Burch v. Prudential Ins. Co. of America

• Decision Date: 16 May 1945
• Docket Number: 40.
• Citation: Burch v. Prudential Ins. Co. of America, 42 A.2d 671, 184 Md. 664 (Md. 1945)
• Parties: BURCH v. PRUDENTIAL INS. CO. OF AMERICA.
• Court: Maryland Court of Appeals

42 A.2d 671

184 Md. 664

BURCH v. PRUDENTIAL INS. CO. OF AMERICA.

No. 40.

Court of Appeals of Maryland

May 16, 1945

Appeal from Superior Court of Baltimore City; Eugene O'Dunne Judge.

Action at law by Louis Claude Burch against Prudential Insurance Company of America, upon a special agency contract to collect renewal commissions on life insurance premiums, the payment of which by insured had been waived by defendant company pursuant to terms of insured's policy. Judgment for defendant, and plaintiff appeals.

Judgment affirmed.

Francis B. Burch, of Baltimore (Armstrong, Machen, Allen & Eney and Julius G. Maurer, all of Baltimore, on the brief) for appellant.

Eli Frank, Jr., of Baltimore (Frank, Skeen & Oppenheimer, of Baltimore, on the brief), for appellee.

Before MARBURY, C.J., and DELAPLAINE, COLLINS, GRASON, MELVIN, HENDERSON and MARKELL, JJ.

HENDERSON Judge.

The appellant in this case brought an action at law in the Superior Court of Baltimore City upon a special agency contract, to collect renewal commissions on life insurance premiums, the payment of which by the insured had been waived by the appellee pursuant to the terms of the insured's policy. From a judgment for the appellee by the Court, sitting as a jury, the case comes here.

Section 2 of the special agency contract, entered into between the parties on August 8, 1937, provided for the payment of commissions, with respect to business procured by the agent personally, on all premiums and considerations collected by him and paid to the company in cash during the continuance of the contract. Section 4 of the contract read as follows: 'That no commissions shall be paid to the Agent on account of any policy or Annuity contract, issued under this contract, after it has been lapsed or after the discontinuance of premium or consideration payments for any reason, by the insured, the annuitant or the holder of the policy or Annuity contract; but, if during the continuance of this contract the Agent shall secure the revival of any policy or Annuity contract originally written by him personally, the Company will pay commissions thereon to the Agent in accordance with Section 2 hereof, as though the policy or Annuity contract had not been lapsed; but, where the Agent secures the revival of any policy or Annuity contract not written by him personally, the Company reserves the right to adjust credit and commissions in accordance with its general rule and practice.' Section 8 provided 'that if the Company shall return all the premiums or considerations or any portion thereof * * * the Agent shall repay to the Company, on demand, the amount of commissions received by him on premiums or considerations so returned.'

On October 1, 1937, the appellant procured a customer who took out a life policy containing a provision that the company, upon proof that the insured had become totally and permanently disabled before the age of sixty, would 'waive the payment of certain premiums otherwise payable under this policy.' The premiums to be waived were defined as those 'the due date of which (not including days of grace) shall occur after disability has become total as above defined but in no event before a date more than one year prior to the date of receipt by the Company of notice of disability as described in paragraph (d) above. Dividends under this Policy will be allowed as though the disability had not occurred. If disability occur during the days of grace for payment of a premium, the Insured shall be liable for payment of such premium, with interest, if any.' Paragraph (h) provided: 'The disability provisions in this Policy are granted without specific extra premium being charged therefor, but the cost thereof is included in the premium for this Policy.'

The insured became totally and permanently disabled in 1941, and, upon satisfactory proof, the company waived payment of the sixth and seventh annual premiums falling due on October 1, 1942, and October 1, 1943. The appellant claims renewal commissions thereon.

The sole question presented is whether the waiver of these premium payments constituted a 'discontinuance of premium or consideration payments for any reason by the insured', within the meaning of Section 4 of the agency contract. The appellant contends (1) that the payments were not discontinued, but were in fact continued by the insurer on behalf of the insured. The appellant further contends (2) that the trial court erred in excluding testimony as to a custom and usage among insurance companies to pay, on behalf of their insureds, premiums waived during disability.

1. The evidence upon which the appellant relies, to establish his first contention, consists of financial statements of the appellee and its answers to interrogatories, that may be summarized as follows:

Upon the books of the company, premiums waived (less commissions and taxes), as well as disability payments made by it, are carried under the heading 'Disbursements: permanent and total disability.' Reinsurance is deducted from the gross amount of these 'disbursements'. The amount of these premiums waived, thus debited to disability claims, is credited to 'premiums by Disability claims'. These balancing entries, not payments but accruals, seem to be designed by appropriate bookkeeping to show separately the status of life risks and disability risks. The company pays dividends in cash during the period premiums are waived, which may be applied by the insured to the reduction of any premiums due; if so applied the company pays commissions thereon. The company makes premium loans under some circumstances, and after application to premiums due, allows commissions thereon. In some cases it permits an insured to anticipate loan values, and in such cases allows commissions.

It may be gathered from these statements and admissions that the insurer recognizes that the insured possesses all of the rights and benefits under the policy, after waiver of premiums, that he would enjoy if the premiums were paid by the insured. The effect of the entries upon the books of the company is to reduce its net worth by reason of the expected loss of revenue incidental to the operation of the waiver of premium clause. But it is difficult to see how such entries could convert nonpayment into payment, or a liability into an asset.

No new consideration passes from the insured to the insurer after waiver; at most, the entries only indicate a...