Decker v. New York Life Ins. Co

• Decision Date: 21 February 1938
• Docket Number: 5908
• Citation: 94 Utah 166,76 P.2d 568
• Court: Utah Supreme Court
• Parties: DECKER v. NEW YORK LIFE INS. CO

76 P.2d 568

94 Utah 166

DECKER v. NEW YORK LIFE INS. CO

No. 5908

Supreme Court of Utah

February 21, 1938

Appeal from District Court, Third District, Salt Lake County, P. C. Evans, Judge.

Suit on life policy by Rhoda Decker against the New York Life Insurance Company. From a judgment for plaintiff, defendant appeals.

REVERSED, with instructions.

Critchlow & Critchlow and A. W. Watson, all of Salt Lake City, for appellant.

M. E Wilson and R. C. Wilson, both of Salt Lake City, for respondent.

WOLFE Justice. FOLLAND, C. J., HANSON, MOFFAT, and LARSON, JJ concur.

OPINION

WOLFE, Justice.

Appeal from a judgment of $ 3,220 in favor of plaintiff as beneficiary of a life insurance policy issued to her deceased husband, Feramorz Decker. Judgment was on the pleadings. Plaintiff demurred to defendant's answer on the ground that the answer did not state facts sufficient to constitute a defense. Defendant elected to stand on the demurrer. Consequently, judgment was entered for plaintiff. The facts, therefore, as pleaded in the answer, must be taken as true in order to determine whether in law they constitute a defense. The answer annexed and incorporated what it alleged to be a full and true copy of the policy sued on. The questions raised are purely legal.

Feramorz Decker, husband of plaintiff, took out a life insurance policy with defendant for $ 5,000, executed on June 7, 1922, calling for a premium of $ 117 per annum payable on the first day of June each year. His wife, the plaintiff, was named the beneficiary. The premium included $ 5 per annum for double indemnity resulting in death by accident, and $ 7.05 for disability benefits. In 1924, the method of payment of premiums was changed from annual to quarterly; the deceased paying the sum of $ 31 quarterly from then on to June 1, 1935. He failed to pay the quarterly premium due on September 1, 1935. On October 26, 1935, he delivered the policy to and requested defendant to pay him the cash surrender value. The cash surrender value as of September 1, 1935, was $ 660. There was an indebtedness against the policy of $ 407.48. Decker died on November 3, 1935, eight days after delivery of the policy and before the defendant paid him the net surrender value of $ 252.52. These facts are admitted by the pleadings. The plaintiff, beneficiary under the policy, sued for $ 3,000 remitting and renouncing all sums over $ 3,000. This was for the purpose of keeping the case in the state courts and obtaining the state appellate court's opinion on the law points involved.

Plaintiff took the position that the insurance at the death of the insured was still in force for the full face of the policy, subject only to deduction of loans and balance of an annual premium up to June 1, 1936, and sued for $ 3,000 of that amount. The defendant in its answer set up the delivery of the policy to the company together with the request for payment of its net surrender value and claimed that this showed a complete surrender by the insured during his lifetime after default in payment of the quarterly premium due September 1, 1935, under the provisions contained in the policy; that such surrender terminated the policy and all rights of the beneficiary, and entitled insured or his personal representative to the surrender value only less the loan due to the company. It will probably conduce to understanding to set out at this point the provisions of the policy pertaining to surrender. These provisions will not be again repeated in full in this opinion, but will be referred to later. The provisions so far as applicable to this case read as follows:

"Section 4--Surrender Values

"After three full years' premiums have been paid, the Insured may, at the end of any insurance year or within three months after any default in payment of premium but not later, surrender the Policy, and

"(1) Receive its Cash Surrender Value; or

"(2) Receive the amount of non-participating paid-up insurance which the cash surrender value at date of default less any indebtedness hereon will purchase, payable at the same time and on the same conditions as this Policy, but without disability or double indemnity benefits. The Insured may at any time obtain a loan on such paid-up insurance, or surrender it for its cash surrender value; or

"(3) If the Policy be not surrendered for cash or for paid-up insurance within three months after default in payment of premium, its cash surrender value at date of default, less the amount of any indebtedness, shall automatically purchase Continued Insurance from the date of default for the face of the Policy plus any dividend additions and less any indebtedness to the Company. The Continued Insurance shall be without future participation and without the right to loans, cash surrender values, disability or double indemnity benefits.

