Brown v. Mutual Life Ins. Co. of N. Y.

• Decision Date: 25 February 1938
• Docket Number: 14622.
• Citation: 195 S.E. 552,186 S.C. 245
• Parties: BROWN v. MUTUAL LIFE INS. CO. OF NEW YORK.
• Court: South Carolina Supreme Court

195 S.E. 552

186 S.C. 245

BROWN v. MUTUAL LIFE INS. CO. OF NEW YORK.

No. 14622.

Supreme Court of South Carolina

February 25, 1938

Appeal from Common Pleas Circuit Court of Spartanburg County; G Dewey Oxner, Judge.

Action by Beatrice C. Brown against the Mutual Life Insurance Company of New York on a life policy of which the plaintiff was beneficiary. From a judgment for defendant, plaintiff appeals.

Affirmed.

Carlisle Brown & Carlisle and Johnston & Williams, all of Spartanburg for appellant.

Thomas, Lumpkin & Cain, of Columbia, and Nicholls, Wyche & Russell, of Spartanburg, for respondent.

BAKER Justice.

The plaintiff, Beatrice C. Brown, hereinafter designated as the appellant, sought to recover the sum of $2,999, with interest from April 20, 1933, which she alleges is due her as the beneficiary in a policy of life insurance written by the defendant-respondent, the Mutual Life Insurance Company of New York, on her late husband, Jahew Y. Brown, who died on March 4, 1932, waiving in her complaint any right to recover any sum in excess of the amount prayed for.

Pursuant to a written application dated January 10, 1927, a policy for $5,000, dated February 10, 1927, was executed and issued by the respondent, but was not delivered to the insured until March 22, 1927, in consideration of an annual premium of $318.40, payable in quarter-annual premiums of $84.40 each. In the early part of 1928 the insured discovered that he had erroneously reported his age in the application as fifty-six, when in fact he was only fifty-three, and on March 26, 1928, in order to adjust the policy to his true age the policy was reissued in the amount of $5,752, and the quarter-annual premium was reduced from $84.40 to $84.38.

The policy as rewritten, and with reference to the amount and due dates of the premiums, contains the following: "This policy is issued in consideration of the application and of the payment of the first premium of Eighty-four and 38/100 Dollars, receipt of which is hereby acknowledged, and of the payment to the Company of Eighty-four and 38/100 Dollars on each Tenth day of May, August, November and February hereafter until the death of the Insured."

Immediately following the above is this statement: " This policy takes effect as of February 10th, 1927."

The quarter-annual premiums becoming due under said policy were settled on said quarterly dates or grace periods, either by the payment of cash with the aid of dividends, or loans up to, but not including, February 10, 1931. Therefore the policy remained in force for four full years. In the meantime the insured had borrowed upon the sole security of the policy the sum of $496.31, upon which interest of $29.77 accrued to February 10, 1931, making the total outstanding indebtedness as of February 10, 1931, the sum of $525.90. Neither the premium, loan, nor loan interest maturing on February 10, 1931, was paid when due or within thirty days' grace and the insured did not within three months thereafter elect one of the given options controlling the disposition of the net cash surrender value of the policy. Accordingly, and in conformity with the terms of the said policy, the net cash value thereof amounting to $106.94, after the deduction of the surrender charge, was used for the purchase of extended term insurance in the amount of $5,352 for a term of 353 days.

It is alleged in the complaint that the policy of insurance was in full force and effect at the time of the death of the insured, which occurred on March 4, 1932, and that due demand had been made for the payment of the proceeds of said policy, and such demand had been refused. The defendant's answer alleged that the policy had become lapsed for nonpayment of the annual premium becoming due on February 10, 1931, and no option having been elected by the insured, the net cash value thereof had been applied to the purchase of extended term insurance in the amount of $5,352, for a term of 353 days from February 10, 1931, or to January 29, 1932, on which date the insurance expired, and, therefore, the policy became void and of no effect prior to the date of the insured's death. At the conclusion of the evidence both plaintiff and defendant made motions for direction of verdict in their respective favors. The case was submitted to the jury, but the trial judge, Honorable G. Dewey Oxner, reserved the right to consider and determine the issues involved, and to direct a verdict if he later decided that either of the motions for direction of verdict should be granted. This reservation was duly consented to by counsel in open court. The jury returned a verdict for the plaintiff, but Judge Oxner, at a later date, after a careful study of the facts and applicable law, concluded that defendant's motion should be granted, and plaintiff's motion refused. Whereupon the verdict of the jury was set aside, and judgment entered for respondent.

