Gray v. Penn Mut. Life Ins. Co. of Philadelphia

• Decision Date: 18 April 1955
• Docket Number: Gen. No. 46556
• Parties: John R. GRAY, Appellee, v. The PENN MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA, a corporation, and Melvin A. Krauss, Appellants.
• Court: United States Appellate Court of Illinois

Page 409

126 N.E.2d 409

5 Ill.App.2d 541

John R. GRAY, Appellee, v. The PENN MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA, a corporation, and Melvin A. Krauss, Appellants.

Gen. No. 46556.

Appellate Court of Illinois, First District, First Division.

April 18, 1955.

Alan R. Johnston, Wesley G. Hall, Chicago (Johnston, Thompson, Raymond & Mayer, Chicago, of counsel), for appellants.

McKinney, Carlson, Barnes & Smalley, Chicago (C. Oscar Carlson, John H. Smalley, Spencer E. Irons, Chicago, of counsel), for appellee.

NIEMEYER, Justice.

Defendants appeal from a decree entered upon a stipulation of facts and points of law at issue pursuant to Rule 48 of the Supreme Court, Ill.Rev.Stat.1953, c. 110, § 259.48, setting aside and canceling a Beneficiary Designation dated January 31, 1948 purporting to vest the right to make further changes of beneficiary and to exercise all privileges of ownership in a life insurance policy issued by defendant The Penn Mutual Life Insurance Company of Philadelphia (hereinafter called the insurer) upon the life of plaintiff, in Edna A. Fonyo, mother of the insured, while living, thereafter in the defendant Melvin A. Krauss, friend of the insured, while living, and thereafter in the insured, and setting aside and canceling as to plaintiff a loan granted by insurer to Krauss upon the security of the policy.

Insurer, a Pennsylvania corporation, has at all times material to the determination of this appeal had its principal or home office at Philadelphia. At all times material herein, insurer had agents in Chicago, Illinois, authorized to take and receive applications for life insurance and for changes in policies previously issued, but did not at any time material herein have an agent in Chicago authorized to pass upon and approve applications for insurance or for changes in policies previously issued. All instruments in writing hereinafter mentioned, beginning with the initial application for insurance dated September 10, 1925, to and including the Beneficiary Designation dated January 31, 1948, signed by plaintiff and his mother or by one of them, were signed in Chicago and received there by the Chicago agent of the insurer (hereinafter called Chicago agent) and transmitted by it to insurer in Philadelphia, where they were accepted and approved. All policies of insurance hereinafter mentioned were signed by the proper officers of insurer at its home office, transmitted to its Chicago agent and by it delivered to plaintiff and his mother in Chicago.

On application of plaintiff dated September 10, 1925 insurer issued its 20-payment life plan policy of insurance for $10,000 on the life of plaintiff. It was dated September 14, 1925 and numbered 1,187,457. It is hereinafter referred to as policy No. 1. Plaintiff signed and delivered to the Chicago agent a transfer dated August 10, 1927 whereby he changed the beneficiary of policy No. 1 to his executors, administrators or assigns, and surrendered, assigned, transferred and set over all right, title and interest whatsoever in policy No. 1 to the insurer in consideration of receiving from insurer two new policies, each for $5,000, and having the same privileges and conditions as if issued on September 14, 1925--one policy to be on the 20-payment life plan, the other on the 20-payment life plan, with disability feature and double indemnity. Pursuant to the terms of the transfer, insurer issued and delivered to plaintiff at Chicago two policies for $5,000 dated August 31, 1927 and numbered respectively, 1,187,457 (the number of policy No. 1) and 1,153,575. Policy numbered 1,187,457 was later surrendered and canceled and is not material to this appeal. Policy numbered 1,153,575, hereinafter referred to as policy No. 2, was a 20-payment life plan policy, with disability and double indemnity benefits. Endorsed on the face was the following: 'This Policy is issued in the place of one-half of one bearing No. 1 187 457 and dated September 14, 1925, which Policy has been released and cancelled, and this new Policy is to have the same privileges as if issued September 14, 1925.'

