Bates v. Equitable Life Assur. Soc. of United States

• Decision Date: 15 December 1939
• Docket Number: 32212.
• Parties: BATES v. EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES et al.
• Court: Minnesota Supreme Court

288 N.W. 834

206 Minn. 482

BATES v. EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES et al.

No. 32212.

Supreme Court of Minnesota.

December 15, 1939

Appeal from District Court, Hennepin County; Luther W. Youngdahl Judge.

Action by Elsie K. Bates, administratrix de bonis non of the estate of Alice H. Knudtson, against the Equitable Life Assurance Society of the United States and others, to have a life annuity contract declared void and to recover the consideration paid by Alice H. Knudtson, less the amount received by her during her lifetime. From an adverse judgment, the plaintiff appeals.

Judgment affirmed.

Syllabus by the Court .

An annuity contract, authorized by statute to be issued, and issued by a life insurance company, is not a ‘ security’ of the sort dealt with by the blue sky law and so is not subject to the administrative powers of the securities commission.

Fred A. Ossanna, Edward J. Kotrich, and George A. French, all of Minneapolis, for appellant.

Kellogg, Morgan, Chase, Carter & Headley, David W. Raudenbush, and Samuel H. Morgan, all of St. Paul, for respondents.

JULIUS J. OLSON, Justice.

Plaintiff appeals from an adverse judgment entered after trial had and upon findings made by the court. No issue of fact is presented. The problem is purely one of law.

On October 29, 1935, defendant issued a life annuity contract whereby, in consideration of $1,500 duly paid, it agreed to pay to Alice H. Knudtson, quarterly, during her lifetime $26.98 beginning with January 25, 1936. Annuitant died January 15, 1937, and plaintiff was appointed representative of her estate. At the time of her death only four quarterly payments had accrued, and these had been punctually met.

This form of contract and many others of like tenure were not registered with or approved by the securities commissioner. Nor was this an isolated sale but rather one out of many made in the course of defendant's business. Plaintiff claims that this instrument is a ‘ security’ or ‘ investment contract’ as defined by our blue sky law, 1 Mason Minn.St.1927, § 3996-1 et seq., and as such is and should be subject to its provisions; that not having been so registered and approved its issuance was contrary to law, thereby voiding it; hence, that plaintiff is entitled to recover the consideration paid less the amount received during annuitant's lifetime. Plaintiff argues that the exception provided by 3 Mason Minn.St.1938 Supp. § 3996-2(7), which reads: ‘ Policy contracts of insurance companies licensed to do business in this state’ is of no avail to defendant as, so she claims, the contract is not a ‘ policy’ at all but that it is an ‘ investment contract.'

There is no question about defendant being an insurance company duly licensed and doing business an such in this state. And, as we have seen, the contract has been fully performed by the parties thereto in exact conformity with its terms. Likewise, it is perfectly clear that the basis upon which the promised payments were to be met is founded upon actuarial computation based upon the experience furnished by authentic mortality tables used by insurance companies in writing this form of contract. Obviously, too, neither annuitant nor defendant could know as a matter of certainty when annuitant would die. She was 63 years of age when the contract was made. Her life expectancy was 17.12 years. She might die soon after issuance of the contract, but there was also a fair chance that she might live many years beyond her expectancy. Expectancy is arrived at by the law of averages. The individual is but one of many contributing to the common fund out of which annuity payments are to be met. All are subject to the risks and uncertainties of life's tenure. So the contract is one having at least many things in common with what is commonly known as ‘ policy risks'. To the average person reading this instrument that would be the interpretation of it. Just as the average wage earner insures his life to protect his family in event of his untimely departure, so plaintiff's intestate purchased a life annuity to the end that she might be assured of a definite income during the remaining days of her life. In a fundamental sense the money so paid by her operated and made effective the same objective as would the premiums paid by the wage earner to protect those who are his dependents. While here the motivating impulse was not protection to others but rather and only to the annuitant, yet the thing desired and procured was security of income against investment hazards and uncertainties for the duration of annuitant's life. The mortality tables put in evidence as plaintiff's exhibit ‘ B’ disclose that of 71,871 females of annuitant's age (63 years) life would terminate at some point between that year and 49 years thereafter, when, theoretically, none of that group would be living.

Our insurance laws are collected in 1 Mason Minn.St.1927, c. 19. Under § 3287 there is ‘ established and continued a department of insurance’ the ‘ chief officer’ of which ‘ shall be styled the Commissioner of Insurance.’ As such he [§ 3288]‘ shall have and exercise the power to enforce all the laws of this state relating to insurance, and it shall be his duty to enforce all the provisions' thereof. Subsequent sections set up a workable scheme in respect to an official staff to make effective the provisions of such laws. Broad powers are...