Mills v. National Life Ins. Co.

• Decision Date: 18 November 1916
• Citation: 189 S.W. 691,136 Tenn. 350
• Parties: MILLS v. NATIONAL LIFE INS. CO.
• Court: Tennessee Supreme Court

189 S.W. 691

136 Tenn. 350

MILLS v. NATIONAL LIFE INS. CO.

Supreme Court of Tennessee.

November 18, 1916

Appeal from Chancery Court, Knox County; Will D. Wright, Chancellor.

Action by Florence B. Mills against the National Life Insurance Company. Decree for complainant, and defendant appeals. Reversed, and bill dismissed.

Williams & Lancaster, of Chattanooga, for appellant.

Wright & Jones, of Knoxville, for appellee.

EVANS Special Judge.

This was a suit filed in the chancery court of Knox county against the National Life Insurance Company of Vermont, to recover upon two policies of life insurance, for $5,000 each, issued upon the life of Charles H. Mills, and payable at his death to Florence B. Mills, his wife, who was complainant below.

The assured held two other policies for like amounts in the same company, about which there was no contest at his death, and same having been paid, are not involved in this lawsuit.

The two policies here in controversy were issued on May 14, 1908, and the annual premium on each was $138.45. The assured paid six successive annual premiums on each of the policies, but failed to pay the premium due on May 14, 1914, and died on October 15, 1914.

The two policies involved in this case are alike in all respects, and are treated in the record as if they constituted one policy for $10,000. They provide that at the end of the sixth year and after six annual premiums have been paid, the two together should have a cash value of $1,017. In other words at the end of the sixth year, when the assured failed to pay his premium, he had an equitable property right in the policies to the extent of the sum mentioned, and he was given the option of using that sum, subject to the provision with regard to indebtedness, in any one of three different ways according to his election, namely: (1) He could receive the sum in cash; or (2) he could take paid-up insurance on the two policies for $2,010; or (3) he could take continued insurance thereon for $10,000 for a period of 7 years and 184 days, without paying further premiums; and, if the assured made no election, the last option under the terms of the policy went into effect automatically; that is, the continued insurance for 7 years and 184 days.

It appears in this case that the assured made no election under the above option, and, since he died just five months after the last premium was due and unpaid, it is the insistence of complainant that the continued insurance was in full force and effect, and that therefore the company is liable in this suit.

The defense of the insurance company is that the policy lapsed by reason of the failure to pay the premium due May 14, 1914, and that for several years prior to his death, the assured had each year borrowed of the company, in the form of premium loans, certain amounts of money, which, if for any reason the policy were allowed to lapse, operated, under the terms of the contract, it is insisted, to reduce the cash value of the policy to $10.11, and to reduce the amount of continued term insurance to the sum of $99, which sum the company offered to pay complainant before suit was filed, and which it paid into court with its answer.

It appears that the assured had, on the 14th day of May of the years indicated, made the following premium loans: In 1910 one loan of $211; in 1911 two loans of $101 each; in 1912 two loans of $138.45 each; in 1913 two loans of $131 each; the aggregate amount of said loans being $949.90, which, with 1 year's unpaid interest thereon, made a total sum of $1,006.89. This was the indebtedness of the assured to the company on May 14, 1914, the date upon which he failed to pay his last premium.

It further appears that these sums were borrowed, not by assignment of the policies to the company, but upon certain notes executed by the assured, all alike in form, and designated in the record as premium notes. It also appears from the record that some time in August or September, 1914, the company charged the above indebtedness, namely $1,006.89, against the surrender or cash value of said policies, which was $1,017, leaving a balance to the credit of the policies of $10.11, as above stated. The actuary department then figured the amount of insurance which $10.11 would purchase for a term of 7 years and 184 days, and his calculation showed the amount to be $99.

It does not appear from the record that any notice was given the assured of the action which the company proposed to take, and did take, further than that contained in the policy and in the notes; nor does it appear that any demand was made upon assured for the payment of either principal or interest upon the above-mentioned indebtedness, evidenced by premium notes. It is the insistence of the company that it made the above-mentioned loans upon the condition, as expressed in the face of the notes, as well as in the terms of the policy, that it should have the right to take the action which it did take, without reference to any notice to or demand upon the assured.

The provisions of the policy relating to the questions in controversy are as follows:

" Nonforfeiture. (a) On failure to pay any premium or any part thereof, or any premium note or interest thereon, when due, this policy, except as otherwise provided herein, shall immediately lapse; if, however, lapse occurs after three full years' premiums have been paid, the owner of the policy shall be entitled, at the end of successive policy years, to one of the settlements specified in the following table, which are: First, without action of the insured, nonparticipating continued term insurance for $5,000 for the specified term; or second, on application and legal surrender of this policy within three months, a nonparticipating paid-up policy; or third, on application and legal surrender of this policy within three months, a cash value.

Table of Continued and Paid-Up Insurance and Cash or Loan Values.

At End of. Continued Insurance. Paid"Up Insurance. Cash or Loan Values.

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6th year 7 yrs. 184 days 1005 $508.50

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(d) Any indebtedness to the company, unless otherwise provided in this policy, will be deducted from the cash value and will also proportionately reduce the sum of paid-up insurance and the amount at risk under continued insurance.

Loans. After three full annual premiums have been paid, the company will loan upon the sole security of this policy while continued in force, and upon receipt by it of this policy duly assigned, up to the limit secured by the above specified cash or loan values at the end of the policy year within which application for the loan is made. The rate of interest on such loan shall not exceed six per cent. per annum and if such interest be not paid, when due, it shall be added to the principal until the limit of said cash surrender value has been reached, whereupon, if then the interest be not paid, the policy shall become null and void, but not until one month after notice shall have been mailed by the company to the last known address of the person to whom the loan was made and of the insured and any assignee.

Premium Payments. All premiums, both first and renewal, are payable in advance at the home office or to an agent of the company upon delivery, on or before date due, of a receipt signed either by the secretary or actuary of the company and countersigned by said agent. Notes for premiums will be accepted on the sole signature of the insured, provided this policy be not duly assigned, so long as the free loan value of the policy is sufficient security therefor, and such notes will be a lien on the policy as fully as if executed by all persons having an interest therein and accompanied by proper assignment thereof.

Reinstatement. In case of lapse of this policy, provided it has not been surrendered to the company, it may be reinstated at any time on written application thereof, and the payment of all its premium arrears and reinstatement or payment of any indebtedness existing at the date of original default, with interest not exceeding six per cent. per annum, and provided satisfactory evidence of insurability is supplied.

Settlement. Any indebtedness to the company on account of this policy, including any deferred premiums for the uncompleted policy year, will be deducted in any settlement of this policy as a claim by death."

The chancellor entered a decree in favor of the complainant for the full amount of the policies, with interest thereon, less the indebtedness of the assured to the company, with interest,...