Burgardt v. Lincoln Nat. Life Ins. Co.

• Decision Date: 07 March 1967
• Docket Number: No. 52300,52300
• Citation: 149 N.W.2d 292,260 Iowa 667
• Parties: Clayton BURGARDT, Appellant, v. The LINCOLN NATIONAL LIFE INSURANCE COMPANY, Appellee.
• Court: Iowa Supreme Court

Page 292

149 N.W.2d 292

260 Iowa 667

Clayton BURGARDT, Appellant, v. The LINCOLN NATIONAL LIFE INSURANCE COMPANY, Appellee.

No. 52300.

Supreme Court of Iowa.

March 7, 1967.

Rehearing Denied May 1, 1967.

Stewart, Miller, Wimer, Brennan & Joyce, Des Moines, for appellant.

Henry & Henry, Des Moines, for appellee.

MASON, Justice.

This is a suit for the proceeds of a life insurance policy issued by Old Line Insurance Company and assumed by defendant, The Lincoln National Life Insurance Company. The insured died and his original beneficiary assigned her interest to plaintiff, Clayton Burgardt.

This case has been before us on a prior occasion involving the short limitation-of-action provisions of the policy, which had been pleaded by defendant and made the subject of motion for determination of law points. The trial court held the action barred and we reversed. Burgardt v. Lincoln National Life Ins. Co., 244 Iowa 456, 56 N.W.2d 15.

On remand trial to a jury being waived, the matter was tried to the court upon the pleadings and stipulated facts.

The trial court held the policy lapsed for failure to pay the premium due November 20, 1940, was of no force and effect at insured's death and dismissed plaintiff's petition. Plaintiff appeals.

I. This appeal presents the question whether the policy was in force at insured's death. The answer requires a determination whether a duty was imposed on the company to give insured a month's notice as a condition to terminate the policy. It was stipulated defendant did not send any notice or notices of failure to pay premium loan indebtedness. Parties agree there is no ambiguity in the contract.

Plaintiff contends the company's failure to serve the one month's notice as required by the policy, had the effect of continuing it in force until insured's death.

Defendant, on the other hand, maintains the one month's notice was necessary only if the company sought to cancel the policy for nonpayment of insured's loan indebtedness and interest thereon, but not necessary to terminate it for nonpayment of premiums; the one month's notice provided for in the policy in the paragraph entitled 'Cash Loans' is only to be given when the insurer wishes to avoid the policy because the indebtedness thereon equals or exceeds the cash value.

II. The policy issued November 20, 1928, insured the life of Elder Nicholas Burgardt for $1500, naming his wife Yardie as beneficiary. The insured died July 12, 1942 of cancer.

Plaintiff alleged the policy was in full force and effect at insured's death and defendant refused payment.

The amount plaintiff is entitled to, if he prevails, is stipulated to be $1168.92 with five percent interest from April 9, 1949, the date of submission of proof of death.

Defendant pleaded (1) insured, in his application for the policy sued on, asked that the automatic loan privilege be effective and, therefore, the provisions of the policy relating to automatic premium loans were in full force and effect. This was admitted in reply; (2) insured failed to pay the quarterly premium due August 20, 1934 and thereafter, except the one due November 20, 1936 which he paid on an annual basis in the amount of $35.10; defendant advanced quarterly premiums due August 20 and November 20, 1934, and February 30, 1935, a semi-annual premium due May 20, 1935 and an annual premium due November 20 for the years 1935, 1937, 1938 and 1939. This was admitted. Defendant also pleaded it notified the insured in writing of the premium payments under the policy's automatic loan provisions. All the notices sent were stipulated; and (3) insured failed to pay the premium due November 20, 1940; on this date the policy had a loan value of $249 less total outstanding indebtedness by reason of previous advances of premiums and interest of $226.45; the balance of loan value was insufficient to pay the November 20, 1940 annual premium and interest on the total indebtedness to November 20, 1941; defendant applied the loan value balance of $22.55 to continue the insurance as term insurance until May 8, 1942; no tender or payment of the November 20, 1940 premium was ever made and the policy had lapsed and was no longer in force.

