Mutual Ben. Life Ins. Co. v. O'Brien

• Decision Date: 03 March 1909
• Citation: 116 S.W. 750
• Parties: MUTUAL BEN. LIFE INS. CO. v. O'BRIEN. d
• Court: Kentucky Court of Appeals

116 S.W. 750

MUTUAL BEN. LIFE INS. CO. v. O'BRIEN. d

Court of Appeals of Kentucky.

March 3, 1909

Appeal from Circuit Court, McCracken County.

"To be officially reported."

Action by Belle A. O'Brien against the Mutual Benefit Life Insurance Company. From a judgment for plaintiff, defendant appeals. Reversed.

Wheeler Hughes & Berry and W. O. Harris, for appellant.

D. G Park, for appellee.

HOBSON J.

Pat O'Brien, on October 24, 1900, took out a policy in the Mutual Benefit Life Insurance Company insuring his life in the sum of $5,000 for the benefit of his wife, Belle A O'Brien. A semiannual premium was payable on the policy of $102.75. On October 24, 1900, he paid $82.20, and executed a note for $20.55. On April 24, 1901, he again paid $82.20 and executed a note for $20.55. He did the same on October 24, 1901. On April 24, 1902, he failed to pay the premium, but on July 1st he furnished a health certificate and was reinstated. He then paid $42.02, and executed a note for $112.97, which was the balance due by him on the premiums less two dividends that had been declared. On October 24, 1902, he failed to pay the premium, and without having paid anything more on the policy died in February, 1905. This suit was brought by his wife to recover on the policy on the ground that the reserve was sufficient to carry it beyond the time of his death. The company filed an answer controverting the allegations of the petition, and on final hearing there was a judgment in favor of the plaintiff. The company appeals.

The policy, among other things, contains these provisions:

"This policy, while in force, will participate annually in the company's distributions of surplus as ordered by the directors.

"At the end of any policy year during the whole of which this policy shall have been in force, or within three months from default in premium payments, provided that not less than two full years premiums shall have been paid, the owner shall have the following options: (1) To surrender the policy to the company at Newark for its cash surrender value, to be computed by deducting one per cent. of the amount insured by the policy and dividend additions, if any, from the entire net reserve by the American Experience Mortality and interest at three per cent. yearly. Any indebtedness to the company on this policy will be deducted from the cash surrender value as above computed. (2) To surrender the policy as above for a nonparticipating paid-up policy payable at the time this policy would be payable if continued in force. (3) To have the insurance automatically extended from date of default in premium payments, without participation in surplus, for the full amount of the policy, and existing dividend additions, if any, without notice to the company or surrender of the policy.

"The amount of the paid-up policy, or the term of the extended insurance, will be such as the amount of the cash surrender value of this policy less any indebtedness to the company thereon, will purchase at net single premium rates by the American Experience Mortality and interest at three per cent. yearly.

"Each dividend to which this policy may be entitled will be applied to the reduction of the cash premium, or paid in cash if the policy be a paid-up one, unless the policy holder shall prefer to apply it upon either the 'Addition' or 'Accelerative Endowment' plan; except that dividends accruing under privilege No. 2 or No. 3 will be payable only in cash.

"Under the 'Addition' plan dividends are applied to the purchase of additional participating insurance payable with the policy, such insurance being purchased at the company's regular single premium rates, according to the attained age of the insured."

It will be observed that the insured had the option to surrender the policy for its cash surrender value, or for a nonparticipating paid-up policy. He did not exercise either of these options, and therefore the insurance was automatically extended from date of default without participation in surplus for the full amount of the policy. The dividends which he had received had been applied as credits upon his notes and had not been applied as additions to the policy. As provided by the policy he had the option whether the dividends should be applied upon the addition plan, and he had accepted the credit on his notes for the dividends. Therefore the only question in the case is how long the policy was automatically extended, when he failed to pay the premium due October 24, 1902? It is conceded that the net reserve upon the policy was $259.85. The provision as to extended insurance is that it shall be such a term "as the amount of the cash surrender value of this policy, less any indebtedness to the company thereon, will purchase at net single premium rates by the American Experience Mortality and interest at three per cent....