McCormack v. Sec. Mut. Life Ins. Co.

• Decision Date: 17 April 1917
• Parties: McCORMACK v. SECURITY MUT. LIFE INS. CO.
• Court: New York Court of Appeals Court of Appeals

220 N.Y. 447

116 N.E. 74

McCORMACK

v.SECURITY MUT. LIFE INS. CO.

Court of Appeals of New York.

April 17, 1917.

Appeal from Supreme Court, Appellate Division, Third Department.

Action by Agnes L. McCormack against the Security Mutual Life Insurance Company. From a judgment of the Appellate Division (161 App. Div. 33,146 N. Y. Supp. 613), reversing a judgment for defendant and granting a new trial, defendant appeals. Judgment of Appellate Division reversed, and judgment of Trial Term affirmed.Harvey D. Hinman, of Binghamton, for appellant.

Rollin B. Sanford, of Albany, for respondent.

CARDOZO, J.

This is an action upon a policy of life insurance. The policy was issued in 1901 to John A. McCormack, and was payable upon his death to the plaintiff, his wife. Premiums were due quarterly, but there was a period of 30 days' grace. During this term of grace unpaid premiums bore interest at the yearly rate of 5 per cent. The assured made his payments promptly till December, 1910. He was then ill with a fatal malady, which had made him helpless for years. His wife looked after his affairs. She had received on November 12, 1910, a notice which warned her that on December 12th a premium would be payable. The form of the notice is criticized, as not conforming to the requirements of section 92 of the Insurance Law (Consol. Laws, c. 28). We shall deal with that subject later. The wife made out a check in due season, but neglected to mail it, and on January 11, 1911, the period of grace expired. On February 13th the defendant wrote the assured that the policy had lapsed, and suggested that reinstatement might be allowed if there was satisfactory evidence of good health. This letter came from the defendant's main office in Binghamton, and was received by the assured at his home in Albany. Investigation followed, and led to the discovery of the unmailed check.

The defendant had an agency in Albany, and the plaintiff went there and saw Miss Hearley, the cashier. We state the plaintiff's version of the interview. Miss Hearley told her that application for reinstatement might be made to the home office, and showed her a form for signature. It contained a warranty that the assured was in good health. The plaintiff said to Miss Hearley that she could not sign the application truthfully, and was told that the defendant had no other form. She took the form away and showed it to her husband. With his consent and in his name she signed it. It warrants and declares that the assured has not received or required the services or advice of any physician since the date of the last payment to the company, and further warrants and declares that he is, to the best of his knowledge and belief, in sound health and free from any symptoms of disease. Having signed this application, the plaintiff sent it to Miss Hearley, who forwarded it to Binghamton. The trial judge found that its statements were false, and were known by the assured and by the plaintiff to be false, and were made for the purpose of deceiving the defendant, and thereby procuring the reinstatement of the policy.

The application had the desired effect. It reached the defendant on February 18, 1911. It was accompanied by a check for the overdue premium. On February 20th the medical director, believing its statements to be true, approved it. The defendant thereupon ordered the policy reinstated, and signed a receipt for the premium in default. The trial judge has found that the defendant would have refused reinstatement, if it had known the truth.

A few days later the plaintiff received a telephone message from Miss Hearley to call at the Albany agency. She went there on February 26th or 27th, and met Miss Hearley and one Andrews, who was known as the defendant's general field superintendent. His duty was to assist agents in securing business. He had nothing to do with the issuing of policies or the waiver of forfeitures. He had not been commissioned by the defendant to deliver its renewal receipt. Indeed, he had left Binghamton on February 15th, before the request for reinstatement was signed. The testimony is conflicting in respect of his interview with the plaintiff. We give the plaintiff's version. He told her, he says, that the company had done her a great favor in reinstating so sick a man, and suggested that she take out another policy herself. This she refused to do. He then handed her the receipt for the past-due premium. It is marked ‘Reinstated,’ and bears date as of the day when the premium fell due.

On January 1, 1912, the assured died. The proofs of death informed the company that he had been ill for many years. This was its first notice that the application for reinstatement was false, unless it be chargeable with the knowledge of Miss Hearley or Mr. Andrews. Upon discovery of the truth, it announced its rescission of the contract. It tendered back all premiums received since December 12, 1910. It tendered also the surrender value of the policy, less the amount of a loan which it had made to the assured.

