Pioneer Life Ins. Co. v. Alliance Life Ins. Co.

• Citation: 30 N.E.2d 66,374 Ill. 576
• Decision Date: 10 December 1940
• Docket Number: No. 25651.,25651.
• Parties: PIONEER LIFE INS. CO. v. ALLIANCE LIFE INS. CO.
• Court: Supreme Court of Illinois

374 Ill. 576

30 N.E.2d 66

PIONEER LIFE INS. CO.

v.ALLIANCE LIFE INS. CO.

No. 25651.

Supreme Court of Illinois.

Oct. 11, 1940.

Rehearing Denied Dec. 10, 1940.

Action by the Pioneer Life Insurance Company against the Alliance Life Insurance Company on an indemnity policy of reinsurance. A judgment for plaintiff was reversed by the Appellate Court for the Second District, 304 Ill.App. 13, 25 N.E.2d 831, and that court granted a certificate of importance and allowed a further appeal by plaintiff.

Judgment of the Appellate Court reversed and judgment of the circuit court affirmed.Appeal from Appellate Court for Second District, on Appeal from Circuit Court, Peoria County; Henry J. Ingram, Judge.

Poppenhusen, Johnston, Thompson & Raymond, of Chicago (Floyd E. Thompson, of Chicago, and Clarence W. Heyl, of Peoria, of counsel), for appellant.

George Z. Barnes and George W. Hunt, both of Peoria, for appellee.

WILSON, Justice.

The plaintiff, the Pioneer Life Insurance Company, instituted an action in the circuit court of Peoria county against the defendant, the Alliance Life Insurance Company, to recover the amount alleged to be due on a reinsurance policy issued by the Peoria Life Insurance Company (hereinafter called Peoria) to plaintiff upon the life of Joseph Marzano. By its complaint, plaintiff charged that defendant assumed the liability of Peoria under a reinsurance agreement entered into between defendant and the receiver of Peoria. Answering, the defendant denied liability, asserting that it did not assume the payment of the Marzano reinsurance policy. A trial by the court without a jury resulted in a judgment in favor of plaintiff and against defendant for $28,801.83. Upon appeal, the Appellate Court for the Second District reversed the judgment of the circuit court. Pioneer Life Ins. Co. v. Alliance Life Ins. Co., 304 Ill.App. 13, 25 N.E.2d 831. The Appellate Court has granted a certificate of importance and allowed a further appeal to this court.

The Pioneer Life Insurance Company, formerly known as the Pioneer Mutual Life Insurance Company and even earlier as the Rock River Valley Insurance Company, will be referred to as plaintiff when reference is made to its transactions under any of its three names. The Alliance Life Insurance Company was formerly named the Life and Casualty Company of Chicago. It will be designated as defendant.

Plaintiff is licensed to engage in the life insurance business on the assessment plan. The applicable statutory provision (Smith-Hurd Stat. 1933, p. 1650, c. 73, § 239l) limited the amount of insurance which it could carry on a life and required the reinsurance of any excess. October 16, 1931, plaintiff entered into an ‘Automatic Reinsurance Agreement,’ referred to by the parties and commonly known as a reinsurance treaty, with Peoria, setting forth the terms and conditions under which Peoria would grant reinsurance to plaintiff. By the treaty, plaintiff agreed to first bind Peoria on each standard risk up to the amount of $10,000 before applying to any other company for reinsurance on a standard risk, and Peoria, on the other hand, under section 3 captioned ‘Automatic Cessions,’ agreed to be automatically bound on all risks accepted at standard rates by plaintiff for an amount not to exceed $10,000 on each risk. Section 7, denominated ‘Facultative Cessions,’ sometimes referred to as optional cessions, provided that upon receipt of an application for insurance upon a sub-standard risk (apparently a risk exceeding $10,000) plaintiff might reinsure any part or all of such risk in Peoria. Provision was made for submission of a preliminary application for reinsurance to Peoria, accompanied by pertinent data such as medical reports, and for nontification by Peoria to plaintiff of the former's early decision relative to the preliminary application. ‘Policies of reinsurance issued hereunder,’ be section 8, were to be on the non-participating yearly renewable term plan. The last section rpovided that either party might discontinue the agreement at any time so far as it related to insurance issued after the date of discontinuance by giving the other party sixty-days' written notice to that effect.

