Exchange Bank of Macon v. Loh

• Decision Date: 18 July 1898
• Citation: 31 S.E. 459,104 Ga. 446
• Parties: EXCHANGE BANK OF MACON v. LOH et al.
• Court: Georgia Supreme Court

31 S.E. 459

104 Ga. 446

EXCHANGE BANK OF MACON v. LOH et al.

Supreme Court of Georgia

July 18, 1898

Syllabus by the Court.

1. A creditor has, for the purpose of indemnifying himself against loss, but for no other, an insurable interest in the life of his debtor.

2. This interest cannot exceed in amount that of the indebtedness to be secured.

(a) Such indebtedness may, however, include the cost of taking out and keeping up the insurance, if made a charge against the debtor or his estate, or upon the proceeds of the policy when collected.

3. Courts should not concern themselves with the disposition of the proceeds of "wagering" policies.

4. The evidence in the present case warranted a finding that the policy in question was not of this character, but that it was in good faith taken out by the insured himself, and by him assigned to his creditor as collateral security merely; and the judgment rendered was not contrary to law.

Error from superior court, Bibb county; W. H. Felton, Jr., Judge.

Petition by Edward Loh, administrator of the estate of John D Hudgins, deceased, against the Exchange Bank of Macon and others. A judgment was entered, and the bank brings error. Affirmed.

Bacon Miller & Brunson, for plaintiff in error.

Hardeman Davis & Turner, Ryals & Stone, Steed & Wimberly, A. W. Lane, Guerry & Hall, Dessau, Bartlett & Ellis, Dasher, Park & Gerdine, Morcock & Warren, and L. D. Moore, for defendants in error.

LUMPKIN P.J.

It is provided in section 2114 of our Civil Code that a policy of life insurance may lawfully be taken out only upon the life "of the assured, or of another in whose continuance the assured has an interest." It is well settled that a creditor has an insurable interest in the life of his debtor, but the nature and extent of this interest has become a seriously complicated question. Much of the confusion now surrounding this subject is, we think, attributable to two erroneous views which have been entertained and announced by quite a number of the most respectable courts and judges in this country. The first is that a contract effecting insurance upon the life of a debtor for the benefit of a creditor is not a contract of indemnity; and the second is that the creditor's insurable interest in the debtor's life is not confined strictly to the amount of the indebtedness to be secured. Before proceeding further, it may be remarked that the form in which the transaction is clothed is utterly immaterial. It makes not a particle of difference whether the policy be payable to the insured, or his estate, with an assignment to the creditor, or payable directly to the creditor as the nominated beneficiary. The real thing to be ascertained in any given instance is, what was the actual object of the parties, for by this test alone is the legality of what they did to be determined.

1. Our first proposition is that effecting insurance for the purpose of securing an indebtedness is a contract of indemnity, and nothing else. We have the utmost confidence in the correctness of this assertion. Indemnity is the only logical end to be attained by a transaction of this kind. What possible right has a creditor to be the beneficiary of such insurance except to protect himself against loss? And what is such protection, if not indemnity? Notwithstanding the fact that eminent jurists have held otherwise than as above laid down, we cannot help thinking that this is a very plain proposition, and one as to which there ought to be no serious difference of opinion. We will cite a few of the great array of authorities which we could produce in support of our position, making, as we proceed, such comments as may seem appropriate.