"The Cash Surrender Value shall be the reserve on the face of the Policy at the end of the insurance year, or in event of default, at the date of default (omitting fractions of a dollar per thousand of insurance) and the reserve on any outstanding paid-up additions, plus any dividends standing to the credit of the Policy, and less a surrender charge for the third to the ninth years, inclusive, of not more than one and one-half per cent of the face of the Policy. * * *"

The plaintiff sought to parry the force of the defendant's contention as above outlined by the following contentions: (1) That the policy rights of the beneficiary could not be canceled without her knowledge or consent, and that since the insured had attempted to do so, the delivery of the policy with request for payment of its surrender value was ineffective; that she therefore, as beneficiary, had the right to collect on the policy after his death. (2) That the delivery of the policy for surrender was made more than three months after the insured defaulted because the default occurred on June 1, 1935, and not September 1, 1935; that, therefore, paragraph (3) of section 4 of the policy, above set out, became automatically effective; that thereby continued insurance was in effect in favor of the beneficiary when the insured died November 3, 1935. (3) That even though the "Surrender" was within three months of the date of default, the policy was not terminated until the money was "Received," and that therefore on the death of the insured the policy rights remained in the beneficiary. (4) That the option in the policy contract to "Surrender" the policy and "Receive" its cash surrender value while insured was in default for nonpayment of premium was not valid in law because section 1161, Comp. Laws Utah 1917, in force at the time said contract was made, prohibited such provision.

It will be noted that if the plaintiff is correct in any one of these four propositions, the lower court's ruling sustained her demurrer to defendant's answer and thereupon, on defendant's refusal to plead over, giving judgment in favor of plaintiff is correct. If, on the other hand, there could be and was a completed valid surrender and termination of all rights under the policy except the right to receive the money, the ruling of the court and the judgment were wrong, and the case must be reversed.

We think the defendant's position is correct and that plaintiff must fail in all four of her contentions. A treatment of plaintiff's contentions will necessarily show why we reach the affirmative conclusion that defendant's position is correct. Fortunately, such treatment will not be difficult for the reason that both sides and amicus curiae have furnished us with very helpful briefs.

We shall first take up the fourth of the above propositions and follow with the second, for any conclusion we reach as to the first and third is subject to the more fundamental question as to whether the surrender provisions was itself valid and whether, if valid, it had been timely exercised.

Does that part of section 4 of the policy permitting surrender after default for its cash surrender value offend against sections 1154 and 1161, Comp. Laws Utah 1917, now, with inconsequential changes, sections 43-3-24 and 43-3-26, R. S. Utah 1933? Section 1154 reads, in part, as follows:

"Provisions in life policies. On and after January 1, 1910, it shall be unlawful for any foreign or domestic life insurance company to issue or deliver in this state any life insurance policy unless the same shall contain the following provisions: * * *

"6. A provision which shall fulfill the requirements of § 1161."

Section 1161 reads as follows:

"Default in payment of premiums. 1. In the event of default in payment of any premium due on any policy, provided that not less than three full years' premiums have been paid, there shall be secured to the insured without action on his part as specified in the policy, either paid-up insurance or extended insurance or the application of the net value of the policy as a loan in payment of future premiums, so long as such net value, less the deduction herein provided for, is sufficient to secure such loan with interest added at a rate not exceeding 6 per cent per annum, payable annually in advance; the net value applied to one of the options above provided for shall be at least equal to the entire net reserve held by the company on such policy, including dividend additions, if any, less 2 1/2 per cent of the amount insured by the policy and dividend additions, if any, or one-fifth of such reserve, and less any outstanding indebtedness to the company on the policy at the time of default.

"2. No agreement between company and policy-holder or applicant for insurance shall be held to waive any of the provisions of §§ 1160 and 1161, except as herein provided."

The attack by plaintiff on the validity of the...