Minnesota Mut. Life Ins. Co. v. Cost

• Citation: 72 F.2d 519
• Decision Date: 27 July 1934
• Docket Number: No. 966.,966.
• Parties: MINNESOTA MUT. LIFE INS. CO. v. COST.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

72 F.2d 519 (1934)

MINNESOTA MUT. LIFE INS. CO. v. COST.

No. 966.

Circuit Court of Appeals, Tenth Circuit.

July 27, 1934.

Henry I. Eager, of Kansas City, Mo., and Benjamin F. Hegler, of Wichita, Kan. (William C. Michaels and Meservey, Michaels, Blackmar, Newkirk & Eager, all of Kansas City, Mo., and Doherty, Rumble, Bunn & Butler, of St. Paul, Minn., on the brief), for appellant.

D. C. Martindell and C. M. Williams, both of Hutchinson, Kan. (W. D. P. Carey, of Hutchinson, Kan., on the brief), for appellee.

Before PHILLIPS, McDERMOTT, and BRATTON, Circuit Judges.

McDERMOTT, Circuit Judge.

Appellee recovered a judgment upon a life insurance policy which had lapsed for nonpayment of premiums before the insured's death, and upon which no reserve values had accrued. While a notice in conformity with section 40 — 411, R. S. Kan. 1931 Supp., was given less than thirty days before the premium was payable without grace, appellee successfully contended below, and renews the contention here, that the notice was ineffective because (1) the policy contained no provision for cancellation or forfeiture at the end of the grace period, and hence notice could not be given until the grace period expired, and (2) that the statute by implication requires a further notice, after the grace period has expired, that the policy had lapsed. A third contention is made by letter, after submission to this court, to the effect that the payment of a quarterly premium keeps the insurance alive for a year.

There is an agreed statement of the pertinent facts. The policy provides that it is based upon, and issued in consideration of, an annual premium paid in advance "and of the further payment of a like sum on or before each anniversary of the date hereof during the lifetime of the insured or until the prior maturity of the policy as an endowment; but premiums may be paid in instalments at the company's adopted rates for fractional premiums as stated in the margin hereof."

Under the heading "Premiums" the contract provides:

"Except as herein expressly provided, the payment of any premium or instalment thereof shall not maintain the policy in force beyond the date when the next premium or instalment thereof is payable.

"A grace of one month (not less than thirty days) and without interest therefor, will be allowed for the payment of every premium after the first, during which time the insurance shall continue in force. If death occurs during the period of grace the overdue premium will be deducted from the amount payable hereunder."

There are other provisions to which reference might be made, but these are sufficient to put beyond the pale of argument the conclusion that, save for reserve values not present here, the insurance coverage stops when the premiums cease. The institution of life insurance is founded upon the principle that the risk is carried in consideration of premiums paid. The Supreme Court of Kansas has said that "insurance companies can only survive by the prompt payment of premiums," Wolford, Administratrix, v. Nat. Life Insurance Co., 114 Kan. 411, 414, 219 P. 263, 264, 32 A. L. R. 1248; the Supreme Court of the United States has said "promptness of payment of premiums is essential in the business of life insurance," New York Life Ins. Co. v. Statham, 93 U. S. 24, 30, 23 L. Ed. 789. To the same effect, see Mutual Life Insurance Co. v. Hill, 193 U. S. 551, 559, 24 S. Ct. 538, 48 L. Ed. 788; Bach v. Western States Life Ins. Co. (C. C. A. 10) 51 F.(2d) 191; Jackson v. Mutual Life Ins. Co. (C. C. A. 8) 186 F. 447. From the four corners of the contract here involved, the intention of the parties is clearly discernible: For the first premium paid, the company insured Cost's life for one year, and gave him an irrevocable option to continue that insurance from year to year, or from quarter to quarter, upon payment of the stipulated premium. Cost was not obligated to pay renewal premiums; if he did not, no agreement was canceled and no right forfeited; his option expired by his nonacceptance. When he failed to pay a premium due, his insurance automatically lapsed or expired, and, save for the statute to be hereinafter considered, no affirmative action on the part of the company was necessary. Iowa Life Ins. Co. v. Lewis, 187 U. S. 335, 23 S. Ct. 126, 47 L. Ed. 204; Wolford, Administratrix, v. Insurance Co., 114 Kan. 411, 219 P. 263, 32 A. L. R. 1248; Lightner v. Insurance Co., 97 Kan. 97, 101, 154 P. 227; Lincoln Nat. Life Ins. Co. v. Hammer (C. C. A. 8) 41 F. (2d) 12, 18; Long v. Monarch Accident Ins. Co. (C. C. A. 4) 30 F.(2d) 929; Wastun v. Lincoln Nat. Life Ins. Co. of Ft. Wayne, Ind. (C. C. A. 8) 12 F.(2d) 422, 424; Mutual Reserve Fund L. Ass'n v. Cleveland Woolen Mills (C. C. A. 6) 82 F. 508; Brams v. N. Y. Life Ins. Co., 299 Pa. 11, 148 A. 855; Geha v. Baltimore Life Ins. Co., 110 Pa. Super. 236, 168 A. 525; Kukuruza v. John Hancock Mutual Life Ins. Co., 276 Mass. 146, 176 N. E. 788; Topinka v. Minn. Mut. Life Ins. Co., 189 Minn. 75, 248 N. W. 660; Williston on Contracts, § 758; Couch on Insurance, § 627; Cooley's Briefs on Insurance, p. 3543; 2 Joyce on Insurance, 1106.

