Atlantic Life Ins. Co. v. Pharr

• Decision Date: 27 June 1932
• Docket Number: No. 5981.,5981.
• Citation: 59 F.2d 1024
• Parties: ATLANTIC LIFE INS. CO. v. PHARR.
• Court: U.S. Court of Appeals — Sixth Circuit

59 F.2d 1024 (1932)

ATLANTIC LIFE INS. CO. v. PHARR.

No. 5981.

Circuit Court of Appeals, Sixth Circuit.

June 27, 1932.

Alex W. Parker, of Richmond, Va., and R. E. King, of Memphis, Tenn. (Ewing, King & King, of Memphis, Tenn., on the brief), for appellant.

S. P. Walker and W. H. Borsje, both of Memphis, Tenn. (Miles, Waring & Walker, of Memphis, Tenn., on the brief), for appellee.

Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.

HICKENLOOPER, Circuit Judge.

The sole question presented by this appeal is whether the policy of life insurance issued upon the life of Walter N. Pharr, June 16, 1920, was in force at the time of the death of the insured by virtue of its automatic nonforfeiture clause and its provision for extended term insurance. At the time of the issue of this policy the insured was a resident of the state of North Carolina; the Atlantic Life Insurance Company was a corporation organized under the laws of the state of Virginia; and at the time of his death the insured was a citizen of the state of Tennessee, where suit was brought; but none of the statutes of these several states controls the question to be decided.

The application of the insured was for a policy of "ordinary life, annual dividend, new disability plan." A policy purporting to cover these requirements was issued, but we are here concerned only with the provisions made for annual dividends and post mortem dividend, the automatic nonforfeiture clause, and the provision for cash value or extended term insurance printed in the margin.¹ On June 16, 1926, that is, when the contract had been in force for six full years, and when it had a cash surrender or loan value of but $1,420, according to the table of such values made part of the policy, the company loaned to the insured the sum of $1,740, the cash surrender value at the end of the then ensuing year, which sum was applied to the payment of the current premium, of a previous loan, and of interest charges, and the balance ($111.80) was paid in cash to the insured. Upon the due date of the June 16, 1927, premium, no payment was made. After the expiration of the period of grace, the agent of the company suggested reinstatement. Application for reinstatement was made, but was rejected except and unless upon a new medical examination. Such examination was never had. The premium notice contained the following statement:

"Surplus earnings of $115.20 under the above numbered policy will be due upon payment of the 1927 premium. The surplus earnings may be applied as follows:

"1st — Drawn in cash; or,

"2nd — Applied to the payment of premium; or,

"3rd — Applied to the purchase of $240.00 fully paid up insurance payable at maturity, in addition to the face of the policy; or,

"4th — Left with the Company to accumulate to your credit."

The District Court held that these "surplus earnings" (dividend) were available under the automatic nonforfeiture clause for the purchase of extended term insurance, and it is conceded that, if so applied, the policy was in full force and effect at the date of the death of the insured October 12, 1927. The appellant contends that the dividend was available for the purposes mentioned, under the policy provision for annual dividends, only if the premium for the then current year was paid, and that, if such premium were not paid, the insured having already borrowed the entire amount of the cash surrender value as of the due date of the premium, no fund whatever was available for the purchase of extended term insurance.

The appellee earnestly insists that, entirely apart from the availability of the dividend for the purchase of extended term insurance, the policy contained the statement that cash values were based upon the reserve by the American Experience Table of Mortality with 3½ per cent. interest; that a reference to this table discloses that an ordinary life policy with annual dividend carried a cash surrender value at the end of its seventh year sufficiently in excess of the surrender value stated in the policy to purchase the necessary extended insurance; that the company, by reason of the application and policy, both calling for an "ordinary life" policy, was obligated to set aside the reserves shown in the American Experience Tables; and that the insured was entitled to these reserve values whether shown in the policy or not. The actuary of the insurance company testified that no reserve whatever was set aside for this policy for the first year; the insurance being treated as term insurance for that year and as ordinary life insurance for the following years.

While there may be some doubt as to the natural equity of the company's position, in calculating the reserve according to a preliminary term valuation, and while apparently premiums were charged in excess of the company's rate for the attained age of the insured, indicating a premium write-up for some unexplained reason, we are not prepared to say that the express provisions of the policy as to cash surrender and loan values are void and of no effect because of the general statement that they were "based upon" the American Experience Table of Mortality with 3½ per cent. interest. This statement is perhaps true enough, so far as it goes. The true ground for criticism of this language is that the first year that the policy was in force was eliminated entirely from the calculation, as being a period of term...