Mutual Sav. Life Ins. Co. v. Noah

• Decision Date: 07 June 1973
• Citation: 291 Ala. 444,282 So.2d 271
• Parties: , 60 A.L.R.3d 81 MUTUAL SAVINGS LIFE INSURANCE COMPANY, a corporation, v. Donald R. NOAH. S.C. 105.
• Court: Alabama Supreme Court

Page 271

282 So.2d 271

291 Ala. 444, 60 A.L.R.3d 81

MUTUAL SAVINGS LIFE INSURANCE COMPANY, a corporation, v. Donald R. NOAH.

S.C. 105.

Supreme Court of Alabama.

June 7, 1973.

Rehearing Denied Aug. 30, 1973.

J. Gusty Yearout, Birmingham, for appellant

[291 Ala. 447] Thomas E. Maxwell, Birmingham, for appellee.

HEFLIN, Chief Justice.

This is a declaratory judgment action in equity in which the appellee-complainant, Donald R. Noah, alleges in his bill of complaint that he is the named beneficiary in three policies of insurance issued by the appellant-respondent, Mutual Savings Life Insurance Company; that the life of William L. Noah, the brother of the appellee-complainant, was insured under each of these policies; that the insured died by drowning in the City of Galveston, Texas, while the policies were in force; and that the appellant-respondent insurance company refused to pay the amounts due under any of said policies (except that a partial payment was made on one of them). The bill seeks a decree construing the policies and declaring the rights of the appellee-complainant and the obligations of the appellant-respondent insurer thereunder, and ultimately that the court declare that the insurer is obligated to pay the death benefits and the balance of the burial benefits prescribed under one of the policies, plus the accidental death benefits provided in all three.

Copies of the three policies were attached as Exhibits A, B and C, respectively, to the bill. Since the evidence showed that such policies were issued and were in accordance with and contained the terms set forth in said exhibits, these exhibits will be referred to as showing the terms and conditions of the policies and as describing the policies in question.

Exhibit A provides for a death benefit of $1,500 and double that sum in case of accidental death, amounting to $3,000. It is provided therein that William L. Noah, who the evidence shows met death by drowning in or near Galveston, Texas, on September 13, 1971, is named therein as the insured and the appellee-complainant is named as the primary beneficiary. The policy bears date of February 15, 1971, which under the evidence is to be taken as the date of issuance.

Exhibit B shows a policy with the same date of issuance and the same terms and beneficiary as that contained in Exhibit A, except that the ordinary death benefit is $1,000 and the accidental death benefit is in double that amount, $2,000. Each of the two policies is characterized as a 'Twenty Pay Life Insurance Policy.'

Exhibit C is entitled a 'Burial Insurance Policy,' and provides that the insurer will furnish described funeral services, including, among other things, a casket, if the The evidence shows that the beneficiary, Donald R. Noah, by written instrument dated September 16, 1971, declared that he became indebted to Kilgore Funeral Home, Pell City, Alabama, for funeral services and supplies for the burial of William I. Noah in the amount of $434.66, and he thereby assigned unto said funeral firm that amount out of the proceeds of the said burial policy, authorizing Mutual Savings Life Insurance Company to make its check payable to said firm for the assigned amount and directing it to pay the remainder of the proceeds of the policy to the beneficiary, Donald R. Noah. If this burial policy is held to be effective, unquestionably the obligation of the insurer has been partially discharged up to the amount of $434.66, and the insurer owes the beneficiary the unpaid balance of the maximum benefit of $500 due thereunder, viz., $65.34 with interest thereon.

death of the insured, William L. Noah, should occur within the State of Alabama and within 35 miles of an authorized funeral[291 Ala. 448] director. There is the further provision that if the insured's death occurs outside the State of Alabama or more than 35 miles from an authorized funeral director, the company agreed to pay to the beneficiary (Donald) one-half of the retail value of the policy as a cash payment. Since the retail value of the policy is $600, the cash payment to the beneficiary for a death outside the State would be $300. However, there is a further provision that in a case of accidental death the company would pay an additional amount equal to one-third of the retail value, which in this case would be an additional sum of $200, meaning a total cash payment of $500. The date of issuance was February 15, 1971, the same date as the other two policies.

The respondent in its answer and the amendment thereto denies liability under the policies on the ground that the complainant and beneficiary obtained the policies of insurance on his brother's life and that he had no insurable interest which would entitle him to recover, and also on the ground that the policies had lapsed for non-payment of premium.