Plaintiff signed and delivered to the Chicago agent a second transfer, dated January 1928, similar in form to the first transfer, whereby plaintiff surrendered, assigned, transferred and set over all right, title and interest whatsoever of, in and to policy No. 2 to the insurer 'in consideration of receiving from the said Company a new policy for $5,000 on the Twenty-payment Life Rate Endowment Plan, Disability Feature providing for waiver of premiums and annuity payments; also Double Indemnity, bearing the same number as the Policy hereby surrendered, and having the same privileges and conditions as if issued on September 14, 1925.' Pursuant to the terms of this transfer the insurer issued and delivered to plaintiff a policy, hereinafter called policy No. 3, dated January 16, 1928, numbered 1,153,587 and endorsed as follows: 'This policy is issued in the place of one bearing the same number and dated August 31, 1927, which policy has been released and cancelled, and this new policy is to have the same privileges as if issued September 14, 1925.'

Plaintiff signed and delivered to the Chicago agent an absolute assignment dated May 16, 1939 whereby he assigned to his mother all right, title and interest in policy No. 3. All premiums payable on the policy were duly paid and it became a fully paidup policy on September 14, 1944. All premiums paid on that policy and all prior policies were paid by the mother of plaintiff. Thereafter she signed and delivered to the Chicago agent a beneficiary designation dated January 31, 1948, reciting in section one, entitled 'Ownership and Change of Beneficiary,' that the right to make further changes of beneficiary and to exercise all privileges of ownership in policy No. 3, 'including any loan or surrender right, is vested in Edna A. Fonyo, mother of the insured, while living, thereafter in Melvin A. Krauss, of 135 South La Salle Street, Chicago, Illinois, friend of the insured, while living, thereafter in the insured.'

The mother of plaintiff died at Chicago, Illinois, December 29, 1950. January 22, 1951 the insurer loaned to defendant Krauss, on the security of policy No. 3, $2,390, the cash surrender or loan value of the policy on that date. February 23, 1951 Krauss assigned to plaintiff all his right, title and interest in the policy. On learning that the loan to Krauss was standing against the policy, plaintiff brought suit to have the loan declared null and void as against him and as a lien on the policy.

It is unnecessary to detail the points of law at issue between the parties. The decree sets aside and cancels the beneficiary designation dated January 31, 1948, and sets aside and cancels as to plaintiff the loan to Krauss and reinstates, adjudges and decrees policy No. 3 to be a valid and subsisting policy, free and clear of any right or claim or interest of Krauss, and free and clear of any lien of the loan by the insurer to Krauss. The question on appeal is, Did the beneficiary designation dated January 31, 1948 vest in Krauss the right to borrow on the policy after the death of plaintiff's mother?

Krauss never had an insurable interest in the life of plaintiff. Plaintiff contends that the policies of insurance and the beneficiary designation are governed by the law of Pennsylvania and that under the law of that state an assignment of an insurance policy to a person without an insurable interest is void. Defendants' position is that these instruments are governed by the law of Illinois, under which assignments to persons without an insurable interest are valid. The Illinois law as to the law governing the validity and effect of contracts is stated in Hartliep Transit Co. v. Central Mut. Ins. Co., 288 Ill.App. 140, 5 N.E.2d 879, 881, where the court said:

'The general rule is that a contract of insurance is deemed to be executed at the place where the last act is done which is necessary to make the same binding upon the parties, and if the policy does not become binding until * * * delivery to the assured, the place of delivery is considered the place of the contract. (Authorities cited.) Another general rule in the construction of contracts in matters affecting their validity and the rights of the parties is that they are governed by the law of the place where the contract is made, at the time of the making thereof, and that such law is as much a part of the contract as if incorporated therein. This rule prevails in the absence of any agreement of the parties to the contrary. Gaston, Williams & Wigmore of Canada v. Warner, 260 U.S. 201, 43 S.Ct. 18, 67 L.Ed. 210, 211.'

The application, dated September 10, 1925, attached to and made a part of policy No. 1, provided that 'If the premium on the insurance herein applied for is not paid at the time of making this application, the contract of insurance shall not be in force unless or until a policy shall be issued and delivered to me and the first premium thereon actually paid during my lifetime and good health.' No premium was paid at the time of making the application. The first premium was paid and the policy delivered in Chicago on or about November 12, 1925. These acts, necessary to make the policy...