Moss v. Aetna Life Ins. Co.

• Decision Date: 07 November 1934
• Docket Number: No. 6511.,6511.
• Citation: 73 F.2d 339
• Parties: MOSS et al. v. ÆTNA LIFE INS. CO.
• Court: U.S. Court of Appeals — Sixth Circuit

73 F.2d 339 (1934)

MOSS et al. v. ÆTNA LIFE INS. CO.

No. 6511.

Circuit Court of Appeals, Sixth Circuit.

November 7, 1934.

Scott Fitzhugh, of Memphis, Tenn. (W. W. Swift and Henry M. Crymes, both of Memphis, Tenn., on the brief), for appellants.

Benjamin Goodman, Jr., of Memphis, Tenn. (Walter P. Armstrong and Armstrong, McCadden & Allen, all of Memphis, Tenn., on the brief), for appellee.

Before MOORMAN, SIMONS, and ALLEN, Circuit Judges.

SIMONS, Circuit Judge.

The suit below was on three policies of life and double indemnity accident insurance brought by the beneficiary and assignee, and, from a judgment upon directed verdict for the defendant company, the plaintiffs appeal.

The company's defense, sustained by the court below, was that the policies lapsed without value for nonpayment of premiums prior to the death of the insured. Conceding default in the payment of premium last due on each of the three policies, the plaintiffs contend that the policies were nevertheless in full force and effect at the date of death, because the one month's notice required to be given that indebtedness on the policies equalled their loan value was given neither to the insured nor to the assignee; because the payment of premium, when due, was waived by the previous conduct of the company and its agent; and because there was sufficient reserve value in each of the policies to carry it, in the form of extended insurance, beyond the death of the insured.

The policies were on the life of Robert J. Moss, deceased husband of the appellant Mary E. Moss. Moss died August 22, 1932, as the result of an accident which occurred August 17th of that year. He had three policies in the defendant company, two issued on July 12, 1918, for $2,000 and $3,000, respectively, and a third written in 1919 for $5,000. All three of the policies were twenty-payment life policies, with premiums payable annually, semiannually, or quarterly. The premiums for the last year became due on July 12, 1932, and the period of grace for their payment expired August 12th. Moss had borrowed upon the policies, and his unpaid loans, plus accumulated interest thereon, are claimed to have exhausted all of the reserve value remaining in the policies at the time of his death.

The contention of the plaintiff as to the requirement of notice is based upon article 13 of each policy. This provides that unpaid interest when due shall be added to the principal, and with respect to payment of the loan contains this provision: "Failure to pay any loan or interest due thereon will avoid this policy when the total indebtedness hereon to the company shall equal or exceed the loan value at the time of such failure, but not before that time, nor until one month after notice of the same has been mailed by the company to the last known address of the person to whom the loan was made and of the insured, and assignee if any." The company concedes that no notice under this paragraph was given, but contends that none was required, as the avoidance of the policies was due, not to the insured's failure to pay the loans, but to the lapse of the policies for nonpayment of premium; section 7 of the policies providing that, if any subsequent premium after the first is not paid when due, the policy shall cease, subject to the values and privileges thereinafter described, except that a grace of thirty-one days is allowed for the payment of any premium after the first.

Provisions of policies touching loans similar to or identical with the one here considered have been construed in a number of the federal Judicial Circuits. It has uniformly been held that the loan and forfeiture provisions do not modify or in any way affect the avoidance of the policy for failure to pay premiums thereon. When there is a failure to pay a premium when it is due, the policy becomes void, except for the automatically extended insurance, but, where there is no reserve or loan value in the policy, it having been exhausted by the discharge of an indebtedness thereon, "the loan agreement and all its incidents * * * became non-existent — a chapter finished and closed." Hawthorne v. Bankers' Life Co., 63 F.(2d) 971, 972 (C. C. A. 8); Bach v. Western States Life Insurance Co., 51 F.(2d) 191, 192 (C. C. A. 10); Pacific Mutual Life Insurance Co. v. Davin, 5 F.(2d) 481 (C. C. A. 4); Minnesota Mut. Life Ins. Co. v. Cost, 72 F.(2d) 519 (C. C. A. 10). With this view we find ourselves in accord, notwithstanding the urgent insistence of the plaintiffs that we repudiate it. Under policies such as are here involved, the insured, by paying premiums for a number of years, builds up a reserve. As to such reserve he is given several options. He may take the reserve in cash, purchase extended insurance for a term, or purchase a paid-up policy for a limited amount. He cannot have both the cash and the extended insurance, or the cash and the paid-up policy, when the reserve is exhausted by a cash withdrawal. As was said in the Bach Case, supra, "This is contrary to the agreement of the parties, and no insurance company could exist that paid out its reserves twice."

The second complaint of the plaintiffs is of the exclusion of evidence introduced to establish waiver, based upon a course of conduct by the company estopping it from insisting upon timely payment of premiums. Since a very detailed statement of what the interdicted witnesses would testify to, if permitted, was made by counsel for the plaintiffs, it becomes necessary only in ascertaining error to consider whether the proffered testimony was sufficiently substantial to support a verdict of the jury in their favor on the basis of estoppel. The general agent of the company, Thomas M. Searles,...