Trapp v. Metropolitan Life Ins. Co.

• Decision Date: 30 April 1934
• Docket Number: No. 9798.,9798.
• Citation: 70 F.2d 976
• Parties: TRAPP v. METROPOLITAN LIFE INS. CO.
• Court: U.S. Court of Appeals — Eighth Circuit

70 F.2d 976 (1934)

TRAPP v. METROPOLITAN LIFE INS. CO.

No. 9798.

Circuit Court of Appeals, Eighth Circuit.

April 30, 1934.

E. H. McVey, of Kansas City, Mo. (C.A. Randolph and Roeder Wild, both of Kansas City, Mo., on the brief), for appellant.

Henry I. Eager, of Kansas City, Mo. (William C. Michaels, of Kansas City, Mo., LeRoy A. Lincoln, of New York City, and Meservey, Michaels, Blackmar, Newkirk & Eager, of Kansas City, Mo., on the brief), for appellee.

Before STONE and SANBORN, Circuit Judges, and WYMAN, District Judge.

SANBORN, Circuit Judge.

As of November 15, 1917, the Metropolitan Life Insurance Company issued to Lawrence R. Trapp, age 33, a 52-year endowment policy for $5,000, in consideration of a quarterly premium of $27.45 payable on the 15th day of November, February, May, and August in each year during the life of the policy. In case of the insured's death prior to November 15, 1969, while the policy was still in force, the insurance was payable to his beneficiary. Default was made in the payment of premium due May 15, 1931. The grace period expired June 15, 1931, and the insured died four days later, on June 19th. His wife, Elizabeth Trapp, the appellant, was the beneficiary named in the policy. On May 15, 1931, the cash value of the policy was $900; there were policy loans amounting, with interest, to $864.99, leaving a net cash value or net reserve of $35.01. This amount was sufficient to carry $5,000 of insurance for 224 days. Mrs. Trapp filed proofs of death, and demanded the face of the policy. The company took the position that, under the terms of the policy most favorable to her, she was entitled to extended insurance amounting to $194.50, with interest. It tendered her that amount, which she refused. She brought suit upon the policy; the company answered and renewed its tender, and she replied. Upon the trial, at the close of the plaintiff's case, the court adopted the construction of the policy contended for by the company and directed a verdict for Mrs. Trapp for $213.60, the amount which the company had tendered. From the judgment entered upon the verdict, this appeal is taken, and the action of the court in directing the verdict is assigned and specified as error.

We shall first ascertain what amount Mrs. Trapp was entitled to receive under the terms of the policy.

The policy was made, and to be performed, in Missouri and was governed by the laws of that state. The provisions of the policy with which we are concerned read as follows:

"Upon failure to pay any premium or any part thereof when due, this Policy, except as otherwise provided herein, shall immediately lapse. If, however, the lapse occur after three full years' premiums shall have been paid, the owner hereof, provided there be no indebtedness hereon, shall, upon written request filed with the Company at its Home Office together with the presentation of this Policy for legal surrender or for endorsement within three months from the due date of premium in default, be entitled to one of the following options:

"First — A cash surrender value.

"Second — To have the insurance continued for a reduced amount of non-participating paid-up endowment insurance (including any existing additions to the credit of the Policy). * * *

"Third — To have the insurance continued for its original amount as term insurance in whole number of months from due date of premium in default without participation and without the right to loan. * * *

"If the owner shall not, within three months from due date of premium in default, surrender this Policy to the Company at its Home Office for a cash surrender value or for endorsement for paid-up insurance or term insurance as provided in the above options, the policy shall be continued for a reduced amount of paid-up insurance as provided in the second option.

"The values of these options are mathematical equivalents, and have been calculated on the basis of the American Experience Mortality Table with interest at three and one-half per centum per annum (omitting fractions of a dollar per thousand of insurance) less a surrender charge not exceeding in any case two and one-half per centum of the face of the Policy. * * *

"Any indebtedness to the Company under this Policy will be deducted from the cash value; and such indebtedness will also reduce the amount of paid-up insurance or the amount continued as term insurance * * * in such proportion as the indebtedness bears to the cash value at due date of premium in default."

Mrs. Trapp, upon the death of her husband, became at least the equitable owner of this policy, and, within three months from the date of premium default, she had surrendered the policy and demanded payment of it in full. There can be no doubt that she elected to take the greatest benefits which were available to her under the circumstances, and the company so construed her action and tendered to her the largest amount which it believed she was entitled to, namely, term insurance, reduced in such proportion as the insured's indebtedness bore to the cash value of the policy at the time of default.

