Mutual Ben. Life Ins. Co. v. First Nat. Bank

• Decision Date: 03 June 1903
• Citation: 115 Ky. 757,74 S.W. 1066
• Parties: MUTUAL BEN. LIFE INS. CO. OF NEWARK. N. J., v. FIRST NAT. BANK OF LOUISVILLE et al.
• Court: Kentucky Court of Appeals

74 S.W. 1066

115 Ky. 757

MUTUAL BEN. LIFE INS. CO. OF NEWARK. N. J., v. FIRST NAT. BANK OF LOUISVILLE et al.

Court of Appeals of Kentucky.

June 3, 1903

Appeal from Circuit Court, Jefferson County, Law and Equity Division.

"To be officially reported."

Action by First National Bank of Louisville against the Mutual Benefit Life Insurance Company of Newark, N. J., and Sudduth's executor. Judgment for plaintiff, and the insurance company appeals. Reversed.

Dodd &amp Dodd and Harris & Marshall, for appellant.

Matt O'Doherty, for appellee First Nat. Bank. Leopold &amp Pennebaker, for appellee Sudduth's Executor.

PAYNTER J.

On July 30, 1897, the appellant issued to Watson A. Sudduth a policy insuring his life in the sum of $5,000 for the benefit of his executors or assigns in consideration of the payment of a semiannual premium of $63.50. He paid the premiums for 12 years. On July 14, 1898, he borrowed of the company on the policy $549.60, executing a note due in six months. At maturity, an additional loan being made, the note was renewed for $599.32, payable July 30, 1899. On May 6, 1899, Sudduth for value, assigned the policy to the appellee, the First National Bank of Louisville. The assignment was assented to by the company in writing, but it was stipulated therein that the assignee agreed that any indebtedness to the company on the policy should be a valid and prior lien thereon. The semiannual premium falling due on July 30, 1899, was not paid, nor was the note due by Sudduth to the company; and he died the following November. This action was brought to recover on the policy.

Among other provisions the policy contained the following: "Provided, that in case the said premiums shall not be paid on or before the several days hereinbefore mentioned for the payment thereof at the office of the company in the city of Newark or to agents when they produce receipts signed by the president or treasurer, then in every such case this policy shall cease and determine, subject to the provisions of the company's nonforfeiture system, as indorsed hereon with accompanying table." Sudduth failing to pay the semiannual premium falling due on July 30, 1899, the policy, by its terms, ceased, unless it was saved by the nonforfeiture provisions thereon indorsed. The nonforfeiture clause, as originally indorsed on the policy, was, on March 24, 1896, changed by the consent of parties, and another substituted for it. The rights of the parties must be determined by the substituted agreement, which is in these words:

"In consideration of the release (copy of which is indorsed hereon) of the nonforfeiture provisions hereto applicable to policy No. 137,661, on the life of Watson A. Sudduth, the Mutual Benefit Life Insurance Company hereby agrees that the following nonforfeiture provisions shall apply thereto as if originally incorporated in and indorsed upon said policy;

"'Nonforfeiture Provisions.

"'When, after two full annual premiums shall have been paid on this policy, it shall cease or become void solely by the nonpayment of any premium when due, its entire net reserve by the American Experience Mortality and interest at four per cent. yearly (provided there be no loan on the policy) shall be applied by the company as a single premium at the company's rates published and in force at this date, either, first, to the purchase of nonparticipating term insurance for the full amount insured by this policy, or, second, upon the written application by the owner of this policy and the surrender thereof to the company at Newark within three months from such nonpayment of premium, to the purchase of a nonparticipating paid-up policy payable at the time this policy would be payable if continued in force. Both kinds of insurance aforesaid will be subject to the same conditions, except as to payment of premiums, as those of this policy. Third, if preferred, the company will, on surrender of the policy fully receipted within the said three months, pay as a cash surrender value its entire net reserve by the American Experience Mortality and interest at four and one-half per cent. yearly, less a surrender charge equal to one per cent. of the sum insured by the policy.

