Central States Life Ins. Co. v. Byrnes
| Decision Date | 29 January 1964 |
| Docket Number | No. 11143,11143 |
| Parties | CENTRAL STATES LIFE INSURANCE COMPANY, Appellant, v. Mrs. Margaret M. BYRNES, Appellee. |
| Court | Texas Court of Appeals |
Liddell, Austin, Dawson & Sapp, W. Robert Brown, Houston, for appellant.
Fred Parks and Donn C. Fullenweider, Houston, for appellee.
This suit was brought against Central States Life Insurance Company, appellant, by Margaret Byrnes, widow of Galen Byrnes, to recover on a life insurance policy (No. OL7854) issued to him by Community National Life Insurance Company 1 on August 12, 1954, in the amount of $25,000.00 and in which she was designated beneficiary. Mr. Byrnes died November 18, 1960. The policy sued on contained an incontestability clause reading, 'This Policy will be incontestable after two years from its date of issue, except for non-payment of premium and except as to provisions and conditions relating to benefits in the event of disability and those granting additional insurance specifically against loss by accidental means.'
It was stipulated between the parties herein that at the time of the death of Galen Byrnes, all premiums accrued and due under the policy in question were paid.
Appellant's liability under the policy is based on its assumption of liability thereon under a merger agreement, effective October 1, 1959, between it and the issuing Company. 2
Trial was to a jury after which, and upon its verdict, judgment was rendered for Mrs. Byrnes against appellant for the face value of the policy sued on, 12% statutory penalty, $7500.00 attorneys' fees, 3 $2500.00 of which was contingent on appeal, and 6% interest from December 5, 1960, until paid.
It is our opinion that any defense based on the invalidity of this policy is precluded by force of the incontestable clause quoted above, however, in order to reflect the position of appellant and our holding relative thereto, we outline the facts and state the substance of appellant's points and contentions.
Appellant primarily contends that the policy was issued in violation of fiduciary duties which the deceased, Galen Byrnes, and appellee owed to the issuing Insurance Company.
When the policy in suit was issued Galen Byrnes was President, General Manager and Director and appellee was Secretary-Treasurer and a director of the issuing Company. The by-laws of such Company provided that its president and secretary should sign all policies issued. The instant policy was signed by Mr. and Mrs. Byrnes.
This policy was issued pursuant to a salary contract between Galen Byrnes and the Community National Life Insurance Company acting by and through Galen Byrnes, President, Paul I. Ross, Vice-President and M. M. Byrnes (appellee) Secretary-Treasurer. The execution of such contract was authorized by the by-laws of the Insurance Company and the minutes of the Company reflect that an executive committee was named to execute 'salary contract.' The salary contract of Mr. Byrnes provided, in part:
'5. PROTECTION During the life of this Contract, the Company shall furnish personal insurance on the life of Galen Byrnes in the minimum amount of $25,000.00, with adequate increasing amounts as Company earnings and growth warrants.
'6. IRREVOCABILITY (a) In the event the Company merges, sells, or changes to any other form or name, this Contract must follow and be fully honored with such change.
'(b) This Contract shall remain in full force and effect, irrespective of any Directorship or Officership that Galen Byrnes may or may not hold.'
All premiums on this policy were paid by the Company prior to its merger with the appellant. As part of the agreement of the two Insurance Companies to merge, a mutual release was authorized and executed, October 22, 1959, between Central States Life Insurance Company and Galen Byrnes and others in consideration of the cancellation of certain stock and the right to purchase additional stock. We quote from such release:
'NOW, THEREFORE, in consideration of the premises and other good and valuable considerations hereinabove recited, Community National Life Insurance Company and Central States Life Insurance Company, and Central States Life Insurance Company, the surviving corporation, having been duly authorized by its Board of Directors in accordance with the resolution hereto attached, and in pursuant thereto, does release the said Galen Byrnes, E. F. Lingle and Weldon A. Steinmann, individually and collectively, from any and all claims of every nature whatsoever by reason of their actions as an organizer, original incorporator, stockholder officer or director of Community National Life Insurance Company and/or Community National Corporation.
'For the same consideration, Galen Byrnes, E. F. Lingle and Weldon A. Steinmann, individually and collectively, do hereby release Community National Life Insurance Company and Central States Life Insurance Company and Central States Life Insurance Company, the surviving corporation, of any and all claims of every nature whatsoever by reason of being an organizer, original incorporator, stockholder or director or officer of Community National Life Insurance Company and/or Community National Corporation.'
Following the execution of this release appellant, in August 1960, sent a notice to Mr. Byrnes that the annual premium of $1,082.00 was due on the policy in suit. Such premium was paid by Mr. Byrnes on September 6, 1960, and it has since been exclusively retained by appellant.
On the trial of this case, appellant made no offer to return this premium, or any of the premiums paid on this policy under the salary contract, nor did it offer to pay the cash surrender value of such policy.
There is in the record an agreement, dated April 12, 1954, between Community National Life Insurance Company and Republic National Life Insurance Company by which, in general, Community National agreed to cede to Republic and Republic agreed to automatically accept for reinsurance all amounts of life insurance in excess of the amount regularly retained by Community National, but not exceeding 400% of such rention. The amount of such retention was originally $2500.00, and was later raised to $5000.00.
Subsequent to the issuance of the policy in suit, application was made to Republic by Mr. Byrnes for reinsurance of its amount in excess of $2500.00. On August 24, 1954, Republic advised Mr. Byrnes by wire and letter that it would not reinsure. This wire and letter were not found in the records of either Community National or appellant.
There are, however, records of these two Companies in evidence from which it could have been ascertained by anyone who had access to them, which would include the officers of the Company, that no reinsurance had been issued by Republic on the Byrnes policy. We do not discuss these records in detail but we refer specifically to the statements sent by Republic to appellant or its predecessor for its portion of the premiums due on policies reinsured by it. These statements did not include any claim for premiums for reinsuring any portion of the Byrnes policy. This knowledge that the Byrnes policy was not reinsured is reinforced, as to appellant, by its retention of the whole cash premium received by it in 1960.
The Trial Court submitted many issues to the jury, and we will give the substance of its findings.
Galen Byrnes was at the time the policy sued on was issued was insurable; at such time Mr. Byrnes believed he was insurable; Mrs. Byrnes at such time believed her husband to be insurable. When appellant sent notice of policy premium due to Mr. Byrnes its records reflected that such policy was not reinsured with Republic; that at such time the officers and employees of appellant knew such policy was not reinsured with Republic; that appellant waived its right to contend that the Byrnes policy was unenforceable because of its non-reinsurance with Republic by accepting the 1960 premium, and that by such action it ratified such policy.
That Mr. Byrnes did not fail to disclose to the other Directors of Community National that his policy...
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