Caine v. John Hancock Mutual Life Insurance Co.

• Decision Date: 16 February 1963
• Docket Number: No. 14850.,14850.
• Citation: Caine v. John Hancock Mutual Life Insurance Co., 313 F.2d 297 (6th Cir. 1963)
• Parties: Catharine D. CAINE et al., Plaintiffs-Appellees, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

313 F.2d 297 (1963)

Catharine D. CAINE et al., Plaintiffs-Appellees, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, Defendant-Appellant.

No. 14850.

United States Court of Appeals Sixth Circuit.

February 16, 1963.

Gordon B. Wheeler, Grand Rapids, Mich., for appellant, Uhl, Bryant, Wheeler & Upham, Grand Rapids, Mich., on the brief.

Harold S. Sawyer, Grand Rapids, Mich., for appellees, Warner, Norcross & Judd, Harold S. Sawyer, Charles C. Lundstrom, Grand Rapids, Mich., on the brief.

Before MILLER and O'SULLIVAN, Circuit Judges, and DARR, District Judge.

O'SULLIVAN, Circuit Judge.

Until his death on July 8, 1956, Louis S. Caine was an executive employee of James Heddon's Sons of Dowagiac, Michigan. As such, his life was insured under a group policy written by appellant, John Hancock Mutual Life Insurance Company. Plaintiffs-appellees, Catharine D. Caine, et al., are the widow, daughter and grandchildren of said Caine and his beneficiaries under the aforesaid group policy. The question involved in this litigation is whether the sum of $100,000.00 or the sum of $40,000.00 was, under the policy, payable upon Caine's death. Appellant Insurance Company admitted liability for $40,000.00. Suit for $100,000.00 was brought by plaintiffs. The cause was tried to a United States District Judge for the Western District of Michigan, who gave judgment for plaintiffs for $100,000.00, (payable in accordance with the terms of a settlement option). The insurance company appeals.

Murchison Brothers of Dallas, Texas, controlled many enterprises. One of these was Caine's employer, James Heddon's Sons. A trust was formed, called the Mississippi Lamar Insurance Trust, (sometimes referred to as the Insurance Fund), through which group policies were provided for the employees of various Murchison operations. James Heddon's Sons, as well as other Murchison enterprises, by defined methods, became participants (Contributing Employers) in the plan and thereby, through John Hancock Mutual Life Insurance Company, provided various benefits for their respective employees.

The Murchisons had a practice of designating various members of the management personnel of their companies as members of what was called the Executive Council. Entrance into, or departure from, such Executive Council appeared to be a matter wholly within the discretion of the Murchisons. Membership therein was determined by John D. Murchison, one of the Murchison brothers, or by James H. Clark, a senior employee of the Murchison interests. The only direct emolument or perquisite flowing from membership on the Executive Council was a larger life insurance benefit provided for such a member, as distinguished from other classes of employees of the various contributing employers.

The controlling issues of the litigation are: First, whether Caine was, on the date of his death, July 8, 1956, a member of the Executive Council (if he was, $100,000.00 of insurance proceeds were payable to his beneficiaries); Second, if not, did the termination of his membership on such Council give him a conversion privilege which, under the facts of this case and the terms of the policy, entitled his beneficiaries to $100,000.00 insurance; and, Third, whether the District Judge erred in awarding interest, from date of proof of claim, on the $40,000.00 which defendant admitted owing.

Louis S. Caine was a long-time employee of James Heddon's Sons. From August 1, 1953, to February 28, 1955, he was its president, with an annual salary on the latter date of $30,000.00. On September 28, 1955, he became a vice-president at a reduced salary of $22,500.00; on April 24, 1956, as vice-president (at a lower level of authority) his salary was fixed at $13,200.00. Through 1953, 1954 and in 1955, until his resignation as such on April 19, 1956, he was a director of Heddon's. From an original amount of $20,000 (1954) the life insurance provided for each member of the Executive Council was raised to $100,000.00, which was the amount in effect during the months of June and July, 1956, (Caine's death occurred July 8, 1956).

