Lester v. Aetna Life Insurance Company

• Decision Date: 24 October 1968
• Docket Number: Civ. A. No. 9836.
• Citation: 295 F. Supp. 1208
• Parties: Don E. LESTER, Jr., v. AETNA LIFE INSURANCE COMPANY.
• Court: U.S. District Court — Western District of Louisiana

295 F. Supp. 1208

Don E. LESTER, Jr., v. AETNA LIFE INSURANCE COMPANY.

Civ. A. No. 9836.

United States District Court W. D. Louisiana, Shreveport Division.

October 24, 1968.

Charles D. Egan, Cook, Clark, Egan, Yancey & King, Shreveport, La., for defendant.

Jack O. Brittain, Watson, Williams & Brittain, Natchitoches, La., for plaintiff.

RULING ON THE MERITS

BEN C. DAWKINS, JR., Chief Judge.

Plaintiff, as named beneficiary of a life insurance policy issued by defendant, seeks recovery of the proceeds allegedly due him under the policy. Suit was originally filed in the Tenth Judicial District Court, Natchitoches Parish, Louisiana, but was timely removed to this Court. Our jurisdiction is based upon 28 U.S.C. § 1332, diversity of citizenship, and involves the requisite amount in controversy. The case has been submitted to us, without formal hearing, on joint stipulation of the parties. The facts are agreed upon as set forth below.

The policy of life insurance, having a face amount of $50,000, was issued May 1, 1952, to Don E. Lester, Sr., then a resident of Milwaukee, Wisconsin. Thus May 1 of each year was the anniversary date and premium due date.

Some of the pertinent provisions of the policy follow. Clause 4 provides:

"All premiums shall be paid in advance at the Home Office of the Company, or to its authorized agent, in exchange for a receipt signed by its Secretary or Assistant Secretary and countersigned by the agent. If any such premium is not paid when due, this policy shall cease, subject to the values and privileges hereinafter described; except that a grace of thirty-one days, during which the policy shall remain in full force, will be allowed for the payment of any premium after the first. * * *"

Clause 6 provided that the company would make loans on the security of the policy for an amount not in excess of the net loan value¹ of the policy. Specified per annum rate of interest on such loans was 5%.

Clause 8 contains an automatic loan provision which is available if due written request is made for its operation while there is no default in payment of premiums due. Essentially this clause provides that the amount of any premium due and not paid before the end of the 31-day grace period will automatically be loaned by the company and charged as an indebtedness secured by the policy. However, if the loan value is insufficient to cover the whole premium due, no automatic premium loan would be made under the provisions of Clause 8 but the provisions of Clause 7 would apply.

Clause 7 contains three options available to the insured in the event the automatic premium loan provision was insufficient to cover the total premium due. If none of the options provided in the policy were selected by the insured, the policy stipulated that insurance would be continued automatically as extended term insurance under Option (c). If there were any indebtedness against the policy, the extended term insurance would be for the sum insured less the indebtedness and for such a period as the cash value less the indebtedness would purchase.

When Lester, Sr., was issued the policy on May 1, 1952, he requested operation of the automatic loan provision in Clause 8. He timely paid the premiums for the policy years through 1961, making the total amount of premiums paid $22,520.

In 1957, Lester, Sr., with full knowledge of the insurer, moved his domicile from the State of Wisconsin to Natchitoches Parish, Louisiana, where he lived until his death on February 2nd, 1963. While in Louisiana, he made the following modifications and changes in this contract.

Two changes of beneficiaries were effected. The first was on December 22nd, 1958, when Lester, Sr., made the administrator of his estate the beneficiary. The second was on October 27, 1961, when Lester, Sr., named Lester, Jr., plaintiff, as sole beneficiary of the policy.

August 2nd, 1961, the insured requested and obtained a policy loan of $12,398.84 from defendant. The loan was secured by the cash surrender value of the policy.

May 1st, 1962, the yearly premium of $2,252.50 became due. In addition, Lester, Sr., owed $451.18 interest on the policy loan of $12,398.84, making a total indebtedness of $12,850.02. On that date, the cash value of the policy was $12,850.00. Thus the total indebtedness against the policy exceeded the cash surrender value by two cents.

A notice of premium payment due was issued by defendant to Lester, Sr., indicating that on the premium due date of May 1, 1962, he owed $2252.50, the annual premium, and $451.18, the interest due on the loan. There is no concrete evidence in the record establishing the date this notice was issued by the company or received by Lester, Sr.

