Secor v. Pioneer Foundry Co.

• Court: Court of Appeal of Michigan
• Writing for the Court: LEVIN
• Citation: Secor v. Pioneer Foundry Co., 20 Mich.App. 30, 173 N.W.2d 780 (Mich. App. 1969)
• Decision Date: 30 October 1969
• Docket Number: No. 2,Docket No. 5898,2
• Parties: Florence SECOR, individually and as Administratrix of the Estate of Jack A. Secor, deceased, Plaintiff-Appellant, v. PIONEER FOUNDRY COMPANY, Inc., Defendant-Appellee

Page 780

173 N.W.2d 780

20 Mich.App. 30

Florence SECOR, individually and as Administratrix of the Estate of Jack A. Secor, deceased, Plaintiff-Appellant, v. PIONEER FOUNDRY COMPANY, Inc., Defendant-Appellee.

Docket No. 5898.

Court of Appeals of Michigan, Division No. 2.

Oct. 30, 1969.

Released for Publication Feb. 4, 1970.

Gay S. Hardy, Lansing, for plaintiff-appellant; Florence N. Clement, Lansing, of counsel.

Felix F. Best, Jackson, for defendant-appellee.

Before J. H. GILLIS, P.J., and LEVIN and BRONSON, JJ.

LEVIN, Judge.

Plaintiff is the widow of Jack A. Secor and the administratrix of his estate. She commenced this action to recover the proceeds of an ordinary life insurance policy on his life which were paid to his former employer, defendant Pioneer Foundry Company, Inc. The trial court entered a judgment of no cause of action and the plaintiff appeals. We affirm.

Pioneer Foundry employed Secor for a period of 9 years, 1954 to July, 1963. In March, 1960, Pioneer Foundry obtained a $50,000 policy on his life; it was the applicant, the owner and the beneficiary, and it paid the premiums on the policy. After the employment relationship terminated in July, 1963, Pioneer Foundry paid the March, 1964 annual premium. Secor died the following month.

Plaintiff argues that after the termination of Secor's employment Pioneer Foundry lost whatever insurable interest it had in Secor's life and that a constructive trust should be impressed on the proceeds in favor of Secor's widow and estate.

A preliminary issue--whether the plaintiff has standing to complain--is dispositive of plaintiff's contention that Pioneer Foundry no longer had an insurable interest after Secor left its employ. In Hicks v. Cary (1952), 332 Mich. 606, 52 N.W.2d 351, on facts similar to those before us, the Michigan Supreme Court declared that the insurer alone may assert that the beneficiary of a life policy does not have an insurable interest (p. 612, 52 N.W.2d p. 354):

'We hold to the rule that lack in the beneficiary of an insurable interest equal to the full amount of the insurance policy, to the extent that it thereby renders the policy a wagering contract, constitutes a barrier to the beneficiary's right to receive and retain the full amount of the insurance proceeds, but that It is one which may be raised by and for the benefit of the insurer alone.' (Emphasis supplied.)

Hicks relied on the Court's earlier decisions in Standard Life & Accident Ins. Co. v. Catlin (1895), 106 Mich. 138, 63 N.W 897, and Smith v. Pinch (1890), 80 Mich. 332, 45 N.W. 183, which enunciate fundamentally the same rule of law. The rule that only the insurer can raise the question of lack of insurable interest appears to be well supported in other jurisdictions. ¹

In the present case, the insurer, who alone had standing to complain of any lack of insurable interest, paid the proceeds of the policy to Pioneer Foundry in May, 1964, without asserting this possible defense.

The plaintiff argues that, apart from whether she has standing to raise the insurable interest defense, the underlying premise of the insurable interest requirement--the public policy against speculation on the life of another ²--is so pervasive that Pioneer Foundry could not lawfully retain insurance on Secor's life after the termination of his employment or, alternatively, beyond the date that the first premium became due after his employment terminated. Although this argument so closely parallels the insurable interest argument that it too could be rejected on the authority of Hicks v. Cary, Supra, we prefer to meet this argument on the merits.

The purchaser of ordinary life insurance, as distinguished from casualty or property insurance, buys not only indemnification in a specific amount against a particular peril or potential loss but also makes an investment. ³ To terminate the rights of the owner or beneficiary of ordinary life insurance because the relationship to the life insured has changed, perhaps after many years of making premium payments, at a time when death is bound to be more imminent than it was at the time the policy was issued, would not only adversely affect this investment quality of life insurance but would also confer an unanticipated and unwarranted windfall on the insurer.

