Commercial Travelers' Ins. Co. v. Carlson

• Decision Date: 12 May 1943
• Docket Number: 6536
• Citation: 137 P.2d 656,104 Utah 41
• Parties: COMMERCIAL TRAVELERS' INS. CO. et al. v. CARLSON, Insurance Commissioner
• Court: Utah Supreme Court

137 P.2d 656

104 Utah 41

COMMERCIAL TRAVELERS' INS. CO. et al. v. CARLSON, Insurance Commissioner

No. 6536

Supreme Court of Utah

May 12, 1943

Appeal from District Court, Third District, Salt Lake County; B. P Leverich, Judge.

Action by Commercial Travelers' Insurance Company, an incorporated mutual benefit association, and F. Henri Henriod against Oscar W. Carlson, Insurance Commissioner of the State of Utah, for a judgment setting aside ruling of Commission denying a requested permit for the sale of a life policy. Judgment for plaintiffs, and defendant appeals.

Reversed and remanded.

Grover A. Giles, Atty. Gen., and A. U. Miner, Asst. Atty. Gen., for appellant.

F Henri Henriod and Jesse R. S. Budge, both of Salt Lake City for respondents.

McDONOUGH, Justice. WOLFE, C. J., and LARSON, MOFFAT, and WADE, JJ., concur.

OPINION

McDONOUGH, Justice.

In 1941 the plaintiff insurance company presented to defendant drafts of a proposed policy of insurance to be solicited and issued in the State of Utah, known as the "Dual-Pay" policy, requesting permit to sell and issue such form of policy in this state. The Insurance Commissioner denied the request by a written notice to the company. The plaintiff thereupon commenced an action in the district court to obtain a judgment to set aside the ruling of the Commissioner, to authorize plaintiff company to issue such proposed form of policy in this state, and to restrain the Commissioner from interfering with its issuance.

The questions submitted to the trial court for determination on stipulation of the parties may be thus summarized: (1) Whether the proposed policy, if issued, would be illegal as a wagering or lottery contract and hence contrary to public policy; and (2) whether its issuance is prohibited by statute. The district court decided the questions in favor of plaintiffs and the Commissioner appeals to this court for reversal of the judgment.

The challenged policy form provides that respondent will pay the face amount thereof (A) To the insured upon the maturity of the policy as a mortality endowment as defined in the policy; or (B) to a named beneficiary upon the death of the insured before the maturity of the policy as a "mortality endowment." It also provides that if the stipulated premiums are paid for a full twenty years' period prior to the maturity of the policy either as a "mortality endowment" or by reason of death of the insured, the insured may surrender the policy and receive a fully paid-up policy for the face amount of the surrendered policy. In brief, the policy is the standard limited payment life insurance policy with the "mortality endowment" feature. Consequently, the sole question presented is whether the inclusion of the last named feature of the policy justified the refusal by the Commissioner to authorize its issuance in this state.

The "mortality endowment" provision is integrated with the other provisions. It is not added optionally by payment of an additional premium as in the case of double indemnity and disability provisions in the standard form of life insurance policies. One premium covers all of the insurance features and provisions. Each application for a "Dual-Pay" policy is stamped with the day, hour and minute it is received at the home office of the company, and the policy is automatically classified into the age group of the applicant. Various divisions are established by the company for each age group, and there are 26 numbers in each of such divisions represented by the letters of the alphabet. For instance, the company assigns the first application to the first number or the "A" position in the first division of the age group, and thereafter subsequent applications are assigned to the divisions containing the fewest number of policies until all the divisions are filled.

The "mortality endowment" provision specifies that the "policy shall mature as a mortality endowment and shall be payable when it becomes the oldest policy in force in its division and the company experiences a mortality loss under another policy in the same division." For example, if in division 1 policyholder numbered B or any other letter other than A dies while his policy as well as that of A are in good standing, the face amount of the policy issued to B or such other person in the group who dies is paid to his beneficiary, and in addition thereto, A's policy being the "oldest" in that division immediately matures as a "mortality endowment" and he is paid in cash the face amount of his policy even if he has paid only the first premium because the death of some other member of the group occurs before the second premium is due. The policy of A matures by the death of another in his division, and payment of the face amount thereof discharges the obligation of the insurer, and consequently A is no longer a policy holder after such payment. Upon B's death, A being eliminated by payment, C would move into the position of A, and other policies would be sold to fill up the group.

Plaintiff contends policies identical in form with the proposed policy have been written for many years in a number of other states and that the same are recognized as legal. The particular statutes are not cited. However it appears that in the states of Alabama and Oklahoma, during the past ten years statutes have been enacted which prohibit the writing of any more policies of such character except to fill existing groups. The plaintiff relies on Liberty National Life Insurance Co. v. Read, D. C., 24 F.Supp. 103, 107, as supporting its contention that such form of policy is a valid form of insurance contract. Reference to that case indicates that the court did not consider the question of whether or not such policy is invalid in Oklahoma for any reason here suggested. In fact some companies were writing such form of policy with the sanction of the Insurance Commissioner who issued the cease and desist order against plaintiff. It appears that no question could have properly arisen in Oklahoma as to the form of the policy for the reason that companies were permitted under the statute to write such form of policy to fill existing groups. The actual question involved was whether there was discrimination between companies writing the same form of policy. The Insurance Commissioner issued his cease and desist order on the theory that it was warranted under the Oklahoma retaliatory statute. Plaintiff company was domiciled in Alabama. The court pointed out:

"The desist order herein sought to be enjoined is based upon no legal objection to the policy form itself nor upon any actuarial criticism, but upon an amendment to the so-called retaliatory law of Oklahoma (H. B. 190, approved April 28, 1937, 36 Okl. St. Ann. § 106) which prohibits any foreign company from writing any policy form in Oklahoma if the laws of the state of its domicile prohibit Oklahoma companies from writing therein such policy form."

The court held that the cease and desist order was arbitrary and discriminatory and based upon an erroneous interpretation of the Alabama statute. The cease and desist order did not purport to prevent all companies from writing the form of policy in question, and as pointed out in the opinion, other companies were actually writing such form of policy with the approval of the insurance department.

It is conceded in this case that the policy in controversy is actuarily sound. Probabilities of life expectancies are taken into consideration in computing the premium for each insurance feature of the policy. One single annual premium is stated to cover all of the provisions, as hereinabove mentioned. However, inasmuch as the policy is "actuarily sound," notwithstanding the premium is not itemized and no basis is furnished for computing the sums allocated to each feature, it necessarily follows that some part of the premium represents an amount sufficient to pay the senior member of a group...