Fry v. Provident Sav. Life Assur. Soc.

• Decision Date: 26 September 1896
• Citation: 38 S.W. 116
• Parties: FRY v. PROVIDENT SAV. LIFE ASSUR. SOC. OF NEW YORK.
• Court: Tennessee Supreme Court

38 S.W. 116

FRY v. PROVIDENT SAV. LIFE ASSUR. SOC. OF NEW YORK.

Court of Chancery Appeals of Tennessee.

September 26, 1896.

Appeal from chancery court, Hamilton county; T. M. McConnell, Chancellor.

Suit by George T. Fry against the Provident Savings Life Assurance Society of New York. There was a decree for defendant, and complainant appeals. Affirmed.

C. P. Goree, J. L. Faust, and Washburn, Peckle & Turner, for appellant. Brown & Spurlock and W. L. Eaiken, for appellee.

NEIL, J.

The bill was filed by the complainant, the insured under a policy of insurance executed by the defendant on the life of the complainant, to have a construction of the policy, and for an accounting of certain accumulations stored up by the defendant, alleged to have arisen from surplus premiums, and from lapsed policies, and from interest and profits on investments made by the defendant, in all of which complainant claims that he has a very large interest. The particulars of this claim, as far as may be necessary, will be stated further on. Before going into this matter, it will be necessary to first set out a sufficiency of the application and the policy to make these contentions comprehensible. So much of the application as need be copied is in the following words: "I hereby apply to the Provident Savings Life Assurance Society of New York for an insurance of $10,000, payable at my death, on the quarterly renewable term plan, with participating premiums, in behalf of and for the benefit of Mary Anna Amelia Fry, my wife." So much of the policy as need be copied is in the following words: "The Provident Savings Life Assurance Society of New York, in consideration of the application herefor, and of the conditions and agreements on the back of this policy, all of which are a part of this contract, and in consideration, also, of the payment of $65.80, doth hereby promise to pay to Mary A. A. Fry, wife of George T. Fry (the beneficiary in the policy), or the legal representatives or assigns of said beneficiary, at the office in the city of New York, the sum of $10,000, within ninety days after the acceptance of satisfactory proof, at its office in the city of New York, of the death of George T. Fry, of Atlanta, in the county of Fulton, in the state of Georgia (the insured under this policy), provided such death shall occur before twelve o'clock, noon, on the 31st day of January, 1888. And the said society further agrees to renew and extend this insurance during each successive quarter year from the date hereof, upon the payment on or before the last days of January, April, July, and October, in each successive year, during the life of the insured, of the premiums for the actual age attained, in accordance with the schedule rate printed on the back of this policy, on each $1,000 insured, less the return premiums awarded hereon, subject to the stipulations regarding payment of premiums and extrahazardous occupations. Payment of the policy by death occurring two or more years after its date will be incontestable, except for fraud in obtaining this policy. In witness whereof, the Provident Savings Life Assurance Society of New York has caused this policy to be signed by its president and secretary, at its office in the city of New York, on the 31st day of October, 1887. Sheppard Homans, President. W. E. Stevens, Secretary. (copyrighted A. D. 1886, by Sheppard Homans.) Conditions and agreements referred to in the body of the policy: * * * Sec. 3. Seventy-five per cent. of the insurance portion of each renewal premium paid hereon will be at once deposited in the Hanover National Bank of New York, or such other bank as may be designated by the directors, and shall constitute the death fund, to be used solely in settlement of death claims. The residue, namely, twenty-five per cent. thereof, will be deposited with the Farmers' Loan & Trust Company, or such other depository as may be designated by the directors, or invested in trust in such securities as are authorized by law for the investment of trust companies, as a guaranty fund. The surplus amounts thus contributed by each policy remaining in force at the expiration of ten years from its date of issue, and at the end of each five years thereafter, will be applied to lessen future premiums, or will be repaid in cash should the assured at such time so elect. * * * Maximum quarterly premiums to be reduced, in each case, by the surplus portion of preceding payments not needed for the death fund and the guaranty fund, as per contract, to renew and extend an insurance of $1,000; other amounts in the same proportion." Then follows a schedule of these rates for the ages from 25 years to 65 years, and then this statement: "The expense portion of each quarterly premium (included in the above rates) is limited to one dollar on each one thousand dollars insured; the residue is the insurance portion of the premiums." The application, a portion of which has been already copied, and which was made to and accepted by the defendant, states that it "shall be the basis of the contract with the society if a policy be issued thereon." This application was signed both by the complainant and his wife, the beneficiary, Mrs. Mary A. A. Fry.

