Smithart v. John Hancock Mut. Life Ins. Co.

• Decision Date: 19 May 1934
• Citation: 71 S.W.2d 1059,167 Tenn. 513
• Parties: SMITHART v. JOHN HANCOCK MUT. LIFE INS. CO.
• Court: Tennessee Supreme Court

71 S.W.2d 1059

167 Tenn. 513

SMITHART v. JOHN HANCOCK MUT. LIFE INS. CO.

Supreme Court of Tennessee.

May 19, 1934

Appeal from Chancery Court, Shelby County; D. W. De Haven Chancellor.

Action by Grover C. Smithart against the John Hancock Mutual Life Insurance Company. Judgment for defendant was affirmed by the Court of Appeals, and complainant brings certiorari.

Reversed and remanded.

Clyde H. Koen and Lewis E. Lamb, both of Memphis, for appellant.

Holmes Canale, Loch & Glankler and Hamilton E. Little, all of Memphis, for appellee.

SWIGGART Justice.

This is an action to enforce a contract of life and disability insurance, evidenced by a group policy issued to complainant's employer and by a certificate issued to complainant.

Complainant's contention is that the contract matured when he became wholly and permanently disabled while the contract was in force.

The issue as to the fact of complainant's disability was submitted to a jury. A verdict for the complainant was set aside by the chancellor, and a new trial was granted. Thereafter, at the same term, the chancellor sustained the defendant's motion to dismiss the suit because the contract was not in force as life insurance at the date proofs of loss were filed. The Court of Appeals affirmed the chancellor, and the case is before us by certiorari, granted on complainant's petition.

The group policy was issued to the complainant's employer Murray Wood Products Company. Complainant's certificate is dated November 17, 1930. The employer ceased operating its plant in the latter part of June, 1931, and on the 26th day of that month the contract of insurance expired by its own limitations. There was no reason to renew it, since there were no longer any employees to be insured.

Complainant avers that he became totally and permanently disabled on or before June 15, 1931, while the contract was in force, and about ten days before its expiration date. His certificate recites that, subject to the terms and conditions of the group policy, his life was insured for the sum of $2,000, and further that, if he shall furnish the company with due proof that he has become totally and permanently disabled, "the insurance hereunder will become available."

The bill admitted complainant's ignorance of the terms of the group or master policy, and called upon the insurer to disclose the same in its answer, which was done. The material provision is that, upon receiving due proof that the employee, "while insured under this policy," has become wholly and permanently disabled, the insurer will waive further payment of premium and will "pay in full settlement of all obligations to him under this policy the amount of insurance in force hereunder upon his life at the time of the receipt of due proofs of such disability."

The applicable provisions of the certificate and of the group policy are quoted in the margin. ^[1] The defendant did not file the entire "group policy," but disclosed only the paragraph quoted, as containing the terms to which the certificate was subject.

No proofs of disability were filed by the complainant prior to June 26, 1931. His alleged disability, resulting from disease, had been existent only about ten days, and it is doubtful whether he, in so short a time, could have furnished proof of its probable permanency. He gave the insurer notice of his disability by letter in January, 1932, and the insurer thereupon, without requesting formal or additional proofs, made its own investigation, reporting in May, 1932, that it refused to pay because it did not find the complainant had suffered the requisite degree of disability.

Neither the group policy nor the certificate contains any limitation of time for the filing of proofs of loss; nor did the insurer in its answer to the bill make any point as to the time or form of the complainant's demand. The answer "denies that complainant ever became permanently and totally disabled while his insurance under the aforesaid group policies was in force or effect." This was the only specific defense made by the answer, although it contains general denials that complainant is entitled to any benefits under the insurance in suit.

The reason assigned by the insurer for refusing to recognize the complainant's claim, and the defense set up in its answer to the bill, indicates that it was not until the issue of fact had been submitted to a jury that the insurer conceived that its contract is susceptible to the construction now urged for it. The issue of fact is altogether immaterial and the trial was a waste of time, under the insurer's construction of its contract, and that construction appears to have been presented to the chancellor for the first time after he had instructed the jury. This is referred to only in emphasis of the surprising and unusual effect of the insurance contract as construed by the other courts.

