National Life Co. v. Brennecke

• Decision Date: 18 April 1938
• Docket Number: 4-5031
• Citation: 115 S.W.2d 855,195 Ark. 1088
• Parties: NATIONAL LIFE COMPANY v. BRENNECKE
• Court: Arkansas Supreme Court

115 S.W.2d 855

195 Ark. 1088

NATIONAL LIFE COMPANY v. BRENNECKE

4-5031

Supreme Court of Arkansas

April 18, 1938

Appeal from Clay Circuit Court, Eastern District; Neil Killough Judge; affirmed.

Affirmed.

E C. Cordy and T. A. French, for appellant.

Harrison Smith & Taylor, for appellee.

DONHAM, J. GRIFFIN SMITH, CJ., concurs.

OPINION

DONHAM, J.

The appellant, National Life Company, on July 3, 1911, issued a policy in the sum of $ 2,000 on the life of Carl F. Brennecke, husband of M. Belle Brennecke, appellee. The insured paid all premiums and assessments on the policy for twenty-five years. A few days prior to July 1, 1936, the company gave notice to the insured that on the 1st day of July, 1936, the quarterly premium in the sum of $ 8.75 would be due and payable. This notice contained a statement to the effect that when the insured remitted directly to the home office the notice should be returned with the remittance. The notice contained the following statement: "This notice when stamped 'Paid' by any authorized depository bank on or before July 31, 1936, or by the home office, will be a regular receipt." It also contained the following direction: "When remitting direct to the home office return this notice."

On the 29th day of July, 1936, the insured undertook to pay his quarterly premium in pursuance of said notice and, finding that the postoffice had closed for the day and that he was unable because thereof to purchase a postoffice money order for the amount of the quarterly premium, he applied to his neighbor, Mrs. T. F. Garrard, and paid to her $ 8.75 in money and for said payment obtained her check payable to his order in said amount, said check being drawn on the Piggott State Bank, which check he indorsed and thereby made it payable to the order of the National Life Company, appellant here. The check and the premium notice were mailed to the home office of the appellant in Des Moines, Iowa.

Upon receipt of said check the insured's account was credited with the amount of the premium, and the premium notice was marked "paid" by the cashier of the company, T. M. Douglas, and returned to the insured. The evidence of payment shown on the notice which was returned to the insured is as follows: "Paid, Nat. Life Ass'n, Nat. Life Co., T. M. Douglas, Cashier."

It will be noted that the notice was marked "paid" by the cashier of the company; that there were no conditions or restrictions shown; and that, therefore, the notice marked "paid" by the cashier constituted a regular and unconditional receipt for the payment of the quarterly premium.

On August 13, 1936, the appellant company, through its assistant secretary, notified the insured by letter that the check sent to it on the 29th day of July, 1936, had not been honored. Immediately upon receipt of this letter inclosing the check, the insured on the 17th day of August, 1936, wrote appellant as follows: "I am enclosing herewith postoffice money order for $ 8.75 to cover my last insurance premium (quarterly premium due July 1, 1936)."

When the company returned the check to the insured, it explained that the check had been returned marked "Insufficient Funds." The company stated to him that his policy had lapsed for failure to pay the premium; and that a blank was being enclosed for reinstatement, telling him that he could be reinstated if his application was approved by the company's medical director. He did not immediately go to the physician to whom the company directed him for examination, but, instead, purchased a postal money order and forwarded it as hereinabove stated. However, on the 29th day of August, 1936, he did go to the physician and was examined. Later, on the 3d day of September, 1936, the company returned said postal money order to the insured and advised him that his application for reinstatement had been declined by its medical director. Thereafter, at least on two occasions, the insured wrote the company complaining that his application for reinstatement had not been approved. The company answered each letter, stating that it was impossible under the circumstances for the company to approve the application for reinstatement. In one of these letters to the company the insured wrote: "I consider under such circumstances the company should not have even asked me for a medical examination."

The insured died on December 23, 1936, and notice of his death was given to the appellant by letter on January 4, 1937. On January 6, 1937, the appellant replied to this letter, denying liability.

On the 11th day of February, 1937, suit was instituted on the policy in the circuit court for the eastern district of Clay county. Later when the case came on for trial, a jury was waived, and by agreement of the parties, the issues of fact and law were submitted to the court, sitting as a jury. The court found for the plaintiff upon the issues of both law and fact and rendered judgment against the defendant in the sum of $ 1,975, together with interest, penalty and attorney's fees. No question is raised on this appeal with reference to the allowance of the statutory penalty or attorney's fees.

A motion for new trial was filed by appellant, same was overruled, and an appeal was prayed and granted to this court.

The question here involved is whether the appellant had a legal right to declare the policy lapsed for the nonpayment of premium due July 1, 1936, and payable at anytime during the month of July. In deciding this question, it will be necessary to determine whether the check sent by the insured July 29th in payment of the premium was actually accepted by the company as payment, and whether, in issuing its unconditional official receipt evidencing payment, it thereby waived its right to declare a forfeiture of the policy, even though the check was later dishonored by the bank upon which it was drawn.

It is admitted by appellee that the general rule of law is that the mere receipt of a check will not prevent a forfeiture of a policy for nonpayment of premium; but it is strongly contended that there is an exception to the rule which is as well defined as the rule itself, the exception being that if the insurer receives and accepts a check as payment of a premium due and issues its official receipt evidencing the payment, it thereby waives its right to declare a forfeiture of the policy, even though the check is dishonored by the bank upon which it is drawn.

The exception to the rule is stated in 14 R. C. L., § 136, p. 964, as follows: "Generally, it may be said that, where accepted as such, payment may be accompanied by the delivery to the insurer of a draft, and where this is done the effect of payment is not destroyed by the fact of failure of the drawer after the draft had been received by the insurer; or payment may be made by the delivery of the personal check of the insured, if it is accepted as payment."

In the case of Mutual Benefit Life Insurance Co. v. Chattanooga Savings Bank, 47 Okla. 748, 150 P. 190, L. R. A. 1916A, 669, the Supreme Court of Oklahoma held that the premium stipulated in a life insurance policy to be paid by the insured is not a debt and that the strict rule governing the payment of debts by check or draft does not control the payment of such premium; and that while the insurance company has the right to demand payment in cash, it also has the right to waive the payment in cash and to accept a check or draft in payment; and that if it does so, it cannot void the policy for failure to pay the check or draft when it is presented for payment. In this case a bank draft was sent to the company in payment of an insurance premium, which draft was received by the company on the last day of grace and was deposited to the credit of the company on the following day and presented to the bank upon which it was drawn four days later and protested because the bank had closed in the meantime. The insured died on the day following the deposit of the draft and prior to its protest. The court held that the premium was paid and that the policy was in full force and effect at the time of the death of the insured.

In the case of Travelers Insurance Co. v. Brown, 138 Ala. 526, 35 So. 463, it was held that where all prior premiums have been paid by checks sent through the mail, the insured had a right to believe that, by conforming to this custom, it would be effectual to protect him against a forfeiture, and that the insurer could not claim a forfeiture where the insured had sent a check in ample time to have reached the agents, although it was not received; it appearing that as soon as the insured learned of this fact he sent a draft for the amount of the premium.

In the instant case the check sent in payment of the premium was good at the time it was drawn; but at the time it was presented for payment the account on which it had been drawn had been reduced, through no fault of...