Smith v. Mutual Benefit Life Insurance

In Banc.

PER CURIAM.

Upon a hearing of this cause by the Court in Banc the following opinion by Yalliant, J., in Division One is adopted as the opinion of the court.

Brace, Gantt, Burgess and Valliant, JJ., concurring; Robinson, C. J., Marshall and Fox, JJ., dissenting.

VALLIANT, J. — This is a suit on a policy of life insurance issued by the defendant, which is a New Jersey corporation, on the life of Samuel I. Smith for the benefit of his wife, the plaintiff, for $10,000. Smith and wife were residents of this State, the application was made to an agent of defendant in St. Louis, and the policy issued there; it is therefore a Missouri contract. There is no dispute on that point. The policy was issued June 10, 1884. The premiums were to be paid semiannually and were so paid up to and including the one due December 10, 1896, which continued the policy in full force up to June 10, 1897, when default in payment of the premium was made. Samuel I. Smith, the assured, died July 1, 1898. Plaintiff claims that by force of the statute, section 5856, Revised Statutes *334 ; 1889, the net value of the policy applied, as in the statute required, to temporary insurance, carried it for .its full amount to a date beyond that of the death of the assured, and that is unquestionably so, unless the facts relied on by defendant are- sufficient to take the case out of the operation of the statute, or unless in estimatingthenetvalueo-fthepolicyascalled for by the statute, the defendant is entitled to deduct the whole amount of indebtedness owing by Smith to it. There is little, if any, dispute as to the facts, and the differences as to the law come down at last to the question of whether or not the defendant is entitled to deduct from the net value of the policy, before investing it in extended temporary insurance, the cash loan made by it to Smith.

Defendant’s position is that the non-forfeiture provision of the statute above mentioned, does not apply to this case for three reasons: First, that the policy contains an agreement for an unconditional cash surrender value greater than the net value called for in section 5856; second, that it contains an agreement for the unconditional commutation of the policy for ^on-forfeitable paid-up insurance of a larger value than that required by section 5857; third, that the laws of New Jersey, the home of the defendant corporation, prescribe, in such case, a surrender value or paid-up or temporary insurance and the policy sued on contains an- agreement for such, in conformity to the laws of New Jersey.

A reference to the several sections of our statute on this subject is here- necessary. Section 5856, Revised Statutes 1889, provides that no life insurance policy shall, after the payment of two full annual premiums, be forfeited for the non-payment of a further premium thereon, but shall be commuted as follows: “The net value of the- policy, when the premium becomes due and is not paid, shall be computed upon the American experience table of mortality, with four and one-half per cent interest per annum, and after deduct *335 ing from three-fourths of such net value any notes or other indebtedness to the company, given on account of past premium payments on said policy issued to the insured, which indebtedness shall then be cancelled, the balance shall be taken as a net single premium for temporary insurance for the full amount written in the policy, and the term for which such temporary insurance shall be in force shall be determined by the age of the person whose life is insured at the time of default of premium,” etc.

Section 5857 provides that in the contingency referred to, in the foregoing section, the policy-holder may, within sixty days, demand a paid-up policy for an amount that the net value as above computed would buy at the usual rates of the company.

Section 5858 provides that when the death of the insured occurs within the period of the extended insurance called for in section 5856 (no other condition of the original policy being broken except the non-payment of premium), the company shall pay the full amount that would have been due on the policy if no default in the payment of the premium had been made, ‘ anything in the policy to the contrary notwithstanding. ’ ’

Section 5859 provides that the three preceding sections shall not apply, ‘ ‘ if the policy shall contain a provision for an unconditional cash surrender value at least equal to the net single premium for the temporary insurance provided hereinbefore, or for the unconditional commutation of the policy to non-forfeitable paid-up insurance for which the net value shall be equal to that provided for in section 5857, or if the legal holder of the policy shall, within sixty days after default of premium, surrender the policy and accept from the company another form of policy, or if the policy shall be surrendered to the company for a consideration adequate in the judgment of the legal holder thereof.”