Caine was designated as a member of the Executive Council in 1954. The purpose of appointing an executive to such Council was "to provide him with an incentive to work harder and to stay with the company." Caine continued as an Executive Council member, in all events, until the month of June of 1956. In an office memorandum made on, or just prior to, June 27, 1956, John D. Murchison, by an interlineation thereon, gave direction to strike the name of Louis S. Caine from the list of members of the Executive Council. Advice of such action was given to the then President of James Heddon's Sons by a letter mailed from Dallas, Texas, on June 28, 1956, which said, "We have been instructed by the Management Committee of the Mississippi Lamar Insurance Trust to eliminate Louis S. Caine from the Executive Council. This has been done and you should handle your billing accordingly.¹ Based on the salary set forth in your letter of May 24th, Lou is now entitled to $22,000.00 of insurance." This letter was received by James Heddon's Sons on July 2, 1956. In the forenoon of that day, Louis S. Caine left his office because of illness. He did not return, and died in a hospital six days later on July 8. It was stipulated that he remained in the employ of Heddon's until his death. It was further stipulated that, except for his illness, Caine would, on July 2, 1956, have been notified of his removal from the Executive Council. He was never so notified, but in making up the July 1 list of Heddon's employees for its current report of insured employees, the amount shown for Caine was reduced on the basis that he was no longer a member of the Executive Council (this list was prepared on July 16, 1956). Between July 2, 1956, and July 8, 1956, a new certificate showing a reduction in Caine's insurance was prepared, but not delivered to Caine. It is stipulated that if Caine was, in fact, a member of the Executive Council at his death, his beneficiaries are entitled to $100,000.00 insurance proceeds. If he was not, and if the termination of such membership gave him a Conversion Privilege, as defined in the insurance contract, plaintiffs would still be entitled to the $100,000.00. This is so because, under such contract, an insured may, within 31 days after the occurrence of the event which accrues the Conversion Privilege, apply for an individual policy in an amount equal to the amount by which his insurance was reduced by such event; and because of the further provision of the policy that if an insured dies within said 31 day period without having applied for such an individual policy, his beneficiaries will, nevertheless, be paid the maximum coverage for which the deceased could have applied plus the amount still payable as group coverage. In Caine's case, termination of his membership in the Executive Council would reduce his group life insurance to $40,000.00 and if that event gave him a Conversion Privilege, he could have, within the 31 day period, applied for an individual policy of $60,000.00, thereby restoring his total coverage to $100,000.00.

1. Was Louis S. Caine an Executive Council member at the time of his death?

The District Judge did not answer the above, either as a finding of fact or conclusion of law. He stated that, "* * * Because of the circumstances surrounding the creation and maintenance of the Executive Council, it is impossible to determine whether or not the decedent, Louis S. Caine, was removed from the Executive Council before his death on July 8, 1956, * * *" He gave judgment for plaintiffs on their alternate position that the insurance contract's Conversion Privilege called for full recovery, even though Caine's membership on the Executive Council had terminated prior to his death. Because we agree with the District Judge in this regard, we assume that Caine was not a member of the Executive Council at the date of his death.

2. If removed from the Executive Council before his death, did a Conversion Privilege thereby accrue to Caine?

Under a section of the insurance contract entitled "Conversion Privilege" it is provided:

"A. Any employee, upon written application made to the Company within thirty-one days after the earlier of the following dates:

"(a) the date of termination of his employment, as hereinbefore defined, for any reason whatever, or

"(b) the date of termination of his membership in the class or classes of employees insured hereunder, (emphasis supplied)

* * * * * *

shall be entitled to have issued to him by the Company without evidence of insurability, an individual policy of life insurance. * * *"

There follows the method of determining the premium for such an individual policy and the coverage that could be obtained thereby. The same section of the policy, under a heading "Extension of Death Benefit during Conversion Period," provides:

"In the event of the death of the employee during the thirty-one day period within which the employee may make application for an individual policy, as set forth in the foregoing provision, the Company shall pay to the beneficiary as a death benefit the maximum sum for which an individual policy could have been issued under the foregoing provision, whether or not the employee shall have made written application for such individual policy."

Louis Caine's death on July 8, 1956, was within thirty-one days after the termination of his membership on the Executive Council, which if it occurred at all, was accomplished not earlier than June 27th. If such termination can be held to have been a "termination of his membership in the class or classes of employees insured hereunder," as set forth in subparagraph (b) of paragraph A under the Conversion Privilege quoted above, the plaintiffs' judgment must be affirmed.

Under a heading, "LIFE INSURANCE AND ACCIDENTAL DEATH AND DISMEMBERMENT INSURANCE," the employees of Heddon's were, for the...