Neal v. Columbian Mutual Life Assurance Society

• Decision Date: 14 December 1931
• Docket Number: 29582
• Court: Mississippi Supreme Court
• Parties: NEAL v. COLUMBIAN MUTUAL LIFE ASSURANCE SOCIETY

138 So. 353

161 Miss. 814

NEAL v. COLUMBIAN MUTUAL LIFE ASSURANCE SOCIETY

No. 29582

Supreme Court of Mississippi

December 14, 1931

Division A

1 INSURANCE. Provisions of life policy, respecting reduction of benefit and proportionate reduction of amount of risk under continued insurance by assured's indebtedness must be construed together, each as completely covering subject applicable. The provisions with respect to assured's indebtedness to assurer were that any indebtedness to society placed on covenant would proportionately reduce amount of risk under continued insurance, and that any indebtedness to society placed on covenant would operate to reduce benefit.

2 INSURANCE.

Provision of life policy that extended insurance would be proportionately reduced by assured's indebtedness meant that amount of extended insurance would be reduced in proportion that net cash value, after deducting indebtedness from gross cash value, bore to gross cash value.

3 INSURANCE.

As respects extended insurance, life policy provision that any indebtedness would operate to reduce benefit applied only in case of settlement required to be made before lapse.

4. USURY.

Difference between original amount of insurance and amount of continued insurance purchasable after insurance lapsed on deducting loan could not be held "interest" on loan so as to make it usurious.

5. INSURANCE.

Clause of life policy under which borrowers, on lapse of policy, were entitled only to amount of extended insurance which available net cash value would purchase, held not unenforceable as creating discrimination against borrowing policyholders (Code 1930, section 5171).

HON. GREEK L. RICE, Judge.

APPEAL from circuit court of Tallahatchie county HON. GREEK L. RICE, Judge.

Action by Mrs. Cornelius Gertrude Neal against the Columbian Mutual Life Assurance Society. From a judgment for defendant, plaintiff appeals. Affirmed.

Affirmed.

J. J. Breland, of Sumner, for appellant.

It is a well-accepted rule of law in this state, and the general rule in the construction of life insurance contracts, that where a policy, or any clause therein, is subject to two reasonable constructions, that construction most favorable to the insured will be accepted.

New York Life Insurance Company v. Blaylock, 110 So. 433; Germania Life Insurance Company v. Bouldin, 100 Miss. 660, 56 So. 609; Mutual Life Ins. Co. of New York v. Scriviner, 133 So. 607.

If from a reasonable construction the word "benefit" can be said to refer to either the cash surrender value of the policy, or to the face of the policy, then this constitutes at most an ambiguity in the contract of insurance. Then if an ambiguity thus arises by reason of the uncertainty as to what the word "benefit" refers to, then, when measured by the rule of construction above quoted, that construction most favorable to the plaintiff should be accepted by the court.

A provision that if any indebtedness exists, the amount of the policy shall be reduced in the ratio of the indebtedness to the then cash value, has been declared void and ineffective when the insured has already been charged with interest on the amount of the indebtedness.

37 C. J., p. 514, sec. 251; Security Life Insurance Co. v. Watkins, 189 Ky. 20, 224 S.W. 462; George Emigs, Administrator, v. Mutual Benefit Life Insurance Company, 127 Ky. 588, 106 S.W. 230, 23 L. R. A. (N. S.) 828; New York Life Insurance Company v. Curry, 61 L. R. A. 268.

If the clause under consideration in the policy of insurance is construed as contended for by the appellee in its said special plea, this clause is unenforceable and void, in that amount charged, or sought to be deducted from the face of the policy by reason of the amount charged by reason of the indebtedness and the benefits secured, discriminates in favor of non-borrowing policyholders as against borrowing policy holders of the same class and equal expectations of life.

Section 5171, Mississippi Code of 1930.

An insurance company, will not, in computing the amount of the cash surrender value or the sum applicable to the purchase of extended insurance, after default in payment of premiums be permitted to discriminate against policy holders who have borrowed on their policy, by exacting more than the loan with legal interest.

14 R. C. L. 995, sec. 166; Emigs v. Mutual Benefit Ins. Co., 127 Ky. 588, 106 S.W. 230, 23 L. R. A. (N. S.) 828; Waddell v. New England Mutual Life Insurance Co., 84 Ind.App. 209, 147 N.E. 816; Security Life Insurance Company of America v. Watkins, 189 Ky. 20, 224 S.W. 462.

