Maynard v. Mutual Life Ins. Co.

• Decision Date: 25 July 1942
• Parties: MAYNARD v. MUTUAL LIFE INS. CO.
• Court: Tennessee Supreme Court

165 S.W.2d 385

MAYNARD v. MUTUAL LIFE INS. CO.

Supreme Court of Tennessee.

July 25, 1942.

Error to Circuit Court, Shelby County; Ben L. Capell, Judge.

Action by James W. Maynard against the Mutual Life Insurance Company to recover a sum equal to amount of dividends which was paid to holders of policies without disability benefits, after defendant had offered to pay plaintiff, and plaintiff had refused to accept, a smaller dividend than defendant paid to holders of policies without disability benefits. To review an adverse judgment, the plaintiff brings error.

Judgment affirmed.

E. W. Braden, of Memphis, for plaintiff in error.

Fitzhugh, Murrah & Fitzhugh, of Memphis, and Wm. Marshall Bullitt, of Louisville, Ky., for defendant in error.

HICKERSON, Special Judge.

On August 29, 1929, defendant, the Mutual Life Insurance Company of New York, issued to plaintiff, James W. Maynard, an Ordinary Life Insurance policy with Disability Benefits for $25,000.00. This policy was later changed in certain respects at the request of plaintiff. These changes are not material to the present suit.

Pertinent excerpts from the policy are: "If the insured is totally and presumably permanently disabled before age 60, will pay to the insured Two Hundred Fifty Dollars monthly during such disability, besides waiving premium payments, all upon the conditions set forth in section 3."

"Section 3. * * * Neither the dividends nor the amount payable in any settlement hereof shall be decreased because of disability benefits granted."

Plaintiff became disabled in 1935, and was paid dividends by defendant equal to those received by holders of policies without disability benefits during 1935 and 1936. In 1937 defendant offered to pay plaintiff, and plaintiff refused to accept, a smaller dividend than it paid to holders of policies without disability benefits. Defendant based its action in so doing on the following grounds:

(1) The type, class or group of policies which plaintiff held proved to be extremely unprofitable. Large losses resulted which had to be absorbed by defendant in some way.

(2) Each policy of this group constituted one insurance contract with two features, death benefits and disability benefits.

(3) The equitable method for distributing the divisible surplus of defendant was to treat this group of policyholders as a class, and pay dividends to them according to their contribution to the divisible surplus of defendant as a class.

Plaintiff brought this suit to recover from defendant for a sum equal to the amount of dividends which was paid the holders of policies without disability benefits.

The trial court dismissed plaintiff's suit and plaintiff appealed to this Court and assigned errors.

On the trial of the case in the lower court, Attorney for plaintiff stated: "I am suing strictly upon a construction of this contract, and I will be very frank to say to Your Honor that it is a question that has never been passed upon in the State of Tennessee so far as I have been able to determine. They will contend, no doubt, that it has been passed upon in the State of New York in the Rhine case. [Rhine v. New York Life Insurance Company, 248 App.Div. 120, 289 N.Y.S. 117]. In the Rhine case in the highest court of New York [273 N.Y. 1, 6 N.E.2d 74, 108 A.L.R. 1197], on facts as I take it that are exactly similar to the facts that will be admitted in this case, because I am conceding or admitting that everything that they put in this plea in abatement are true. It is simply a question of the construction of this policy and construction of the laws of Tennessee, which are almost identical with the laws of the State of New York as to whether we are entitled to these dividends.

"Now if your Honor please, I am equally frank to say that I am relying solely upon a dissenting opinion in a New York case, and that is my authority for taking this position. I think it is sound. And Your Honor of course is not bound by any New York decision or decision from any other State. And that is going to be our position in the matter."

Plaintiff relies upon Tennessee Code, Section 6132 which provides: "No life insurance company doing business in Tennessee shall make or permit any distinction or discrimination between insurants of the same class and equal expectation of life in the amount or payment of premiums, * * * or in the dividends or other benefits payable thereon, or in any other of the terms and conditions of the contracts it makes; * * *."

Plaintiff and defendant also rely upon the following sections of the Insurance Law of New York, Consol.Laws, c. 28: "Section 83. Distribution of surplus to policyholders. * * * Every domestic life insurance corporation * * * shall provide in every policy * * * that the proportion of the surplus accruing upon said policy shall be ascertained and distributed annually and not otherwise. Upon the thirty-first day of December of each year * * * every such corporation shall well and truly ascertain the surplus earned by such corporation during said year. After setting aside from such surplus * * * a contingency reserve not in excess of the amount prescribed in this article, every such corporation shall apportion the remaining surplus equitably to all other policies entitled to share therein."

"Section 89. Discriminations prohibited. No life insurance corporation * * * shall make or permit any discrimination between individuals of the same class or of equal expectation of life, in the amount or [of] payment or return of premiums or rates charged for policies of insurance * * * or in the dividends or other benefits payable thereon, or in any of the terms and conditions of the policy."

"Section 108. Discriminations under accident or health policies prohibited. No insurance corporation * * * shall make or permit any discrimination between individuals of the same class in the amount of premiums, policy fees, or rates charged for any policy of accident or health insurance, or in the benefits payable thereunder, or in any of the terms or conditions of such insurance contract, or in any other manner whatsoever."

The provisions of the Tennessee Statute and the New York Statute relating to discrimination are similar.

Now if the policy issued plaintiff is divisible — that is two separate contracts, one for death benefits and another for disability benefits — the method adopted by defendant for computing dividends on plaintiff's policy would be discriminatory since plaintiff would be entitled to receive dividends under his death benefit contract (ordinary life policy) which would equal dividends received by policyholders under ordinary life policies without disability benefits.

Wherefore, the two questions presented for the determination of this Court are: (1) Is the policy which was issued plaintiff by defendant one contract or is it two separate and distinct contracts — one for death benefits only and the other for disability benefits only? And (2) Was defendant's apportionment of its divisible surplus to plaintiff and the group which he represented equitable?

In Rhine v. New York Life Insurance Company, 248 App.Div. 120, 289 N.Y.S. 117, 132, the court considered whether a similar policy was a single policy or a severable policy and said:

"We reach the conclusion that the policy is one agreement, a single policy, with both death and disability benefits so interwoven as to constitute a single integral insurance contract. * * *

"In its physical aspect, the policy is one instrument. A consideration of the provisions for disability benefits makes it clear that if all of these provisions were taken together apart from the rest of the policy, it would be impossible to spell out a separate contract for disability insurance; there would be * * * no identifiable sum to be paid (for the disability benefits cannot be obtained without the death benefit), and no identifiable person to receive the payment. The provisions for disability benefits are so intimately dependent upon and unintelligible without the death benefit provisions as to be by themselves impossible of constituting a separate contract. There was one application for the policy, not two, and provision is made for one premium. Throughout the policy the single number is invariably...