*336 Prom the beginning, by agreement, the assured borrowed of defendant, thirty per cent of the premium each year, which loans bore six per cent interest; the balance of the premium he paid in cash and received at each payment a renewal receipt which showed the amount of the premium loan to date. When the premium due December 10, 1895, was required, the assured applied to the company for a loan of the whole amount thereof. This application resulted in an agreement, of date January 28, 1896, between the assured and the beneficiary on the one part and the company on the other, whereby the company was released from the non-forfeiture clause in the original policy, and in lieu thereof the parties agreed that certain other non-forfeiture provisions (which will be hereinafter shown) should be incorporated in the policy. Thereupon the company loaned the assured the full amount of the premium due at the time, $144.40 which carried the policy paid-up to June 10, 1896. This transaction brought the amount of the assured’s indebtedness for loans on account of past premiums up to $915.10. Then on May 8, 1896, the assured applied to the company - for a loan of cash, and the company agreed to lend him $672.10, out of which it would deduct interest on the previous loan up to December 10, 1896, interest on the increased loan to same date, and the premium due December 10, 1896, leaving $485.14, to be delivered to the assured in cash, all of which was done. This raised the amount of the indebtedness of the assured to the company to $1,587.20, which up to the date of the failure to pay the premium was by interest increased to $1,634.92. This includes the $485.14 cash loaned the assured. Now, if in estimating the net value of the policy, as required in section 5856, the defendant is entitled to deduct that $485.-14 and interest, and if that section of the statute governs the case, then the net value was sufficient to carry the policy as extended temporary insurance only to September 7,1897, but if the statute governs and if the de *337 fendant was not entitled to so deduct the cash loan, then the net value of the policy was sufficient to- carry it as extended temporary insurance to a date beyond July 1, 1898, which was the date of the death of the ássured. There is no necessity for arraying the figures here which are given by the actuaries and presented in the briefs of counsel, because whether we adopt the calculation of the one or the other, the result is as above stated. Does section 5856 apply to this case? Defendant says it does not, because — first, the policy as amended under the agreement of January, 1896, contains a provision for an unconditional cash surrender value at least equal to the net single premium required by section 5856; second, that it contains a provision for the unconditional commutation of the policy of larger value than that-called for in section 5857; and third, that it conforms to the laws of New Jersey in respect to non-forfeiture, extension and commutation. The clause of the amended policy relied- on to sustain this contention is as follows:

“When after two full annual premiums shall have been paid on this policy it shall cease or become void solely by the non-payment of any premium 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 non-participating 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 non-payment of premium, to the purchase of a non-participating 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 *338 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 the time of such non-payment of premium.

“The company will at any time while the policy is in 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. ’ ’

From this it appears that whilst the net value of the policy is to be computed on a four per cent basis instead of a four and one-half per cent basis as our statute calls for, and in that respect is more favorable to the policy-holder, yet it authorizes the company to deduct from the amount so computed all indebtedness of the assured to the company, which, if the plaintiff’s interpretation of the statute is correct, is very much less favorable to the policy-holder. Besides, the surrender value is payable only on condition that it be applied for within three months and the policy then surrendered and cancelled. That is not a provision for an unconditional cash surrender as required in section 5859. [Cravens v. N. Y. Life Ins. Co., 148 Mo. 583.] A like *339 condition is attached to the right of the policy-holder to a paid-up commuted policy. The requirement of a surrender of the original on the issuance of the new commuted policy would not be regarded as such a condition as would prevent th'e case falling within the provision of section 5859, because the surrender of the old policy would be the natural result of the issuance of the new policy, but the limitation to three months is a serious condition, and does take the case out of that section. Defendant’s third ground for holding the Missouri statute does not apply, is based on the amendment of section 5859 by the Act of 1895 (Laws 1895, p. 197). That amendment, in so far as it is claimed to affect this case, is: “If the policy shall have been issued by any company authorized to do business in this State, and organized under the laws of another State of the United States which prescribes a surrender value or paid-up or temporary insurance in case of default of payment of premiums, and shall contain an agreement for such surrender value, temporary or paid-up insurance, as prescribed by such other State as a part of said policy, ” then the Missouri statute is not to apply.

Plaintiff contends that this amendment would not affect this case even if the facts brought it within its terms, because the policy was issued in 1884 and could not be affected by»a statute, passed after that date, whilst defendant insists that as the amendment was passed in 1895, it was in force when the change in the policy was made in 1896 and governs the case. The question of the application of that amendment to- this case is really not before us, because the counsel for defendant in their brief, virtually concede that the policy as amended does not conform to the New Jersey law on this point, but they say, “We make the point as it presents an interesting question upon which other cases may turn. ’ ’

