Clark v. Allen

• Citation: 11 R.I. 439
• Parties: JOHN CLARK, Administrator, v. JAMES ALLEN.
• Decision Date: 24 February 1877
• Court: United States State Supreme Court of Rhode Island

11 R.I. 439

JOHN CLARK, Administrator, v. JAMES ALLEN.

Supreme Court of Rhode Island.

February 24, 1877

A life policy is a chose in action.

The sale and assignment of a life policy, outstanding and valid and containing no prohibition of such alienation, is good in Rhode Island, though made to one who has no interest in the life insured, provided such sale and assignment is a bonâ fide business transaction, and not a device to evade law.

Query . Whether in Rhode Island a person can legally take out an original policy on a life in which he has no interest?

ASSUMPSIT tried by the court, jury trial being waived. The facts are stated in the opinion of the court.

The sale and assignment of a life policy, outstanding and valid and containing no prohibition of such alienation, is good in Rhode Island, though made to one who has no interest in the life insured, provided such sale and assignment is a bona fide business transaction, and not a device to evade the law. Any rule that a person taking out a policy on the life must have an insurable interest in that life does not extend to require an assignee of a policy to have such interest.

Charles Hart, for plaintiff.

A person cannot purchase and hold for his own benefit, as a matter of speculation, a policy of insurance on the life of another in whose life he has no insurable interest.

Nor can a policy, valid in its inception, issued to one holding an insurable interest, be assigned to one holding no such interest so as to sustain an action in favor of the assignee. Franklin Life Ins. Co. v. Hazzard, 41 Ind. 116; Stevens, Adm'r, v. Warren, 101 Mass. 564; Cammack v. Lewis, 15 Wall. 643.

A policy may be assigned to a creditor of the insured, he having an interest in the life of the insured.

Upon the death of the insured the creditor may collect the policy, but must account to the representatives of the deceased for any surplus above his debt and advance for premiums or otherwise.

The cases of St. John v. Am. Mut. Life Ins. Co. 13 N.Y. 31, and Valton v. Nat. Fund Life Ins. Co. 20 N.Y. 32, seem to hold that a policy valid in its inception may be assigned for value to one having no interest in the life of the insured, and the assignee be entitled to collect the whole amount: that is to say, from the insurers. They do not decide that the assignee of the policy would not be obliged to account to representatives of the insured for any surplus received over amount advanced by him. The later case of Reese v. Mutual Life Ins. Co. 23 N.Y. 516, practically overrules the cases cited from the 13 and 20 N.Y. This case in 23 N.Y. decides that one procuring insurance upon the life of another, if he had no interest in the life of the insured, cannot recover. The statute of 14 Geo. III. cap. 48, which was passed to remedy the mischief of gambling and wagering policies, the court says was merely declaratory of the common law.

We especially refer this case to the consideration of the court, as, with the cases cited under first point, furnishing clear rules to dispose of the present case. Certainly it would be a singular conclusion to say that A. cannot procure a policy on the life of B. having no interest in the life of B., but that he might arrange with A. to take out a policy for $5,000, and then A. purchase the policy for a nominal sum. If the first is a speculating and wagering policy so is the last. See also 3 Kent Comm. *368-9; May on Insurance, §§ 110, 398, and cases cited; § 75, note. See also Mowry v. Home Life Ins. Co. 9 R.I. 346.

The principles applicable to fire insurance should be applied to life insurance cases, as in case of a mortgagee's interest in a policy, whether insurance be by mortgagor and made payable to mortgagee, or assigned to mortgagee, or the mortgagee insures his interest as mortgagee. In all these cases his interest in the policy is only commensurate with his debt. If the mortgagee insures his interest directly, he can only recover to the extent of his debt. If the mortgagor insures his interest in the property and makes the policy payable to the mortgagee, or assigns it to the mortgagee as security; upon collection by the mortgagee for the loss he must pay over any excess to the mortgagor.

Where the mortgagee insures directly he can only recover to the extent of his debt. Carpenter v. Washington Ins. Co. 16 Pet. 495; Angell on Insurance § 59; Phillips on Insurance, vol. 1, § 288 et seq.; vol. 2, §§ 1511 and 1712.

