Shanks v. Travelers Ins. Co.

• Decision Date: 20 December 1938
• Docket Number: No. 2708.,2708.
• Citation: 25 F. Supp. 740
• Parties: SHANKS v. TRAVELERS' INS. CO.
• Court: U.S. District Court — Northern District of Oklahoma

25 F. Supp. 740

SHANKS v. TRAVELERS' INS. CO.

No. 2708.

District Court, N. D. Oklahoma.

December 20, 1938.

Stanley D. Campbell, of Tulsa, Okl., for plaintiff.

Al C. Thomas, of Oklahoma City, Okl., and Bridges & Parry, of Tulsa, Okl., for defendant.

FRANKLIN E. KENNAMER, District Judge.

Plaintiff, as beneficiary, brought this suit to recover on two certificates of life insurance issued under a policy of group insurance covering the employees of Mid-Continent Petroleum Corporation. The facts, as agreed upon by the respective parties, are that Ben Shanks was employed by Mid-Continent Petroleum Corporation for approximately 18 years prior to his death. He had been insured during the period, except the first six months of his employment, under a group life insurance policy on which his employer paid the premium. He was discharged from his employment on February 11, 1938, and at the time of his discharge there was in force $1,700 of group insurance on his life, on which the employer paid the premium. During the last ten years of his employment he was also insured under a group insurance plan for additional term insurance, on which he paid the premium, such premium being deducted from his salary monthly by his employer, said employer paying the premium to the insurance company monthly, in advance. There was in force at the time of his discharge $3,000 of this type insurance. The particular group policy in force at the time of his discharge was issued by the defendant on April 1, 1936, and it covered both the contributory and non-contributory type of insurance. Ben Shank's death occurred on February 12, 1938, one day after the date of his discharge by the company. The amount of premium on his $3,000 contributory insurance was deducted from his pay check the last of January, 1938, and covered the premium requirement thereon for the month of February, 1938. Such premium had been paid to the defendant by the employer, in advance, for the month of February. No refund was made to Ben Shanks, or his beneficiary, for any part of the premium he had paid for the month of February, 1938, although some time after his death the insurance company, by credit memorandum, credited back to Mid-Continent Petroleum Corporation the unearned premium from the date of Ben Shanks' discharge. No notice of any kind was given Ben Shanks that his discharge from employment terminated or cancelled his insurance, and neither did Ben Shanks make any application to the defendant to convert his group insurance to an individual policy, as he had a right to do thereunder.

The group policy provided that such insurance of any employee shall terminate when the employee's employment with the employer shall terminate, and further that the contributory insurance shall terminate when the employment terminated, or prior thereto when the employee shall cease to pay to the employer the required amount to apply toward the premium for the contributory insurance. These provisions were in the master policy, as well as in the individual certificate issued to the insured. The following appeared in the group policy: "Any Employee of the Employer covered under this group policy shall, in case of the termination of the employment for any reason whatsoever, be entitled to have issued to him by the Company without further evidence of insurability, and upon application made to the Company within thirty-one days after such termination and upon the payment of the premium applicable to the class of risks to which he belongs and to the form and amount of the policy at his then attained age, a policy of life insurance, in any one of the forms customarily issued by the Company, except term insurance, in an amount equal to the amount of the Employee's protection under this policy at the time of the termination of his employment. The issuance of such policy shall be a conversion of the Employee's insurance hereunder and shall as of the effective date and hour of the insurance under such individual policy, immediately and automatically terminate and cancel any insurance of the Employee hereunder then in force."

The question for determination is whether, under the terms of the policy, the insurance was in effect at the time of the death of the insured, or whether the policy of insurance terminated immediately upon the discharge of Ben Shanks from his employment.

The defendant insists that the policy of insurance terminated immediately upon the discharge of the employee; that the provision of the policy above set forth merely grants an option or privilege to the employee to obtain an individual contract of insurance without the necessity of a physical examination, but upon such employee exercising the privilege within thirty-one days after his discharge, and by his filing an application therefor designating the type of contract desired, and paying a premium in advance. Plaintiff insists that the above provision is similar to a grace period in the payment of premiums, and that the policy of insurance remained in effect for a period of thirty-one days after the discharge of Ben Shanks. Defendant, in support of its contention, relies upon a number of cases, which have held that in policies of insurance containing provisions, similar in part with the policy involved in this law suit, that the above provision does not extend the policy in effect for thirty-one days. The plaintiff relies upon a decision of the Supreme Court of Oklahoma holding that such a provision in a policy of insurance continues it in effect for thirty-one days after the discharge of the employee.

In Aetna Life Insurance Co. v. Catchings, 75 F.2d 628, cited by defendant, the Fifth Circuit Court of Appeals, in considering a policy similar in many respects to the one involved herein, held that the provision did not automatically extend the policy in effect for thirty-one days, but that merely a privilege of conversion was given the insured, and that in order for the employee to take advantage of the clause it was necessary for him to select the form of policy he wanted, make written application for it, and pay the first premium in advance. It should be noted that the policy in this case has a provision in the clause providing for the conversion, to the effect that the issuance of such converted or individual policy shall, as of the effective date and hour of the issuance of such individual policy, immediately and automatically terminate and cancel any insurance of the employee then in force. In the cited case, there was no such provision as noted herein.

In Bradley v. Prudential Insurance Company of America, 70 F.2d 988, the Ninth Circuit Court of Appeals, in considering a policy similar to the one in the case of Aetna Life Insurance Co. v. Catchings, supra, but not containing the added provision with respect to the termination of other insurance in force upon the issuance of the individual policy, held that such insurance ceased upon termination of the employment of the employee. In the cited case, premiums had been deducted from the wages of the employee and paid by the employer to the insurance company, just as in this case, but in the cited case a refund of such premiums had been attempted and...