On March 26, 1932, plaintiff issued its policy on the life of Joseph Marzano in the amount of $25,000. Peoria approved plaintiff's special application which contained no reference to the treaty and, on July 12, 1932, executed its ‘Reinsurance Policy,’ No. R36090, on Marzano's life for $24,000, effective as of March 26, 1932, as a facultative cession under section 7 of the treaty and carried the policy on its records as a separate reinsurance policy. The policy recites that it is subject to the terms and conditions of the treaty. Premiums were paid on the reinsurance policy as they became due and on November 8, 1933, plaintiff paid to Peoria the premium then due, covering the period ending December 26, 1933.

November 15, 1933, Peoria was placed in receivership, and an order for its liquidation was entered by the circuit court of Peoria county the same day. When the receiver was appointed Peoria admittedly had an unused balance of $14.86 of the premium which had been paid by plaintiff on the Marzano reinsurance policy, a sum sufficient to continue the policy in force beyond December 21, 1933, the day Marzano died, and until December 26, 1933. Peoria also had in its hands on November 15, 1933, $113.08 representing the unused portion of the premiums which had been paid to it on the several reinsurance policies issued to plaintiff.

In the meantime, later in November, plaintiff consulted with employees of the receiver relative to the status of its reinsurance with Peoria. On December 11, 1933, plaintiff commenced negotiations with the American Central Life Insurance Company, of Indianapolis, Indiana (herein referred to as American), with respect to reinsurance of its existing risks. A list of current risks was submitted. December 22, 1933, the day after Marzano's death, and before learning of his death, American informed plaintiff it was prepared to assume all but two of the risks previously placed with Peoria, one being the Marzano policy, and that additional information would be required before assuming the questioned risks. The first contracts for reinsurance with American were submitted by plaintiff about January 9, 1934. American issued its initial reinsurance policies to plaintiff as of January 26, 1934, taking up the reinsurance policies of plaintiff as the respective periods for which Peoria held reserves to carry them expired. There was thus no accumulated reserve on any policy taken by American as new business, and plaintiff paid to American only what was required actuarially to carry the risks in the future. January 18, 1934, plaintiff advised the receiver of Peoria that it had completed a reinsurance contract with American ‘to reinsure the outstanding reinsurance policies as the coverage period expired with Peoria Life Insurance Company on each policy, the applications pending issuance of reinsurance policies, and to cover new business as written.’ A reinsurance treaty between plaintiff and American designated ‘Automatic Reinsurance Contract,’ provides that on and after December 11, 1933, plaintiff shall exclusively reinsure with American. Article XII states that the treaty may be terminated as to further reinsurance by either party giving thirty-days' notice of cancellation. American delivered the executed treaty to plaintiff in the latter part of February, 1934. Excluded from the risks formerly reinsured by Peoria and transferred to American was the Marzano policy. The facts recounted conclusively demonstrate that the reinsurance treaty between plaintiff and American was not in effect during Marzano's lifetime, and that American did not assume and reinsure the Marzano risk.

August 22, 1934, a decree was entered in the receivership proceeding approving a reinsurance agreement proposal by defendant to Peoria. The decree adjudges that the former contracts of insurance with policyholders of Peoria ‘are hereby revived and renewed.’ The receiver was directed, upon the execution, approval and delivery of the proposed contract, to mail to the insured named in ‘all contracts and policies issued, assumed or reinsured’ be Peoria in force on November 15, 1933 , a printed copy of the contract, as executed, and, further, the receiver was authorized to permit defendant to attach its certificate of assumption to each copy of the contract. A pertinent portion of the decree declared that any policyholder who did not desire to accept the benefits of the contract with defendant should file his claim with the receiver within the time prescribed and that, in such case, the defendant would be under no obligation or liability of any kind or character as to any policy or contract in respect of which such dissent be made and claim filed, and the policy or contract of such policyholder stand terminated as of November 15, 1933. The same paragraph provided that a policyholder who did not so dissent should be conclusively bound by his failure so to do, and be considered as having assigned to defendant, for the benefit of the Peoria Life Fund created under the contract, all his claims against Peoria, as more specifically provided in paragraph 48 of the contract. The rights of defendant in and to the assigned claim were described in another paragraph of the decree which required it to file a claim against the receiver for all amounts owing to it as assignee under paragraph 48.

Conformably to the decree, on October 4, 1934, the reinsurance agreement between the receiver of Peoria and defendant was executed and received the approval of the Director of Insurance of the State. Paragraph 2 of the agreement entitled ‘Reinsurance and Assumption of Policies' recites that defendant ‘does hereby reinsurance and assume as of November 15, 1933 (subject to the lines, terms, conditions and provisions and...