In re the Judicial Settlement of the Account of Proceedings of Central Hanover Bank & Trust Co.

Martin, P. J. The facts are adequately set forth in the opinion of Mr. Justice Dore. We agree that there is solely a question of law presented on this appeal and that the issue is a narrow one. [544] We cannot agree, however, with the conclusion that the insurance company is not in possession of property transmitted at death. The obligations of the insurance company were: 1. To pay to the assured the cash surrender value; 2. To pay to the executor or administrator of the decedent the face amount of the policy and accumulations in the event that the decedent so designated; 3. In the event that the decedent failed during his lifetime to make any change of beneficiary, to retain the net proceeds, after deductions, and pay the same to the beneficiaries designated in the instruments of July 31, 1931, in the manner therein set forth. Any right of the beneficiary remained inchoate until the death of the decedent. Prior to the death of the decedent the relationship existing between the insurance company and decedent was that of insurer and insured. Upon his death the company received the proceeds and the relationship between it and the beneficiaries became that of debtor and creditor. His death first gave the insurance company the right to postpone payment of the net balance of the proceeds. The answer of the insurance company to the petition herein recites: “ That pursuant to the provisions of said policies, the proceeds of said policies upon decedent’s death remained with this objectant subject to the provisions of the aforesaid policies, creating between this objectant and the various beneficiaries of said policies the relationship of debtor and creditor.” The exhibits annexed to the answer to the petition, which are copies of change of beneficiary executed by the decedent some, five months prior to his death, indicate that the form of settlement was changed. The language used is significant. The insured directs that “ settlement of the full aggregate proceeds of said policies, collectively, shall be made * * * in monthly instalments, payable in advance, beginning one month after the policies become payable.” Exhibit 1 gives the son of the insured the privilege of surrender and withdrawal, not to exceed $5,000 of his share, after attaining the age of thirty years, and not to exceed $5,000 after attaining the age of thirty-five years. The daughters have the privilege, after attaining the age of forty years, of changing the method of payment of their respective shares, and it is provided that “ the lawful surviving child or children, if any, of Walter L., Helen N. and Mary A. Scott and Virginia M. Sherwood shall receive in one sum such share or shares of the principal amount retained by the company.” Exhibit 3 directs: “Upon the death of the last survivor of myself, Anne M. L. and Mary B. Scott, any proceeds then in the company’s hands on account of said policies shall be commuted and [545] payable in one sum.” Attention is directed to the expressions, “withdrawal,” “principal amount retained,” “proceeds then in the company’s hands.” These expressions indicate a conception of something more than “ obligations ” on the part of the insurance company. In Crossman Co. v. Rauch (263 N. Y. 264) the Court of Appeals had before it a policy of life insurance providing for payment of monthly installments to the named beneficiary. The question before the Court of Appeals was the right of a judgment creditor to reach the monthly installments by garnishee execution. That question, of course, is of no import here, but what is of interest is the discussion by the court of the procedure followed by the insurance company as a result of the insurance contract. There the husband of the judgment debtor-appellant procured an insurance policy upon his fife for $50,000, payable after his death to his widow, the appellant, in 240 monthly installments, each of $6.25 per $1,000 of the proceeds of the policy, equivalent to $312.50 per month. Attached to and made a part of the policy was an agreement which reads, in part: “It is agreed that The Travelers Insurance Company, Hartford, Connecticut, shall receive such proceeds of the above contract as the Beneficiary hereinabove named shall become entitled to, if not less than One Thousand Dollars, and in consideration thereof shall pay at the Home Office of the Company at Hartford, Connecticut, to the said Beneficiary the instalments hereinabove set forth.” The Court of Appeals said: “ It seems clear to us that the transfer by the insured to the insurance company of the proceeds of the policy, under an agreement obligating the company to pay to the beneficiary $312.50 in monthly instalments for 240 months, constituted a transfer of not only the face value of the policy, $50,000, but also all interest and income that might accrue thereon and that the provision of the agreement that ‘ the proceeds received in trust by the company are not transferable, subject to encumbrance, nor to legal process ’ includes accruing interest and income as well as principal. “ Under the agreement, the company was to receive the face value of the policy and the right to the income thereon and the beneficiary after the death of the insured was to receive the specified 240 monthly payments of $312.50 each. She never was to become entitled to the face value of the policy as an entity. The agreement of the company to make the monthly payments and the payment thereof was to constitute as to her the proceeds of the policy and the proceeds, under the wording of the agreement and the provisions of the statute, were to be exempt from legal process, except in an action to recover for necessaries. [546] “ The transfer of the proceeds of the policy constituted a transfer of the ‘ benefits accruing thereunder ’ and ‘ the parties to the trust or other agreement so agree ’ by necessary implication. “ Within the meaning of the agreement the transfer of the ‘ proceeds ’ constituted a transfer of the interest earned by the investment of such proceeds, as an incident of the transfer.” In Richards on the Law of Insurance (4th ed. § 385) it is said: “ The optional methods of settlement contained in life insurance policies have for their objective the conservation and distribution of principal and income. The insurance company regards the face amount of the policies as part of its general funds and, at the time the claim matures, it is paid or the proceeds invested as the case may be. If invested, it is not segregated and is in no sense earmarked. The company makes the payment under the terms of the contract and not as a trustee. The relation between the beneficiary and the company is that of debtor and creditor. The principal sum and a portion of the income are guaranteed. Mutual companies customarily allow an amount of income in excess of the guaranteed rate depending on the rate of dividends paid, the increased payments varying within narrow limits. Behind these deferred settlements are all of the net assets of the insurance company. The options, being contractual, are not flexible and do not allow discretionary payments to meet changed circumstances or emergency needs of the beneficiary. The company’s liability ceases once the income check is delivered to the beneficiary.’ The Personal Property Law (§ 15) makes provision for the exemption of installment benefits under a policy of life insurance. The language of that section applicable to such benefits is as follows: “ Provided, however, that when the proceeds of a life insurance policy, becoming a claim by death of the insured, are left with the insurance company under a trust or other agreement, the benefits accruing thereunder after the death of the insured shall not be transferable, nor subject to commutation or incumbrance, nor to legal process except in an action to recover for necessaries, if the parties to the trust or other agreement so agree.” All of these authorities indicate that upon the death of the insured there is a transfer to the insurance company of property, the proceeds of the policy, and, while this transfer may be simply a matter of bookkeeping involving no segregation of specific funds, there is a sufficient change to justify the application of the provisions of section 124 of the Decedent Estate Law. The decree directs the insurance company to pay to the executor the amount of the tax paid. This is not a direction to accelerate contractual obligations. The obligation of the insurance company [547] is to pay to the beneficiary monthly so much for each $1,000 of the net proceeds. The total to be paid to the beneficiary depends upon the amount received by the insurance company. The decree of the surrogate, so far as appealed from, should be affirmed, with costs. Townley and Glennon, JJ., concur; Untermyer and Dore, JJ., dissent and vote for modification as indicated in dissenting opinion of Dore, J.