J. Morgan Stevens, of Jackson, for appellee.

Where insured, who had paid more than three years premiums on a life policy, procured a loan to the full value of the policy and then defaulted in the payment of the interest premiums and principal, the insurance was not extended under a nonforfeiture clause providing that after three full years premiums should have been paid, the policy should be automatically extended on nonpayment, provided it should be free from debt, since in such case the policy was not free from debt.

Fidelity Mutual Ins. Co. v. Oliver, 111 Miss. 133, 71 So. 302.

Whatever debt was due by the insured for money borrowed on the policy should have been deducted from the reserve or cash surrender value of the policy at the time when default was made in the payment of the premium, and the balance applied to the extended insurance. The construction contended for would give free insurance to the insured for a lengthy period plainly not intended.

New York Life Ins. Co. v. Blalock, 144 Miss. 541, 110 So. 432; Pilot Life Insurance Company v. Owen, 31 F.2d 862; Black v. Franklin Life Insurance Company, 133 Georgia 859; Federal Life Insurance Company v. Kemp, 257 F. 265; Pacific Mutual Life Insurance Co. v. Davin, 5 F.2d 481; Emigs, Administrator, v. Mutual Benefit Life Ins. Co., 23 L. R. A. (N. S.) 828.

We do not find any provision of the policy whereby it could be contended that continued insurance in the full amount could exist, and an indebtedness be outstanding at the same time. When the policy lapses it becomes, so to speak, in liquidation under its terms, and if the reserve or cash value has been withdrawn, there is no fund left to pay for continued insurance during the extended term and therefore the extended term insurance fails to take effect. This is necessarily sound insurance business.

Mills v. National Life Ins. Co., 136 Tenn. 350.

Section 5171, Mississippi Code of 1930 prohibits any distinction or discrimination as between individuals of the same class having an equal expectation of life "in the amount of payments on premiums or rates charged for policies of life or endowment insurance, or in the dividends or other benefits payable thereunder or in any of the terms or conditions of the contracts it makes." This statute does not forbid the insured from borrowing money upon his policy or the assignment of his policy as security. No plea was interposed that would show any discrimination of any kind and if there is any violation of the statute it would be in permitting the insured to borrow on his policy and the point would have to be raised by one who has been injured and not by one who has been benefited.

No more than six per cent interest was charged.

Pacific Mutual Life Insurance Company v. Davin, 5 F.2d 481.

OPINION

Cook, J.

Mrs Cornelius Gertrude Neal, plaintiff in the court below, filed her declaration in the circuit court of the Second judicial district of Tallahatchie county against the Columbian Mutual Life Assurance Society, defendant, on an insurance contract in the sum of two thousand dollars on the life of Bascom L. Neal, and in which the plaintiff was beneficiary. To this declaration the defendant assurance society filed a plea of the general issue and a special plea admitting a liability to the plaintiff of seven hundred eighty dollars and nine cents, and tendered said sum to her. It also filed a special plea in bar of her right to recover any sum in excess of the sum tendered, alleging, in substance, that during the lifetime of the assured he allowed the contract of insurance sued on to lapse for a failure to pay the required installments or premiums due thereon; that, prior to the date of said lapse, the assured borrowed on said contract, so that at the time of the said lapse there was an indebtedness against said covenant of insurance of one hundred thirty dollars and fifty-three cents; that the insured did not have his contract of insurance reinstated in the manner therein provided; that there was no apportionment of surplus to the covenant sued on at any time prior to the death of the assured; and that the entire gross cash value of said covenant would have amounted to two hundred fourteen dollars at such date of lapse, if there had been no indebtedness attached to the covenant, but after deducting the aforesaid indebtedness from the full cash surrender value, the net cash value of the covenant at the date of the lapse was only eighty-three dollars and forty-seven cents. This plea further set up that the covenant of insurance provided that, if it should lapse after the premiums had been paid thereon for the full period of three years or longer, and the assured did not elect to surrender the covenant within three months after lapse for a paid-up covenant, then, without action on his part, the covenant would be continued as term insurance from the due date of the premium for the term specified in the table referred to, and a part of the covenant; that the covenant of insurance expressly provided that, if there was an indebtedness against it, the amount at risk as continued term insurance would be proportionately reduced, the clause of the policy so...