Insurance by mortgagor payable to mortgagee in case of loss, or assigned to mortgagee as further collateral security in case of loss, and recovery by mortgagee of amount in excess of debt, makes him a trustee of the mortgagor for the balance. If the debt is paid, the mortgagor is entitled to the whole amount collected. Smith v. Packard, 19 N.H. 575; Roberts v. Traders' Ins. Co. 17 Wend. 631.

James Tillinghast, for defendant.

I. A policy of life insurance is not a contract of indemnity, but a contract for the payment of a definite sum at a definite time, supported by a full adequate consideration, to wit, the premium which is the agreed, exact equivalent of the risk assumed. Dalby v. The India & London Life Ins. Co. 15 C. B. 365, overruling Godsall v. Boldero, 9 East, 72; see Rawls v. Amer. Life Ins. Co. 36 Barb. S.C. 357; also, on appeal, 27 N.Y. 282, and cases infra . See also Mowry v. Home Life Ins. Co. 9 R.I. 354.

Hence contracts of marine and fire insurance furnish no analogy. These being mere contracts of indemnity, the interest of the insured must exist not only at the inception of the risk but also at the time of the loss. Though, even here, if a mortgagee or a consignee who has made advances insure his own interest alone, he is not accountable for the amount received on the loss to his mortgagor or consignor. King v. State Mut. Fire Ins. Co. 7 Cush. 1; Bank of South Carolina v. Bicknell & Skinner, 1 Cliff. 85.

II. It is not necessary, therefore, that the party for whose benefit the insurance is effected should have any interest in the life insured.

The contract at common law, and in the absence of any prohibitory statute, is entirely valid. Trenton Mut. Life Ins. Co. v. Johnston, 24 N. J. Law, 576; Campbell v. Mut. Life Ins. Co. 98 Mass. 381.

The cases in Massachusetts well illustrate the successive steps by which the court of that state, when the case arose (as above, in 98 Mass.), finally affirmed this doctrine. See Lord v. Dall, 12 Mass. 115, where a brother insured for the benefit of a sister dependent on him for support. Loomis, Adm'r, v. Eagle Life & Health Ins. Co. 6 Gray, 396, where a father insured the life of his minor son nearly of age. Forbes v. Amer. Mut. Life Ins. Co. 15 Gray, 249, where the husband of the sister of the insured has insurable interest, - precisely the relation of the parties in this case. This relation of itself, therefore, sustains this assignment.

III. But it follows, therefore, that a sale of a life policy, with the assent of the company, at least for an actual valuable consideration, like that of any other chose in action, is a perfectly valid and unimpeachable transaction, and vests the absolute property in the purchaser. Ashley v. Ashley, 3 Sim. 149; Godsal v. Webb, 2 Keen, 99; St. John v. Am. Mut. Life Ins. Co. 2 Duer, 419; and on appeal, 13 N.Y. 31; Valton v. Nat. Fund Life Ins. Co. 20 N.Y. 32.

DURFEE C. J.

This is an action for money had and received, tried to the court, jury trial being waived. It appears that on the 26th December, 1868, one Edward T. Ross got his life insured for $2,000, payable to his wife at his decease. His wife was a second wife. He had children by his former wife, but none by her. She died before him, August 21, 1871. He was then in infirm health and short of means. He did not pay one premium promptly. The company, however, accepted payment afterwards, and issued the policy anew, payable to his legal representatives. On the 2d of January, 1872, he assigned the policy to the defendant, and received the defendant's note for $125, which was paid April 10, 1872. The surrender value of the policy at the time of the assignment was $118. The defendant was Ross's brother-in-law. After the assignment, which was assented to by the insurers, the defendant paid five quarterly premiums of $25 each. Ross died March 24, 1873. The defendant collected on the policy $2,121.20. The plaintiff, who is administrator on Ross's estate, brings this action to recover that amount, less the amount of the note for $125, and the five quarterly premiums with interest.

The plaintiff claims that the assignment was made as security for a loan, and not as an absolute sale. Testimony was submitted on this point. We think the assignment was intended to be an absolute sale.

The plaintiff contends that, if the assignment was an absolute sale, it was void as against public policy, and that he is therefore entitled to recover the money received on it, less the payments aforesaid, as money received to his use. The defendant claims that the assignment, though absolute, is valid, and that he is entitled to keep the money as his own.

Upon the question thus raised there is a conflict of...