Palmer v. Central Life Assur. Soc. of United States

• Citation: 258 N.W. 732,193 Minn. 306
• Decision Date: 18 January 1935
• Docket Number: No. 30216.,30216.
• Parties: PALMER et al. v. CENTRAL LIFE ASSUR. SOC. OF UNITED STATES.
• Court: Minnesota Supreme Court

258 N.W. 732

193 Minn. 306

PALMER et al. v. CENTRAL LIFE ASSUR. SOC. OF UNITED STATES.

No. 30216.

Supreme Court of Minnesota.

January 18, 1935.

Appeal from District Court, Blue Earth County; Harry A. Johnson, Judge.

Suit by Anna Palmer and another against the Central Life Assurance Society of the United States. A verdict was directed for plaintiffs, and, from an order denying its motion for judgment notwithstanding the verdict or for a new trial, defendant appeals.

Order denying motion for judgment notwithstanding the verdict reversed, and case remanded, with directions.

Pfau & Pfau, of Mankato, and George F. Malcolm, Fred P. Carr, and A. R. Shepherd, all of Des Moines, Iowa, for appellant.

Wilson & Wilson, of Mankato, and R. N. Klass, of Cedar Rapids, Iowa, for respondents.

LORING, Justice.

In a suit brought by the beneficiary of and the assignee of a part interest in a life insurance policy, the plaintiffs had a directed verdict, and the case comes here upon appeal from an order denying the defendant's motion for judgment notwithstanding the verdict or for a new trial.

May 15, 1918, David A. Palmer insured his life for $5,000 with the defendant. The policy was a 20-payment life contract. The annual premium was $188.55, and this was paid until and including the premium due on May 15, 1928. Prior to that time Palmer had secured a loan on this policy from the society in the sum of $890. In order to pay the premium due May 15, 1928, he increased the loan to $1,160, the full cash or loan value of the policy as of that date. There was a dividend of $39.41 due on the 1928 anniversary of the policy, which made $1,199.41 the total cash available, out of which Palmer paid the interest on the old loan, $69.60, the annual premium $188.55, and the old loan of $890. There remained $51.26 paid him by check under date of May 16, 1928. In March, 1929, he notified the society of his desire to surrender his policy for the then cash surrender value, and March 27, 1929, he was given a check for $245.30, which included the cash surrender value over and above the loan and paid-up additions and the dividends under the policy until May 15, 1929. The annual premium due on that date was not paid, and the loan indebtedness upon the policy equalled its cash loan value. Palmer, however, was later granted an extension of the time to pay the 1929 premium until November 15, 1929. December 6, 1929, he was notified that the policy had lapsed on account of the premium not having been paid on November 15 and that there was unpaid interest in the sum of $48.59. He was informed that, unless the society heard from him by the 14th of that month, it would assume that he did not desire to reinstate the policy. December 31, 1929, the society wrote him, stating its assumption that he had decided to leave the policy in a lapsed condition, and that, the loan having equalled the full cash value, the policy had been canceled, avoided, and deemed surrendered. Palmer took no further action in connection with the policy and made no further payments. He died June 5, 1931.

The policy provided that: "Except as herein provided the payment of premium or installment thereof shall not maintain the policy in force beyond the date when the next premium or installment thereof is payable."

It further provided:

"After this policy shall have been in force three full years the owner, within one month after any default, may surrender this policy, and may elect;

"(a) to accept the value of this policy in cash, or,

"(b) to have the insurance continued in force from date of default, without the right to loans for its face amount and outstanding dividend additions less any indebtedness to the company hereon, but without total and permanent disability or double insurance benefits, or,

"(c) to purchase non participating paid up insurance. * * *"

Palmer exercised no option, and it is the contention of the defendant that the policy lapsed for nonpayment of premium; that the cash value thereof had been entirely absorbed by the loan, and hence that there was nothing with which to purchase extended insurance as provided under option (b), which became operative on account of Palmer's nonelection of either of the two options.

