Russell v. Grigsby

• Decision Date: 22 March 1909
• Docket Number: 1,864.
• Citation: 168 F. 577
• Parties: RUSSELL et al. v. GRIGSBY.
• Court: U.S. Court of Appeals — Sixth Circuit

168 F. 577

RUSSELL et al. v. GRIGSBY.

No. 1,864.

United States Court of Appeals, Sixth Circuit.

March 22, 1909

G. T Hughes, for appellants.

J. A Pitts, for appellee.

Before LURTON and SEVERENS, Circuit Judges, and KNAPPEN, District judge.

LURTON Circuit Judge.

Under a bill of interpleader, the Penn Mutual Life Insurance Company a corporation of the state of Pennsylvania, paid into the court below $10,000 due from it upon a policy of insurance upon the life of John C. Burchard, and the only question is as to whether the fund shall be paid to an assignee of the policy or to the administrators of the assured.

The facts necessary to be stated are these: Upon the personal application of the assured, John C. Burchard, an ordinary life policy was issued to him January 23, 1903. The assured lived in Tennessee. The contract was actually concluded at the office of the company at Philadelphia, and the contract on its face provided 'that the place of contract shall be the city of Philadelphia, state of Pennsylvania. ' It was payable to the 'executors, administrators or assigns' of the assured. But in respect of assignments it was provided 'that any claim against the company arising under an assignment of this policy shall be subject to proof of interest. ' The assured paid two annual premiums.

The third fell due January 23, 1905. The assured had in the meantime met with financial misfortune and was unable to meet this premium. He had also incurred a serious injury which necessitated a grave surgical operation, and was without the means to obtain the service he needed. In this critical condition he sold and delivered his policy to the defendant in error, receiving for the same $100 in money and the engagement of Dr. Grigsby that he would pay the premium then past due and all future premiums. The assignment executed was in these words:

'In consideration of the sum of one hundred dollars ($100.00) paid to me, the receipt of which is acknowledged and the further consideration of the payment to the company of the premium upon the life insurance policy hereinafter mentioned, now due and payable, as well as the payment of the premiums hereafter to accrue upon said policy, I, John C. Burchard, insured as John Cook Burchard, do hereby assign, transfer and convey to A. H. Grigsby my life insurance policy in the Penn Mutual Life Insurance Company of Philadelphia, for ten thousand dollars ($10,000.00), No. 230,176, of date January 26, 1903, together with all the legal rights and interests I have in the same and all the benefit, interest and right accruing by virtue of same.

'To have and to hold unto the said A. H. Grigsby absolutely, and I hereby authorize said life insurance company to pay to the said A. H. Grigsby the sum insured at my death upon the conditions mentioned in said policy. Executed in duplicate this the . . . day of February, 1905.'

A copy duly acknowledged was sent to the insurer. The assignee paid two annual premiums, when the assured died of a disease not traceable to the injury he had sustained. The insurer, being notified that the amount due under the policy was claimed both by the assignee and the administrators of the assured, filed a bill of interpleader against the contestants, and was discharged upon paying the fund into court. Upon this state of facts the court below adjudged the fund to the assignee.

Dr. Grigsby, the appellee and assignee of the policy, was not related to Mr. Burchard. Neither was he a creditor. He had, therefore, no insurable interest in the life of the assured whatever. If, therefore, this policy had been originally obtained in pursuance of some agreement or understanding that it should be assigned to and carried by him, the transaction would have been a wagering or gambling transaction under all the cases, and invalid as against public policy. But that is not the case. The policy was applied for by the assured without any purpose of assigning it. After paying two annual premiums he was driven to sell it for what he could get. This raises the single sharp issue as to whether one who has no insurable interest in the life of an assured is to be protected in his right as assignee of a policy, originally issued in good faith to the assured, beyond the actual amount of his disbursements on account of the transaction.

In the absence of restrictions imposed by the contract, such a policy is an assignable chose in action, provided the assignment is not one forbidden by settled principles of public policy. The contract of insurance was one thing, and the contract of assignment was another. The insurance contract was made in Pennsylvania, and provides that the place of contract shall be the state of Pennsylvania. This is an obligatory term, and the contract of insurance will be construed according to the law of Pennsylvania.

