American Ins. Union v. Lowry

• Citation: 62 F.2d 209
• Decision Date: 17 January 1933
• Docket Number: No. 6598.,6598.
• Parties: AMERICAN INS. UNION v. LOWRY.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

62 F.2d 209 (1932)

AMERICAN INS. UNION v. LOWRY.

No. 6598.

Circuit Court of Appeals, Fifth Circuit.

December 22, 1932.

Rehearing Denied January 17, 1933.

Claude V. Birkhead and Harold K. Standard, both of San Antonio, Tex., for appellant.

R. F. Spencer and A. J. Lewis, both of San Antonio, Tex., for appellee.

Before BRYAN, FOSTER, and SIBLEY, Circuit Judges.

SIBLEY, Circuit Judge.

A verdict for more than $29,000 was directed for Mrs. Lowry against American Insurance Union on a policy of insurance on the life of her husband. The policy was in his possession about a month without his having paid or definitely agreed to pay anything for it. From this result the union has appealed. The pleadings are a voluminous interchange of allegations, culminating in a prayer by the union for a reformation of the policy in equity, which was denied in directing the verdict as above stated. The controlling questions are: Was the policy a certificate of membership in a fraternal benefit society? Was it ineffective for want of delivery and prepayment of first premium? Did the terms of the policy waive the prepayment stipulated for in the application?

The union has a charter, granted under the laws of Ohio, and a constitution providing for a lodge system, a ritualistic form of work, and a representative government in general conformity to the definition of a fraternal benefit society under Revised Statutes of Texas, art. 4820. It had a license to do business as such in Texas during 1929, and had many "chapters" in the state which are testified to be active as such. The applications for membership used by it both before and after the month of July, 1929, required the signature by applicants of a solemn obligation to comply with the laws of the union then or thereafter in force, to obey its lawful orders, to refuse to do or permit fraud or wrong to the society or any member of it, not to recommend any one for membership of unsound health or immoral character, not to betray its secrets, and to submit on violation of the obligation to expulsion without disclosing passwords, signs, or grips. The constitution provided that an applicant should not become a "beneficial member" until his application is approved by the medical director, he has paid all required premiums and dues, and has been elected, obligated, and initiated in accordance with the laws of the society and his certificate delivered to him while in good health. During the month of July, 1929, when Lowry's application was taken, another form was in use. Lowry's application and the accompanying medical examination are in substance an ordinary application for life insurance. No reference whatever is made to the union as being a fraternal benefit society, or to its objects, constitution, or laws. The thing applied for is repeatedly called a policy of insurance, and not a certificate of membership. Premiums are spoken of, and not dues. Membership is mentioned but once in connection with an agreement that the statements of the application are to be warranties "for the purpose of inducing the American Insurance Union to receive me into the beneficial membership of said society," which might imply a distinction from general membership. Nothing was required of Lowry in the way of initiation, obligations, lodge work, or the like. The policy issued does speak of receiving Lowry into the union's membership, and makes several references to the charter, constitution, and laws of the society as governing certain matters touching the insurance, but it is otherwise an elaborate modern policy of life insurance. Thus it styles itself always, and refers to Lowry as the insured and not as a member of the union. The union's contract with the agent who took the application is dated July 1, 1929, and is a typical insurance agency contract, authorizing him to "procure applications for life insurance in the American Insurance Union" in a territory comprising fifty-three counties in Texas, and binding him to write a very large minimum each year. There is in its sixteen printed pages no reference to making members, establishing chapters or lodges, giving grips and passwords, or to any fraternal or charitable object, but the only talk is of insurance and premiums and commissions. The agent testifies he never initiated any one further than to take the applications on the current form. In this agent's territory at least, and certainly in the dealings with Lowry, we think the union was departing from fraternal benefit work, and was attempting to write life insurance. If so, the transaction must be tested by the laws of Texas relating to that subject. Berry v. Knights Templars' (C. C.) 46 F. 439, affirmed (C. C. A.) 50 F. 511; National Union v. Marlow (C. C. A.) 74 F. 775; Corley v. Travelers' Protective Association (C. C. A.) 105 F. 854; Modern Order of Praetorians v. Bloom, 69 Okl. 219, 171 P. 917; 19 R. C. L., Mutual Benefit Societies, p. 1186; See, also, Farmer v. State, 69 Tex. 561, 7 S. W. 220. This is the earnest contention of Mrs. Lowry, who seeks thereby to escape the provisions of the constitution and laws of the union which would, if applied, greatly endanger and certainly reduce her recovery. She cannot complain at the results of applying that law.

The application for insurance contains a stipulation that the insurance shall take effect from the date of the acceptance of the risk if the premium is prepaid, but if not "there shall be no liability hereunder until a policy shall be issued and delivered, and the first premium thereon actually paid during the lifetime and good health of the person proposed for insurance." The premium, which was elected to be paid quarterly, was not prepaid; nor did the application so indicate. The agent, however, owed Lowry an amount equal to half the first quarterly premium, which the agent had agreed to offset as representing his half of that premium, but it was also agreed between them that Lowry should pay the union's half in cash on delivery of the policy. This understanding was unknown to the union. The policy was issued at Columbus, Ohio, and dated September 10, 1929, but the premium rate fixed in it was higher than that proposed in the application, so that the policy was not an exact acceptance of the offer made in the application and Lowry was not bound to take it. It was mailed to the local agent under the general instructions in his agency contract "not to deliver any policy on which the first premium has not been fully settled during the good health of the applicant and within sixty days from the date the examination was actually made." The agent could not find Lowry in his office so as to deliver the policy. Lowry had just taken a position in Torreon, Mexico, and had moved thither. About October 1st he visited Texas, and called to ask if the policy had come. The agent was out of town, but a subagent told Lowry that it had arrived but could not be delivered until the premium was paid. Lowry asked to be permitted to take the policy out for inspection, and on his promise to return it was allowed to do so. He took it to Mexico, and was not again seen by the subagent or by the agent, though sought for. On these facts the presumption of delivery and the consequent presumption that the necessary premium had been paid which would arise from Lowry's possession of the policy, Miller v. Life Ins. Co., 12 Wall. 303, 20 L. Ed. 398, is fully rebutted. Bostick v. New York Life Ins. Co. (C. C. A.) 284 F. 256. His possession is shown to be wrongful and not in pursuance of a delivery to him and without payment of the first premium which he had agreed and had been reminded was a condition precedent to the effectiveness of the policy. That such a condition may be thus imposed upon the issuance of the policy, and must be fulfilled, is generally held, New York Life Ins. Co. v. Horton (C. C. A.) 9 F.(2d) 320; Jackson v. New York Life (C. C. A.) 7 F.(2d) 31; 14 R. C. L., Insurance, § 77, and is recognized in Texas. Denton v. Kansas City Life Ins. Co. (Tex. Civ. App.) 231 S. W. 436.

But it is argued that the union is estopped to deny that the policy is in force because for thirty-three days no objection was made to Lowry's keeping it. The circumstances under which Lowry...