In Godsall v. Boldero 9 East, 72, we find the following: "A creditor may insure the life of his debtor to the extent of his debt, but such a contract is substantially a contract of indemnity against the loss of the debt." Lord Ellenborough said: "This assurance *** is, in its nature, a contract of indemnity, as distinguished from a contract by way of gaming or wagering;" and, in this connection, he quoted a pertinent extract from Lord Mansfield's opinion in Hamilton v. Mendes, 2 Burrows, 1210. It is true that in the latter case Lord Mansfield was dealing with a case of marine insurance, and it is also true that the Godsall Case was subsequently overruled; but it is apparent that Lord Ellenborough thought the doctrine of the marine insurance case was applicable to the life insurance case which he had under consideration; and in this view we concur. Whenever it is admitted that a contract of life insurance made for the benefit of a creditor is not one having indemnity for its object, we necessarily stamp it as a purely wagering contract. There is much reason for the position that even ordinary contracts of life insurance, whereby a man insures his own life for the benefit of those dependent upon him, are contracts for indemnity merely; but we do not care to enter upon a discussion of this question, or assail the great current of authority tending to establish the contrary, this being a matter not involved in the case now before us. Accordingly, we will adhere strictly to our text, which is that life insurance effected to secure a debt is, and can be, for nothing else but indemnity against loss. A creditor secured by a policy of marine or fire insurance can collect thereon, for his own benefit, so much only as will save him from actual loss; the precise amount of which is easy of ascertainment. The interest of a creditor holding as security a life policy can be as readily computed in dollars and cents, being properly measured by the amount of the debt, which, as we shall, before concluding, endeavor to show, constitutes the sole basis of his insurable interest. How, then, can it be said that it would be against public policy to allow a creditor to speculate upon the mere chance of property being destroyed by the dangers of the sea or by fire, and not equally repugnant to public policy for him to speculate upon the life of a fellow creature? And if the creditor protected by the life policy can lawfully stipulate for anything more than indemnity, what prevents the transaction from being a speculation, pure and simple? We are at a loss to perceive any rational distinction between life and marine or fire insurance in so far as the supposed right of a creditor to effect insurance beyond the extent of his insurable interest is concerned. Surely, in view of section 2117 of our Civil Code, which declares that the principles governing "fire insurance, wherever applicable, are equally the law of life insurance," this court would not be justified in giving recognition to any such intangible and specious distinction.

In Port. Ins. (2d Ed.) p. 13, it is said that a creditor who insures his debtor's life "obtains a contract of indemnity against the loss of his debt by the death of the debtor before it has been paid," and that "in such a case the debt is not the mere excuse for the policy, but the securing of the debt, or indemnification against its possible loss, is the reason for the insurance being effected." This author says that Lords Mansfield and Ellenborough "both undoubtedly considered that insurance sur autre vie was a contract of indemnity," and that the case in 9 East was decided upon this view. He then refers to the fact that this case was overruled in Dalby v Insurance Co., 24 Law J. C. P. 2, 15 C. B. 365, and Law v. Policy Co., 24 Law J. Ch. 196, 1 Kay & J. 223, and asserts that the decision in the first of these two latter cases was based upon a misinterpretation of the English "gambling act," and divers misconceptions of the real nature of a contract of life insurance effected for securing a creditor. See Port. Ins. (2d Ed.) pp. 14, 15. On page 17 he states that a policy of insurance taken out by a man on his own life has been settled not to be a contract of indemnity, "but to be a contract by the insurer to pay a certain sum on the happening of a given event,--usually the death of the assured, or his attaining to a certain age; and the sum will not vary with reference to the greatness or smallness of the loss to the family of the assured." This alleged distinction between ordinary life insurance which a man takes out for the benefit of his family and that taken out for, or assigned to, a creditor for his protection, was recognized as correct by the supreme court of the United States in Bank v. Hume, 128 U.S. 195, 9 S.Ct. 45; but it was therein distinctly laid down that the latter was a contract of indemnity. Mr. Chief Justice Fuller said (page 205, 128 U.S. , and page 44, 9 Sup. Ct.): "Marine and fire insurance is considered as strictly an indemnity; but while this is not so as to life insurance, which is simply a contract, so, far as the company is concerned, to pay a certain sum of money upon the occurrence of an event which is sure at some time to happen, in consideration of the payment of the premiums as stipulated, nevertheless the contract is also a contract of indemnity. If the creditor insures the life of his debtor, he is thereby indemnified against the loss of his debt by the death of the debtor before payment." This high court had previously, in at least one case, recognized the correctness of the doctrine that life insurance for a creditor's benefit was a contract for his indemnity. "In cases where the insurance is effected merely by way of indemnity,--as where a creditor insures the life of his debtor for the purpose of securing his debt,--the amount of insurable interest is the amount of the debt." Mr. Justice Bradley, in Insurance Co. v. Schaefer, 94 U.S. 461, 462. An assignment of a life insurance policy for the purpose of securing a creditor is "for his indemnity." 13...