246 U.S. 357 (1918), 378, New York Life Insurance Company v. Dodge

Docket Nº:No. 378
Citation:246 U.S. 357, 38 S.Ct. 337, 62 L.Ed. 772
Party Name:New York Life Insurance Company v. Dodge
Case Date:April 01, 1918
Court:United States Supreme Court

Page 357

246 U.S. 357 (1918)

38 S.Ct. 337, 62 L.Ed. 772

New York Life Insurance Company



No. 378

United States Supreme Court

April 1, 1918

Argued January 21, 1918




A law of a state, governing a life insurance contract made locally between a resident citizen and a locally licensed foreign corporation and prescribing how the net value of the policy shall be applied to avoid forfeiture if the premium be not paid, cannot be extended so as to prevent the policyholder, while present in such state, and the company from making and carrying out a subsequent, independent agreement in the company's home state, pursuant to its laws, whereby the policy is pledged as security for a loan and afterwards cancelled in satisfaction of the indebtedness.

Such attempt to engraft the law of the policy upon, the subsequent contract, so that the insurance shall remain enforceable in the courts of the state where the policy was issued without regard to its termination in satisfaction of the loan, is an invasion of the citizen's liberty of contract under the Fourteenth Amendment, and cannot be sustained through the license to the foreign corporation.

Page 358

A life insurance policy, issued in Missouri to a resident and citizen of Missouri by a New York corporation with Missouri license provided that the insured might obtain cash loans on the security of the policy on application at the company's home office, subject to the terms of its loan agreement, and that any indebtedness to the company should be deducted in any settlement of the policy or of any benefit thereunder. Held that this imposed no obligation on the company to make a loan subject to a Missouri nonforfeiture law governing the policy and devoting three-fourths of its net value to satisfaction of premium indebtedness exclusively and extension of the insurance in case of default.

Upon application, based on such a policy, addressed to the company at New York, accompanied by a loan agreement, both signed by the insured and beneficiary in Missouri, where both were resident citizens, and forwarded, with pledge of the policy as security, through the company's Missouri agent, and all received and accepted at its home office in New York, a loan was made, the amount being remitted by mail to the insured in Missouri in the form of the company's check on a New York bank payable to his order. The agreement declared in substance that it was made and to be performed entirely in New York under New York laws. Under it, in accordance with those laws, the pledge was foreclosed and the reserve of the policy extinguished in satisfying the loan. Held that the agreement was a valid New York contract, independent of the policy, and that the foreclosure was a defense to an action on the policy in the courts of Missouri, notwithstanding a Missouri nonforfeiture statute (Rev.Stats. 1899, 7897), devoting three-fourths of the net value to payment of premium indebtedness exclusively and in extension of the insurance, was there construed as continuing the insurance in force.

189 S.W. 609 reversed.

The case is stated in the opinion.

Page 365

MCREYNOLDS, J., lead opinion

MR. JUSTICE McREYNOLDS delivered the opinion of the Court.

Defendant in error brought suit January 27, 1915, in Circuit Court, Phelps County, Missouri, upon a policy dated October 20, 1900, on life of her husband Josiah B Dodge, who died February 12, 1912. She alleged that plaintiff in error, a New York corporation, had long maintained local offices and carried on the business of life insurance in Missouri, where she and her husband resided; that, in 1900, at St. Louis, he applied for and received the policy, she being named as beneficiary; that premiums were paid to October 20, 1907, when the policy lapsed, having then a net value, three-fourths of which, less "indebtedness to the company given on account of past premium payments" applied as required by the Missouri nonforfeiture statute (§ 7897), sufficed to extend it beyond assured's death. Further, that, upon application by assured and herself presented at St. Louis, the company there made him loans amounting, October 20, 1907, to $1,350, but of this only $599.65 had been applied to premiums. She asked judgment for full amount of policy less loan, unpaid premiums, interest, etc.