In recognition of these considerations the almost universal rule of law in this country is that if the insurable interest requirement is satisfied at the time the policy is issued, the proceeds of the policy must be paid upon the death of the life insured without regard to whether the beneficiary has an insurable interest at the time of death. ⁴ It has, accordingly, been held that an employer who is the beneficiary of a policy insuring the life of one of his employees may collect proceeds which become payable under the policy even though the employee's death occurs after the termination of his employment. ⁵

The ordinary life insurance policy issued to the defendant corporation is referred to in the insurance industry as 'keyman' life insurance. The plaintiff emphasizes that the typical life insurance policy is purchased to provide for loss by family members who may be expected to suffer a personal as well as a financial loss upon the death of the life insured. From this she argues that keyman life insurance should not be governed by the same rules as apply to life insurance generally. The proffered distinction is not, in our opinion, meaningful. Life insurance is not meant to assuage grief; its primary function is monetary. It serves fundamentally the same purpose whether the beneficiary is a widow or a business; it seeks to replace with a sum of money the earning capacity of the life insured.

The plaintiff's analogy to the public policy against a murderer collecting insurance on the life of the victim is inapposite. Pioneer Foundry's act of paying the yearly premium after Secor left its employ is not (contrary to plaintiff's argument) at all analogous to murdering him. ⁶ Given the general rule that the beneficiary of a life policy may collect its proceeds although the insurable interest which existed when the policy was issued subsequently terminates, it would make no sense to hold that the act of paying the premium (necessary to the full preservation of the owner's rights under the policy) somehow or other brings about a termination of the owner-beneficiary's rights. ⁷

We also decline to limit Pioneer Foundry's recovery to the amount of its investment in the policy and its financial loss (probably nil) upon Secor's death. ⁸ Pioneer Foundry's investment in the policy was large both quantitatively and relatively. ⁹ It chose to make the premium payment due 8 months after Secor's employment terminated to preserve recovery of its prior expenditures. ¹⁰ It did this in its own interest; it has not been suggested that it was acting for, or because of any obligation it had assumed to, Secor or his family.

There are, indeed cases that hold that a creditor who acquires insurance on his debtor's life may not recover more than the amount of the debt and the premiums he pays. ¹¹ These cases appear to be based upon a misapplication of principles developed where the debtor pledges a policy with the creditor or pays the premiums and upon the concept that a creditor should never be able to recover more than the amount owing to him plus the cost of preserving and securing repayment. ¹² This analysis has been rejected in the better-reasoned cases; ¹³ it is contrary to the principle that the termination of an insurable interest does not affect the rights of an owner-beneficiary in a life policy. A creditor who himself buys and pays for a policy on his debtor's life is, after the debt is paid, in fundamentally the same position as any other purchaser of a life insurance policy whose insurable interest has terminated. Our Supreme Court intimated in Hicks v. Cary, Supra, 332 Mich. p. 611, 52 N.W.2d 351, that it would so hold if confronted with the question.

We can understand plaintiff's feeling that it is unseemly for Pioneer Foundry to continue to own insurance on Secor's life after the termination of his employment and that since the plaintiff, not Pioneer Foundry, suffered a financial as well as a personal loss upon Secor's death the plaintiff has a greater moral right to the proceeds or at least to so much of the proceeds as exceeds the cost of the insurance. It has been suggested that upon the termination of employment an employer owning insurance should give the employee an opportunity to purchase it. ¹⁴ Many employers, no doubt, are just as anxious to sell as the employee is to purchase the policy. We are not aware, however, of any principle of law, apart from an obligation assumed under a contract, which obliges an employer owning a policy on the life of an employee to offer to sell the policy to the employee upon termination of his employment. Having in mind the regularity with which insurance is now being purchased by businesses on the lives of employees, this might be an appropriate subject for legislation.

Affirmed. Costs to defendant.

1 See 3 Couch on Insurance (2d ed.), § 24.6, p. 75; 2 Appleman, Insurance Law & Practice, § 765, p. 130; Vance on Insurance (3d ed.), § 31, p. 199.

2 See Sun Life Assurance Co. of Canada v. Allen (1935), 270 Mich. 272, 259 N.W. 281.

3 '* * * life insurance has become in our days one of the best recognized forms of investment and self-compelled saving. So far as reasonable safety permits, it is desirable to give to life policies the ordinary characteristics of property.' Grigsby v. Russell (1911), 222 U.S. 149, 32 S.Ct. 58, 56 L.Ed. 133.

4 43 Am.Jur.2d, Insurance, § 504, p. 535; 3 Couch on Insurance (2d ed.), § 24.122, p. 230; 2 Appleman, Insurance Law & Practice, § 763, p. 123, Vance on Insurance (3d ed.), § 31, p. 185; Mutual Aid Union v. White (1924), 166 Ark. 467 (267...