John Hancock Mut. Life Ins. Co. v. Commissioner of Ins.
| Decision Date | 23 June 1965 |
| Citation | 208 N.E.2d 516,349 Mass. 390 |
| Parties | JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY v. COMMISSIONER OF INSURANCE. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Edward J. Duggan, Boston (George E. Donovan and Daniel J. Johnedis, Boston, with him), for petitioner.
David W. Hays, Asst. Atty. Gen., for respondent.
Joseph P. Rooney and Richard M. Reilly, Boston, for Life Ins. Ass'n of America, amicus curiae.
Donald R. Grant, Boston, David J. Blattner, Jr., Cambridge, for Metropolitan Life Ins. Co., Frederick G. Fisher, Jr., S. Donald Gonson and Harold Hestnes, Boston, for Prudential Ins. Co. of America, and Edward L. Lane and Richard J. Walsh, Boston, for Boston Mutual Life Ins. Co., amici curiae.
Irving Abramson, Everett E. Lewis and Leonard Greenwald, New York City, for Insurance Workers International Union, AFL-CIO, amicus curiae.
Before WILKINS, C. J., and SPALDING, KIRK, SPIEGEL and REARDON, JJ.
This is a petition for review pursuant to G.L. c. 175, §§ 22A; 108, cl. 2(a); 132 and 192. The case was reported by the single justice without decision for the determination of the full court upon the pleadings, a statement of agreed facts and exhibits.
We state, in somewhat condensed form, the agreed facts. The petitioner, John Hancock Mutual Life Insurance Company (Hancock), is a mutual life insurance corporation organized under the laws of this Commonwealth. It has been continuously engaged in the Commonwealth since 1862 in the business of life insurance and since May 15, 1957, in the business of accident and sickness insurance. Hancock has a usual place of business in Boston and is authorized to engage in the named insurance activities in all States of the United States of America, the District of Columbia, Puerto Rico and the Virgin Islands. The respondent is the Commissioner of Insurance (commissioner).
On April 13, 1964, Hancock, in accordance with G.L. c. 175, §§ 22A, 108, cl. 2(a); 132 and 192, filed with the commissioner for his review and approval an endorsement form, set out in the footnote, 1 to be issued and delivered in the Commonwealth for attachment to noncancellable disability insurance contracts (disability policies), hospital and surgical expense contracts (hospital expense policies) in the ordinary ance policies (life policies) in the ordinary and industrial forms, 2 issued by the petitioner to individual insurants prior to and on and after February 5, 1964, which were still in force, and also to insurance policies that the petitioner would issue in the future. As to a substantial mumber of these policies all premiums were and would be collected by insurance agents employed by the petitioner.
On April 27, 1964, the commissioner notified the petitioner that the proposed endorsement did not comply with the laws of the Commonwealth and was therefore disapproved. Specifically, the commissioner stated that, as to insurance policies the premiums for which are normally collected by insurance agents employed by the petitioner, the reinstatement privilege contained in the endorsement was less favorable than the provisions of St.1963, c. 796 (inserting § 187F in G.L. c. 175). 3
Hancock prior to and on and after February 5, 1964, has issued and intends to continue to issue disability, hospital expense and life policies to individual insurants. Under the premium collection practices of Hancock all premiums on a substantial number of said policies have been collected by licensed insurance agents (debit agents) employed by it. The duties of the petitioner's debit agents, licensed in this Commonwealth under G.L. c. 175, § 163, include the collection of premiums due through personal contact with the insurants, and the petitioner intends to continue such premium collection practices. 4
Each of the policy forms on which insurance has been issued in the Commonwealth has, since 1907, been approved or permitted for use under the applicable statutes. Each insurance policy (several examples of which are exhibits in this case) describes the benefits and rights of the insured. Each provides that it is issued in consideration of the payment of premiums of amounts and at times specified therein; that premiums are due in advance of the period for which insurance benefits are provided; that payment of a premium will not operate to keep the policy in force beyond the period for which it is payable, except as provided in the period of grace provision; and that if any premium is not paid when due (or by the end of the grace period) the policy will lapse. The grace periods provided in the sample policies are four weeks or thirty-one days.