The bill, as has been already stated, was filed by the insured alone, his wife, the beneficiary named in the policy, not being joined therein. The theory upon which the bill proceeds may be seen from the following: It charges: That the above-mentioned policy belonged to a special and peculiar class, designated as a "policy upon the renewable term plan with participating premiums." That under this special kind of policy the society became a trustee for the holder thereof. That for a fixed consideration, named in each policy contract, it agreed to receive and invest all premiums paid, "and to pay or return to each policy holder, annually, all surplus profits arising from the payments on that part of such premiums known as the `death fund,' and to return at the end of the first ten years, and at the end of each five years thereafter, to each policy holder, all profits and surplus arising from the contributions of all members to the guaranty fund; the object being, by these annual returns of surplus and profits upon the death fund, and the ten and five years' return of profits and surplus upon the guaranty fund, to furnish insurance for this class of policy holders at its exact cost, plus the amount fixed in each policy as an expense fund, which was $4 per annum to each $1,000 of insurance. The policy holders were to receive all profits arising in said society under this class of policy." That "all money paid by each policy holder each year to the society was to be divided as follows, to wit: First, the expense fund of $4 per annum for each $1,000 of insurance in each policy was taken out. The remainder was divided into two funds, — the death fund and the guaranty fund. The death fund was to be 75 per cent. of what remained after taking out the expense fund, and the other 25 per cent. was to constitute the guaranty fund." That "each person insured in the society had what is called, in life insurance parlance, a certain expectancy of life, and that the society, in addition to the expense fund, charges each policy holder, in theory but not in practice, a sum, which increases each year with the increase in age, sufficient, when added from year to year, and interest computed at 4 per cent., to produce, at the end of the expectancy, the full amount insured. As a matter of fact, however, the society adds to or loads each and every annual payment to the full extent of 40 per cent. over and above the amount necessary to produce the sum of the insurance at the end of the expectancy." That "three-fourths of the amount of this loading, with its increase from investment, lapsed policies, and other sources of profit, should annually be returned to the policy holder, to be used in payment or reduction of premiums. The other one-fourth, increased by investments, profits, and lapses in the guaranty fund, should be annually credited to the account of each policy holder's fund for the period of ten years from date of policy, to be applied in payment of further premiums, or paid in cash to the policy holder if he should so elect." That "the defendant, in devising its renewable term participating policy, placed it beyond the power of its officers to create abuses by extravagant and wasteful management. That the society fixed, by contract in the face of each policy, an expense fund at the rate of $4 per annum for each $1,000 of insurance, beyond which it cannot lawfully go. The society did not reserve to itself any right to participate in any profits or gains arising from investments or forfeitures upon lapsed policies, or from any other source, but limited itself expressly to this expense fund for all its gains and profits." That "the society contracted and agreed to receive, employ, and control all the insurance part of each premium solely for the use and benefit of the policy holders, and that the same should go into and constitute the death and guaranty funds, in the proportion hereinbefore stated." That, "in the conduct of the business of the society under this class of policies, there has annually accrued, and will continue to accrue, large sums of money, from the forfeiture of premiums on policies matured from deaths, subsequently lapsed, or forfeited for nonpayment; and that all such accretions or accumulations from deaths, forfeitures, and lapses belong, of right, as well as by the letter, and necessary implication growing out of the letter, of the contract, to the persistent policy holders in the special class, and each policy holder is entitled to an annual accounting with the trustee or society, and each is entitled to receive annually his pro rata share of all profits from all sources accruing to the death fund with which to reduce or pay his annual premiums on his policies, and...