On the defendant's disclaimer of liability, this action followed. The complaint demands judgment for the amount of the policy after deducting the loan, and also for an accounting as to dividends and accumulations. There was, however, no occasion for an accounting in equity. Uhlman v. N. Y. Life Ins. Co., 109 N. Y. 421, 17 N. E. 363,4 Am. St. Rep. 482;Greeff v. Equitable Life Assur. Socy. of U. S., 160 N. Y. 19, 54 N. E. 712,46 L. R. A. 288, 73 Am. St. Rep. 659;Equitable Life Assur. Socy. of U. S. v. Brown, 213 U. S. 25, 29 Sup. Ct. 404, 53 L. Ed. 682. The right of action was strictly legal.

[2] At the close of the trial, both sides moved for the direction of a verdict. This was an implied consent that the issues be determined by the judge. The judge reserved decision, and in the meanwhile took a special verdict upon two questions, and two only. The questions submitted to the jury were:

‘Did Mr. Andrews, at the time of his interview with the plaintiff in February, 1911, understand the condition of health of Mr. McCormack?

‘Did Miss Hearley, at that time and prior thereto, understand the condition of health of Mr. McCormack?’

The jury answered both questions ‘Yes.’ The judge then took under advisement the motions for the direction of a verdict, upon which decision had been reserved. He announced his decision in the form of findings. The special verdict he disregarded as immaterial. He held that any knowledge of Miss Hearley and Mr. Andrews was not the knowledge of the company. The other issues he decided in favor of the defendant. The contract of reinstatement was held to have been procured by fraud, and the recovery was limited to $120, the surrender value of the policy after charging the plaintiff with the unpaid loan and crediting her with premiums paid after December, 1910. If there were any irregularities of practice in the form of trial and decision, they were waived by acquiescence. We make no attempt to consider them. There was an appeal by the plaintiff to the Appellant Division. That court reversed the judgment, and held that at the death of the assured the policy was in force. The order for a new trial is now before us for review.

The plaintiff insists that the policy never lapsed, and that there was no need of reinstatement. The argument is that the defendant did not comply with section 92 of the Insurance Law (Consol. Laws, c. 28). That section forbids the forfeiture of such a policy without notice within a prescribed time of the amount of the premium, the place where it shall be paid, and the person to whom it is payable. The defendant mailed a notice which fairly satisfies those requirements. To quote it at length is unnecessary. It will be found in the opinion of the Appellate Division. 161 App. Div. 33, 35,146 N. Y. Supp. 613.

But there are still other requirements which are said to have been neglected:

‘The notice shall also state that unless such premium, * * * then due, shall be paid to the corporation, or to the duly appointed agent or person authorized to collect such premium, by or before the day it falls due, the policy and all payments thereon will become forfeited and void except as to the right to a surrender value or paid-up policy as in this chapter provided.’

On that head the defendant's notice had this to say:

‘Unless said premium shall be paid on or before said date, the policy and all payments made thereon will become forfeited and void, except that this notice shall not affect any right to paid-up or extended insurance, or to 30 days' grace, if provided for in the policy contract.’

This statement has been criticized in two particulars. It is said that the reference to 30 days' grace introduces an element of uncertainty. We think the criticism is answered by Nederland Life Ins. Co., Ltd., v. Meinert, 199 U. S. 171, 26 Sup. Ct. 15, 50 L. Ed. 139, 4 Ann. Cas. 480. There was a period of grace which made it proper to adapt the langauge of the statute to the peculiar provisions of this policy. What form of words would best attain that end was, of necessity, to be determined by the insurer, and in doing that it had a reasonable range of choice. McDougall v. Provident S. L. A. Socy., 135 N. Y. 551, 556,32 N. E. 251;Flint v. Provident L. & T. Co., 215 N. Y. 254, 258,109 N. E. 248. The choice which it made involves no sacrifice of substance.

There is a suggestion, however, of still another departure from the statute. The statute speaks of a notice that the policy and all payments made thereon will become forfeited and void ‘except as to the right to a surrender value or paid-up policy as in this chapter provided.’ The notice says that the policy and all payments made thereon will become forfeited and void, ‘except that this notice shall not affect any right to paid-up or extended insurance.’ We are told that there should have been some mention, not only of the paid-up or extended insurance, but also of a surrender value. To...