New York Life Ins. Co. v. Scheuer

• Decision Date: 16 November 1916
• Docket Number: 3 Div. 202
• Citation: 73 So. 409,198 Ala. 47
• Parties: NEW YORK LIFE INS. CO. v. SCHEUER et al.
• Court: Alabama Supreme Court

73 So. 409

198 Ala. 47

NEW YORK LIFE INS. CO. v. SCHEUER et al.

3 Div. 202

Supreme Court of Alabama

November 16, 1916

Rehearing Denied Dec. 30, 1916

Appeal from City Court of Montgomery; Gaston Gunter, Judge.

Bill by M. Scheuer and others, doing business as Scheuer & Wise against the New York Life Insurance Company, to pay to orators the true amount due on said policy. Decree for complainants, and respondent appeals. Affirmed.

W.L Martin, of Montgomery, for appellant.

Charles L. Harold, of Montgomery, for appellees.

McCLELLAN J.

This cause involves a policy of insurance issued on the life of John Roscoe Stewart, now deceased. The beneficiary named therein was Anna E. Stewart. The appellees claim as assignees of the policy. The amount of the insurance stated in the face of the policy was $2,000. It is said to be of the class of policies called "standard accumulation class"; the accumulation period being fixed at 20 years. The application therefor was made and taken in Duluth, Minn.; and the policy was delivered in that city on, to wit, the 19th day of April 1906. The annual premiums, stipulated to be paid in advance for 10 years, were duly paid up to and including that due the 19th day of April, 1911. In the policy it was provided:

"The insured may obtain cash loans on the sole security of this policy, on written request, at any time after it has been in force two full years, if premiums are duly paid to the anniversary of the insurance next succeeding the date when the loan may be obtained. The insured shall pledge this policy and its accumulations as collateral security for such loans, in accordance with the terms contained in the company's then existing form of policy loan agreement. The amount of loan available at any time is stated on the second page, and includes loans then unpaid. Interest will be at the rate of 5% per annum, payable in advance to the next anniversary, and annually in advance on that date and thereafter."

The policy also bore these stipulations:

"This policy is automatically nonforfeitable, as follows:

"First.--If any premium is not paid on or before the date when due, and if there is no indebtedness to the company. The insurance will automatically continue from such due date as term insurance as follows, and no longer, namely: for 37 days if premiums have been paid for 3 months; for 45 days if for 6 months; for 53 days if for 9 months; for 60 days if for one year and less than two years; and for the period specified on the second page if premiums have been paid for two or more years.

"In lieu of such automatic term insurance, on the insured's written request within six months from such due date but not otherwise, this policy will be indorsed for the amount of paid-up insurance, if any, stated on the second page.

"Second.--If any premium or interest is not paid on or before the date when due, and if there is an indebtedness to the company.

"Insurance for the net amount that would have been payable as a death claim on said due date, will automatically continue from said due date as term insurance for such time as any excess of three-fourths of the reserve under this policy over such indebtedness will purchase at the age of the insured on said due date, according to the company's present published table of single premiums for term insurance, and no longer."

After paying the premium, the sixth in number, due April 19, 1911, and thereby paying for the insurance to April 19, 1912, the insured, while a resident of Alabama, borrowed from the company $458, executing therefor a "policy loan agreement" in the form provided by the company and assigning the policy as collateral security therefor. The report of the appeal will contain the body (except the sixth paragraph, which we quote below) of the instrument executed by the borrowing policy holder. The sixth paragraph of the "policy loan agreement" is this:

"That the application for said loan was made to said company at its home office in the city of New York, was accepted, the money paid by it, and this agreement made and delivered there; that said principal and interest are payable at said home office, and that this contract is made under and pursuant to the laws of the state of New York, the place of said contract being said home office of said company."

In the amended bill it is averred:

"Orators are informed and believe, and upon such information and belief aver, that in the foreclosure of the said policy pursuant to the terms of the said

loan agreement the respondent lapsed the said policy before the death of the insured by the following method of calculation, viz.: The full legal reserve on the policy at the end of the sixth year, or on the 19th day of April, 1912, was the sum of $544, and three-fourths of the same was $408; and, the amount of the indebtedness secured thereby being $458 on said last-named date, it was reasoned that there was nothing left of the reserve with which to purchase the automatic extended insurance, and therefore the policy was forfeited. That in the table of extended term insurance on the second page of said policy, and of all policies of the same kind and age issued by respondent at the time, or about the time, of the issue of the policy here sued on, there was guaranteed to the insured automatic extended term insurance for 26 years and 8 months at the end of the policy's sixth year if six full annual premiums had been paid on the same, and provided there was no indebtedness to the company; that this period of automatic extension represents a policy value or reserve percentage materially in excess of three-fourths and materially in excess of the amount of said indebtedness to the respondent, and that if the respondent, in its calculation of the automatic insurance rights of the insured in said policy, had deducted and paid itself the amount of said indebtedness out of the said policy value, there would have been left sufficient policy value or reserve which, if applied by respondent to purchase, as a single premium, term insurance at the attained age of the insured under said policy, according to the single premium rates in force as of the date of said policy was issued, would have kept the same in force for the full amount thereof until after the death of the said insured. And orators aver it was the duty of respondent to thus account for the excess of the true policy value over the said indebtedness, and that the insured did not, nor did any one for him, exercise any option under said policy as therein allowed."

We appropriate this very satisfactory statement of the learned judge, sitting in equity, accurately outlining the case made by the amended bill:

"The seventh premium was not paid by the insured, who died a few months thereafter, viz. in December, 1912. The policy of insurance is alleged to have been canceled by the defendant in April, 1912, on account of the nonpayment of the premium. Complainants allege that the policy is still in force and effect, on account of the matters set out below: They say that the legal reserve, which the company is required by law to set apart, in April, 1912, amounted to, as they are informed and believe and so state, $544. They say, however, that the company canceled the policy of insurance under a provision by which a borrowing insured forfeits one-fourth of the legal reserve so set apart. Complainants allege that by the terms of the policy, in the event that a premium is not paid by a nonborrower, the insurance engages to use the reserve in the purchase of automatic term insurance for the time that the legal reserve would for the age of the insured so purchase under the tables of the insurance company; that in case of an insured, who was a borrower and who failed to pay a premium, that automatic term insurance would be purchased by the amount in excess of the loan up to three-fourths of the legal reserve. In other words, that in case of a borrower three-fourths of the reserve only was available to the insured, and the loan was to be subtracted from such three-fourths of the reserve and the excess up to such three-fourths was to purchase term insurance, and the remaining one-fourth of the legal reserve was to be forfeited to the company. *** Complainants allege that this provision in reference to a borrowing insured is a mere cloak on the part of the company to cover usury when an insured borrows under a loan agreement, and is void; that it is a plain discrimination in favor of a nonborrowing insured against a borrowing insured of the same class. The bill

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