Reilly v. Penn Mutual Life Ins. Co. of Philadelphia

• Citation: 207 N.W. 583,201 Iowa 555
• Decision Date: 09 March 1926
• Docket Number: 37124
• Parties: DOROTHY REILLY, Appellant, v. PENN MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA et al., Appellees
• Court: United States State Supreme Court of Iowa

207 N.W. 583

201 Iowa 555

DOROTHY REILLY, Appellant, v. PENN MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA et al., Appellees

No. 37124

Supreme Court of Iowa, Des Moines

March 9, 1926

Appeal from Polk District Court.--JOSEPH E. MEYER, Judge.

ACTION upon a policy of life insurance. The insurer paid the proceeds of the policy into court, and the controversy is between the beneficiary named in the policy and the surviving widow, who is also the administratrix of the estate of the insured. Decree was entered in favor of the beneficiary named in the policy, and the plaintiff appeals.

Affirmed.

Wilson & Shaw and Howard L. Bump, for appellant.

Stipp Perry, Bannister & Starzinger and W. E. Miller, for appellees.

STEVENS J. DE GRAFF, C. J., and FAVILLE and VERMILION, JJ., concur.

OPINION

STEVENS, J.

The admitted facts are that Paul V. Reilly owned fifty shares of the capital stock of the J. W. Turner Improvement Company Incorporated, and in 1906 became a director and the secretary thereof. The corporation was engaged in the business of general contracting for the construction of public works, such as sewers, paving, etc. It had a capital stock of $ 15,000, owned almost entirely by Reilly and J. W. Turner. On March 5, 1910, Reilly made application to the Penn Mutual Life Insurance Company for two policies upon his life for $ 5,000 each. The application was accepted by the company, and policies issued designating the J. W. Turner Improvement Company as beneficiary. At or about the same time, J. W. Turner made application to the same company for two policies, one for $ 10,000 and one for $ 5,000, upon which like policies were issued, also designating the corporation as beneficiary. The right to change the beneficiary was not reserved in the policy. The premiums on all of the policies were paid by the corporation for a time, and thereafter they were paid by borrowing the amount from the insurance company on the policy. Reilly resigned his office as secretary and treasurer, and also as a director, of the corporation, and organized a new and independent business of the same character as that in which the corporation was engaged. Reilly was not, at the time he resigned his office in the corporation, indebted to it in any way, except for the premiums advanced by it upon the policies. He retained his stock in the corporation until his death, which occurred November 6, 1923. The policies upon the lives of Reilly and Turner were obtained for the use and benefit of the corporation in pursuance of an agreement and understanding between them prior to making application therefor. Appellant claims the proceeds of the policy, less the amount due the corporation for premiums advanced, as administratrix of her husband's estate. The ground upon which her claim is predicated is that the policies were taken out on the life of her husband and made payable to the corporation as beneficiary for the sole purpose of securing the payment of any and all indebtedness of her husband thereto.

It is, as already stated, conceded by the corporation that the insured was indebted to it only for the premiums paid by it. The answer alleges that the policies were taken out by the corporation upon the life of Reilly, who was then secretary and treasurer and one of the directors thereof, for the use and benefit thereof; that it paid the premiums, as stated; and that it is, therefore, entitled to the proceeds thereof. The only testimony introduced upon the trial to show the purpose for which the policies were taken, was that of J. W. Turner. We quote the following brief excerpt therefrom:

"Prior to taking out this policy, Mr. Reilly, Mr. Brett, and myself had talked the matter of insurance over for months, and it was understood and decided among ourselves that we ought to cover the officers of the corporation by insurance, so that, as they were the principal assets of a construction company such as we were, and in the event of the death of either of us, we would have an income, or a--I don't know just the word I want to say. The corporation would get the benefit of that insurance, to help tide over the loss that we would be subject to by the death of said official. Second, that, at any time it should be necessary to borrow money on these policies, that we would have an asset that could be readily converted into some cash. In 1907, during the panic, we were badly pressed for money sufficient to carry on our business, and we had that in mind in discussing the matter of insurance, as one of the reasons for taking out the policies. Mr. Reilly was the principal advocate of the insurance scheme. One policy for $ 5,000 and one for $ 10,000 was taken out on my life, and two policies of $ 5,000 each were taken out on Reilly's life. It was always stated that the company would take care of all premiums, and were to be beneficiaries in the event of the death, or of the policies' maturing. The amount now due on the two policies is $ 6,710, after deducting the lien. The J. W. Turner Improvement Company borrowed money several times on these policies from the Penn Mutual. Mr. Reilly was informed of the fact of borrowing, and took part in them. We carried the insurance premium accounts together, and they were always grouped together. The policies bore the same date, and they were bunched together and paid together. Mr. Reilly was in charge of the books from 1910 to 1917. Mr. Reilly did not make any claim to the J. W. Turner Improvement Company, so far as we know, or any claim of interest in these policies, so far as I know. Mr. Reilly was a stockholder in the company from the time he went with it as an officer. He owned fifty shares. He owned fifty shares at the time of his death."

From this testimony it is clear that the policy was not taken out by Reilly and made payable to the corporation as security for indebtedness of his thereto. The arrangement was mutual between the parties, and it is manifest that the insurance was taken out for the general benefit and use of the corporation.

The proposition of appellant is briefly and succinctly stated by her counsel in argument as follows:

"Our position in this matter may be stated as follows: The insurance upon the life of Reilly for the benefit of the corporation is in the nature of insurance for the benefit of a creditor, and when the interest of the creditor ceases in the assured, the right to the proceeds of the policy ceases, but does not make the policy void. On the other hand, the proceeds belong to the estate of the deceased, and the beneficiary named, the creditors or the corporation, is trustee of the funds for the benefit of the decedent's estate."

We may for the purposes of this case only, assume that, if the policy was taken out for the benefit of the corporation as a creditor only, its interest in the proceeds thereof terminated upon the payment thereof. It is conceded that the corporation had an insurable interest in the life of the insured, as an officer of the company, at the time application was made and the policy...