The principal question raised by the issues is: "Was the insurance in force at the death of the insured?" However, the determination of this question requires the answering of two dependent questions, to wit:

(a) Does the contract of insurance permit the defendant insurance company to deduct a surrender charge from the reserve value of the policy before ascertaining the amount available for application under the nonforfeiture provisions thereof?

(b) Does the term of extended insurance commence to run from the anniversary of the date of the delivery of the policy, or from the due date of the premium in default?

In the event the respondent does not have the right to deduct a surrender charge, then there would be an additional amount of money to be applied as a premium sufficient to have carried the extended insurance over and beyond the date of the death of the insured.

Section 6 of the policy of insurance, under the heading "Cash Value," is in part as follows:

"At any time after at least three full years' premiums have been duly paid but not later than three months after default in payment of premium, this policy may be surrendered for its net cash value. Such net cash value shall be the cash value as defined below less any indebtedness to the company hereon.

(a) If all past due premiums have been paid, (1) the cash value on any anniversary of the date of the policy or any premium due date other than an anniversary shall be the reserve at such time for the face amount of this policy and for any dividend additions hereto increased by any accumulated dividend deposits and less a surrender charge of not more than one and one-half per cent of the face amount of this policy, or (2) the cash value on a prior date shall be the cash value mentioned in (1) less interest thereon at the rate of six per cent a year."

Section 7 of the policy, under the heading "Options on Lapse," is in part as follows:

"(a) Continued Term Insurance. If any premium remain unpaid at the end of the days of grace, and if at least three full years' premiums have been paid, this policy will, without action on the part of the Insured, continue, as from the due date of such premium in default, as paid-up non-participating term insurance.

The amount of such term insurance shall be the face amount of this Policy increased by any dividend additions and by any dividend deposits and decreased by any indebtedness to the Company on this Policy. The term shall be such as the net cash value at such premium due date provided for in Section 6 (adjusted for any later loans, surrender of dividend additions, or withdrawal of dividend deposits) applied as a net single premium will purchase." (Italics added.)

The policy of insurance does not define "surrender charge," but a construction thereof may be formulated from the evidence of the respondent. Insurance business is based upon the law of averages. Normally, only good risks permit their contracts of insurance to lapse, thereby raising the percentage of risk of that group remaining in force. The remaining group of policies in force, being closer to the time of death, and closer each passing day, should have a higher cash reserve than the average of the total group. Then, the greater portion of the reserve fund should be available to those who continue to pay their premiums and thereby augment the reserve fund than to those who default in the payment of premiums and exercise the options under the policy or obtain extended insurance, the choice of any option or extended insurance, without the further payment of premiums thereby depleting the total amount of the reserve fund. The surrender charge is then made to offset the depletion of the reserve fund in order that those who continue to pay shall receive from the reserve fund the same benefits as if all policies had remained in force. From an actuarial standpoint the charge is made to take care of the increased mass or group load of mortality necessarily placed upon those that remain by virtue of the falling off of those in normal health who stop payment.

It has been uniformly held that the exaction of a surrender charge from the reserve, when provided for in the policy, there being no prohibitory statute, is valid. 37 C.J. 514.

The policy provides that the cash value on any anniversary of the date of the policy or any premium due date, other than an anniversary, shall be the reserve at such time for the face amount thereof, and for any dividend additions thereto increased by any accumulated dividend deposits and less a surrender charge of not more than 1 1/2 per cent. of the face amount of the policy. The record shows that the surrender charge exacted was 1 1/4 per cent. of the face of the policy, and therefore within the limits prescribed.

The appellant claims that the right to deduct a surrender charge is...