Travelers Ins. Co. v. Johnson
| Decision Date | 29 December 1975 |
| Docket Number | No. 11797,11797 |
| Citation | 544 P.2d 294,97 Idaho 336 |
| Parties | The TRAVELERS INSURANCE COMPANY, Plaintiff-Respondent, v. Viola Lydia JOHNSON, Defendant, Cross-Complainant, Cross-Defendant-Appellant, v. Cora HATCH, Defendant, Cross-Defendant, Cross-Complainant and Respondent. |
| Court | Idaho Supreme Court |
J. D. Hancock, Smith & Hancock, Rexburg, for appellant.
Wesley F. Merrill, Merrill & Merrill, Pocatello, for respondent, Travelers Insurance.
Callis A. Caldwell, Johnson & Olson, Pocatello, for respondent, Cora Hatch.
This is an appeal from a judgment which apportioned the proceeds of a group term life insurance policy between the widow of the decedent-insured and the named beneficiary of the policy, who was a former wife of decedent. Proceeds were divided on the basis of the time each had an insurable interest in the life of the decedent. We reverse and remand.
Elmer Hatch, the decedent, and Viola Hatch (now Johnson) were married for 11 years and 3 children were born of that marriage. They were divorced in 1957 with Viola being awarded custody of the three children, each of which has now reached majority. On March 18, 1961, Elmer Hatch applied for and received a group term life insurance policy as an incident of his employment with the Union Pacific Railroad. At that time he was single and named his former wife, Viola Hatch, as beneficiary of the policy. On December 30, 1961, Elmer Hatch married Cora Ashbacker and one child has been born of that marriage. On July 23, 1962, Viola Hatch married Martin A. Johnson and on June 3, 1964, Johnson adopted the three children born of the marriage of Viola and Elmer Hatch. Elmer Hatch died on June 25, 1972 never having changed the initial designation of his first wife as named beneficiary of the insurance policy.
Although the insurance premiums were paid by Union Pacific as a fringe benefit of Elmer Hatch's employment with the Union Pacific Railroad, nevertheless, it was stipulated between the parties that from December 30, 1961 (the marriage of Elmer Hatch and Cora Ashbacker) until the death of Elmer Hatch on June 25, 1972, the premiums for the insurance coverage were paid from the community assets of Elmer Hatch and Cora Ashbacker Hatch. Cf. Givens v. Girard Life Ins. Co. of America, 480 S.W.2d 421 (Tex.Civ.App.1972); Stephen v. Gallion, 5 Wash.App. 747, 491 P.2d 238 (1971). It was further stipulated that if called to testify, Cora Ashbacker Hatch would have testified that she was aware of the insurance policy but that she was under the impression that she was the beneficiary of the policy and that she did not consciously consent to the use of community assets for the payment of such insurance premiums when she was not the beneficiary of the policy.
Upon the death of Elmer Hatch both Johnson (his ex-wife, the named beneficiary) and Hatch (his widow) filed claims for the $10,000 proceeds of the policy. Travelers, the insurer, did not pay either party but rather filed this action in interpleader pursuant to I.C. § 5-321 and I.R. C.P. 22, joining both Johnson and Hatch as defendants. Johnson answered and cross-complained for the proceeds of the policy. Hatch answered and cross-complained asking for the proceeds of the insurance policy or in the alternative that she receive one-half of the proceeds of the policy from either the insurer or from Johnson. Travelers deposited the $10,000 with the court and, upon motion, was discharged from the case and also awarded its attorney's fees and costs to be paid from the $10,000 deposit.
The trial court on essentially uncontroverted and stipulated facts entered its memorandum decision and judgment on the basis of the 'insurable interest' which Viola Johnson and Cora Hatch had in Elmer Hatch's life. It held that Johnson, as the mother of Elmer Hatch's children, had an insurable interest until June 30, 1964, when those children were adopted by her then husband Johnson. Following that date, the court held no insurable interest to exist in Johnson but rather to exist in his wife Cora until the time of death. The court, therefore, after deducting the $432.50 awarded to Travelers, prorated the policy amount to the parties on the basis of time each had an insurable interest in the life of Elmer Htach, awarding Johnson $2,713.20 and Hatch $6,854.40. This appeal by Johnson (the ex-wife) is taken from that judgment.
