Walters v. Mutual Life Ins. Co.

• Decision Date: 04 April 1933
• Docket Number: No. 3434.,3434.
• Parties: WALTERS v. MUTUAL LIFE INS. CO. OF NEW YORK.
• Court: U.S. Court of Appeals — Fourth Circuit

64 F.2d 178 (1933)

WALTERS v. MUTUAL LIFE INS. CO. OF NEW YORK.

No. 3434.

Circuit Court of Appeals, Fourth Circuit.

April 4, 1933.

J. H. Bridgers, of Henderson, N. C. (Pittman, Bridgers & Hicks, of Henderson, N. C., on the brief), for appellant.

James H. Pou, of Raleigh, N. C. (James H. Pou, Jr., and J. L. Emanuel, both of Raleigh, N. C., and Frederick L. Allen, of New York City, on the brief), for appellee.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

NORTHCOTT, Circuit Judge.

This is a suit instituted in the District Court of the United States for the Eastern District of North Carolina, by the appellee (who will here be referred to as plaintiff) in June, 1931, against the appellant (here referred to as defendant) for the purpose of correcting certain errors in two stamped indorsements upon a life insurance policy issued by said company upon the life of one Simpson G. Walters, No. 2,754,184, for $5,000; for adjudication of the amount for which said company was liable under said policy (the administratrix asserting that she was entitled to receive the full sum of $5,000 with interest, and the company contending that it was liable only for the sum of $1,236 with interest); and for a complete settlement and adjustment of all controversy between the parties concerning said policy.

The defendant filed answer, setting out the policy and the death of insured; denying that errors had been made in the indorsements on said policy; and insisting that the company was indebted to her on account of said policy in the sum of $5,000 with interest, upon the ground that she had the right to elect to treat the policy as an "Extended Term" policy.

After hearing, the judge below made his findings of fact and conclusions of law, and entered a decree in favor of the plaintiff from which action this appeal was brought.

There is little or no dispute as to the facts. The policy in question was issued by the plaintiff company on May 26, 1920, and was for the sum of $5,000 upon the life of Simpson G. Walters, payable to his estate and the premiums on said policy were paid until May 26, 1929. Upon request of the insured under a condition in the policy, the time for payment of the premium due May 26, 1929, was extended to November 26, 1929, but the premium was never paid. This extension agreement created a lien on the cash surrender value of the policy for the payment of the premium due May 26, 1929.

The insured was adjudicated insane on November 2, 1929, and admitted to the State Hospital for the Insane on January 18, 1930. His wife took the policy to the local agent of the plaintiff, who, on February 1, 1930, wrote the company inclosing the policy with the statement that the insured was ill and could not be examined looking to a reinstatement of the policy. No notice was given to the company of the insanity of the insured. In reply to this letter of its agent the company's manager wrote saying that under the provisions of the policy it had been automatically continued by the company at the expiration of the extension date, as paid-up, nonparticipating life insurance in the sum of $1,318.

On March 11, 1930, Mrs. Walters wrote the company as follows: "I am writing in regards to policy #2754184 on the life of my husband, Simpson G. Walters. I was unable to continue payments on the policy and I took the matter up with the agent here. I wanted the cash value of the policy and through a misunderstanding on my part or her part I received a paid-up policy for $1,318. Kindly let me hear from you at once as to what can be done. Write me direct as I think it will cause a clearer understanding."

On May 12, 1930, the wife of the insured was duly appointed guardian of his person and estate and qualified as such. On or about August 1, 1930, the insured, having been released by the superintendent of the State Hospital, returned to his home. The certificate of the superintendent under which the insured was released reads as follows: "This is to certify that S. G. Walters, an insane person, was sent to this Hospital from Vance County, and that his being at large would not, in my opinion, be injurious to himself or dangerous to the community, and I recommended that he be sent to said county on probation."

After the return of the insured to his home he undertook work of various kinds and remained actively at work until his death, which was sudden and unexpected, on December 31, 1930.

There was evidence to the effect that he was not normal, mentally, during the period of his release from the hospital and at his death.

On August 26, 1930, the manager of the plaintiff's office at Charlotte, N. C., wrote the insured that under the conditions of the policy it had been automatically converted into a paid-up nonparticipating policy in the sum of $1,236; the former calculation of $1,318.00 admittedly having been erroneous. In response to this letter the insured returned the policy to the company on September 2, 1930, with the following letter: "As per your request I am enclosing policy No. 2754184 to be endorsed for paid up ins. for the amt. of $1,236.00. Am sorry I could not carry on the premiums. Please endorse and return same to me."

Owing to a clerical error an erroneous indorsement reinstating the policy was stamped thereon, but after, on October 29, 1930, a stamped indorsement was made on the policy showing it to be continued as a paid-up endowment policy for $1,236.

After insured sent in his policy for correction of indorsement on September 2, 1930, so as to show that the policy had automatically gone into effect as paid-up endowment insurance for $1,236, and while his wife was acting as his guardian, insured told her what he had done. The wife made no objection to insured or to the company. She did not notify the company, or its agent, that insured had been adjudged insane and committed to the State Hospital, and that she was his lawful guardian. She did not inform the company of her husband's mental condition; nor did she express any desire, or make any request, that the policy be converted into extended term insurance.

The pertinent parts of the policy in question are as follows:

"After three full years' premium shall have been duly paid, and provided there is no premium more than three months in default, the owner may elect one of the following options:

"(a) to surrender this policy for its cash value less any indebtedness to the Company hereon (this balance is herein referred to as the net cash value); or,

"(b) to surrender this policy for paid-up non-participating term insurance dating from the date of such default for an amount equal to the face amount of this policy and any outstanding dividend additions less any indebtedness to the Company hereon; in addition to such term insurance, if the value be more than sufficient to purchase term insurance to the automatic surrender date, there will be granted paid-up non-participating pure endowment payable on the expiry of the term insurance, if the Insured be then living, as hereinafter set forth; or,

"(c) to have the insurance continued as paid-up non-participating endowment insurance payable on the automatic surrender date if the Insured be then living or upon receipt of due proof of the prior death of the Insured and on the same conditions as this policy, the reduced amount payable being the same whether the policy mature by survival or death. * * *

"In the event of default in payment of premium, if this policy shall not, within three months after such default, have been surrendered to the Company at its Home Office for its cash value as provided in option (a...