Kentucky Home Mut. Life Ins. Co. v. Duling

• Decision Date: 16 July 1951
• Docket Number: No. 11182.,11182.
• Citation: 190 F.2d 797
• Parties: KENTUCKY HOME MUT. LIFE INS. CO. v. DULING.
• Court: U.S. Court of Appeals — Sixth Circuit

190 F.2d 797 (1951)

KENTUCKY HOME MUT. LIFE INS. CO. v. DULING.

No. 11182.

United States Court of Appeals Sixth Circuit.

July 16, 1951.

COPYRIGHT MATERIAL OMITTED

Cecil Sims, Nashville, Tenn., and Charles I. Dawson, Louisville, Ky., Charles I. Dawson, Richard Dawson, Louisville, Ky., Bullitt, Dawson & Tarrant, Louisville, Ky., on brief; Cecil Sims, and F. M. Bass, Jr., Bass, Berry & Sims, all of Nashville, Tenn., of counsel, for appellant.

George C. Anderson and Joseph L. Lackey, Nashville, Tenn., Joseph L. Lackey, George C. Anderson, Nashville, Tenn., on brief, for appellee.

Before SIMONS, McALLISTER and MILLER, Circuit Judges.

MILLER, Circuit Judge.

The appellant, Kentucky Home Mutual Life Insurance Company, appeals from a judgment which held in effect that an increase in premiums put into effect by the appellant under a group policy of insurance covering the lives of employees of the Nashville Postal Employees Benefit Society was invalid.

The policy which is involved in this case was originally issued by the Inter-Southern Life Insurance Company on January 19, 1927, by which the Insurance Company insured the lives of 171 members of the Nashville Postal Employees Benefit Society, an unincorporated association. By subsequent mutual agreement, the anniversary date of the policy was changed from January 19th to February 19th, so that beginning with February 19, 1932, each policy year began on February 19th. The policy was issued for a term of one year, renewable from year to year for a further term of one year upon the payment of the premium for the amount of insurance as renewed. The policy set out the amount of insurance available to members according to age, and contained a schedule of premium rates per $1,000 at all ages from 15 to 100 years, inclusive, effective at the beginning of the policy year for which the premium was payable. The policy contained this provision: "At the end of each year from date hereof the Company shall have the right to change the premium rates at which subsequent renewals shall be computed, such changes being based on the Company's classified group mortality experience and schedules then in force."

Contemporaneously with the issue of the policy there was endorsed upon it the following provision:

"Unless or until otherwise provided by the Nashville Postal Employees Benefit Society, each member insured hereunder shall pay the same rate per $1,000 of insurance. This individual premium rate per $1,000 of insurance will be determined at the beginning of each policy year by dividing the total premium calculated as provided in the policy contract by the total insurance benefit, and this rate shall be applicable to each member insured hereunder regardless of age.

"Any employee insured hereunder whose membership in the Nashville Postal Employees Benefit Society is kept in good standing, may have his insurance granted hereunder continued, so long as this group policy is continued in force and the premiums due for such insurance are duly paid by the employer to the Company."

As authorized by that provision of the policy, up to the policy year beginning February 19, 1933, all members of the Society paid each year the same premium rate per $1,000 of insurance, irrespective of age. Following receivership proceedings against the Inter-Southern Life Insurance Company, a judgment was entered on August 8, 1932, authorizing and approving the reinsurance of the business of Inter-Southern Life Insurance Company, including the group policy herein involved, by the appellant.

The provision endorsed on the policy under which each insured member paid the same rate per $1,000 of insurance, irrespective of age, resulted in the younger members of the group paying more and the older members paying less than they would have paid had each paid the schedule rate applicable to his attained age. For the purpose of eliminating this unfairness to the younger members of the Society, the Insurance Company, prior to the beginning of the policy year starting February 19, 1933, submitted to the Society for its approval what was known as a step-rate schedule of premiums, under which each member paid an annual rate per $1,000 according to the group of years in which his age fell. This proposal was approved by the Society, and the Insurance Company was so advised by letter. The Insurance Company caused to be mailed to each insured member a letter dated January 26, 1933, advising each member of the change in rates and of the exact schedule of rates applicable to the individual member under that change. The new rates were made effective for the policy year beginning February 19, 1933, and were continued in effect for each policy year thereafter to and including the policy year beginning February 19, 1945, and each insured member during that period of time paid the rate applicable to him under the step-rate schedule.