Penn Mutual Ins. Co. v. Mechanics' Bank, 72 F. 413, 19 C.C.A. 286, 38 L.R.A. 33. In the absence of such a term in the contract, the construction and interpretation of a policy of insurance is a question of general and not local law. Carpenter v. Providence Insurance Co., 16 Pet. 495, 10 L.Ed. 1044. But the contract of assignment, so far as it is not affected by any term of the policy, was made in Tennessee, and its interpretation and validity must be determined by the law of the place of the execution of the assignment. There is no question of construction, and the validity of the assignment depends upon whether the contract of assignment was contrary to principles of public policy.

What, then, is the law of Tennessee? There is no applicable statute law. Section 3516, Shannon's Code, Tenn., has been referred to as having some bearing. That provision makes assignable certain obligations not negotiable at the common law, and gives to the assignee the right to maintain an action in his own name. Policies of life insurance have been held to be within it. Mutual Insurance Co. v. Hamilton, 5 Sneed (Tenn.) 269; Scobey v. Waters, 10 Lea (Tenn.) 551, 561. The statute plainly does not qualify one to take by assignment a policy of life insurance who is disqualified by considerations of public policy. Franklin Ins. Co. v. Hazzard, 41 Ind. 116, 13 Am.Rep. 313; Brennan v. Franey, 142 Pa. 301, 21 A. 803; Insurance Co. v. Lane (C.C.) 151 F. 276.

There being no Tennessee statute which affects the question, it is obviously one to be determined by the general law, and the decisions of the Tennessee courts are not obligatory upon a court of the United States. Section 721, Rev. St., being section 34 of the judiciary act of September 24, 1789, c. 20, 1 Stat. 92 (U.S. comp. St. 1901, p. 581), which provides that 'the laws of the several states * * * shall be regarded as rules of decision in trials at common law, in the courts of the United States, in cases where they apply,' has been construed as limited to local statutes and local usages, and as not applying to questions of general law not based on local statutes or usages nor involving settled local rules of property having a situs within the state. Swift v. Tyson, 16 Pet. 19, 10 L.Ed. 865; Carpenter v. Providence Ins. Co., 16 Pet. 495 10 L.Ed. 1044; Railroad v. National Bank, 102 U.S. 14, 29, 26 L.Ed. 61 et seq.; B. & O. Railroad v. Baugh, 149 U.S. 378, 13 Sup.Ct. 914, 37 L.Ed. 772; Hartford Ins. Co. v. Railroad, 175 U.S. 100, 20 Sup.Ct. 33, 44 L.Ed. 84. Although though the assignment here in question was made in Tennessee and between citizens of that state whose rights are to be determined by a court of the United States sitting in that state, its validity does not depend upon a local statute or usage, and must be determined by the court, as it would be if before a court of the state, upon principles of general law. When that is the situation, federal courts are under obligation to exercise an independent judgment, when such judgment must lead them to a different conclusion from the local courts. Carpenter v. Providence Ins. Co., 16 Pet. 495, 10 L.Ed. 1044; Hartford Ins. Co. v. Railroad, 70 F. 201, 203, 17 C.C.A. 62, 30 L.R.A. 193; Gordon v. Ware National Bank, 132 F. 444, 446, 65 C.C.A. 580, 67 L.R.A. 550; Insurance Co. v. Lane (C.C.) 151 F. 276, affirmed by the Circuit Court of Appeals 157 F. 1002, 85 C.C.A. 677.

With respect to the particular question of general law here involved, there cannot be said to be any clearly defined and well-settled rule of decision in the Supreme Court of Tennessee. The question seems never to have been definitely decided until the unreported case of Lewis v. Edwards, decided December 14, 1903, in which a bare majority of the court reversed a majority opinion of the Tennessee Chancery Court of Appeals. Possibly the fact that no opinion was filed, or that the judgment was that of only a majority of the court, should affect its force and effect if we were compelled to follow the decisions of that court. As we are under no such obligation, we feel less reluctance in reaching a different conclusion, because there seems to be no settled line of decisions in that state.

Coming then, to the validity of an assignment of a policy of life insurance, applied for and carried in good faith by the assured, and transferred as a matter of financial necessity to a person having no insurable interest in the life of the assured, we are compelled to confess that there is a hopeless division between the decisions of the courts which have directly passed upon the question. The view taken by perhaps a decided majority of the state courts is that in such circumstances an assignment should be upheld as serving to give a greater sale value to such instruments by widening the class of possible purchasers, and that public policy is best subserved by upholding the commercial character of such contracts when there has been no...