The facts herein are not controverted and the only issues presented are the legal and policy questions which flow from these facts. What interest, if any, has a community acquired in a term life insurance policy by virtue of the fact that the premiums are paid from community assets? May one spous make a 'gift' of community property assets without the knowledge and/or consent of the other spouse? If such a 'gift' may be made by means of a life insurance policy, is that policy void or voidable by the other spouse following the death of the donor and if void or voidaboe, to what extent?
We note at the outset that neither Johnson nor Hatch argue in favor of upholding the decision of the trial court on its theory of 'insurable interest.' No authority is cited in support of that theory of the trial court and inferentially at least each of the parties concede error in so dividng and apportioning the proceeds of the policy. Appellant Johnson principally argues that because the insurance policy was acquired while decedent was a single man, it originally had and maintained the status of separate property notwithstanding the later marriage of the decedent and the utilization of community assets thereafter to pay the premiums. Appellant further argues that at best the widow Hatch is entitled to recovery of only one-half of the amount of the premiums paid following her marriage to the decedent. Respondent on the other hand argues that since the premiums were paid with community assets, the policy and the benefits payable thereunder were community property. She asserts that notwithstanding the decedent's status as manager of the community property he could not make a gift of substantial community assets without the knowledge and consent of the spouse and that any other rule will invite fraud upon a wife. In the alternative respondent argues that she is entitled to at least one-half of the proceeds of the policy.
The policy implications of this case present problems of great conceptual difficulty. A life insurance policy is most usually a contract between an insurer and an insured that upon the payment of premiums and the occurring of the death of the insured a certain sum will be paid to a designated beneficiary. By and large there has been permitted great freedom in entering such contracts and in naming the beneficiaries of the proceeds. However, when the premiums for a policy insuring one spouse are paid from community assets and the policy designates a non-spousal beneficiary, the question arises as to whether the disposition of the proceeds should be in accordance with the law of community property or with the terms of the policy. This question has received considerable scholarly attention in community property states with differing results. See: Schwartz, Gifts of Community Property: Need for Wife's Consent, 11 U.C.L.A.L.Rev. 26 (1963); Huie, Community Property Laws as Applied to Life Insurance, 17 Tex.L. Rev., 121 (1939), 18 Tex.L.Rev. 121 (1940); Hokanson, life Insurance Proceeds as Community Property, 13 Wash.L. Rev. 321 (1938); Luccock, life Insurance as Community Property, 16 Wash.L.Rev. 187 (1941). See also, cases collected at 114 ALR 545; 168 ALR 342; deFuniack and Vaughan, Principles of Community Property, § 123 (2nd ed. 1971).
Two dominant concerns arise: first, the protection of the surviving spouse from dissipation of the community property through the vehicle of insurance and second, permitting a married person to some extent protect the natural objects of his affection from disaster through the death of one upon whom they might be dependent. The resolution of this problem in favor of either of these conflicting interests necessarily presents harsh consequences for the unprotected party.
The resolution proposed by the appellant leads to the conclusion that the source of the first premium payment defines the character of the contract. Convenient as this proposition may appear it all but avoids the central policy considerations and leaves unanswered the question of what interest results from the use of community assets to pay the premiums.
Respondent's position is likewise not determinative of other questions which can arise. Simply stated she would have us hold that there exists a 'vested' right of some kind in the proceeds of a life insurance policy when such policy has been purchased with community funds. However, there is a logical gap in concluding that a vested interest arises prior to the contingency of death which is the fundamental basis of the contract. If that be true, what happens when, in the simplest of cases, the insured merely stops paying...
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