Substantially all of the ordinary life policies issued by Hancock or to be issued provide in substance that any premium unpaid at the end of the grace period shall be paid from any dividends on deposit with the company. Except for term policies, most ordinary life policies provide further that by election of the owner any premium unpaid at the end of the grace period will be paid by any automatic loan up to the loan value of the policy. Each of the insurance policies may be reinstated after a lapse for failure to pay premiums but the insurer has the right to require evidence of insurability.
All insurance policies provide in substance that payment of premiums shall be made to the petitioner at its home office or to an agent authorized to receive payment. Failure of an agent to collect a premium by personal contact does not relieve the insurant of his obligation to pay the premium when due. Except as provided in the two next preceding paragraphs none of the forms in which the petitioner has issued or intends to issue insurance policies contains any provision excusing failure or delay in the payment of premiums during the period that its agents might be on strike nor does any form provide for continuance of coverage and benefits without advance payment of premiums during the period of any such strike. The policies specify varying time intervals for the payment of the stated premiums. Some require weekly or monthly payments; others permit annual, semiannual, quarterly or monthly payments.
The petitioner annually determines whether a divisible surplus exists. A divisible surplus is that portion of the petitioner's assets which, after payment of covered claims, benefits and expenses, exceeds the amount necessary to provide for the payment of future claims, benefits and expenses. The divisible surplus so ascertained is apportioned to each class of policy with reference to the proportion which the premiums and experience contributed by that class have generated the surplus, and then paid in the form of dividends without distinction or discrimination to each insurant of the same class and life expectancy at issue. To the extent that any class is not self-supporting, the surplus contributed by other classes is applied to make up the deficiency, and the assets available for apportionment as divisibl surplus among the other classes are reduced or eliminated.
Without any obligation or guaranty on its part to do so, the petitioner has assigned and intends to continue to assign debit agents employed by it to collect premiums due through personal contact with debit policyholders. Hancock employs approximately 6,100 debit agents of whom 1,022 work in the Commonwealth. To holders of premium notice policies, defined by the petitioner as all policies which do not require monthly or more frequent payment of premiums, the petitioner has mailed and intends to continue to mail notices of premiums due. From time to time some holders of premium notice policies, instead of following the usual practice of transmitting their premium paymemts to offices of the petitioner, pay their premiums to debit agents. Some holders of debit policies transmit their premiums directly to offices of the petitioner. The method of premium payment with respect to any particular policy is undeterminable, since the petitioner has allowed and intends to continue to allow policyholders to change their policies from debit to premium notice or vice versa if their policies fall within the policy class limit of the class to which they desire to change. As to a considerable number of policies there is a change in the method of payment over any given year.
The business of Hancock, as is that of all insurers, is governed by actuarial principles. Individuals, not knowing in advance who is going to suffer a loss, contribute to a common fund from which any member of the group suffering a loss will be paid a previously agreed amount. The premium payments to the insurer together with returns from the investment of the premiums create the common fund. The premiums are also the source for the payment by the insurer of any cash surrender value, loan and nonforfeiture benefits provided in the policies. The amount of premium charged each insurant is calculated with reference to his life expectancy and class, the benefits promised and the risks covered by his policy, the assumed return on the insurer's investments, and the amount of applicable expenses. The calculation is made in the light of statistical data reflecting actual past experience and also with regard to predictable future experience so that the premiums charged and the funds they generate will be adequate to pay the losses and benefits under the policies. Each insurant thereby contributes to the pool for his class of policy according to his chances of drawing upon the pool, and the premium charge is the same for all insurants of the same class and life expectancy who bring an equal degree of risk to the pool. The right of insurers to contest the effectiveness of policies for limited periods of time under incontestability provisions and to require evidence of insurability before reinstating lapsed policies gives an opportunity to evaluate again the class and degree of risk of the insurant.
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