Emig's Adm'r v. Mutual Ben. Life Ins. Co.

• Decision Date: 18 December 1907
• Citation: 127 Ky. 588,106 S.W. 230
• Parties: EMIG'S ADM'R v. MUTUAL BENEFIT LIFE INS. CO.
• Court: Kentucky Court of Appeals

106 S.W. 230

127 Ky. 588

EMIG'S ADM'R v. MUTUAL BENEFIT LIFE INS. CO.

Court of Appeals of Kentucky.

December 18, 1907

Appeal from Circuit Court, Campbell County.

"To be officially reported."

Action by George Emig's administrator against the Mutual Benefit Life Insurance Company. From a judgment for defendant plaintiff appeals. Reversed and new trial ordered.

L. J Crawford, Hazelrigg, Chenault & Hazelrigg, and R. A. Nagel for appellant.

Dodd & Dodd and W. O. Harris, for appellee.

CARROLL J.

On March 20, 1893, the appellee company issued to George Emig a policy upon his life for the sum of $5,000, in consideration of $195, paid by him, and the agreement to pay annually a premium of $195 on the 20th day of March in every year during the continuance of the policy. The policy was an ordinary life policy, and was made payable to the insured. It contained several stipulations as to nonforfeiture, extended insurance, loan and cash surrender value; but, as in 1897 a new contract was made, and this substituted contract was in force from that time until the death of Emig, we will treat it as the contract under which the rights of the parties must be adjudicated. The contract of 1897 is as follows:

"* * * When after two full annual premiums shall have been paid on this policy it shall cease or become void solely by the nonpayment of any premium when due, its entire net reserve by the American experience mortality and interest at four per cent. yearly (provided there be no loan on the policy) shall be applied by the company as a single premium at the company's rates published and in force at this date, either, first, to the purchase of nonparticipating insurance for the full amount insured by this policy, or, second, upon the written application by the owner of this policy and the surrender thereof to the company at Newark within three months from such nonpayment of premium, to the purchase of a nonparticipating paid-up policy payable at the time this policy would be payable if continued in force. Both kinds of insurance aforesaid will be subject to the same conditions, except as to payment of premiums, as those of this policy. Third, if preferred the company will on the surrender of the policy fully receipted within the said three months pay as a cash surrender value its entire net reserve by the American experience mortality and interest at four and one-half per cent. yearly, less a surrender charge equal to one per cent. of the sum insured by the policy.

If there be any loan on the policy such indebtedness shall be paid off out of the cash surrender value, and the remainder paid in cash by the company; or a value will be allowed by the company in the form of extended or paid-up insurance as above provided, the amount to be applied to the purchase of such insurance being correspondingly reduced in the ratio of the indebtedness to the full cash surrender value.

If death shall occur within one year after the nonpayment of premium and during the term of extended insurance, there shall be deducted from the amount payable any premium that would have become due on this policy if it had continued in full force, also the amount of any indebtedness on this policy at time of such nonpayment of premium.

The company will at any time while the policy is in full force loan up to the limit secured by its cash surrender value upon satisfactory assignment of the policy to the company as collateral security.

The figures given in the following table are based upon the assumption that all premiums (less current dividends) have been fully paid in cash. The indebtedness, if any, may be paid off in cash, in which case the figures in the table will apply:

In Case of Lapse of Policy.
At End of Year.	Cash Surrender Value. Loan Value.	Extended Insurance.	Paid" up Policy.
		Years.	Days.
5th	$400 00	5	218	$ 880
6th	497 55	6	134	1,050
7th	596 95	7	8	1,210
8th	698 30	7	206	1,370
9th	801 50	8	2	1,525
10th	906 45	8	130	1,675

Having paid the first premium when the policy was issued, Emig began to borrow money from the company to meet his subsequent premiums until on March 20, 1902, he owed the company $854.35. He defaulted in the payment of the premium which fell due March 20, 1903, and also in the one that became due March 20, 1904, and died on June 1, 1904. By the default in the payment of the premium on March 20, 1903, his policy became forfeited unless it was kept alive until his death by the nonforfeiture system set out in the contract heretofore mentioned.

It will be observed that a clause in this contract provides in part that "if there be any loan on the policy, such indebtedness shall be paid out of the cash surrender value and the remainder paid in cash by the company." It being conceded that on March 20, 1903, Emig owed the company $854.35, with interest from March 20, 1902, and that he defaulted in the premium due March 20, 1903, it is the contention that on that date he was only entitled to the cash surrender value of the policy, less the loan. The cash surrender value on March 20, 1903, according to the calculation made by the company, and which is shown by the table, was $906.45, and the loan and interest to that date being $905.61, it only left due Emig on that day 84 cents. It is further insisted for the company that if the other paragraph of this clause is put into operation, which provides, "or a value will be allowed by the company in the form of extended or paid-up insurance as above provided, the amount to be applied to the purchase of such insurance being correspondingly reduced in the ratio of the indebtedness to the full cash surrender value," that the net reserve of the policy by the American experience mortality and interest at 4 per cent. was on March 20, 1903, $1,001.95, and that, reducing this in the ratio of the indebtedness to the cash surrender value, left only 90 cents to be applied to the purchase of extended insurance at the company's rates published and in force at the date of the policy, which sum would have purchased insurance for $5,000, for two days and no longer. So that, in either event, looking at the matter from the company's standpoint, Emig is not entitled to recover more than 84 cents.

Emig's administrator insists that the provisions relied on by the company are against public policy and void, and that he is entitled to recover $5,000, less the amount of the note and interest thereon, and the premiums due in 1903 and 1904. It does not appear that Emig made any election, or requested or demanded any settlement of any kind from the company, and so the matter stood from 1903 until this suit was brought, when the company for defense set up that it did not owe Emig anything.

In the body of the policy it is provided that "in case the premiums shall not be paid on or before the several days hereinbefore mentioned for the payment thereof * * * then and in every such case this policy shall cease and determine, subject to the provisions of the company's nonforfeiture system as indorsed hereon with the accompanying table"; and further, "this policy while in force will participate annually in the company's distribution of surplus, and after two years will be incontestable except for nonpayment of premiums." The company does not distinctly claim a forfeiture of the policy by reason of the nonpayment of the note; but it insists that because of Emig's failure to pay the premium due March 20, 1903, it had the right under the contract to deduct from the sum then due him on the policy ascertained according to its method of calculating the amount of its note and interest, and by this process a forfeiture was in effect accomplished.

It is true the contract gave it the right to make the character of settlement it did, but it remains to be seen whether or not the provisions of the contract under which the company elected to settle with Emig are valid and enforceable or void as against public policy. In brief, the question is, will provisions of a policy be upheld that give an insurance company the right to settle on a different plan with a borrowing policy holder from that adopted with the policy holder who is not a borrower, thereby enabling it to exact more than its debt and legal interest? Under the contract, if Emig had not been a borrowing member, after he had paid two full annual premiums the entire net reserve by the American experience mortality and interest at 4 per cent. yearly would be applied by the company as a single premium at the company's rates to the purchase of nonparticipating insurance for the full amount insured by the policy, or, upon his written application for the reserve would have been applied to the purchase of a nonparticipating paid-up policy or, at his election the company would pay as the cash surrender value of the policy its entire net reserve by the American experience mortality with interest at 4 1/2 per cent. yearly, less a surrender charge equal to 1 per cent. of the sum insured by the policy. But, if a policy holder happened to be at the same time a borrower from the company, and had defaulted in the payment of a premium, then the company under the contract had the...