This court is in accord with the weight of authority, in holding that reasonable time limits may be stipulated in insurance contracts for the filing of proofs of loss, and that compliance with such contractual requirements may be made a condition precedent to the right of recovery. Blackman v. United States Casualty Co., 117 Tenn. 578, 103 S.W. 784; Phoenix Cotton Oil Co. v. Royal Indemnity Co., 140 Tenn. 438, 205 S.W. 128. But in all such cases it is recognized that the substantive rights of the parties are fixed by the contract in force at the time of the happening of the contingency insured against and that the amount of the recovery is measured and limited by such contract.

And in cases on contracts of insurance against disability we have enforced stipulations that periodical payments should not begin until proofs of loss are filed. The amounts payable in such cases were, however, fixed by the contract in force at the date the disability accrued, and were in addition to the insurance payable at death. Walters v. Life Ins. Co., 159 Tenn. 541, 20 S.W.2d 1038.

In the case last cited, and in Hall v. Acacia Mut. Life Ass'n, 164 Tenn. 93, 46 S.W.2d 56, we gave effect to provisions in contracts of life insurance that premiums would be waived only after the filing of proof of disability. In accord with that holding are Bergholm v. Peoria Life Ins. Co., 284 U.S. 489, 52 S.Ct. 230, 76 L.Ed. 416, and numerous cases from other jurisdictions. The contracts involved in these cases contemplated that they would be kept in force after disability, by waiver of premium, in order that the insured's estate or beneficiary might be entitled to the face of the policy upon his death, in addition to periodical payments during his disability. None of them provided for the maturity of the entire contract if the insured should suffer disability. Premiums due after disability were necessary to keep the insurance against death in force, and the courts have considered it a reasonable stipulation in such contracts that only premiums due after notice shall be waived.

The contract here presented is essentially different from those involved in the cases cited. If the employee suffered total and permanent disability "while insured under this policy," the amount payable is to be "in full settlement of all obligations to him under this policy." Upon the happening of the contingency of disability, therefore, the contract as to him matured in its entirety. He became entitled to the full amount of the insurance, and no future contingency could increase the amount payable to him. There was therefore no additional or continuing risk for which the insurer could demand future premiums. "It would be as anomalous to require a continuance of premium payments thereafter as it would be to require them after death." Horn's Administrator v. Prudential Ins. Co. of America, 252 Ky. 137, 65 S.W.2d 1017, 1019. Risk of loss is "of the very essence of insurance and forms the principal foundation of the contract." 1 Joyce on Insurance, p. 113,§ 16. "If no risk attaches, no premium, in the absence of fraud, is earned." Jones & Abbott v. Insurance Co., 90 Tenn. 604, 18 S.W. 260, 25 Am. St. Rep. 706. The stipulation of this contract that future premiums would be waived upon the receipt of proof of disability was therefore an empty gesture. In that event, even under the insurer's present construction of its contract, there would be no future premium to waive.

We quote from Joyce on Insurance, vol. I, p. 588 (§ 221a): "So it is declared that it is well settled that when liability has become fixed by the capital fact of loss within the range of the responsibility assumed in the contract, courts are reluctant to deprive assured of the benefit of that liability by any narrow or technical construction of the conditions and stipulations which prescribe the formal requisite by means of which this accrued right is to be made available for his indemnification."

Ordinarily provisions for the making and filing of proofs of loss compliance with which is made a condition precedent to a right of recovery, are within the category of formal requisites referred to in the quotation from Joyce, and are liberally construed in favor of the insured so as to avoid technical forfeitures. In the contract before us, the insurer has complicated the issue by inserting the stipulation for proof of disability in the primary contracting clause. Its apparent meaning is, not that the insured waives or forfeits anything by failing to make proof of his disability in time, but that his right to indemnity is to be measured by the amount of insurance in force on his life at the date he makes or files his proof. Mere lapse of time is not involved. The situation would have been the same in this case if proof of disability had been...