Schmidt v. Equitable Life Assur. Soc. of United States
| Citation | 33 N.E.2d 485,376 Ill. 183 |
| Decision Date | 02 April 1941 |
| Docket Number | No. 25756.,25756. |
| Parties | SCHMIDT v. EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES. |
| Court | Illinois Supreme Court |
OPINION TEXT STARTS HERE
Action of assumpsit by Katherine Schmidt against the Equitable Life Assurance Society of the United States, to recover the face amount of two life insurance policies. From a judgment of the Appellate Court, 304 Ill.App. 261, 26 N.E.2d 742, which reversed judgment for the defendant and remanded cause with directions, defendant appeals.
Affirmed.
Mayer, Meyer, Austrian & Platt, of Chicago (Frederic Burnham and Niles G. Seeley, both of Chicago, of counsel), for appellant.
Nelson, Slater & Boodell, of Chicago (Drennan J. Slater and Martin Crane, both of Chicago, of counsel), for appellee.
This case was instituted in the circuit court of Cook county in 1933 and has been before the Appellate Court three times. 282 Ill.App. 439; 290 Ill.App. 378, 8 N.E.2d 535; 304 Ill.App. 261, 26 N.E.2d 742. Leave to appeal was granted from the last judgment and the question is whether two insurance policies on the life of Edward C. Schmidt, appellee's husband, were in effect at the time of his death. Appellee, as beneficiary, brought this suit on the policies in the circuit court of Cook county. In a trial by the court without a jury judgment was entered for appellant. The Appellate Court for the First District reversed the judgment and remanded the cause with directions to enter judgment in favor of appellee for the face amount of the policies, less loans thereon, plus interest from the date of the insured's death.
The policies were of the kind known as ‘Ordinary Life,’ dated as of August 13, 1925. Each of them was for the face amount of $5,271.60, with annual premiums of $293.26, due each year on the anniversary of the policy date, with thirty-one days' grace for such payments. Each policy provides:
premiums have been paid hereon, upon any subsequent default in the payment of any premium or installment thereof, and within three months after such default, this policy may be surrendered by the Insured (or assignee if any) who may elect one of the following options:
‘(a) To receive the Cash Surrender Value of this policy; or
‘(b) To purchase non-participating paid-up life insurance payable at the same time and on the same conditions as this policy, but without double indemnity or total and permanent disability benefits; or
‘(c) To continue the insurance for its face amount (and any outstanding dividend additions) as paid-up extended term insurance for the period shown in the opposite Table, or for such further period, as the dividend additions (if any) will purchase, but without further participation, or right to loans, or double indemnity or total and permanent disability benefits.
‘In the event of default in the payment of any premium or installment thereof after this policy has been in force three full years, if the Insured (or assignee if any) does not select one of said options within three months of such default, the insurance shall be continued as provided under Option (c).
‘If there by any indebtedness against this policy, the cash surrender value shall be reduced thereby, the paid-up insurance shall be reduced proportionately, and the extended term insurance shall be for the face amount of the policy less the indebtedness and for such period as the reduced cash value will purchase.’
Seven annual premiums, aggregating more than $4,000, were paid. The premiums due August 13, 1932, were not paid. The insured died September 16, 1932, which was after the expiration of the grace period and within the three-months' option period. On August 13, 1932, the gross surrender value of each policy was $906.72, which had been reduced by loans against the policy amounting, with interest, to $905.24, leaving a net surrender value of $1.48 for each policy. This net amount would purchase extended term insurance under option (c) for four and a fraction days. If there had been no loans against the policies the surrender value would have purchased extended term insurance for a term for beyond the date of the insured's death. He did not elect any of the options, and the beneficiary did not do so after his death.
Each policy provides for a loan on the policy after it has been in effect three years, not to exceed its cash value at the end of the then current year, less any indebtedness due the society, provided all premiums shall have been paid to the end of such current year. Such loans bear interest at six per cent per annum payable on the premium anniversary date. It is further provided: ‘Failure to repay such loan or to pay interest thereon shall not avoid this policy unless the total indebtedness hereon shall equal the total loan value, nor until thirty-one days after notice shall have been mailed to the Insured, and to the assignee of record if any to their addresses last known to the Society.’
Appellant claims the policies lapsed on August 13, 1932, on account of non-payment of premiums then due, except for the grace period and the extended insurance provided for by the options; that since the insured died after the grace period and did not elect any of the options, the net surrender value of the policies was properly applied to the purchase of extended term insurance under option (c); that such extended term insurance was effect from the date of the lapse and expired before the end of the grace period, and that, therefore, no insurance was in force at the time of the insured's death. Appellee agrees that when extended term insurance once becomes applicable it begins to run from the date of the lapse, and not from the expiration of either the grace period or the three-months' option period, but she claims that where there is a lapse in a policy which has been in force for over three years and there are non-forfeiture provisions like those here involved, the insured, for three months after the date of the lapse, has a right to pay the indebtedness and select the option he desires; and that where death occurs during the three-months' option period, the right of selection inures to the beneficiary, but it is not necessary for the beneficiary to go through the formality of an election or to repay the indebtedness; that instead, the indebtedness can be deducted from the face of the policy, and that appellant had no right to apply the cash value of the policy to purchase extended insurance until the three-months' option period expired.
Among the cases cited and relied upon by appellant is Coons v. Home Life Ins. Co., 368 Ill. 231, 13 N.E.2d 482, 483. In that case the insured defaulted in payment of a premium when due and died after the grace period and within the three-months' option period. When the premium was due the cash value of the policy, above loans and accrued interest thereon, was only $11.36, which was insufficient to permit a further charge against the policy under an automatic premium lien provision hereinafter noted. The cash value was used to purchase non-participating term insurance which expired before the death of the insured. The beneficiary claimed a dividend was due on the policy and should be applied toward the payment of the premium; that the dividend, with the cash value of the policy, would have extended it beyond the date of the insured's death. We held that under the terms of the policy the dividend was not applicable to premium payment until the end of the policy year, and the policy had lapsed. We also held that, under a similar option clause, the terms of the extended insurance began when the premium was due, and not at the end of the grace period.
The option clause in the Coons case is not materially different from that in this case. In the former, the insurance is to be continued without action on the part of the insured if the insured does not elect within the option period. In the case at bar, if the insured does not so elect, the option is to be applied. This is merely a transpositionof the terms, without any difference in meaning.
The automatic loan clause in the Coons case provided:
In that case the insured first defaulted in payment of premiums several years before his death. The insured took advantage of clause G, and, thereafter, the company advanced premiums and portions of premiums thereunder. When the surrender value of the policy was reduced to $11.36, which was insufficient to pay the full premium then due, the $11.36 was authomatically applied to purchase extended insurance as required by the last sentence of clause G. This clause deals with a different subject than the option clauses, and contains a mandatory provision for automatically applying the cash value of the policy to the purchase of extended insurance whenever the cash value is less than a due premium, without reference to any option of the insured. The beneficiary in that case did not question the right of the company to act immediately when the premium came due. The...
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