We are satisfied that the Missouri statute, section 5856, Eevised Statutes 1889, governs in this case, and this brings us to the consideration of the point on *340 which the defendant seems chiefly to rely and on which the case turned in the mind of the learned trial judge,, that is, as defendant contends, that in estimating the net value of the policy for extended temporary insurance, section 5856 authorizes the insurance company to-deduct not only the amount of loans made to the assured for payment or part payment of premiums to-keep the policy alive, but also cash loaned him to be: otherwise used as he might see fit. The argument is made for defendant that unless the company be allowed to so deduct the amount it would have no security for the loan. The defendant has the policy transferred to-it as collateral security for the loan, and in this instance-at least, the policy is ample security because the defendant will be allowed to- deduct the w*hole amount of' the debt due it from the amount due the plaintiff on the policy. Of course, if the assured should live beyond the period of the temporary insurance-, the policy would become extinct and the defendant would have only the personal liability of the estate of the assured to depend on. But, as the assured might die- within the extended period of the policy, we can not say that there-was no security at all. Such policies doubtless have-some commercial value available' in the market as collateral securities, varying, of course, according to the circumstances of the case-. But we have nothing to do with that. Such considerations can have no influence in construing this statute.- If the defendant advanced, the $485.14 to the assured believing that it would have the right to deduct it from the net value of the policy in case of non-payment of premium, before applying it to the payment of extended temporary insurance, whether because it so interpreted our statute or because-it considered that the terms of the policy as amended superseded the provisions of the statute, it did so under ■ a mistaken view of the- law. • Our law deems the subject of life insurance- one that requires especial protection, and in this particular, it has provided that the- *341 policy-holder shall have the benefit of the extended temporary insurance specified in section 5856, “anything in the policy to the contrary notwithstanding.” Therefore, though a policy should expressly declare that it was agreed between the insurer and the insured that the provisions of the statute relating to extended temporary insurance or commutation should not apply, still they would apply. And if the parties could not in the beginning place themselves outside the policy of the law, they could not by an amendment to the contract do so. There is a great deal of technical learning in the subject of life insurance and our lawmakers have proceeded on the theory that the average man who takes ■out a policy on his life is not equal in skill and learning in the technicality of that subject to the experienced officers of the insurance company, and for that reason have written into such contracts some provisions which the parties to them can not avmd. We hold, therefore, that the provisions of our statutes could no more have been avoided by the amendment to the policy in 1896, than by the original policy. And we hold, also, that the statute declaring that in ascertaining the net value of the policy it “shall be computed upon the American experience table of mortality with four and a half per cent interest per annum, and after deducting from three-fourths of such net value any notes or other indebtedness to the company, given on account of past premium payments on said policy issued to the insured, which indebtedness shall then be cancelled, the balance shall then be talmn as a net single premium for temporary insurance for the full amount written in the policy,” does not mean that indebtedness incurred by the assured for money borrowed from the company may also be deducted. The statute means only what it says, that indebtedness on account of past premium payments shall be deducted.

It is insisted by the learned counsel for the defendant that this plaintiff and her husband in his lifetime *342 have already drawn from the company the full amount of the cash surrender value of the policy and more, and that it would he unjust to allow her now to have the benefit of it applied as a premium for temporary insurance. True the plaintiff’s husband did obtain that amount of money from the company, but not after default in the payment of the premium, not after the provisions of the statute under discussion took effect, not as in payment to him of the cash surrender value of the policy, but he obtained it as a loan for which he executed his note and gave collateral security and for which his estate is liable to the defendant, and for which also the defendant holds the policy in suit as security.

This statute does not undertake to regulate all business transactions that may occur between the life insurance company and a policy-holder; it only puts its hand into the contract of life insurance; it deals only with the subject of insurance and premium, and if the parties choose to assume toward each the relation of borrower and lender of money other than to pay the premium, this statute has no concern with that relation.

One of the expert witnesses for the defendant stated that in his opinion all the indebtedness was on account of past premiums, but he did not mahe his theory clear. The opinion can not outweigh the fact that part of it was for cash loaned for another .purpose: Again, it is insisted that the defendant had the right to deduct the whole indebtedness out of the net value of the policy before applying it to the payment of temporary insurance, because the assured and the plaintiff had assigned the policy to defendant as collateral security for the loan. The borrowing of the money for a purpose other than the payment of a premium and the assignment of the policy as collateral security for the loan, put the parties, as to- that item, in a new relation to each other. By virtue of the policy, and the premium, the parties stood in the relation of insurer and insured, and the law of insurance governed them in that relation, but *343 when the assured borrowed money of the insurer and assigned the policy as collateral security, the law governing their rights in that respect is the same as if he had borrowed the money from a bank and given it the same collateral. In such case, the bank would have been entitled to a lien on the proceeds of the policy but not to appropriate to itself the premium which was to keep the policy alive.

At the close of the transaction of May 8, 1896, the assured was indebted to the defendant in the sum of $1,587.20, and that sum included interest up to December 10, 1896. On July 1, 1898, when the assured died, that sum had increased by interest at six per cent to $1,735.59, which amount deducted from $10,000, the amount due plaintiff on the policy, leaves $8,264.41, which sum with interest at six per cent per annum from July 1, 1898, is the amount with costs for which plaintiff should have recovered judgment in the circuit court. As we have all the facts before us, justice will be best served by entering judgment here without remanding the cause. - The judgment of the circuit court is reversed, and judgment for the plaintiff is entered here for $8,264.41, with interest at six per cent per annum from July 1, 1898, to date, and costs in both courts.

All concur.