Gordon v. Ware Nat. Bank

• Decision Date: 22 August 1904
• Docket Number: 1,995.
• Citation: 132 F. 444
• Parties: GORDON v. WARE NAT. BANK OF WARE, MASS.
• Court: U.S. Court of Appeals — Eighth Circuit

132 F. 444

GORDON v. WARE NAT. BANK OF WARE, MASS.

No. 1,995.

United States Court of Appeals, Eighth Circuit.

August 22, 1904

Syllabus by the court

The issue of a policy of life insurance to one who has no interest as a relative, dependent, creditor, or otherwise, in the life of the insured, and who pays the premiums for the chance of recovering upon the policy, is against public policy, and the contract is void, because the interest of the holder is to shorten, rather than to lengthen, the life of the insured, and his maintenance of the policy is of the nature of a wager.

A creditor has an insurable interest in the life of his debtor and the issue or pledge of a policy upon his life as collateral security for the payment of his debt is valid.

The question whether or not an insurable interest in an assignee is requisite to the validity of the assignment of a policy of life insurance, which was originally issued to one who had an insurable interest, is a question of general law, upon which the decisions of the courts of the state in which the assignment was made are not controlling in the federal courts.

An insurable interest in the assignee is not requisite to the validity of the assignment of a policy of life insurance which was lawfully issued to one who had such an interest unless the assignment was made in bad faith as a cover for the issue of a wager policy. But the use of an assignment immediately upon the issue of a policy to evade the rule that the issue of a policy to one without an insurable interest renders it void avoids the assignment.

The pledgee of a policy of life insurance has the right and power to sell the policy to the highest bidder for the purpose of realizing money to pay the debt which it secures, and both immediate and remote assignees under such a sale take good title to the policy and to its proceeds, although they have no insurable interest in the life insured by the policy.

In an action between the same parties or between those in privity with them, a prior judgment on the merits upon the same claim or demand by a court which had jurisdiction, is conclusive whether right or wrong, not only of every matter offered, but of every admissible matter which might have been offered to sustain or defeat the claim or demand.

This action involves a controversy over the ownership of the proceeds of a policy of insurance between the administrator of the estate of Melissa A. Gordon, the plaintiff, and the Ware National Bank, the defendant. The insurance company admitted its liability, and paid into the court below the amount owing upon the policy, which insured the life of William Gordon for $5,000. All the premiums required to be paid by this policy had been paid by Gordon before the year 1879. The amount promised by the policy was payable upon the death of William Gordon to his wife, Melissa A. Gordon, if living; otherwise to the children of William Gordon. Gordon died on March 6, 1902, leaving his wife and two children surviving. Melissa A. Gordon died on March 14, 1902, so that, if Melissa Gordon was not deprived of all interest in the policy by the facts which are about to be stated, her administrator, the plaintiff, is entitled to recover its proceeds. On June 11, 1879, William Gordon and Melissa A. Gordon, his wife, assigned the policy to the German Bank of Leavenworth, Kan., as collateral security for the payment of loans made by it to William Gordon. On May 8, 1882, the German Bank brought an action in the district court of Leavenworth county, in the state of Kansas, against William Gordon and Melissa A. Gordon to foreclose the pledge of the policy by a sale of it and the application of the proceeds to the payment of a debt of $8,217.01, which was then owing by William Gordon to the bank. The Gordons appeared in that action, admitted that the indebtedness of William Gordon to the bank was $8,217.01, and that they had pledged the policy to secure the payment of this debt, and they consented to an immediate trial of the action without making any farther defense. Thereupon the court tried the case, and rendered a decree that the bak should recover of William Gordon $8,217.01; that the policy of insurance should be advertised and sold; that the proceeds of the sale should be applied to the William Gordon and Melissa A. Gordon were 'forever barred of and from having or claiming any lien upon or interest in or to' the policy after its sale. Under an execution issued upon this judgment the policy was sold by the sheriff to the German Bank for $150, and it was subsequently assigned for value by the German Bank, through several mesne conveyances, to the defendant, the Ware National Bank. Neither the Ware National Bank nor any of the assignees through whom the policy passed from the German Bank to it was a creditor of William Gordon, or had any interest in his life. The Ware National Bank claimed the proceeds of the policy as the remote assignee of the German Bank. The plaintiff, the administrator of the estate of Melissa A. Gordon, demanded these proceeds upon the ground that the assignees of the German Bank had no insurable interest in the life of Gordon, and that for this reason the assignments to them were void, and the policy remained the property of Melissa A. Gordon when she died. The court below sustained the claim of the Ware National Bank, and rendered a judgment in its favor.

John H. Atwood (William W. Hooper, on the brief), for plaintiff in error.

