Lenon v. Mutual Life Insurance Company

• Decision Date: 26 November 1906
• Citation: 98 S.W. 117,80 Ark. 563
• Parties: LENON v. MUTUAL LIFE INSURANCE COMPANY
• Court: Arkansas Supreme Court

98 S.W. 117

80 Ark. 563

LENON v. MUTUAL LIFE INSURANCE COMPANY

Supreme Court of Arkansas

November 26, 1906

Appeal from Pulaski Circuit Court; Edward W. Winfield, Judge reversed.

Lenon as administrator of David Reeve, deceased, sued the Mutual Life Insurance Company of New York to recover the surrender value of two policies of life insurance, one for $ 5,000 and one for $ 3,000, which were taken out by deceased in 1882 and on which the last premiums were paid in November, 1890. On June 4, 1902, Reeve sent the policies to the company's general agents in St. Louis for the purpose of getting paid-up policies, and they were returned to him with the statement that the policies, having elapsed more than six months, were of no value. Reeve died December 5, 1903, and Lenon, qualifying as his administrator, sued on the $ 5,000 policy on October 22, 1904, and on the $ 3,000 policy in February 18, 1905. The cases were consolidated.

It was agreed "that the annual premium of $ 148.95 was paid by Reeve for the years 1882 to 1890, inclusive, on policy No 235,-824, and none after said date. That if the insured had surrendered his policy within six months from November 27, 1891, the defendant would have issued to Reeve a paid-up policy for $ 1,381, but that the said Reeve did not apply within six months for said paid-up policy; and that on policy No. 194,451, if Reeve had applied within six months from November 16, 1891, he would have obtained a paid-up policy of $ 1,091. That no notice of nonpayment of premium was given to the deceased on either policy, and no paid-up policy was issued to D. Reeve in lieu of the policies aforesaid."

The court below held that the suits were barred, and plaintiff appealed.

Judgment reversed.

Bradshaw, Rhoton & Helm, for appellant.

1. Time was not of the essence of the contract, as to the surrender of the policy and demanding a paid-up policy. The deceased had bought and paid for the paid-up insurance. "The premiums by express convention paid for both current insurance and a paid-up policy, and to deny him the benefit of a paid-up policy because the old one was not surrendered in time" will not be sustained. 109 Ky. 624. Each annual premium paid for carrying the full insurance for the current year and for paid-up insurance. Ib; 14 Bush, 51; 102 Ky. 80; 58 Vt. 257. See, also, 84 Ky. 653; 85 Ala. 401. The right to a paid-up policy does not depend upon the surrender of the old, and taking out a new, policy. 67 Me. 85; Ib. 438; 16 F. 720. See, also, 127 Mass. 153.

2. It is admitted that no notice of nonpayment of premium was given; therefore no forfeiture could be declared or enforced. 119 N.Y. 450; 113 N.Y. 147; 101 Cal. 624; 97 F. 263; 100 F. 408; 81 F. 796; 83 F. 85; 93 F. 153; 110 N.Y. 15; 70 Ia. 325; 100 Mich. 157; 89 Tex. 259.

3. It is sufficient that the policy be surrendered in a reasonable time--if it is necessary to surrender the old policy. 58 Vt. 253; 109 Ky. 624.

4. The action is not barred. The statute of limitations would not begin to run until after the death of Reeve.

James McKeen and Rose, Hemingway, Cantrell & Loughborough, for appellant.

1. The action was barred. The obligation in the policies was not to pay anything on the death of Reeve in case he permitted the policies to lapse by failure to pay the premiums, but to issue him a paid-up policy. This obligation terminated six months after the lapse. 29 Ark. 108; 64 Ark. 165; 46 Ark. 25; 58 Ark. 90; 52 Ark. 168; Id. 76; 75 S.W. 274; 86 S.W. 966; 66 S.W. 740; 76 S.W. 838.

2. In all insurance contracts time is of the essence of the contract, particularly so in the case of mutual companies, since they must know exactly how they stand, and who is entitled to participate in the profits, so as to make their distributions. 93 U.S. 30; 104 U.S. 91; 187 U.S. 348.

"The right to demand a paid-up policy must be exercised within the time prescribed, or it will be lost. And the old policy must be surrendered, if the contract so provides, as a condition precedent to the right." 2 Bacon on Benefit Societies & Life Insurance, § 373; 117 U.S. 414; 28 N.J.Eq. 167; 67 N.Y.S. 269; 58 Miss. 226; 88 Va. 778; 104 Ill.App. 72; 5 Mo.App. 73; 62 N.E. 501; 43 N.E. 448; 64 S.W. 74; 82 S.W. 1089; 36 So. 538; 57 N.W. 558; 93 N.Y. 70; 103 Pa.St. 177; 20 F. 886; 15 Hun, 8; 85 Ill. 410; 34 Ohio St. 222.

OPINION

HILL, C. J.

