Lindsey v. Prudential Ins. Co. of America, 765.

• Decision Date: 08 October 1936
• Docket Number: No. 765.,765.
• Citation: 16 F. Supp. 880
• Parties: LINDSEY v. PRUDENTIAL INS. CO. OF AMERICA.
• Court: U.S. District Court — Western District of Missouri

16 F. Supp. 880

LINDSEY v. PRUDENTIAL INS. CO. OF AMERICA.

No. 765.

District Court, W. D., Missouri, S. D.

October 8, 1936.

William R. Ross, of Kansas City, Mo., and Walter E. Connelly, of Springfield, Mo., for plaintiff.

Michaels, Blackmar, Newkirk, Eager & Swanson, of Kansas City, Mo., and Mann, Mann & Miller, of Springfield, Mo., for defendant.

REEVES, District Judge.

This case was tried at Springfield on April 11th last. At the conclusion of the trial judgment was given for the plaintiff. At that time an oral opinion was delivered.

The importance of the decision was so great that I have found it proper to review the law applicable to the facts, which were not in controversy. For the purpose of this memorandum opinion and for a ruling that may be understandingly made upon the motion for a new trial, it seems important that a statement of the facts be here made:

The plaintiff is beneficiary in a policy or contract of insurance dated April 10, 1926, for $5,000. The insured was Lester L. Lindsey, the husband of the beneficiary. The insured died July 2, 1932. All of the premiums on the policy as stipulated therein were paid for the first five years and the first quarterly premium of the sixth year was paid. There was a loan on the policy in the sum of $197. This loan was obtained on April 7, 1931. The application for the policy (becoming a part of the contract) was dated April 14, 1926. It recited the issuance of a former policy dated April 10, 1920, for the same amount. The former policy was characterized as a "Convertible Term Policy." While it was for a period of fifteen years, yet the policy in suit supplanted it as of date April 10, 1926. The application for the present policy was signed by both the insured and the beneficiary. It specifically authorized the defendant to:

"Rewrite said Policy changing it from a 15 year Term Policy, Convertible within seven years, of $5,000....., to a Mod. Life — ½ Rate 1st 5 yrs..... Policy of $5,000. ...................................

"Policy date to be 4/10/26 — age 51.....

"Said original Policy is hereby surrendered to the Company."

The policy in suit is in the face amount of $5,000, with premiums payable quarterly as follows: $33.85 each quarter; after the first five years $67.70 each quarter. It is designated on the back as "Whole Life Policy with Half Rate during First Five Years." This designation also appears on the face of the policy. It contains a schedule of loan and nonforfeiture values. Such nonforfeiture values provide for paid-up life insurance as well as automatic extended insurance. These tables are made up on computations of premiums actually received. The policy contains the following provision in respect of reserve computations: "The reserve upon this policy for which funds are to be held * * * shall be computed upon the American Experience Table of Mortality with three and one-half per cent. interest per annum by the net level premium method."

Other facts which may seem pertinent will be stated in the course of the opinion.

1. Plaintiff's petition was based upon what she conceived to be rights vouchsafed to her by section 5741, R.S.Mo.1929 (Mo.St.Ann. § 5741, p. 4388). This is known as the nonforfeiture statute. This Section forbids forfeiture of a policy of life insurance after the payment of three or more annual premiums. Recovery is sought upon the theory of statutory extended insurance. A rule of computation in case of default in the payment of premiums is fixed by the statute as follows: "The net value of the policy, when the premium becomes due and is not paid, shall be computed upon the actuaries' or combined experience table of mortality with four per cent interest per annum, and after deducting from three-fourths of such net value the unpaid portion of any notes given on account of past premium payments on said policy and any other indebtedness to the company secured by said policy, which notes and indebtedness shall then be canceled, the balance shall be taken as a net single premium for temporary insurance (extended insurance)."

My decision at the trial was upon the assumption that the statute contemplated a net level premium without regard to the premium actually stipulated for and actually paid by the insured or policyholder. This constitutes substantially the only question to be considered on the Motion for a New Trial.

2. There is no controversy, and can be no controversy, as to the amount actually paid by the insured during the five and one-quarter years of premium payments. As stated in my oral opinion at the trial, if the computation of net reserve is to be based on the premiums actually received, then clearly the plaintiff would not be entitled to recover, but judgment should be awarded in favor of the defendant.

The question for consideration therefore is whether a net reserve or net value of the policy should be computed upon an assumed and fictitious premium payment or upon the premium actually received from the policyholder.

It must be acknowledged that a contract of insurance, like other valid contracts made upon stipulation of the parties, may become void for failure to comply with conditions such as the nonpayment of premiums. Provisions for the avoidance of a policy obligation because of default in the payment of premiums are valid unless made invalid by statute. Miles v. Connecticut Mutual Life Ins. Co., 147 U.S. 177, 13 S.Ct. 275, 37 L.Ed. 128; Darby v. Northwestern Mutual Life Ins. Co., 293 Mo. 1, 239 S.W. 68, 21 A.L.R. 920; Ashbrook v. Phœnix Mutual Life Insurance Co., 94 Mo. 72, 6 S.W. 462.

The relation between the policyholder and the company is purely contractual. The right of the policyholder is measured by the terms of the policy contract. 37 C. J. p. 378, § 38.

3. However, in the case under consideration, the policy by its terms provides for automatic extended insurance in case of default in premium payment. Also, because it is a Missouri contract, said section 5741 becomes applicable.

The plaintiff does not rely upon the terms of the policy. Moreover, such reliance could not be had for the reason that the table of nonforfeiture values embodied in the policy would preclude recovery. Such specific provisions would prevail over general provisions. Atlantic Life Ins. Co. v. Pharr (C.C.A.) 59 F.(2d) 1024. The plaintiff is compelled to rely for recovery upon the Missouri statute.

In view of my oral opinion and decision in the case, it is proper to ascertain whether the statute may be interpreted as assuming a fictitious level premium or whether it contemplates the computation upon the premium actually received. As said by Judge Fox, of Missouri Supreme Court, in Westerman v. Supreme Lodge Knights of Pythias, 196 Mo. 670, loc. cit. 711, 712, 94 S.W. 470, 480, 5 L.R.A.(N.S.) 1114, the Missouri statute was taken from the nonforfeiture statute of the state of Massachusetts. That statute was interpreted in Connecticut Insurance Company v. Commonwealth, 133 Mass. 161, loc. cit. 164. After setting forth the meaning of reserves and net values, the court said: "The fund thus accumulated is not regarded by our laws as the absolute property of the company, but is held by it as a quasi trustee, for the benefit of the policy holders. * * * If the insured violates his contract and forfeits his policy, the company cannot treat the accumulation upon his policy as its property, but holds it for his benefit. Companies doing business upon...