James H. Cravens (Lucien Baker and E. B. Baker, on the brief), for defendant in error.

Before SANBORN and VAN DEVANTER, Circuit Judges, and AMIDON, District Judge.

SANBORN Circuit Judge, after stating the case as above, .

The issue of a policy of insurance to one who has no interest as a relative, dependent, creditor, or otherwise, in the life insured, and who pays the premiums for the chance of recovering upon the policy, is against the public policy of this nation, and void, because the interest of the holder of the policy is to shorten, rather than to lengthen, the life insured, and his maintenance of the policy is of the nature of a wager. Evasions of this rule by the issue of a policy to one who has an insurable interest, and its immediate assignment, pursuant to a preconceived intent, to one without such an interest, who undertakes to pay the premiums for his chance of profit upon his investment, are equally ineffective, and such assignments are void. Connecticut Mutual Life Ins. Co. v. Schaefer, 94 U.S. 457, 461, 24 L.Ed. 251; Cammack v. Lewis, 15 Wall. 643, 21 L.Ed. 244; Warnock v. Davis, 104 U.S. 775, 782, 26 L.Ed. 924. A creditor has an insurable interest in the life of his debtor, and a policy on the latter's life issued to him, or issued to one who has an insurable interest in the life of the debtor and subsequently assigned to him, is valid and enforceable in his hands. Connecticut Mutual Life Ins. Co. v. Schaefer, 94 U.S. 457, 461, 24 L.Ed. 251; Warnock v. Davis, 104 U.S. 775, 778, 26 L.Ed. 924.

Counsel for the plaintiff insist that the Supreme Court of the state of Kansas has determined that every assignment of an insurance policy is void unless the assignee has an insurable interest in the life protected, and that this decision is controlling in the federal courts, because the assignments here in question were executed in the state of Kansas. But the question whether or not an insurable interest in an assignee of a policy issued to one who had such an interest is indispensable to the validity of the assignment of it is a question of general law, which it would be a dereliction of duty for a federal court to decline to consider and determine for itself. The opinion of the court of the state in which the assignment is executed upon this question is not controlling in a nation court. Hartford Fire Ins. Co. v. Chicago, M. & St. P. Ry. Co., 70 F. 201, 203, 17 C.C.A. 62, 65, 30 L.R.A. 193; Speer v. Board, 88 F. 749, 762, 32 C.C.A. 101, 114; Clapp v. Otoe County, 104 F. 473, 477, 45 C.C.A. 579, 582.

There is some conflict of authority among the courts of the states upon the question whether or not the assignment of a policy for value in good faith by one who has an insurable interest to one who has not such an interest is valid. The Supreme Court of Indiana, in the case of Franklin Life Ins. Co v. Hazzard, 41 Ind. 116, 13 Am.Rep. 313, declared that such was as obnoxious to the rule against wager policies as the issue of a policy to one without interest, and that it was void. The courts of the states of Alabama, Kansas, Kentucky, Missouri, North Carolina, Pennsylvania, Texas, and Virginia have followed this declaration. Alabama Gold Mutual Life Ins. Co. v. Mobile Mutual Life Ins. Co., 81 Ala. 329, 1 South, 561; Helmetag's Adm'r v. Miller, 76 Ala. 183, 52 Am.Rep. 316; Missouri Valley Life Ins. Co. v. Sturges, 18 Kan. 93, 26 Am.Rep. 761; Missouri Valley Life Ins. Co. v. McCrum, 36 Kan. 146, 59 Am.Rep.537, 12 P. 517; Price v. First Nat. Bank, 62 Kan. 743, 64 P. 639; Schlamp v. Berner's Adm'r, 21 Ky.Law Rep. 324, 51 S.W. 312; Burnam v. White, 16 Ky.Law Rep. 241, 22 S.W. 555; Heusner v. Mutual Life Ins. Co., 47 Mo.App. 336; Powell v. Dewey, 123 N.C. 103, 68 Am.St.Rep. 818, 31 S.e. 381; Downey v. Hoffer, 110 Pa. 109, 20 A. 655; Gilbert v. Moose's Adm'r, 104 Pa. 74, 49 Am.Rep. 570; Cheeves v. Anders, 87 Tex. 287, 47 Am.St.Rep. 107, 28 S.W. 274; Schonfield v. Turner, 75 Tex. 324, 12 S.W. 626, 7 L.R.A. 189; Long v. Meriden Brittania Co., 94 Va. 594, 27 S.E. 499. The reason for this view that the assignee who pays the premium practically wagers it upon the early close of the life insured has much less force where, as in the case at bar, the premiums have been paid before the assignment is made. Connecticut Mutual Life Ins. Co. v....