Praetorians v. McCrary

McGehee, J., delivered the opinion of the court. There was a peremptory instruction granted in the Circuit Court of Lauderdale County in favor of the appellee, Mrs. Julia McCrary, against -the appellant, the Praetorians, a life insurance company, for the recovery of the face value of an insurance policy on the life of her son, D. L. McCrary, in the sum of $1,000, with accrued interest, less an indebtedness in the sum of $33, representing a full cash or loan value of the policy at the time the indebtedness was incurred. The defense is that the policy was forfeited for nonpayment of the premiums at a time when no cash or loan value remained with which to continue the insurance in force until the date of the insured’s death. The policy was issued on March 13, 1931, and at the end of four years thereafter, its cash or loan value is stipulated to be the sum of $33. On January 4, 1935, the_ insured secured a loan thereon for this amount in ful], executed a loan agreement therefor payable upon written demand, and from which loan there was deducted the sum of $1.98 as interest for one year in advance, together with a further sum of $9.70 for five monthly premiums then accrued and to accrue up to and including the fourth anniversary date of the policy on March 13, 1935, and the payment of all of which premiums was therefore necessary in order to make the cash or loan value in the sum of $33 available to the insured as of its said fourth anniversary date, but the net proceeds of which loan was advanced to the insured prior thereto. Default was then *452 made in the payment of the monthly premium due in April 1935, and no premium for any month was paid after the fourth anniversary date of the policy on March 13th of that year. Thereafter, the insured died on December 20, 1935, before the next annual payment of interest became due on the loan, and hence without any default having been made in the performance of the loan agreement. It may be conceded that if the loan had not been made, the cash or loan value of $33, representing the full reserve on the policy would have been sufficient to keep the insurance in force some time beyond the death of the insured, notwithstanding the default in the payment of the monthly premium due in April, 1935, and thereafter, for the reason that it would have been the duty of the insurance company in such event to use the reserve for the purchase of extended insurance upon the failure of the insured to exercise either the option given him in the policy, (1) of surrendering the policy for cancellation and payment to him of its cash value, after default in the payment of any such premium; or, (2) to receive the paid-up insurance therein provided for. But, in view of the fact that he had already received the full reserve or cash value as a loan on the policy, there was nothing left with which the insurance company could purchase for- him any extended insurance. The policy therefore lapsed upon "default in payment of the monthly premium due in April, 1935, and within the period of grace allowed therefor. Thereupon, all rights of the parties under the policy expired except the right of the insurance company, reserved by the terms of the contract, to deduct the indebtedness from the amount which would have then constituted, the reserve or cash value had the loan not been made, and except the right of the insured to have the policy reinstated during his lifetime ‘ ‘ by submitting satisfactory evidence of health and insurability and upon payment of all arrears” at the time of any application *453 for reinstatement, and under the terms and conditions thus stipulated for such reinstatement. It is expressly provided by the terms of the policy that no loan “shall avoid the insurance hereunder unless the loan and other accrued indebtedness herein shall equal or exceed the cash value when the loan is due or when there is default in the payment of premiums. ’ ’ That is to say, if the indebtedness equals or exceeds the cash or loan value, either when the loan is due or at such time as there is a default in the payment of the premiums, the policy becomes of no further force and effect. When the default was made in the payment of the premium due in April, 1935, the indebtedness did in fact equal the then cash or loan value. If it had been less than the cash or loan value, the insured was given the option upon default in the payment of such premium, (1) to surrender the policy for cancellation and receive the difference; (2) to surrender the policy for paid-up insurance; and (3) to have the policy endorsed for extended insurance. And, it is provided that if the insured should fail for sixty days after such default in the payment of the premium to exercise either of the options above mentioned, then the third option would become effective automatically, hut it is also provided that any indebtedness will he deducted if option number one is selected and will reduce the amounts under options two and three in the proportion that the indebtedness bears to the cash or loan value. Therefore, the indebtedness having- equaled the cash or loan value, its deduction therefrom would of course have the effect of completely extinguishing the benefits that would have otherwise been available to the insured. In other words, if instead of either surrendering the policy and taking its reserve or cash value in settlement, or taking paid-up insurance or extended insurance, the insured decides to borrow the full amount of such reserve or cash value, he can keep his policy in force only by paying his premiums thereon and the annual interest on his loan each year in advance. If he makes default either in *454 the payment of a premium after borrowing the full reserve or cash value or in paying the annual interest on his loan each year in advance, the policy becomes lapsed. Fidelity Mutual Insurance Company v. Oliver, 111 Miss. 133, 71 So. 302; Neal v. Columbian Mutual Life Assurance Society, 161 Miss. 814, 138 So. 353. It is therefore necessary that we withdraw the former opinion rendered herein and set aside the judgment entered on May 26, 1941, sustain the suggestion of error, and reverse the action of the court below and render judgment herein in favor of the appellant, in accordance with the views herein expressed. The suggestion of error is therefore sustained, the ' judgment of the court below reversed, and judgment is rendered here for the appellant. It is so ordered.