Pacific States Life Ins. Co. v. Bryce

• Decision Date: 23 November 1933
• Docket Number: No. 882.,882.
• Parties: PACIFIC STATES LIFE INS. CO. v. BRYCE.
• Court: U.S. Court of Appeals — Tenth Circuit

91 ALR 1446, 67 F.2d 710 (1933)

PACIFIC STATES LIFE INS. CO. v. BRYCE.

No. 882.

Circuit Court of Appeals, Tenth Circuit.

November 23, 1933.

Henry G. Coors and D. A. MacPherson, Jr., both of Albuquerque, N. M., for appellant.

Merritt W. Oldaker, of Albuquerque, N. M., for appellee.

Before PHILLIPS, McDERMOTT, and BRATTON, Circuit Judges.

McDERMOTT, Circuit Judge.

Recovery of the principal sum was had below upon a policy insuring the life of Charles W. Bryce, who died on March 28, 1932. The plaintiff, his widow and beneficiary, in her complaint averred that after paying premiums thereon for six years, the insured defaulted the premium payable on February 3, 1932; that he did not elect to avail himself of any of the options afforded by the policy for the application of the reserve value, and that the policy was therefore automatically extended beyond the date of his death. The defendant, on the contrary, alleged that the insured elected to take the cash surrender value of the policy; that he and the beneficiary surrendered the policy before the death of the insured; that thereby the insured became entitled to $435.00, the full reserve value of the policy; that payment of such sum was delayed from February 24 to April 8 on account of the unprecedented number of such surrenders, but that tender thereof was made and refused on the latter date. The defendant concedes its liability to the estate of the insured for the cash surrender value, but denies any liability to the beneficiary. To which answer plaintiff replied admitting the particular facts pleaded by way of answer, but averring that the surrender value not being paid promptly nor within the lifetime of the insured, the offer to surrender the policy was a nullity.

The pleadings tender the simple issue as to whether the policy was effectively surrendered prior to the death of the insured. The facts are stipulated. A net reserve of $435.00 had accumulated on this policy by February 3, 1932, the premium paying date. The policy accorded the insured three elections as to this reserve: it could (1) be withdrawn in cash, or (2) used to purchase a paid-up policy for a reduced amount, or (3) used to purchase extended insurance for the face of the policy for a limited term. In the absence of such election, feature (3) became automatic. The cash value provision reads:

"After three full years' premiums have been paid, the insured, with the consent of the assignee or irrevocably named beneficiary (if any), may, if elected within one month after expiration of grace period, but not later, and upon proper surrender of this contract, receive the then cash value, less any indebtedness."

The policy gave the insured the right to change the beneficiary, and further provided that:

"All the rights and benefits accruing hereunder to the insured are vested in said insured without consent of any beneficiary unless otherwise provided by the insured or expressly prohibited by statute."

On January 18 the insured mailed the policy to the company with the statement that he would like to cash it in on February 3, the next premium date. On January 29 the company called his attention to the fact that if the cash were withdrawn, his insurance would be gone, and suggested that he borrow on the policy instead. On February 3 the insured expressed his appreciation of the interest shown by the company, but adhered to his decision to cash in the policy. The company then mailed him, on February 9, a form of agreement which recites that the "sole owners of Policy No. — 8549 * * * have this day surrendered said Policy in consideration of its cash value, which at this time amounts to Five Hundred Eighty-five and no/100 Dollars and said parties hereby acknowledge receipt of ($585.00) in consideration of which they agree to release said Pacific States Life Insurance Company from all further liabilities under Policy No. — 8549."

This agreement was executed by the insured and also the plaintiff, although she was neither an assignee nor an irrevocably named beneficiary. On February 24, the company acknowledged receipt of the surrender agreement and advised that by reason of the congestion in its Loan Department, some delay would ensue in remitting the cash, but that check would go forward as soon as the application was reached in its turn.

The insured took no further steps in the matter. After his death on March 28, the company mailed a check for the surrender value on April 8, which the parties stipulate was "as soon as cash was available therefor and in its proper turn," and the policy was endorsed "Cash surrender 4-8-32." Demand was made for the payment of the face of the policy, refused, and this suit followed.

Plaintiff's theory, adopted by the trial court, is that the execution of the surrender agreement was an offer by the insured to the company to surrender the policy for a cash payment of $435.00; that such offer lapsed and the surrender agreement voided because the surrender value was not paid within a reasonable time or before the death of the insured.

With this construction of the policy contract we are not in accord. It puts the cart before the horse. The policy vested in the insured certain definite rights, among them the right to be paid the reserve on his policy in cash upon a surrender of his policy, if demanded within a specified time. The insured did demand the surrender value within the prescribed time, and surrendered his policy. When he did so — a month before his death — he became absolutely entitled to payment in cash of $435.00. Upon his death his estate, and not his beneficiary, became entitled to that sum. The offer is contained in the policy contract, and is from the company to the insured; the option is in the insured and not the company, and his acceptance completes the contract; the company has no right to accept or reject; its obligation to pay is absolute. Under plaintiff's theory, an insured may only offer to surrender his policy for its cash value; the company may then accept or reject the offer, and if it fails to pay as agreed, the offer lapses. Such a construction would wipe out the right of an insured to the cash surrender value of his policy, because the company could defeat his right by rejecting his offer, or by failing to pay. To construe an exercise of an option as an offer to the company, subject to rejection or lapse, would be to warp the plain terms of the contract and to deny the insured a right he has paid for. If Bryce, on March 15, had sued the company for $435.00, could the company have defended on the ground that it had not accepted his offer to take the cash surrender value? Clearly not; yet plaintiff's contention comes down to that.

The cases, as far as we are advised, are at one in holding that the rights of the parties are fixed when an option given by a policy is exercised by the insured. In Lipman v. Equitable Life Assur. Society (C. C. A. 4) 58 F.(2d) 15, 18, the insured was killed the day the application for the surrender value was received by the company and before the check therefor was mailed. The Fourth Circuit Court of Appeals held that liability was limited to the surrender value, Judge Parker saying:

"Since the insured had the option to surrender her policy and take the cash surrender value on October 10th, there can be no question but that the rights of the parties became fixed and insured became entitled to the cash surrender value, and...