"'If there be any loan on the policy such indebtedness shall be paid off out of the cash surrender value, and the remainder paid in cash by the company; or a value will be allowed by the company in the form of extended or paid-up insurance as above provided, the amount to be applied to the purchase of such insurance being correspondingly reduced in the ratio of the indebtedness to the full cash surrender value.

"'If death shall occur within one year after the nonpayment of premium and during the term of extended insurance, there shall be deducted from the amount payable any premium that would have become due on this policy if it had continued in full force; also the amount of any indebtedness on this policy at time of such nonpayment of premium.

"'The company will at any time the policy is in full force loan up to the limit secured by its cash surrender value upon a satisfactory assignment of the policy to the company as collateral security.

"'The figures given in the following table are based upon the assumption that all premiums (less current dividends) have been fully paid in cash. The indebtedness, if any, may be paid off in cash, in which case the figures in the table will apply.'

------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Cash Surrender Value. In Case of Lapse of Policy. ---------------------------------------------------- At End of Loan Value. Extended Insurance. Paid" up Policy Year. ---------------------------------- Years. Days. ------------ ----------- ---------------- ---------------- ---------------- 9th $421.15 9 92 $1140 10th 484.20 10 38 1265 11th 549.60 10 312 1390 12th 617.30 11 184 1510 -------------------------------------------------------------------------------

The question involved here is one of contract. The language which evidences the contract is plain and unambiguous. This being true, the court should have but little difficulty in determining the rights of the parties to it. By the terms of the policy, where there is a loan upon it after two full premiums are paid, it shall cease and become void solely by nonpayment of any premium when due; and its entire net reserve by the American Experience Mortality and interest at 4 per cent. yearly shall be applied by the company as a single premium at the company's rate published and in force at that date, to the purchase of nonparticipating term insurance for the full amount insured by the policy. By the second nonforfeiture provision the owner of the policy had the option to apply to the company and surrender the policy to it within three months from such nonpayment of premiums, and have the net reserve and interest at 4 per cent. yearly applied to the purchase of a nonparticipating paid-up policy payable at the time the policy would be payable if continuing in force. The insured had paid the premiums for 12 years, and, if he had not secured a loan upon the policy, the net reserve so calculated would have carried the policy for something more than 11 years. On July 30, 1899, there was a loan upon the policy then amounting to $617.30, and which matured on that day; it also being the day upon which the semiannual premium was due, which he failed to pay. The first and second nonforfeiture provisions were not available because of the loan. The third nonforfeiture provision reads as follows: "If preferred, the company will, on surrender of the policy, fully receipted within the said three months, pay as a cash surrender value its entire net reserve by the American Experience Mortality and interest at four and one-half per cent. yearly, less a surrender charge equal to one per cent. of the sum insured by the policy. If there be any loan upon the policy, such indebtedness shall be paid off out of the cash surrender value, and the remainder paid in cash by the company; or a value will be allowed by the company in the form of extended or paid-up insurance as above provided, the amount to be applied to the purchase of such insurance being correspondingly reduced in the ratio of the indebtedness to the full cash surrender value." This is the provision of the policy which must control in determining the rights of the parties.

It will be observed by the nonforfeiture provisions that, where there is no loan upon the policy, the net reserve and interest at four per cent. purchases the extended insurance. Where there is a loan upon the policy, it is not the net reserve and interest which forms the basis for extended insurance, but the cash surrender value of the policy. The cash surrender value is defined by the policy to be "its entire net reserve by the American Experience Mortality and interest at four and one-half per cent., less a surrender charge equal to one per cent. of the sum insured by the policy." The table on the policy shows this to be $617.30; besides, the evidence likewise establishes that to be the correct amount. On July 30, 1899, the day Sudduth failed to pay the semiannual premium on the policy, he owed exactly the amount of the cash surrender value of his policy. The net reserve under the first clause is computed on the basis of interest at 4 per cent., but under the third clause, to get the cash surrender value, on the basis of interest at the rate of 4 1/2 per cent. From a casual examination it might seem that the greater the rate of interest, the greater the amount would be; but it is just the contrary, as the purpose is to find the present value of the policy, which has not...