Union Central Life Ins. Co. v. Williams

• Decision Date: 25 May 1933
• Docket Number: No. 6871.,6871.
• Citation: 65 F.2d 240
• Parties: UNION CENTRAL LIFE INS. CO. v. WILLIAMS.
• Court: U.S. Court of Appeals — Fifth Circuit

65 F.2d 240 (1933)

UNION CENTRAL LIFE INS. CO. v. WILLIAMS.

No. 6871.

Circuit Court of Appeals, Fifth Circuit.

May 25, 1933.

Eugene P. Locke and Ralph Randolph, both of Dallas, Tex., for appellant.

H. T. McGown and Austin F. Anderson, both of Fort Worth, Tex., and Chas. Gibbs, J. W. Stovall, and H. O. Williams, all of San Angelo, Tex., for appellee.

Before BRYAN, FOSTER, and SIBLEY, Circuit Judges.

SIBLEY, Circuit Judge.

Nannie May Williams recovered judgment against Union Central Life Insurance Company on a policy of insurance for $10,000 on the life of her husband, Peter Hardy Williams. The following facts appear: An annual premium of $449.10 was due each June 10th. That for 1930 was paid out of a loan or advance of $848 made against the policy, the insured borrowing at the same time $1,643.63 from the company's general agents personally for which he gave them his note. Just before June 10, 1931, the company sent Williams a notice, which he received, stating that a premium of $449.10 would be due on that date, subject to a dividend reduction of $74.80, leaving $374.30, and that unless payment should be made the policy would be voided except as to values provided therein, but the premium would be accepted within thirty-one days from its due date. The notice also stated that agents are not authorized to countersign receipts unless signed by some officer of the company, to grant permits, make or alter contracts, waive forfeitures, or make any alterations of a renewal receipt. No other direct communication occurred between him and the company. He did nothing about the premium or the dividend of $74.80 within the thirty-one days of grace ending July 11, 1931. The general agents sought to interest him in an arrangement by which he might surrender this and other policies which he had with the company so as to pay the premium on and the loan against one of $15,000, and pay them $500 on their note. Of this negotiation the company had some knowledge, for it furnished surrender forms and statements of the surrender values of the policies, but on September 1st Williams definitely refused the arrangement, stating to the agents that he would sign no surrenders with any part payable to them; that it was a crooked deal and he was going to have every nickel applied toward paying these policies as far as it would carry them. This decision and statement was on September 14th communicated to the company, the agents then returning to it a check for $556.50 for dividends on the policies which the company on September 9th had sent to them to be delivered to Williams. The agents wrote that they were suing Williams on his note for $1,643.63, and garnisheeing the company for the dividends. On September 18th before garnishment was actually made the attorney for the agents got from Williams an order on the company to pay the dividends to the agents, and on September 19th this order was sent to the company, and on September 28th it paid the dividends over accordingly. On October 7th the company mailed Williams a notice that on account of failure to pay the premium due June 10th the policy, in accordance with the terms of the advance secured by the policy, became null and void and had been canceled, and that the advance agreement was marked paid thereby. Williams received but never opened this letter. He had been ailing since spring, was kicked in the stomach and trampled upon by a bull on August 16th, was thereafter afflicted with constant hiccoughs and became ill, and it is contended became mentally affected. On September 17th he had all his teeth extracted, and a little later was diagnosed as having cirrhosis of the liver, and died October 15, 1931. Mrs. Williams tendered to the company repayment of the $74.80 dividend on this policy which had been included in the payment to the agents, which tender the company refused, and she afterwards pleaded that Williams was mentally incompetent on September 18th when he signed the dividend order and that it was obtained through fraud and mistake.

The controlling assignment of error is on the court's refusal to instruct a verdict for the defendant. We have not stated the evidence relating to the making of the dividend order of September 18th, nor do we pass upon its sufficiency to show insanity, fraud, or mistake, because we think liability on the policy depends upon the situation on July 11th, the last day of grace for paying the premium. The transaction of September 18th controls only the question whether the dividend belongs to the agents or to Williams' estate. The terms of the insurance are fixed by the policy, by the statutes under which it was made, and by the advance agreement. It is not disputed that under all of these the policy became void on the thirty-first day after June 10, 1931, for nonpayment of premium unless saved by the provisions for extended insurance; that the reserve or surrender value of the policy at that date was $910 and the advance with interest was $898.88, the difference being insufficient to extend the insurance even to the last grace day; but that if the dividend of $74.80 be applied to purchase extended insurance or to reduce the advance against the policy the extension would reach beyond the date of death. The case therefore turns upon the disposition of the dividend. Mrs. Williams contends that it is one of the policy values which under the provisions of the statute and the policy are automatically to be applied in extended insurance if no other option be exercised; or, if not, that the company should have applied it to reduce the advance against the policy, and thus increase the available reserve. The company contends that the dividend is different from the reserve, and is governed by different policy stipulations, and that in the absence of action by Williams it could only be held for him in cash.

A dividend is in its nature clearly to be distinguished from the reserve on a policy both from the standpoint of the insurer and the insured. The reserve is usually required to be set up by law, as well as by the dictates of sound business. Very generally stated, it represents the excess charge in level premiums required to take care of the increasing risk of death as the insured grows older, and the accumulation increases with each premium paid. It is accurately computable, and is considered to inhere in and belong to the policy. Policy reserves from the standpoint of the insurer are a fixed liability required to be offset by assets in order to maintain solvency. A dividend is a profit, in its nature uncertain, which accrues when by reason of good management, good risks, or the like, the insurer's business shows results above death losses, expenses, and reserves. It is a distribution from a distributable surplus. Dividends normally belong to the stockholders, which in a mutual company are the policyholders, but the insured though not a stockholder may by contract be allowed to participate. This share in profits more naturally belongs to the insured than to the beneficiary, and is a return to him of a part of his premium which the year's results have shown was not necessary to have been paid to maintain the insurance with its legal reserve. Some decisions on policy provisions less definite than those of the policy in suit have confused dividends and reserves, and have applied dividends along with the reserve to extend the...