Finnie v. Walker

• Decision Date: 22 April 1919
• Docket Number: 180.
• Citation: 257 F. 698
• Parties: FINNIE v. WALKER et al.
• Court: U.S. Court of Appeals — Second Circuit

257 F. 698

FINNIE v. WALKER et al.

No. 180.

United States Court of Appeals, Second Circuit.

April 22, 1919

Rollins & Rollins, of New York City (E. A. Merrill, of Westfield N.J., on the brief), for appellant.

Owen N Brown, of New York City (Conover English, of Newark, N.J., of counsel), for appellees.

Before WARD, ROGERS, and MANTON, Circuit Judges.

MANTON Circuit Judge.

The Equitable Life Assurance Society, in August, 1912, issued five policies of life insurance in the principal sum of $5,000, upon the life of David T. Finnie. These policies were all delivered to A. S. Herenden, general agent of the society, and remained in his possession until their delivery by him.

Policy No. 1,778,976, payable to Finnie's wife, with right of revocation, was assigned September 26, 1913, to Morrow. Finnie paid the first premium to the agent of the company. Policy No. 1,778,977, payable to the estate of Finnie, was assigned August 22, 1912, to the appellee Morrow. Policy No 1,778,978, payable to the estate of Finnie, was assigned August 20, 1912, to Morrow. Policy No. 1,779,245, payable to the estate of Finnie, was assigned September 12, 1912, to Morrow. Policy No. 1,779,241, payable to the estate of Finnie, was assigned August 22, 1912, to the appellee Walker and on September 16, 1913, Walker assigned the policy to Morrow. The premiums on four of these policies were paid by Morrow, and on the fifth by Walker's note, but Morrow paid the note.

Finnie died September 18, 1917, and the moneys due on the five policies were paid to Morrow on September 20, 1917. The administratrix of the estate now sues in equity to recover the proceeds paid to Morrow, and praying that the appellees be allowed their respective sums paid for premiums, with interest, and that the difference be paid to the estate she represents. The theory of the action is that each assignee had no insurable interest in the life of Finnie and that the assignments were in law wagering contracts. The trial judge dismissed the bill.

If Warnock v. Davis, 104 U.S. 775, 26 L.Ed. 924, has not been overruled or is not inconsistent with what was held in the later case of the Supreme Court, Grigsby v. Russell, 222 U.S. 149, 32 Sup.Ct. 58, 56 L.Ed. 133, 36 L.R.A. (N.S.) 642, Ann. Cas. 1913B, 863, the appellant is entitled to the relief she seeks. In the Warnock Case, supra, the plaintiff's intestate, on procuring insurance upon his life, entered into an agreement with a firm whereby it was to pay all fees and assessments payable to the underwriters on the policy and to receive nine-tenths due thereon at his death. Pursuant to this agreement, the intestate executed an assignment of the policy and the firm paid the fees and assessments. Upon his death, the firm collected from the underwriters (nine-tenths of the amount due on the policy, plus the premiums paid. The administrator sued the underwriters for this nine-tenths. There was no claim or charge of fraud upon the part of any one. In approving a recovery, the court said, speaking of insurable interest:

'But in all cases there must be a reasonable ground, founded upon of the parties to each other, either pecuniary or of blood or affinity, to expect some benefit or advantage from the continuance of the life of the assured. Otherwise the contract is a mere wager, by which the party taking the policy is directly interested in the early death of the assured. Such policies have a tendency to create a desire for the event. They are therefore, independently of any statute on the subject, condemned, as being against public policy.

'The assignment of a policy to a party not having an insurable interest is as objectionable as the taking out of a policy in his name. Nor is its character changed because it is for a portion, merely, of the insurance money. To the extent in which the assignee stipulates for the proceeds of the policy beyond the sums advanced by him, he stands in the position of one holding a wager policy. The law might be readily evaded, if the policy, or an interest in it, could, in consideration of paying the premiums and assessments upon it, and the promise to pay upon the death of the assured a portion of its proceeds to his representatives, be transferred so as to entitle the assignee to retain the whole insurance money. * * *

'It is one which must be treated as creating no legal right to the proceeds of the policy beyond the sums advanced upon its security; and the courts will therefore hold the recipient of the moneys beyond those sums to account to the representatives of the deceased. It was lawful for the association to advance to the assured the sums payable to the insurance company on the policy as they became due. It was also lawful for the assured to assign the policy as security for their payment. The assignment was only invalid as a transfer of the proceeds of the policy beyond what was required to refund those sums, with interest. To hold it valid for the whole proceeds would be to sanction speculative risks on human life, and encourage the evils for which wager policies are condemned.'

In an earlier case, Cammack v. Lewis, 15 Wall. 643, 21 L.Ed. 244, the policy of insurance for $3,000 was procured by the debtor at the suggestion of a creditor to whom he owed $70. It was assigned to the creditor to secure the debt, upon his promise to pay the premiums, and, in case of the death of the assured, one-third of the proceeds was to go to his widow. On his death, the assignee collected the money from the insurance company and paid the widow $950 as her proportion, after deducting certain payments made. The widow, as administratrix of the deceased's estate, sued for the balance of the money collected and was successful. It was held that the transaction, so far as the creditor was concerned, for the excess beyond the debt owing to him, was a wagering operation, and that the creditor, in equity and good conscience, should hold it only as security for what the debtor owed him when it was assigned, for such advances as he might have afterwards made on account of it, and that the assignment was valid only to that extent.

In the case relied upon by the appellees (Grigsby v. Russell, 222 U.S. 149, 32 Sup.Ct. 58, 56 L.Ed. 133, 36 L.R.A.(N.S.) 642, Ann. Cas. 1913B, 863) it, at best, limited the doctrine of Warnock v. Davis, supra, so as to permit a policy previously taken out, under circumstance which made it perfectly valid, to be assigned to one who had no insurable interest in the life of the insured, providing a valid consideration was paid therefor by the assignee. A life insurance policy taken out in good faith by the insured, with no idea of assigning it, can afterwards, in good faith, and for a valuable consideration, be sold and assigned to one who has no insurable interest in the life, under this latter case. In considering the authorities, Justice Holmes said:

'And cases in which a person having an interest lends himself to one without any as a cloak to what is in its inception a wager having no similarity to those where an honest contract is sold in good faith. * * * But the case in which the strongest of them occurs was one of the type just referred to, the policy having been taken out for the purpose of allowing a stranger association to pay the premiums and receive the greater part of the benefit, and having been assigned to it at once. Warnock v. Davis, 104 U.S. 775 (26 L.Ed. 924).'

In the Grigsby Case, supra, the insured, after paying two premiums and when the third was overdue, was in need of a surgical operation, obtained it from a doctor, and prevailed upon the doctor to buy the policy, for which the doctor paid $100. This was held to be a valid assignment. It will be noted however, that this was an out-and-out assignment, and there was no agreement, as in the Warnock or Cammack Cases, for a part interest only in the insurance; in other words, there...