The trial court rendered a judgment in favor of the appellee-complainant and against the appellant-respondent on all three policies in the total amount of $5,065.34, consisting of $5,000 under the life policies (Exhibits A & B), and $65.34 under the burial policy (Exhibit C), with interest from October 6, 1971, specified as the date the appellant-respondent denies liability.

The most divisive issue with which this court is faced is presented by appellant-respondent's contention that Donald R. Noah has no insurable interest in the life of the insured, and that each of the three policies was invalid by reason thereof. It may be well to note at the outset that this court holds the burial policy not to be subject to the insurable interest requirement. The public policy grounds for requiring an insurable interest, which are discussed below, are not applicable to a burial policy wherein the benefits are substantially restricted to providing burial services. For this reason, it is the named insured in such a policy who is in reality the recipient of the insurance benefits, not the named beneficiary. Jordan's Mutual Aid Association v. Edwards, 232 Ala. 80, 166 So. 780. But, even if it could be said that the burial policy is subject to the insurable interest requirement, this court holds, for the reasons stated below, that Donald R. Noah did have an insurable interest in William's life.

Under the evidence the two life policies were procured or 'taken out' (an expression used in our cases) by the beneficiary, and thus the long-established rule that the insurance is invalid unless the beneficiary has an 'insurable interest' in the life of the insured applies. This rule is to the effect that a person has an unlimited insurable interest in his own life and may designate any person as his beneficiary so long as the insurance was procured or taken out by the insured and the premiums paid by him, but one taking out a policy of Several reasons have been assigned as the basis for the insurable interest requirement, both of which are grounded upon public policy considerations: a policy taken out by one for his own benefit on the life of another, in whom he has no insurable interest is, in substance, a wagering contract; and such a policy may hold out a temptation to the beneficiary to hasten by improper means the death of the insured. Commonwealth Life Insurance Co. v. George, 248 Ala. 649, 28 So.2d 910; Helmetag's Adm'x v. Miller, 76 Ala. 183.

insurance for his own benefit, on the life [291 Ala. 449] of another person, must have an insurable interest in the continuance of the life of such insured. National Life & Accident Ins. Co. v. Alexander, 226 Ala. 325, 147 So. 173; Tit. 28A, § 316, Code of Alabama, 1940 (Recomp. 1958). ¹

Certain blood relationships have been held sufficient, in and of themselves to negate the supposition that the beneficiary would take out such a policy for the purpose of wagering on the insured's death, or that such a policy would entice the beneficiary to take the insured's life, and in such cases the relationship alone is said to create an insurable interest. This is true notwithstanding the fact that the beneficiary may have no reasonable expectation of pecuniary advantage through the continued life of the insured or consequent loss by reason of his death, which would otherwise be required in order to find an insurable interest.

The relationship of husband and wife has been held to be sufficiently close to give either an insurable interest in the life of the other. Jennings v. Jennings, 250 Ala. 130, 33 So.2d 251. The parent-child relationship has been accorded the same status as that given to husband and wife in Jennings. Warnock v. Davis, 104 U.S. 775, 26 L.Ed. 924; 44 C.J.S. Insurance § 204.

On the other hand, the following relationships have been held not to create an insurable interest on the basis of such relationship alone. Cousin and cousin, National Life & Accident Ins. Co. v. Alexander, 226 Ala. 325, 147 So. 173; beneficiary has no interest in the life of the wife of his wife's brother, National Life & Accident Ins. Co. v. Middlebrooks, 27 Ala.App. 247, 170 So. 84; aunt and niece, Commonwealth Life Ins. Co. v. George, 248 Ala. 649, 28 So.2d 910; aunt-in-law and niece, Liberty National Life Ins. Co. v. Weldon, 267 Ala. 171, 100 So.2d 696; niece and uncele, Bell v. National Life & Accident Ins. Co., 41 Ala.App. 94, 123 So.2d 598.

The specific issue presented in the case under review is whether one has an insurable interest in the life of his brother by virtue of the relationship alone. While realizing that this issue is one of first impression in Alabama, and that other jurisdictions are in conflict on this matter, a review of the holdings of other states has convinced this court that the vast majority ² and best reasoned holdings support the proposition that the brother-brother relationship will, in and of itself, support an insurable interest.

Before reviewing the holdings and rationale of other jurisdictions it may be well It has been suggested that although the United States Supreme Court upheld the policy, its decision...