Mutual Reserve Fund Life Ass'n v. Ferrenbach

• Decision Date: 20 March 1906
• Docket Number: 2,189.
• Citation: 144 F. 342
• Parties: MUTUAL RESERVE FUND LIFE ASS'N v. FERRENBACH.
• Court: U.S. Court of Appeals — Eighth Circuit

144 F. 342

MUTUAL RESERVE FUND LIFE ASS'N v. FERRENBACH.

No. 2,189.

United States Court of Appeals, Eighth Circuit.

March 20, 1906

James C. Jones (Jones, Jones & Hocker and George Burnham, Jr., on the brief), for plaintiff in error.

R. P Williams (C. B. Williams, on the brief), for defendant in error.

Before VAN DEVANTER and HOOK, Circuit Judges, and LOCHREN, District judge.

HOOK Circuit Judge.

This is the second appearance of this cause in this court. When it was first tried in the Circuit Court, a verdict was directed in favor of the association, upon the ground that the policy of insurance had been lawfully declared to be forfeited for the failure of the insured to pay a premium when due, and judgment was rendered accordingly. The judgment was reversed and it was held that the position of the association was untenable. Ferrenbach v. Life Ass'n, 59 C.C.A 307, 121 F. 945. The facts of the case appear in the opinion reported as above, and we need not again recite them further than to say that the forfeiture was declared during the lifetime of Lambert, the insured. The action was brought by Lambert, and upon his death during its pendency it was revived in the name of Ferrenbach, as executor. The petition is in two counts; the first seeks a recovery of all premiums paid, with interest added, and the second asks generally for damages in the sum of $5,000 for wrongful forfeiture. In the second trial the Circuit Court directed a verdict in favor of the executor for the full amount of the premiums paid and interest thereon.

The association now contends: First, that under the conceded facts in the case, which are the same as at the first trial it lawfully declared a forfeiture of the policy, and the plaintiff is therefore not entitled to recover; second, that, even if its first position be not sustained, the measure of damages applied by the Circuit Court and which controlled the verdict of the jury, is not the correct one.

The law of this case, so far as it concerns the right of the association to forfeit the policy, was announced by this court upon the return of the first writ of error, and we will not re-examine the question when the cause again comes before us upon the same facts and under the same conditions. Guarantee Co. v. Phenix Ins. Co., 59 C.C.A. 376, 124 F. 170.

As to the measure of damages: The judgment now under review is for all premiums paid by Lambert between the time his policy was issued and the time of its wrongful cancellation, with interest. The word 'premiums' is used in aid of brevity, and it includes the admission fee and all annual dues and mortuary assessments. The rules which most frequently find application. In a policy issued upon what is termed the level premium plan, the insured has an equity arising from an excess of premiums paid above the current cost of insurance to the company. Under such a plan the natural premiums for the respective years, which steadily and progressively increase as the insured advances in age, are so adjusted and averaged among the years of his expectancy of life that they become flat or level, the same in amount in the beginning as at the end. In such a case it is apparent that the earlier level premiums contain an appreciable excess over the actual cost of insurance, which decreases, however, with the progress of the years. So it is said that in a level premium policy the insured has an equity, the excess of payment above cost of insurance, which constitutes an element of damage resulting from wrongful cancellation. Such was the policy in the case of Lovell v. Insurance Co., 111 U.S. 264, 4 Sup.Ct. 390, 28 L.Ed. 423. But the Lambert policy is of an entirely different character. It was issued upon the assessment plan, and each year's premiums represented the actual current cost to the association of carrying the insurance risk. There was no excess over cost out of which an equity or value could arise. Insurance Co. v. Roth, 59 C.C.A. 63, 122 F. 853.

