Urquhart v. Alexander & Alexander, Inc.

• Decision Date: 22 December 1958
• Docket Number: No. 72,72
• Citation: 147 A.2d 213,218 Md. 405
• Parties: Marion T. URQUHART v. ALEXANDER AND ALEXANDER, Inc., Clifton F. Weidlich and Vivien C. Urquhart.
• Court: Maryland Court of Appeals

Page 405

218 Md. 405

147 A.2d 213

Marion T. URQUHART v. ALEXANDER AND ALEXANDER, Inc., Clifton F. Weidlich and Vivien C. Urquhart.

No. 72.

Court of Appeals of Maryland.

Dec. 22, 1958.

John H. Skeen, Jr., Baltimore (William A. Skeen, Baltimore, on the brief), for appellant.

Robert R. Bair, Baltimore (J. Crossan Cooper, Jr., and Venable, Baetjer & Howard, Baltimore, on the brief), for Clifton F. Weidlich and Vivien C. Urquhart.

No brief and no appearance for Alexander & Alexander, Inc.

Before BRUNE, C. J., and HENDERSON, HAMMOND, PRESCOTT and HORNEY, JJ.

HORNEY, Judge.

This is an appeal by Marion T. Urquhart (the wife or widow) from an order of the Circuit Court of Baltimore City dismissing her bill against Alexander and Alexander, Inc., and others, for the reformation of a life insurance contract, and, in the alternative, for a declaration that the proceeds were held in trust for her.

In October of 1952 John A. Urquhart (the insured or deceased) borrowed $5,000 from Alexander and Alexander, Inc. (the employer or creditor), which was engaged in selling insurance, in order to make the initial cash payment on account of a consent judgment for $15,000 entered by the United States District Court for the District of Maryland against him in favor of Vivien C. Urquhart and Clifton F. Weidlich (the divorced wife of the insured and her attorney, hereinafter referred to as the judgment creditors or intervenors). The balance of the judgment, by its terms, was required to be paid in monthly installments of $125 each. To secure the repayment of the loan to the employer, the insured arranged, through the employer, for a five year convertible term policy on his life with the Manufacturers Life Insurance Company (the insurer) in an amount equal to that of the loan, and designated his employer as the sole beneficiary. At the same time arrangements were made whereby semi-monthly payments of $50 each were to be deducted from his salary until the debt due his employer was paid in full.

The policy, issued October 30, 1952, was delivered to the employer, who kept custody of it until the death of the insured on March 5, 1957. Premiums or the policy were paid by the wife out of funds derived from the salary of the insured. The repayment of the loan to the employer was completed on December 31, 1956. On the date of the death of the insured the unpaid balance of the judgment was $4,750. He left a will in which he directed the payment of his debts and then devised and bequeathed his estate to his wife absolutely.

The insured reserved the right 'from time to time by a declaration in writing under his hand [to] appoint a beneficiary or beneficiaries and * * * [to] alter or revoke any prior designation and * * * [to] apportion or reapportion the insurance monies,' but he did not exercise any of such rights. He also had the privilege, under the terms of the policy, to convert it to a new policy on another plan of insurance on or before October 30, 1956, but he made no effort to avail himself of that right either.

In order to obtain a decision with respect to the proper disposition of the proceeds of the policy, the wife brought suit against the employer and the insurer. The employer in its answer admitted that the loan had been paid in full and that it was not entitled to the proceeds, and suggested that the widow was entitled to receive such proceeds 'either legally or equitably' and that 'there was apparently some [mis]understanding.' The insurer, disclaiming all interest in the proceeds, paid $5,000 into court, and was dismissed as a party. The judgment creditors, upon their petition, and a stipulation of all the parties in interest, were permitted to intervene.

There is only meager testimony in the record concerning the intention of the insured with respect to the proceeds of the insurance policy. A fellow employee, who handled the application for the policy, testified that the insured wanted the least expensive policy he could get. A term policy with a conversion provision was suggested. The insured desired to make his employer the beneficiary, and inquired whether he could change the beneficiary by designating his wife as such when the loan was paid off. He was assured that he could. On one occasion, while they were driving down town, the insured told his son that after the loan had been paid back, he would change the name of the beneficiary from the employer to the second wife, who is now the widow. The widow, over the objection of the intervenors, was permitted to testify with respect to the loan and the policy. She stated her husband had told her he was taking out a policy making his employer the beneficiary, and that when the loan was paid off he would change the policy by making her the beneficiary.

