Smith v. Nat. Life Ins. Co.

• Decision Date: 03 October 1883
• Citation: 103 Pa. 177
• Parties: Smith <I>versus</I> National Life Insurance Company.
• Court: Pennsylvania Supreme Court

103 Pa. 177

Smith versus National Life Insurance Company.

Supreme Court of Pennsylvania.

March 30, 1883.

October 3, 1883.

March 30th 1883.

Before MERCUR, C. J., GORDON, TRUNKEY, GREEN and CLARK, JJ. PAXSON and STERRETT, JJ., absent

ERROR to the Court of Common Pleas No. 2, of Philadelphia county: Of January Term 1883, No. 294.

COPYRIGHT MATERIAL OMITTED

Arthur M. Burton, for plaintiffs in error.—The provision for the forfeiture of all payments made, applies only to the first two annual payments, because after that, by the express terms of the policy the insured is entitled to receive a paid-up policy for an amount proportionate to the annual premiums paid, which is irreconcilable with a forfeiture. To say that a policy shall be forfeitable after the payment of two annual premiums, and that the new policy shall be issued upon the surrender of the old one for a proportionate amount of the premiums paid, are incompatible terms.

In Metropolitan Insurance Co. v. Drach, 12 W. N. C. 378, and Winchell v. Ins. Co., 8 Ins. L. J. 651, which were similar to this case, the construction for which we contend was sustained, and see Door v. Ins. Co., 67 Me. 438; Johnson v. Ins. Co., 9 Ins. L. J. 189. In Montgomery v. Ins. Co., (Ky.) 8 Ins. L. J. 300, it was held, that upon failure to pay any annual premium the contract ceased and determined only so far as concerned the right to continue further payments and demand the original sum, not as to the right to a commuted portion. A condition in a policy of insurance "being the language of the company, must, if there be any ambiguity in it, be taken most strongly against them," and in favor of the insured: Broome's Leg. Max. p. 598; Knecht v. Mut. Life Ins. Co., 9 Norris 118; Kronk v. Ins. Co., 10 Norris 300; Mears v. Humboldt Ins. Co., 11 Norris 15; Western Ins. Co. v. Cropper, 32 Pa. St. 351; Buckley v. Garrett, 11 Wr. 204. The clause of the policy relating to the forfeiture ought to have been construed in connection with the declaration made by the defendants in their prospectus and book of rates, where it was distinctly set forth that all policies were non-forfeitable: Aldridge v. Eshleman, 10 Wr. 420. The evidence offered tended to show what construction the defendants put upon their policies by their uniform unqualified declarations that their policies were non-forfeitable. Parol evidence in explanation of the subject-matter of such a contract is admissible: Barnhart v. Riddle, 29 Pa. St. 92; Clarke v. Adams, 2 Norris 309. At any rate, the failure of the defendants to send notices that the premiums were due, excused the assured's default: Helme v. Ins. Co., 11 P. F. S. 107.

R. C. Dale (with whom were S. Dickson and Wm. McGeorge), for defendant in error.—The construction placed upon the policy by the court below is in accordance with reason, and with the weight of authority: Bussing v. Ins. Co., 34 Ohio 222; People v. Ins. Co., 15 Hun 8. The policy must be regarded as the contract which defines the rights of the parties, and its terms cannot be varied by proof that the plaintiffs read a prospectus before applying for the policy. The negotiations, both written and verbal, which precede the consummation of a written contract, must be regarded as merged in the writing: Ruse v. Ins. Co., 23 N. Y. 516; Allegaert v. Smart, 10 W. N. C. 29; Thorne v. Warfflein, 12 W. N. C. 425; Martin v. Berens, 17 Sm. 459. The assured was not excused from payment of premiums, by the fact that the company failed to notify him when they were due: Thompson v. Ins. Co., 14 Otto 252.

Mr. Justice CLARK delivered the opinion of the court, October 3d 1883.

The policy in suit was issued by the National Life Insurance Company of the United States of America, on the 20th of October 1868; it was upon the life of William Hastie Smith, to his wife Isabella, in the sum of three thousand dollars.

The consideration of the contract, apart from the representations made in the application, was the sum of $46.59, in hand paid, and the semi-annual payment of a like sum, on or before the 20th October and April, in every year, during the continuance of the policy, until fifteen full payments were made: the last to be made on the 20th April 1883.

The policy contained the following provision:

"And the said company further agree, that after due payment of premiums for two full years, they will, if requested, on the surrender of this policy, duly receipted, issue another policy, payable as herein provided, on which no further premium shall be required on the life of the person whose life is hereby insured, for as many fifteenth parts of the original amount, hereby assured, as there shall have been complete annual premiums paid."

The plaintiff paid the premiums regularly for ten years; the semi-annual premium for October 1878 and those subsequently accruing were not paid. On the 2d of October 1880, application was made for a paid up policy for $2,000, being ten fifteenths of the amount of the original, according to the provision of the clause above quoted. This application was refused by the company, upon the ground, that under the express terms of the policy, the plaintiffs had forfeited their rights under it, by non-payment of premiums. This action was, therefore, brought to recover damages, for such refusal.

In the clause quoted, there is no limitation as to the time when a policy must be surrendered, in order that the holder may receive a paid-up policy for a fractional part of the original sum, excepting that the surrender must be "after due payment of premiums for two full years."

The policy further provides however:

"This policy is issued and accepted by the insured, and the holder thereof, on the following express conditions and agreements:

"Second, that the premiums shall be paid in cash on or before the days upon which they become due at the branch office of said company in the city of Philadelphia, or to their duly authorized agents, when they produce receipts signed by the president or secretary.

"Fifth, that in case of the violation of the foregoing conditions, or any of them, or of the insured dying by his own hand, or in consequence of a duel, or in consequence of violating the laws of the United States, or of any nation, state or province, this policy shall become null and void, and all payments thereon shall be forfeited to said company."

Under the rule of construction, which requires that full effect must be given to every stipulation in a contract, the provision, first quoted, must be read in connection with the second and fifth conditions. The obvious and natural meaning of these conditions, taken together, is, that unless the premiums are paid on or before the day upon which they become due, respectively, the entire policy shall become void; and all payments made shall be forfeited to the company. The payment of the premiums constitutes not only the consideration but the condition of the contract.

The provision for forfeiture is not limited to the first two annual premiums, it is general and applies to all. In the previous clauses of the policy, the number and amount of these premiums are particularly specified, and the time is fixed for the payment of each, the last being payable on the 20th day of April 1883. The second condition requires that "the premiums shall be paid in cash on or before the days upon which they become due." There is no discrimination, or distinction, the condition is applicable to all. The effect of the second and fifth conditions, therefore, when read in connection with the previous clause, providing for a surrender of the original and the issue of a paid up policy, is to abridge its operation and only to give it effect when that surrender is made in the life-time of the policy. That is to say, during some current year for which payment has been made, and before or on the day the annual premium is payable. If any condition of the policy is violated, the whole instrument by its own terms is rendered null and void; and when the policy became void, none of its provisions remained, neither party had any further rights under it.

The policy, was however, by its terms non-forfeitable, if the assured chose at the proper time to avail himself of the right it secured. He had a special right, peculiar to the holder of this class of policies, upon discovering his inability to pay, at the time fixed by the conditions of his contract, to surrender and avoid a forfeiture. That right...