document as “exhibit No. 6,” and to the agreement between Mr. Sherlock and the company as evidenced by exhibits Nos. 3, 5 and 6 as “the supplementary insurance contract.”)

In view of this holding, assignments of error Nos. 3 and 4, predicated upon the executor’s contention that exhibit No. 6 alone constitutes the agreement between Mr. Sherlock and the company, are not discussed herein.

The trial court also concluded that the supplementary insurance contract is a valid agreement and that each of the five beneficiaries designated therein is entitled to one fifth of the amount in the possession of the company when Mr. Sherlock died. It therefore dismissed the action of the executor, and he prosecutes this appeal.

The right to take advantage of optional methods of settlement provided in an insurance policy is a valuable one and will be protected. The beneficiary (or, as in this case, the insured) acquires a vested interest in the company’s performance of that part of its contract of insurance. Such an interest is in the nature of a property right. The species of property is neither money nor real property, but a contractual obligation. Latterman v. Guardian Life Ins. Co., 280 N. Y. 102, 19 N. E. (2d) 978, 127 A. L. R. 450. Our insurance code specifically recognizes the right of insurance companies to make such policy settlement agreements:

“Any life insurer shall have the power £o hold under agreement the proceeds of any policy issued by it, upon such terms and restrictions as to revocation by the policyholder and control by beneficiaries, and with such exemptions from the claims of creditors of beneficiaries other than the policyholder as set forth in the policy or as agreed to' in writing by the insurer and the policyholder. Upon maturity of a policy in the event the policyholder has made no such agreement, the insurer shall have the power to hold the proceeds of the policy under an agreement with the beneficiaries. The insurer shall not be required to segregate funds so held but may hold them as part of its general assets.” RCW 48-.23.300; cf. Rem. Supp. 1947, § 45.23.30.

While this statute does not specifically provide that contracts such as the one here under consideration need not comply with the statute of wills, it seems to be implied.

The validity of supplementary insurance contracts by the terms of which insurance companies distribute the proceeds of insurance policies under optional methods of settlement, where the supplementary insurance contracts have provided for payment to designated third parties of any amounts remaining in the companies’ hands after the death of the payees, has seldom been passed upon by the courts. The validity of such provisions was assumed without question in Aetna Life Ins. Co. v. Bartlett, 53 F. Supp. 1005 (1944); New England Mut. Life Ins. Co. v. Harvey, 82 F. Supp. 702 (1949); Smith v. Smith, 172 F. (2d) 399 (1949).

In the opinion (written by Justice Augustus N. Hand) in Mutual Ben. Life Ins. Co. v. Ellis, 125 F. (2d) 127, 138 A. L. R. 1478 (1942), it was recognized that such a supplementary insurance contract would be valid but, going much further, the court stated that, although the contract before it in that case was not a supplementary insurance contract, because the beneficiary of the insurance policy had accepted none of the options offered by the company, it would be upheld as a third-party donee-beneficiary contract. In that case the insurer and the beneficiary had entered into what the court described as an entirely new agreement providing for certain payments to the beneficiary during her lifetime, any amount remaining at her death to be paid to three sisters of her deceased husband. The court there said that the rights of the sisters “would not be derived from the policies or through the exercise of the options but from the new agreement.” In the present case, the rights of the four nieces and the nephew in the supplementary insurance contract are derived from the original insurance policy through the exercise of Option 1.