Prior to the policy year beginning February 19, 1946, the Insurance Company decided that instead of continuing to collect from each of the insured members premiums calculated according to the step-rate schedule, it would collect premiums based upon the attained age rate schedule for each insured employee as set out in the policy. It notified the secretary of the Society of this decision by letter dated January 19, 1945, and this new schedule of rates was put into effect as of February 19, 1946, and has been in effect since that time. Beginning with February 19, 1946, all insured members have paid the new schedule of rates on the attained age rate basis, as set out in the policy. This resulted in causing some members to pay higher rates and other members to pay lower rates than they would have paid under the step-rate schedule.

The present action was filed on January 16, 1948 in the State Court of Tennessee by Albert Duling suing individually and as representative of a class, the members of the Nashville Postal Employees Benefit Society alleging that the membership of the Society was so numerous that it was impractical to join each member as a party and that the complainant was the duly elected president of the Society. The complaint alleged that the Insurance Company's refusal to accept premiums from the members of the Society at the same rate per $1,000 of insurance regardless of their respective ages was a material breach of its contract of insurance with them, for which it was answerable in damages to each of said members to the extent of all premiums paid by each member with interest, in the total amount of $80,000.

The case was removed by the Insurance Company to the U. S. District Court on the ground of diversity of citizenship and the fact that the amount in controversy exceeded the sum of $3,000 exclusive of interest and costs.

The Insurance Company filed an answer pleading as a defense the consent and approval of the Society and its members of the change from a uniform rate to the step rate, and also alleging that by their approval of this new schedule of rates the Society and its members surrendered their right for each of them to pay the same rate per $1,000 regardless of age, and that thereafter the individual members were obligated to pay the rate applicable to them under the step-rate schedule, subject to the right of the Company to change those rates at the beginning of any policy year, as provided in the policy. The answer also pleaded an estoppel.

Thereafter the bill of complaint was amended by an additional count which alleged that the changes in rates made in 1933 and 1946 were in violation of the contract provisions by reason of which the members of the Society were entitled to recover from the Insurance Company the excess premiums so paid. The prayer asked for an accounting of such excess premiums, and, instead of asking for a cancellation of the policy, asked that the Insurance Company be required to specifically perform its contract. Inconsistent claims are permitted by Rule 8(e) (2), Fed.Rules Civ.Proc., 28 U.S.C.A.

The Insurance Company filed an amended answer in which it pleaded the conduct of the insured members of the Society in accepting said change in rates and thereafter paying them without protest as a waiver of any rights which they were attempting to assert. In preliminary rulings the District Judge held that the Insurance Company had the right to make the change to the step-rate schedule effective February 19, 1933, and denied any recovery on account thereof. The case went to trial on the right of the Insurance Company to make the change in 1946 from the step-rate schedule to the attained-age rate.

Following the hearing of proof, the District Judge held that Duling was entitled to maintain the suit individually in his own behalf and in behalf of all other members of the Society, who had to pay increased premiums by reason of the change in 1946; that any member of the Society who decided to do so might become a party to the suit by filing a petition therein within thirty days thereafter; that the change in rate for the policy year beginning February 19, 1946 was made in violation of the terms of the policy and was a constructive fraud upon the holders of the policy; that the step-rate system of payment in effect prior thereto remained in full force and effect until a change was consented to by the members of the Society; that any member of the Society who had paid increased premiums as a result of the change was entitled to recover the amount of such premium increase with interest; that the Insurance Company should permit members of the Society who allowed their insurance to lapse because of the change in rate to reinstate their insurance under the policy upon payment of the current premium; that as to any members of the Society who had died since the increased rate became effective and whose insurance was allowed to lapse on account of the increase in rates, the Insurance Company should make payment to the named beneficiary or executor of the amount of...