Layton v. Illinois Life Ins. Co., 5596.

• Decision Date: 12 March 1936
• Docket Number: No. 5596.,5596.
• Citation: 81 F.2d 600
• Parties: LAYTON v. ILLINOIS LIFE INS. CO. BACHMAN v. DAVIS.
• Court: U.S. Court of Appeals — Seventh Circuit

81 F.2d 600 (1936)

LAYTON v. ILLINOIS LIFE INS. CO.

BACHMAN v. DAVIS.

No. 5596.

Circuit Court of Appeals, Seventh Circuit.

January 31, 1936.

Rehearing Denied March 12, 1936.

William S. Oppenheim, Earle E. Ewins, and Edward S. Price, all of Chicago, Ill., for appellant.

Roy O. West, Percy B. Eckhart, William M. Klein, and Lewis C. Jesseph, all of Chicago, Ill., for appellee.

Before EVANS and ALSCHULER, Circuit Judges, and BRIGGLE, District Judge.

BRIGGLE, District Judge.

The single, ultimate question to be determined upon this appeal is whether a life insurance agent under a contract for post-agency renewal commissions is entitled, upon receivership of the life insurance company, and its consequent inability to continue in business, to recover the "present value" of such commissions upon renewal premiums which it is alleged the company, had it continued in business, would have received in due course.

Appellant, Bachman, entered into an agency contract with the Illinois Life Insurance Company on September 1, 1919, and continued as an agent of the company until the appointment of a receiver for the company by the District Court on November 29, 1932. The contract and amendments thereto are long and involved, but the case turns upon the construction to be placed upon portions of sections 21 and 28 of the contract which are set forth in the margin.¹

The claim was referred to the master in chancery by the District Court with directions to report whether claimant was entitled to have his claim allowed in any sum and the master answered that he was not, which report was confirmed by the court and an order entered disallowing his claim. The appeal flows from this order.

It is averred and admitted that the agency contract was for no definite term and could be terminated at will by either party, and was, in fact, terminated by the receivership of the company. Appellant contends, however, that the provision of section 28 of the contract which provides for post-agency commissions was not terminable at the will of the principal and has been breached by the appointment of the receiver and the consequent inability of the company to perform. Appellee avers that such termination was by operation of law and was within the contemplation of the contracting parties and cannot in any event be made a basis of liability.

A similar question was before the Court of Appeals of the Eighth Circuit in the case of Moore v. Security Trust & Life Insurance Company, 168 F. 496, 499. The only important factual difference in that case was that the insurance company had voluntarily incapacitated itself from further continuance in the life insurance business by conveying all its assets to another company. The court there held that such conduct on the part of the company did not constitute an anticipatory breach of an agreement with its agent that would sustain an action by the agent for the present worth of future commissions. Judge Sanborn, speaking for the court in that case, said:

"The defendant was a corporation empowered by the state to conduct the business of life insurance. It was and is common knowledge, of which the parties to this contract could not have been ignorant, that more than 60 per cent. of the companies that embark in that business fail to find it profitable and in a few years either reinsure their risks and turn over their business to some other company, or become insolvent and abandon their attempt to insure the lives of their policy holders. The right to determine what risks it should accept and what it should reject, what rates it should charge, in what states it should conduct its business, and in what it should not, how long it should continue to insure lives, in view of its present and probable success or failure, and whether it should continue an unprofitable business to the ultimate loss of itself and its policy holders, or reinsure its risks in some other company and prevent greater loss, and generally to determine and carry into effect the business policy of the company, was vital to the due exercise of its corporate powers, to its continued existence, and to its success. Did the company, in view of this fact, intend by this agreement to deprive itself of this right, or to subject its exercise of it to an agreement to accept such applications for insurance as the plaintiffs directed, for the right to direct the acceptance of any is the right to direct the acceptance of all, to conduct such business in Kansas as the agents demanded, and to continue so to do, and to continue to carry on its general business of life insurance, whether profitable or unprofitable, during the entire term of the lives of the defendants, or during any other specific time? The true answer does not seem to be doubtful. It is obvious, from the nature of the company and the surrounding facts, that it intended to reserve to itself the right at its own free will to determine what applications for insurance it should accept and what it should reject, in what states and on what terms it should conduct its insurance business, what premiums it should charge, how long it should carry on its general business, whether or not, and when, if at all, it should turn over its business to another company, reinsure its risks, and cease to do an insurance business, free from all liability to its agents for damages for so doing. This right and its free exercise were as essential to the due exercise...