The controlling question of the case is the effect to be given this clause in the policies:

4. "That in consideration of the surrender value promised in the policy and in this application, viz: If this policy shall become forfeited by nonpayment of any premium at any time after three full annual premiums have been paid, the company will, upon the surrender of the policy issued on this application within six months after such forfeiture, issue a non-participating paid up policy for such sum as the reserve upon this policy at the time of such forfeiture according to the legal standard of the State of New York will purchase as a single premium at the company's published rate, and in further consideration of the participation of the policy in any surplus of the company which may be distributed while it is in force, all right or claim to any other surrender value than that so promised, whether required by a statute of any State or not, is hereby relinquished."

Five days after the six months expired in one policy and 18 days after it expired in the other the insured mailed the policy to the company, and demanded paid-up insurance pursuant to his original contract.

If the provision that the policy must be surrendered within six months be a condition precedent to the right to paid-up insurance, and if time of surrender therein named is of the essence of the contract, then appellant has no case; otherwise he has.

There are three lines of decisions to which the court is referred.

(a) Cases like Knapp v. Homeopathic Mutual Ins. Co., 117 U.S. 411, 29 L.Ed. 960, 6 S.Ct. 807, where an election to pursue one or another course is evidenced by surrender of policy or other act, then the act must be performed as a condition precedent to sustaining the elected right. But these cases are not of weight here, for no election was required under this contract. The forfeiture of the primary insurance by reason of failing to pay brings into being the secondary insurance stipulated to be payable in such event. The event itself, and not the surrender of the policy, bring into effect the secondary condition of the original contract.

(b) There is a line of decisions holding that, under clauses like the one at bar, the surrender of the policy within the time mentioned is a condition precedent by its terms to the vesting of the secondary, or paid-up, insurance. Hudson v. Knickerbocker Life Ins. Co., 28 N.J.Eq. 167; Universal Life Ins. Co. v. Whitehead, 58 Miss. 226; Bonner v. Mutual Life Ins. Co., 36 So. 538; Universal Life Ins. Co. v. Devore, 88 Va. 778, 14 S.E. 532; Equitable Life Assurance Soc. v. Evans, 25 Tex. Civ. App. 563, 64 S.W. 74; Inloes v. Prudential Ins. Co., 109 Mo.App. 104, 82 S.W. 1089, Sheerer v. Manhattan Life Ins. Co., 20 F. 886, overruling same case, 16 F. 720; 2 Bacon, Benefit Societies, § 373. See Cooley's Briefs on Ins., pp. 2413, 2420 for full review of the cases.

(c) There is another line of decisions, principally in Kentucky, which hold that time is not of the essence of this provision, and that the surrender of the policy does not have to be made within the stipulated period, provided it is made within a reasonable time. Montgomery v. Phoenix Mut. Life Ins. Co., 77 Ky. 51, 14 Bush 51; Mutual Life Ins. Co. v. Jarboe, 102 Ky. 80, 42 S.W. 1097, 39 L.R.A. 504, where cases departing from Montgomery v. Phoenix Mut. Life Ins. Co. were overruled; Washington Life Ins. Co. v. Miles, 112 Ky. 743, 66 S.W. 740; S. C. 66 S.W. 790; Mutual Life Ins. Co. v. O'Neil, 116 Ky. 742, 76 S.W. 839; Washington Life Ins. Co. v. Lyne, 119 Ky. 162, 83 S.W. 122. The same rule prevails in Maine. Chase v. Phoenix Mutual Life Ins. Co., 67 Me. 85; Dorr v. Phoenix Mutual Life Ins. Co., 67 Me. 438.

The reasoning in the leading Kentucky case is as follows: That time is not of the essence of contracts generally unless executory on both sides or expressly made so; and that the insurance company had received the entire consideration for performance on its part, and it is inequitable to sustain a defense on the sole ground of lack of demand of a formal matter within a given time. The court said: "In this case the consideration for a paid-up policy has been fully paid, and, although the insured enjoyed the benefit of current insurance for the years in which the policy was in force for the full amount, that was not all that was paid for. The premiums by express convention paid for both current insurance and a paid-up policy, and now to deny to the assured the benefit of a paid-up policy because the old one was not surrendered in time is, in the strictest and most obnoxious sense, a forfeiture. Such a claim is without support in reason, justice or authority, and can be supported in a court of equity." Montgomery v. Ins. Co., 77 Ky. 51, 14 Bush 51.

It is for the court to say which presents the better reasons, the majority or the minority line, for the decided weight numerically is against the Kentucky and Maine courts. Some of the cases holding that time is the essence of this provision cite N. Y. Life Ins. Co. v. Statham, 93 U.S. 24, 23 L.Ed. 789. In that case the court said:

"All the calculations of the insurance company are based on the hypothesis of prompt payments. They not only calculate on the receipts of premiums when due, but upon compounding interest upon them. It is upon this basis that they are enabled to offer assurance at the favorable rates they d...