Modern times have witnessed the addition of many new features to policies of life insurance resulting in premiums of greater amount and consequently in an increased equity or value in the policies themselves, and the particular rules for ascertaining the loss sustained by policy holders through the wrongful cancellation of their policies must vary as the characters of the policies themselves vary. In some cases much may also depend upon the physical condition of the insured, whether he remains an insurable risk or not, and whether insurance of like character and value to that canceled can be obtained in some other responsible company, and what the cost may be. But in every case of this character the dominant idea is compensation-- reimbursement for the actual loss sustained-- and the measure of recovery which fits nearest and most closely thereto is the one that should be adopted. The award should be precisely commensurate with the injury suffered, neither more nor less. Dow v. Humbert, 91 U.S. 294, 299, 23 L.Ed. 368.

There are presented in the case at bar all the data essential for an accurate ascertainment of the damage sustained. We have the character of the policy and its date and amount; the dates and amount of all premium payments to the association during the 16 years in the association; the physical condition of the insured at the time of such breach and the fact that he was not then an insurable risk, and that he could not then obtain insurance elsewhere; the date of his subsequent death; and, finally, the amounts and dates of maturity of all premiums he would have been required to pay to the association between the time of the cancellation of his policy and the time of his death, had the policy continued in force. And the question is, what rule of admeasurement of damage sustained by the wrongful cancellation should be adopted to give just, full, and adequate compensation and nothing more or less?

It should be observed that the asserted ground of forfeiture, failure to pay a premium when due, is not one that struck at the validity of the policy at the date of its issue. It is not claimed that the policy was void from its inception because of fraud or other reason. Its validity when issued was recognized, and continued so for 16 years. During all of that period the insured received benefit from his payments and enjoyed the protection afforded by the policy. It was at the end of that period that the association repudiated the further existence of its obligation. Again, it should be observed that both parties have treated the policy as having been terminated on May 1, 1899; the insured claiming that it was then wrongfully done, and the association that it was done rightfully. The action being for damages, the time as which they should be ascertained is the day the wrong was done and the damage inflicted.

There are quite a number of authorities which announce the rule applied by the Circuit Court in the case at bar, and allow a recovery of all the premiums paid by the insured prior to the time of the wrongful cancellation. Supreme Council v. Black, 59 C.C.A. 414, 123 F. 650; Supreme Council v. Daix, 64 C.C.A. 435, 130 F. 101; Van Werden v. Assurance Society, 99 Iowa, 621, 68 N.W. 892; People's Mutual Insurance Fund v. Bricken, 92 Ky. 297, 17 S.W. 625; American Life Ins. Co. v. McAden, 109 Pa. 399, 1 A. 256; Union Central Life Ins. Co. v. Pottker, 33 Ohio St. 459, 31 Am.Rep. 555; Insurance Co. v. Garmany, 74 Ga. 51; Thompson v. Insurance Co., 21 Or. 466, 28 P. 628; Braswell v. Insurance Co., 75 N.C. 8; Lovick v. Association, 110 N.C. 93, 14 S.E. 506; Burrus v. Insurance Co., 124 N.C. 9, 32 S.E. 323; Strauss v. Mutual Reserve Fund, 126 N.C. 971, 36 S.E. 352, 54 L.R.A. 605, 83 Am.St.Rep. 699; McKee v. Insurance Co., 28 Mo. 383, 75 Am.Dec. 129; McCall v. Insurance Co., 9 W.Va. 237, 27 Am.Rep. 558; Niblack on Benefit Societies, Sec. 280.

Some of these proceed upon the assumption that prior to the time of wrongful cancellation the insured or beneficiary never received any benefit from the policy, and, on the other hand that the insurance company gave nothing of value for the premiums paid to it. There is involved in this a misconception of the theory and business of life insurance. Not only is the protection of insurance of actual, positive value while it endures, but the cost to the insurer of carrying the risk can be ascertained almost to a mathematical certainty. There is no more reason for saying that an insured has nothing of value until he dies, than there is for saying that one is not benefited by a policy of fire insurance unless his house is destroyed by fire. An insurance company that conducts its business upon the plan that the assumption of a risk costs it nothing before death of the insured will likely meet with speedy and...