Answering, the company admitted issuance of policy, but denied liability because assured borrowed of it, November, 1906, at its home office, New York City, $1,350, hypothecating the policy there as security, and then failed to pay premium due October 20, 1907, whereupon, in strict compliance with New York law and agreements made there, the entire reserve was appropriated to satisfy

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the loan, and all obligation ceased. The assured, being duly notified, offered no objection. It further set up that, as the loan, pledge, and foreclosure were within New York, the federal Constitution protected them against inhibition or modification by a Missouri statute, and, if intended to produce such result, § 7897, Rev.Stats. Mo. 1899, lacked validity.

In reply, defendant in error denied assent to alleged settlement, maintained all transactions in question took place in Missouri, and asserted validity of its applicable statutes.

The Springfield Court of Appeals affirmed a judgment for $2,233.45 amount due after deducting loan, unpaid premiums, etc. 189 S.W. 609. It declared former opinions of the state supreme court conclusively settled the constitutionality of § 7897, and that the reserve, after paying advances for premiums, was thereby appropriated to purchasing term insurance, notwithstanding any contrary agreement. Burridge v. Insurance Co., 211 Mo. 158; Smith v. Mut. Ben. Life Ins. Co., 173 Mo. 329. Effort to secure a review by the Supreme Court failed.

Section 7897, Rev.Stats. of Mo. 1899, in effect until amended in 1903, provides:

No policies of insurance on life hereafter issued by any life insurance company authorized to do business in this state, . . . shall, after payment upon it of three annual payments, be forfeited or become void by reason of nonpayment of premiums thereof, but it shall be subject to the following rules of commutation, to-wit: the net value of the policy when the premium becomes due and is not paid shall be computed . . . , and after deducting from three-fourths of such net value any notes or other evidence of indebtedness to the company, given on account of past premium payments on said policies, issued to the insured, which indebtedness shall be then cancelled, the balance

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shall be taken as a net single premium for temporary insurance for the full amount written in the policy. . . .

This § and number 7899 are in the margin. *

Page 368

Both defendant in error and her husband, the assured, at all times here material resided in Missouri. Being duly licensed by that state, plaintiff in error, responding to an application signed by Josiah B. Dodge at St. Louis, issued and delivered to him there a five thousand dollar twenty-year endowment policy upon his life, dated October 20, 1900, naming his wife beneficiary but reserving the right to designate another. Among other things, it stipulated:

Cash loans can be obtained by the insured on the sole security of this policy on demand at any time after this policy has been in force two full years, if premiums have been duly paid to the anniversary of the insurance next succeeding the date when the loan is made. Application for any loan must be made in writing to the home office of the company, and the loan will be subject to the terms of the company's loan agreement. The amount of loan available at any time is stated below, and includes any previous loan then unpaid. Interest will be at the rate of five percent per annum in advance.

Continuation after failure to pay premium was guaranteed, also reinstatement within five years. It further provided:

Premiums are due and payable at the home office

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unless otherwise agreed in writing, but may be paid to an agent producing receipts signed by one of the above-named officers and countersigned by the agent. If any premium is not paid on or before the day when due or within the month of grace, the liability of the company shall be only as hereinbefore provided for such case. . . . Any indebtedness to the company, including any balance of the premium for the insurance year remaining unpaid will be deducted in any settlement of this policy or of any benefit thereunder.

By an application addressed to the company at New York accompanied by a loan agreement, both signed at St. Louis and "forwarded from Missouri Clearing House Branch office, August 29, 1903," together with pledge of the policy, all received and accepted at the home office in New York City, the assured obtained from the company a loan of $490. Its check for the proceeds, drawn on a New York bank and payable to his order, was sent to him at St. Louis by mail. Annually thereafter, the outstanding loan was settled and a larger one negotiated, all in substantial accord with plan just described. The avails were applied partly to premiums; the balance went directly to assured by the company's check on a New York bank. Copies of last application, loan agreement, and instruction which follow indicate the details of the transaction:


Nov. 9, 1906

New York Life Insurance Company, 346 & 348 Broadway, New York:

Re Policy No. 2054961

Application is hereby made for a cash loan of $1,350.00 on the security of the above policy, issued by the New York Life Insurance Company on the life of Josiah B. Dodge, subject to the terms of said company's loan agreement.

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Said policy is...

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