The contract being clear and unambiguous, there is no occasion for invoking the rule that an ambiguity in an insurance contract will be resolved in favor of the insured. A strained construction will not be resorted to in order to raise an ambiguity. Order of United Commercial Travelers v. Edwards (C. C. A. 10) 51 F. (2d) 187; Chase v. Business Men's Assur. Co. of America (C. C. A. 10) 51 F.(2d) 34; East & West Ins. Co. of New Haven, Conn. v. Fidel (C. C. A. 10) 49 F. (2d) 35.

The agreed facts demonstrate that appellee is not entitled to recover on the contract. The policy was issued December 17, 1929, and the first annual premium paid. On the next premium paying date, the insured exercised his right to pay his premium quarterly; and thereafter made two quarterly payments, carrying the insurance, with the grace period, to July 17. He neither paid nor tendered the next quarterly premium, although repeatedly notified thereof. The grace period expired July 17. He was found dead the morning of July 28.

Since the submission of this appeal, the contention is advanced for the first time that by the payment of a quarterly premium, the insurance is extended for a year, and we are cited to Pedersen v. United Life Ins. Co., 139 Kan. 695, 33 P. (2d) 297. Construing the policy there involved, the court found no provision terminating the policy at the end of the quarter. There is a specific provision, quoted above, in this policy to that effect. In any event, the construction of a life insurance policy is a matter of general law, Ætna Life Ins. Co. v. Moore, 231 U. S. 543, 549, 34 S. Ct. 186, 58 L. Ed. 356; Washburn & Moen Mfg. Co. v. Reliance Marine Ins. Co., 179 U. S. 1, 15, 21 S. Ct. 1, 45 L. Ed. 49; O'Brien v. Massachusetts Bonding & Insurance Co. (C. C. A. 8) 64 F.(2d) 33; Curtis v. Prudential Ins. Co. of America (C. C. A. 4) 55 F. (2d) 97, and the authorities heretofore cited, and many others examined, establish the general law to be that a year's insurance cannot be purchased by paying a premium for three months. The Supreme Court of Kansas, in Balch v. Life Insurance Co., 116 Kan. 560, 227 P. 326, 327, held:

"This policy terminated at the expiration of each three-month period for which the premium had been paid unless an additional premium for an additional three months was paid before the expiration of the three months during which the policy was effective."

We come now to the notice statute in force when this policy was issued, and which is binding upon the parties ex proprio vigore. In 1913 the Kansas legislature, following the early lead of New York (Laws N. Y. 1876, c. 341) and other states, passed a statute (Laws Kan. 1913, c. 212) making it unlawful for a life insurance company to "forfeit or cancel" a policy for nonpayment of premiums without first giving written notice of its intent so to do, and affording the insured thirty days after such notice in which to pay such premium. The Supreme Court of Kansas held that such notice must be given after default, and that there was no default until the expiration of the grace period. Priest v. Bankers' Life Association, 99 Kan. 295, 161 P. 631. Since the thirty-day statutory period and the contractual grace period could not run concurrently, the result was that policies with provisions for grace periods were at a decided disadvantage; by providing that the statutory period might run concurrently with the contractual grace period, the discrimination against policies carrying grace provisions would be removed. Thus came about the amended statute of 1925 (chapter 184) carried forward in the 1927 codification (sections 40 — 410 and 40 — 411, c. 231, Laws 1927 R. S. Kan. Supp. 1931, 40 — 410, 40 — 411). Section 40 — 410 provides that it shall be unlawful for any life insurance company doing business in the state "within six months after default in payment of any premium or installment of premium, to forfeit or cancel any life insurance policy on account of nonpayment of any such premium or installment of premium thereon, without first giving notice in writing to the insured under such policy of its intention to forfeit or cancel the same."

Section 40 — 411 is as follows (the amendment pertinent here is italicized):

"Before any such cancellation or forfeiture can be made for the nonpayment of any such premium the insurance company shall notify the insured under any such policy that the premium thereon, stating the amount thereof, is due and unpaid, and of its intention to forfeit or cancel the same, and such insured shall have the right, at any time within thirty days after such notice has been duly deposited in the post office, postage prepaid, and addressed to such insured to the address last known by such company, to pay such premium: Provided, That in lieu of the notice hereinbefore provided, in...