Parks v. Prudential Ins. Co. of America

• Decision Date: 14 March 1951
• Docket Number: Civ. A. No. 1428.
• Citation: 103 F. Supp. 493
• Parties: PARKS v. PRUDENTIAL INS. CO. OF AMERICA.
• Court: U.S. District Court — Eastern District of Tennessee

103 F. Supp. 493

PARKS v. PRUDENTIAL INS. CO. OF AMERICA.

Civ. A. No. 1428.

United States District Court E. D. Tennessee, S. D.

February 6, 1951.

On Motion for New Trial March 14, 1951.

Denman & Massey, Chattanooga, Tenn., for plaintiff.

Chambliss, Chambliss & Brown, Chattanooga, Tenn., for defendant.

DARR, Chief Judge.

This suit was instituted to recover total and permanent disability benefits under a contributory policy of group insurance.

The policy has been in force since November 16, 1921, and the plaintiff became insured thereunder for $2,000 on or about April 6, 1925, and for an additional $2,000 on October 1, 1928.

The policy provides: "This Policy is issued upon the one-year renewable term plan and may be renewed on each succeeding anniversary of its date for successive terms of one year each, upon the payment on or before the date of each renewal of the premium for the amount of insurance to be renewed."

It further provides that at the end of each five-year period the Company reserves the right to adjust the premium rates.

Another clause provides: "The Company will issue to the Employer for delivery to each person insured under this Policy an individual certificate setting forth the insurance protection to which such person is entitled hereunder and to whom such insurance is payable" (emphasis added); and a period of thirty-one days was allowed to the certificate holder upon termination of his employment, to convert the insurance to other types of policies without evidence of insurability.

The policy was amended on October 26, 1946, which was not on the anniversary of the policy, to change the five-year period for adjustments of premium rates, and November 16th was established as the annual recurring date on which renewals, adjustments of premium rates or refusal to renew the policy would be made. So far as the proof shows, this amendment was made without notice to plaintiff.

The policy also provides that: "No condition, provision or privilege of this Policy can be waived or modified in any case except by an endorsement hereon signed by the President, one of the Vice Presidents, the Secretary, one of the Assistant Secretaries, the Actuary, the Associate Actuary, or one of the Assistant Actuaries." (Emphasis added.)

The coverage was for optional payments to the beneficiary in case of death of the insured employee; and optional payments to insured in case of total and permanent disability occurring while the policy was in force, and up to the policy limits.

The proof shows that the defendant found the experience under the policy was bad, and the premium rates were changed from time to time in the attempt to save the insurer from loss; and when the increased rate would be found to be more than was adequate, the rate would for the next yearly period be reduced. It resulted that during the life of the policy while the plaintiff was insured, the premium rates were constantly, from year to year, going up and down. The premium on plaintiff's policy was deducted by the employer from salary payments, and the express consent of plaintiff to such changes in premium were not sought or given.

Shortly before November 6, 1947, the defendant notified the employer "that we were going to change again; place a $20 increase." Thereupon, on November 6, 1947, the employer (Police and Fire Departments of the City of Chattanooga) wrote the defendant inquiring whether defendant could "send a representative to Chattanooga to meet with the personnel of the Fire and Police Departments and answer questions regarding Group Insurance Policy."

Pursuant to that letter, representatives of the insurer came to Chattanooga, arriving there on or about November 20, 1947, and a meeting was called of the members of the two departments, broadcast by radio. The plaintiff did not receive notice of the meeting and did not attend.

A majority of those attending the meeting, after a discussion of the premium rates and the coverage of the policy, voted in favor of changing the policy so as to cover the individual employees only for life, with a waiver of premium in case of total disability, by virtue of which instead of requiring an additional premium, the premium was reduced.

The Commissioner at the head of these Departments of the City Government, comprising the group insured, considered that he had authority himself to amend the policy; but he directed that the meeting be called and a vote taken by the employees to ascertain their wishes, it being his intention to follow their wishes.

After the meeting of the employees the Commissioner wrote the defendant the following letter:

"A majority of the members have voted to remove the Total and Permanent Disability Clause from the Group Insurance contract and accept the current policy provisions.

"They desire this change to take effect November 16 and take advantage of the $10.00 a $1000.00 reduction in rate rather than pay the $5.00 a $1000.00 increased rate."

As a result of this letter, the policy contract was entirely rewritten and executed by both parties on May 18, 1948, reciting on its face that the amended policy was to become retroactively effective as of November 16, 1947. As of November 16, 1947, the premium was adjusted to the new rate, but no memorandum of endorsement or other modification was attached to the policy until May 18, 1948.

The new policy omitted the coverage for total and permanent disability except as to waiver of premium on the life coverage.

The plaintiff became totally and permanently disabled on May 20, 1948.

The Insurance Company concedes that plaintiff is covered by the policy for life insurance to the extent of $4000, with full waiver of premium during disability. It contends however that he is not entitled to current disability benefits by reason of the change in policy coverage prior to the date of his disability. The only question, therefore, is whether the plaintiff is affected and bound by the policy changes made on May 18, 1948.

The defendant issued to the plaintiff two certificates, one dated April 6, 1925 for $2,000 and the other dated October 1, 1928 for $2,000, both of which recited that the defendant, "in accordance with and subject to the terms and conditions of its Group Policy No. 1360, insuring the lives of a group of the employees of City of Chattanooga Fire and Police Departments, has insured the life of Jackson G. Parks," etc.

Each certificate contains the following: "If the said employee, while less than sixty years of age, and while the insurance on the life of said employee under said Policy is in full force and effect, shall become totally and permanently disabled or physically or mentally incapacitated to such an extent that he or she by reason of such disability or incapacity is rendered wholly and permanently unable to perform any work for any kind of compensation of financial value, said amount of insurance will be paid to said employee either in one sum twelve months after the Company has received due proof of such disability or incapacity, or in instalments during five years, the first instalment to be payable three months after the Company has received due proof of such disability or incapacity; in accordance with the provisions of said Policy. The disability benefits will be granted subject to cessation, in accordance with the provisions of the Policy, should the employee recover from such disability or incapacity. Permanent loss of the sight of both eyes or loss by severance of both hands above the wrists, or of both feet above the ankles, or of one hand and one foot, will be considered total and permanent disability or incapacity within the meaning of the provisions of said Policy."

The defendant did not deliver any new certificates to plaintiff after it was agreed to change the coverage on May 18, 1948; and plaintiff was not notified that the policy coverage was changed or that the certificates, which had been furnished to him, were no longer in force.

What then is the effect of the amendment to the policy made on May 18, 1948, which was not the anniversary date when modification of renewal provisions was authorized? The retroactive provision, giving the amendment an effective date of November 16, 1947, cannot be recognized in view of the policy provisions above quoted that no modification can be made in the policy provisions or privileges "except by an endorsement hereon". The question is thus further narrowed as to whether the plaintiff is bound by an amendment made without notice to him on a date other than the anniversary date by mutual agreement of the employer and insurer.

In Thompson v. Pacific Mills, 141 S.C. 303, 139 S.E. 619, 55 A.L.R....