Sometime between July 2d and July 5th Lester, Sr., was sent a notice dated July 2d, 1962, along with a letter dated July 3rd, 1962. The notice contained the following statement: "Although the automatic premium loan provision is in force, your policy does not have sufficient value to pay this premium by loan * *. Unfortunately your policy has lapsed without value other than your right to apply for reinstatement because indebtedness exceeds the cash value." The letter advised Lester, Sr., that he could complete and return, together with his remittance of $2,252.50 for the defaulted premium, an application for reinstatement. Lester, Sr., immediately returned to the company a check for $2,703.68, dated July 6, 1962, the application for reinstatement, and his letter from the company dated July 3rd, 1962. At the bottom of the letter, he made the following notation:

"Sorry, but Notice was misplaced. Please notify me if you reinstate.

D E L"

At that time there was more than sufficient money in his bank account to cover the check sent to the company.

In a letter dated August 8th, 1962, defendant advised Lester, Sr., that a physician's statement, including details of any cardiovascular findings, must be sent to the company before further consideration could be given to his application. When defendant received no response to this letter, they advised Lester, Sr., in a letter dated January 23rd, 1963, that, because he had not submitted the physician's statement, they were obliged to return his check for $2,703.68. February 2nd, 1963, Lester, Sr., died.

The contested issues of law are: (a) Whether the law of Wisconsin or Louisiana applies; (b) whether defendant gave Lester, Sr., adequate notice of the premium due on May 1, 1962, and of the inapplicability of the automatic loan provision at that time; (c) whether defendant is estopped from denying that the policy lapsed; and (d) whether defendant is estopped from denying reinstatement of the policy.

On the first issue, we hold firmly that Louisiana law applies.

Since Federal Courts must apply the conflicts of law rule of the forum in a diversity case, Klaxon Company v. Stentor Electric Mfg. Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), we direct our attention to the law of Louisiana on that subject.

The first paragraph of Article 10 of the Louisiana Civil Code provides: "The form and effect of public and private written instruments are governed by the laws and usages of the places where they are passed or executed." From this provision a general rule has evolved that the law of the place where the insurance policy is delivered ordinarily must govern. See Davis v. Insurance Company of North America, 268 F.Supp. 496 (E.D. La.1967), and cases cited therein. Defendant asks us rigidly to apply that rule and hold that the law of Wisconsin, where the policy was delivered, applies. We should ignore, says defendant, the erosions and inroads made into traditional conflicts of law rules by recent decisions of a Louisiana appellate court. In these decisions there is recognition of the tremendous changes which the area of conflicts of law has undergone since 1965. Applying the "center of gravity" or "grouping of contacts," many courts throughout the United States have discarded or modified the traditional and once well established conflicts rules. The new and more rational approach avoids mechanical application of the law of the place of the making or performance of a contract; rather it places emphasis upon the laws of the State having the most significant quantitative or qualitative contacts directly concerning the matter in dispute. 16 Am.Jur.2d, Conflicts of Laws, § 42, at page 66.

The only Louisiana case which specifically has rested its holding on the modern conflicts approach is Universal C. I. T. Credit Corporation v. Hulett, 151 So.2d 705 (La.App. 3 Cir. 1963). There suit was brought for a deficiency judgment after sale of a repossessed automobile failed to bring enough to pay the balance due on the purchase price. After a conditional sale of the car had been effected in Indiana, the car was, with the knowledge, and at least implied consent, of vendor, taken to Louisiana. Upon vendee's default in payments, the car was repossessed in Louisiana, and then taken back to Indiana, where it was resold. Suit then was brought in Louisiana for a deficiency judgment. Plaintiff finance company, to whom the contract had been immediately assigned, argued that, by the law of Indiana, where the conditional sales contract was confected, the procedural requirement for the preservation of the right to claim a deficiency judgment was met. Holding that Louisiana law was applicable, the trial court concluded that since no appraisement, as required by the Louisiana Deficiency Judgment Act, was made, plaintiff's suit should be dismissed. The Third Circuit Court of Appeal affirmed, concluding that the whole affair had enough significant connecting elements and contacts with Louisiana to justify application of Louisiana law. Judge Tate, speaking for the Court, said:

"To decide a case by the application of formal conflict-of-law principles is often not so much a matter of logic and the determination of the single correct answer by the

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