At the time the policy was issued, there was in force in Missouri a statute which, with amendments which are not here material, has become section 5741, Revised Statutes of Missouri 1929, Mo. St. Ann. § 5741, p. 4388 (see R. S. Missouri 1909, § 6946, R. S. Missouri 1919, § 6151; Laws of Missouri 1923, p. 233). We shall refer to this statute as section 5741, as counsel have done in their briefs. It provides:

"No policies of insurance on life hereafter issued by any life insurance company authorized to do business in this state shall, after payment upon it of three or more annual payments, be forfeited or become void by reason of non-payment of premiums thereon, but it shall be subject to the following rules of commutation, to-wit: The net value of the policy, when the premium becomes due and is not paid, shall be computed upon the actuaries' or combined experience table of mortality with four per cent interest per annum, and after deducting from three-fourths of such net value the unpaid portion of any notes given on account of past premium payments on said policy and any other indebtedness to the company secured by said policy, which notes and indebtedness shall then be canceled, the balance shall be taken as a net single premium for temporary insurance (extended insurance). The amount of such temporary insurance shall be such as is specified in the policy, but never less than the face amount insured by the policy reduced by the unpaid portion of notes and indebtedness aforesaid. * * *"

At the time this case was tried, on February 8 and 9, 1933, this statute had not been construed by the Supreme Court of Missouri, but it had been construed by the Missouri Courts of Appeals. Wilhelm v. Prudential Ins. Co. of America (Mo. App. 1921) 227 S. W. 897, 898 899; Alexander v. Northwestern Mutual Life Ins. Co. (Mo. App. 1927) 290 S. W. 452, 455; Dougherty v. Mutual Life Ins. Co. of New York (1931) 227 Mo. App. 570, 44 S.W.(2d) 206, 215, 216.

Under the statute as construed by the Courts of Appeals, if there was, at the time of default in the payment of premium, an amount available for the purchase of extended insurance under the rule of computation prescribed by the statute, then that amount could be used for the purchase of temporary insurance not less than the face value of the policy; but, if there was no net amount available for the purchase of extended insurance under the statutory method of computation, the statute had no application. In other words, the beneficiary could not, under such circumstances, adopt the statutory amount of extended insurance and the policy method of computing the amount available for its purchase. Dougherty v. Mutual Life Ins. Co., 227 Mo. App. 570, 44 S.W.(2d) 206, 215.

Since in this case, under the statutory method of computation, there would have been no amount available for extended insurance, it would naturally be assumed by the court and by counsel that the statute did not affect the policy; but, after the trial and on April 20, 1933, the Supreme Court of Missouri decided the case of Gooch v. Metropolitan Life Ins. Co., 61 S.W.(2d) 704, which, so far as the question of liability under the policy contract is concerned, cannot be distinguished from this case. In that case the court construed section 5741 to mean two things:

(1) That the method provided in the statute for determining the amount available for the purchase of extended insurance was the least favorable method available to the insurer.

(2) That whatever amount was available for the purchase of extended insurance, either under the statutory method of computation or any more favorable method provided in the policy, was to be used as a single premium for the purchase of extended insurance for at least the face of the policy reduced by the amount of policy loans.

The statutes of Missouri, so far as applicable, were a part of the policy to the same extent as though they had been expressly written into it. Whittaker v. Mutual Life Ins. Co., 133 Mo. App. 664, 669, 114 S. W. 53; Cravens v. New York Life Ins. Co., 148 Mo. 583, 604, 50 S. W. 519, 53 L. R. A. 305, 71 Am. St. Rep. 628; Id., 178 U. S. 389, 395-397, 20 S. Ct. 962, 44 L. Ed. 1116; Smith v. Mutual Benefit Life Ins. Co., 173 Mo. 329, 341, 72 S. W. 935; Great Southern Life Ins. Co. v. Jones (C. C. A. 8) 35 F.(2d) 122, 126; New York Life Ins. Co. v. Rositzky (C. C. A. 8) 45 F.(2d) 758, 760; Gooch v. Metropolitan Life Ins. Co., supra (Mo. Sup.) 61 S. W.(2d) 704, 706.

The question, then, is whether it was section 5741, as construed in the decisions of the Missouri Courts of Appeals, which were expressly overruled by the Supreme Court of Missouri in the Gooch Case page 706 of 61 S.W. (2d), which was written into this policy, or whether it was the statute as now construed by that court.

The rule is that federal courts will follow the...