Appellant has cited no cases and we have found none holding that supplementary insurance contracts such as the one in the present case are void, as testamentary dispositions in violation of the statute of wills. The cases on which the appellant relies deal, for the most part, with the requisites of gifts causa mortis and are not contract cases. Typical is the Washington case on which appellant places his principal reliance, Decker v. Fowler, 199 Wash. 549, 92 P. (2d) 254, 131 A. L. R. 961, which involved the ownership of government bonds. The bonds recited:

“ ‘The United States of America, For Value Received, Promises to Pay to Mr. Charles A. Marino, Payable on Death to Mrs. May Decker.’ ”

The bonds at all times remained in the possession of Mr. Marino. On his death Mrs. Decker claimed them. The court held that the bonds belonged to the executor of Mr. Marino’s estate since there had been no valid gift inter vivos or causa mortis to Mrs. Decker. We distinguished that case in In re Lewis’ Estate, 2 Wn. (2d) 458, 98 P. (2d) 654, 127 A. L. R. 628, by saying:

“In that case, the only question considered was whether decedent, by taking out in his lifetime certain government bonds in which another person was made a conditional beneficiary, had made a valid gift of the proceeds of the bonds to such beneficiary. It was held that he had not, because there had been no delivery sufficient to divest the donor of his present control and dominion over the bonds.”

We can agree that there was no valid gift to Mrs. Decker; however, at least two commentators on the Decker case reached the conclusion that there was a third-party doneebeneficiary contract, as contended by the dissenting judges. 14 Wash. L. Rev. 312; 27 Minn. L. Rev. 411. The overwhelming weight of authority is contrary to the result reached by this court in that case, and the rule there laid down has been changed by statute. RCW 11.04.230, 11.04.240; Rem. Supp. 1943, §§ 11548-60, 11548-61. The case of Decker v. Fowler, supra, is not persuasive authority on any proposition except that when the payee retains possession of such bonds, there is no gift to the person designated as the after-death payee.

We are not here concerned with the law of gifts, inter vivos or causa mortis; but with the question of whether or not the supplementary insurance contract between the insurance company and Mr. Sherlock confers any rights on Mr. Sherlock’s nieces and nephew named therein, to whom the company promised to pay any of the proceeds of the original insurance policy (plus accumulated interest) which might be in its possession when Mr. Sherlock died. Their rights under that contract are based upon the contractual obligation of the company to do what it agreed with Mr. Sherlock it would do. Mr. Sherlock might have defeated their rights by withdrawing all the money, but he had no right under the agreement to substitute someone else in their stead as the third-party donee-beneficiary; he could make no change in exhibit No. 6, in which the insurance company’s obligations were set forth. By analogy to insurance policy cases, the supplementary insurance contract gave the named nieces and nephew a vested interest (Massachusetts Mut. Life Ins. Co. v. Bank of California, 187 Wash. 565, 60 P. (2d) 675)—not in any specific property or to any amount of money, but in the performance of the contract by the insurance company.

The mere fact that the death of one of the parties to a contract is designated as a contingency upon which a promise to deliver property to a third-party donee-beneficiary turns, is not alone sufficient to make such a contract a testamentary disposition and subject it to the statute of wills. Warren v. United States, 68 Ct. Cl. 634, certiorari denied, 281 U. S. 739, 74 L. Ed. 1154, 50 S. Ct. 346; In re Koss’ Estate, 106 N. J. Eq. 323, 150 Atl. 360; Autenreith v. Commissioner of Internal Revenue, 115 F. (2d) 856; Robinson’s Women’s Apparel v. Union Bank & Trust Co., 67 F. Supp. 395; Mutual Ben. Life Ins. Co. v. Ellis, supra. As was said in the last cited case and quoted with approval in In re Howe’s Estate, 31 Cal. (2d) 395, 399, 189 P. (2d) 5, 1 A. L. R. (2d) 1171, “their right to enforce is based upon a contractual obligation and not on any interest in the property of the decedent.”

Deciding, as we do, that the supplementary insurance contract between Mr. Sherlock and the company is evidenced by exhibits Nos. 3, 5 and 6 and flows from and is the result of an exercise by Mr. Sherlock of Option 1 contained in the insurance policy, and that the supplementary insurance contract, like the original contract of insurance, constitutes a valid third-party donee-beneficiary contract and is not a testamentary disposition, we conclude that the trial court’s action in dismissing the complaint of the executor, appellant here, should be, and it hereby is, affirmed.

Grady and Finley, JJ., concur.