A fellow employee testified he had discussed the subject of additional protection for the family of the insured in the late summer of 1956. He related that the amount of the term policy was taken into consideration, but neither he nor the insured considered the possibility of changing the provisions of the policy in order to name the wife the residuary beneficiary; nor did they consider converting the policy in order to provide additional ordinary life insurance; nor did they consider the possibility of changing the name of the beneficiary of the policy to the wife and then assigning it to the employer as security for the balance due on the loan.

The other life insurance of the insured was payable to his wife. He knew the loan had been fully repaid, but for reasons known only to himself, he took no affirmative action to revoke or alter the prior designation of beneficiary in the term policy so as to make his wife the beneficiary thereof. There is, of course, the evidence that he intended to make a change of beneficary sometime in the future after the loan had been repaid, but there is no evidence of an intent to transfer a present interest in the policy to his wife.

The chancellor in his opinion stated he could find no legal basis for reformation of the policy or for holding that the wife had been made the beneficiary thereof, and, in dismissing the bill, directed the clerk of court to pay the proceeds of the policy to the widow as executrix of her husband's estate, after deducting the costs of the proceeding in the lower court to be administered by her 'as a part of the assets of the estate.'

The widow contends that the policy should be reformed so as to designate her as the contingent or residuary beneficiary, and, in the alternative, that the proceeds, payable to the employer as the sole beneficiary, were in law held in trust by the employer for her. In addition to disputing the widow's contentions, the intervenors contend that the provisions of Code (1957) art. 35, § 3 made the testimony of the widow inadmissible, and that the costs below and in this Court should be paid by the widow.

(i). Reformation of Policy.

The reformation of an insurance contract cannot be decreed in the absence of proof of a mutual mistake. It is elementary that a contract may be reformed when it is shown by competent evidence that a mutual mistake did in fact occur. In this respect a contract of insurance is not different from any other contract and may be reformed, even after the death of the insured, to correct a mistake in the name of the beneficiary and thereby effectuate the intention of the parties. See the dictum in Silberstein v. Massachusetts Life Insurance Co., 1947, 189 Md. 182, 185, 55 A.2d 334. See also 13 Appleman Insurance Law and Procedure § 7607 (1943). However, when the rules of law governing the reformation of an insurance policy to correct a mistake are to be applied, a proper case must be presented. Specifically, to justify the reformation, it must be shown by satisfactory proof that a valid policy exists and that, by reason of the mutual mistake on the part of both parties to the contract, the policy does not conform to the actual agreement made by the parties. American Casualty Co. of Reading, Pa. v. Ricas, 1941, 179 Md. 627, 22 A.2d 484. See also Johnson v. Nat'l Mut. Ins. Corp., 1939, 175 Md. 543, 3 A.2d 460, in which the mistake sought to be corrected by reformation was also not mutual. Cf. Ben Franklin Ins. Co. of Allegheny, Pa. v. Gillett, 1880, 54 Md. 212, in which the insured was clearly entitled to a reformation of the policy of insurance.

In 13 Appleman op. cit. supra, § 7608, it is said:

'The court cannot reform a plain insurance policy, nor can it make a new or substantially different contract for the parties. While equity may reform a policy, even in material clauses, where it does not express the intention of the parties, this power should be exercised with great caution and only in cases where the proof is entirely satisfactory.'

The chancellor found as a fact that the widow had not presented a proper case for reformation of the policy. He was clearly right. There was evidence that the insured had stated on several occasions that he intended to designate his wife as the beneficiary when his debt to his employer had been fully paid, but there was absolutely no evidence that the parties to the insurance contract had made a mutual mistake in designating the employer as the sole beneficiary before or at the time the contract was finally consummated. Under these circumstances, the court was without authority to grant reformation since it would have amounted to making a materially different contract for the parties. Appleman op. cit. supra, § 7608.

(ii). Disposition of Proceeds.

The chancellor was also right when he directed payment of the proceeds of the policy to the estate of the insured instead of to the widow. In a case such as this where the policy designated a creditor as the sole beneficiary, the disposition of the proceeds depends largely on the intention of the parties to the insurance contract, the terms of that contract and the circumstances in each case. We must consider who...