Relative to loans there was a further provision of the policy: "Failure to repay any such advance or to pay interest shall not avoid this policy unless the total indebtedness hereon to the company shall equal or exceed such loan value at the time of such failure, and until one month after notice shall have been mailed by the Company to the last known address of the insured and of the assignee, of record at the Home Office of the Company, if any."

It is the contention of the plaintiffs that, inasmuch as the society did not give the month's notice required by this provision, the cash surrender value of the policy remained intact and accomplished an automatic extension of the face of the policy for a period of approximately 22 years, leaving the loan outstanding like any other indebtedness which Palmer might owe the society, and that for that reason the coverage of the extended insurance was in force at the time of Palmer's death.

1. Except as restrained by the insurance laws of this state, the parties were free to contract, and the resulting contract, in so far as the language may have been selected by the insurer, is to be construed most favorably to the insured. Standard provisions required by statute are, however, to be construed as other contracts. Kollitz v. Equitable Mutual Fire Insurance Co., 92 Minn. 234, 99 N. W. 892; Rosenthal v. Ins. Co. of N. A., 158 Wis. 550, 149 N. W. 155, L. R. A. 1915B, 361, Ann. Cas. 1916E, 395; Mick v. Corporation Royal Exch. Assur., 87 N. J. Law, 607, 91 A. 102, 52 L. R. A. (N. S.) 1074. The safety of the insurance structure is as much within the protection and within the purpose of the law as is the protection of the insured. It is too obvious to require comment that the safety of the one is necessary to the safety of the other.

We are here considering two provisions prescribed by Mason's Minn. St. 1927, § 3399, for incorporation in the standard form of policy and by section 3402 for policies in form other than as provided by section 3399. One of these provisions is that prescribed for the three options upon surrender or lapse of the policy for nonpayment of premium, and the other is for avoidance of the policy when the total indebtedness thereon to the insurer equals or exceeds the loan value, in which case one month's notice of the avoidance is required to be given to the insured or his assignee. The prescribed forms say how the cash value which is applicable to the options upon surrender or lapse shall be computed and in all cases direct the deduction of any existing indebtedness to the insurer from the amount of the cash value. Such deduction is also prescribed by Mason's Minn. St. 1927, § 3392, and the only question before us is whether that deduction is accomplished without the notice prescribed in case of avoidance of the policy on account of the indebtedness equalling or exceeding the loan value.

We find nothing in that part of the contract which relates to lapse for nonpayment of the premium which requires notice to the insured before deduction of indebtedness. The policy provides: "The term for which insurance will be continued or the amount of the paid up policy will be such as the cash value will purchase as a net single premium at the attained age of the insured according to the American Experience Mortality Table and interest at the rate of three and one-half per centum per annum."

It is further provided: "The cash value of this policy as shown in the following table of cash or loan values is obtained by deducting from the reserve a surrender charge which in no case exceeds one and one-half per centum of the face of this policy."

And further: "The figures in the following table are computed in accordance with the above provisions and upon the assumption that there is no indebtedness on the policy."

It seems clear to us that these provisions of the policy plainly provide for the deduction of any indebtedness before the cash surrender value can be applied to the purchase of extended insurance. The parties were contracting with reference to the insurance laws of this state.

At the outset we disagree with respondents' contention, upon which much of their argument is based, that a loan from the insurer on the security of a life insurance policy differs in no way from an ordinary commercial loan. We think that quite obviously it is entirely different. The loan note in the case at bar names no due date, but merely requires payment of interest annually in advance, and as security for the payment of the loan and interest assigns the policy to the society. If the interest is not paid, it is to be added to the principal of the loan and to bear interest at the same rate. Like the policy, the note provides for avoidance and surrender of the policy when the total indebtedness equals or exceeds the cash surrender value of the policy and requires 31 days' notice of such avoidance. Significantly, it contains an entirely separate provision that, if the policy becomes extended term insurance, the existing indebtedness under the loan shall be adjusted as provided in the policy. On the back of the note under the heading "Policy Loan Terms and Conditions," it is stated that loans are made...