Plaintiff admitted defendant applied a sum termed by it 'balance of loan value available on November 20, 1940' to continue insurance as term insurance but denied the policy provided for such action by defendant and specially pleaded the policy provided otherwise.

To sustain this affirmative allegation plaintiff alleged that among the benefits, privileges and conditions set forth in the policy, three are material here:

(1) The part entitled 'This policy is non-forfeitable', which provides: 'After completion of premium payments, in cash for the first three policy years if any subsequent premium is not paid on the date when due, the insured may within 31 days after default in the payment of any premium, but not later, elect one of the following options: 1. To surrender this policy at the home office of the company for its cash value; or 2. To surrender this policy at the home office of the company for a paid-up policy, payable at the same time and upon same conditions as this policy, (without disability of double indemnity benefits), or 3. To let the insurance for the face amount hereof, continue as term insurance (without disability or double indemnity benefits), reckoned from the due date stated in the policy of the unpaid premium; under which option a pure endowment may be payable in cash to the insured, if living at the end of the endowment period hereof, if the value available under said option is in excess of that required to purchase paid-up life insurance for the face amount of this policy.

'If the insured shall not, within the 31 days after default, surrender this policy at the home office of the company for its cash value as provided in option 1, or for a paid-up policy as provided in option 2, the insurance will be automatically continued as provided in option 3, unless the insured shall have requested in writing automatic premium loans as herein provided.'

Plaintiff pleaded, with respect to these provisions insured had requested in writing automatic premium loans as provided in the policy. This was admitted in defendant's answer and was stipulated.

(2) The part entitled 'Automatic premium loans' insofar as material here provides: 'The company will advance any and all premiums becoming due hereon and remaining unpaid on the last day of the period of grace hereunder, and will charge such premium or premiums as a loan against this policy, together with interest at six per cent per annum in advance to the end of the current policy year, if written request has been received at the home office when application is made for this policy, or while no premium is in default, provided that the company will not so advance and charge up a premium, if the amount thereof and interest thereon, as aforesaid, together with any outstanding indebtedness hereon to the company, shall exceed the cash value of this policy at the end of the period which such premium, if advanced and paid would cover. Interest on any such loan shall, for subsequent policy years, be payable annually in advance at six per cent per annum. Such advancing and charging up of premium will be discontinued at any time on receipt at the home office of the insured's written request therefor. Premium loans hereon shall be subject to the same terms and conditions as any loan granted hereon by the company under the cash loan privilege above set forth. Any indebtedness thus created will be a first charge against the policy ranking in priority to the claim of any beneficiary or assignee. While this policy is thus carried in force, the insured may, without medical examination, resume payment of premiums' (Emphasis supplied).

Plaintiff pleaded insured was entitled to the benefits of the clause emphasized.

(3) The 'Cash Loan Privilege above set forth' so far as material provides: 'Failure to repay any loan granted, hereon by the company, or to pay interest thereon, shall not void this policy, unless the total indebtedness hereon to the company shall equal or exceed the then cash value of the policy, nor until one month after notice shall have been mailed by the company to the last known address of the insured and of the assignee, if any.'

Plaintiff pleaded defendant had failed to comply with the provision.

All premiums due the first five policy years were regularly paid in cash, premiums of $35.10 were made on an annual basis the first three policy years, premiums of $9.30 were made on a quarterly basis thereafter during this period; commencing with the eighth policy year, 1935, all premiums were paid on an annual basis with the 1936 premium being paid by insured in cash and the other years paid by loans. No request in writing or otherwise was ever made by insured to change from the annual basis to a semi-annual or quarterly basis, as required by the policy.

In November 1940, evidently during the grace period, defendant calculated a further loan of an annual premium could not be made from the cash or loan value which was less than the annual premium but, of course, more than a quarterly premium. No notice was sent to insured advising him of the status of his policy loan account or that the company did not intend to make future payment loans.

Alternative expiry calculations based on premium payments on a semi-annual and quarterly basis were introduced.

In connection with the calculation based on quarterly payments, it was stipulated if premiums had been payable on such basis, beginning November 20, 1940, the end of the twelfth policy year, the available loan value would have been sufficient to pay the premiums due November 20, 1940, and on the 20th days of...