Fuller v. Wright

Evans, P. J. (After stating the foregoing facts.) 1. A life-insurance company, when adjudged insolvent and dissolved, has broken its engagements with its policyholdérs and becomes liable to them in damages for such breach. Commonwealth v. American Life Insurance Co., 162 Pa. St. 586 (29 Atl. 660, 42 Am. St. R. 844); Boston and Albany Railroad Co. v. Mercantile Trust and Deposit Co., 82 Md. 535 (34 Atl. 778, 38 L. R. A. 97). Upon such breach the policyholders become creditors for the value of their policies at the date of the dissolution of the company. People v. Security Life Insurance Co., 78 N. Y. 114 (34 Am. R. 522). The contract of the insurance company is with the insured, and the liability for the breach of an ordinary policy contract is to him, and not to the beneficiary, whose right is to receive the amount of the policy as a death claim. Upon the adjudication of insolvency of a domestic stock life insurance company and the passing of an order of liquidation of its affairs on a petition filed by the insurance commissioner, the outstanding policies are ipso facto canceled, and a claim of loss thereafter occurring is not a provable claim against the company. 14 R. C. L. 853. The death of the insured occurring subsequently to the order of liquidation, the beneficiary has no claim against the assets of the company. 2. But it is urged that the policy which contained the disability clause stands on a different footing with respect to the right of the beneficiary to share in the assets of the company; that the court should have treated this policy as having matured prior to the order of liquidation, because the insured was permanently and totally disabled at that time. In this case we are not concerned with the rights of the insured, as her claims are not pressed by her personal representative. It is the beneficiary named in the policy who is claiming to be a creditor of the insurance company. The argument is advanced that the insured had fully performed her contract; had fully paid all premiums due; was relieved by the contract from paying further premiums during her total disability; that she never recovered from a condition of total disability, and therefore the policy should be regarded as a death [73] claim as of the date when she suffered a total and permanent disability which resulted in death. One vital error in this argument is the confusion of the company’s obligation to pay money as a disability claim and as a death claim. The contractual obligation to pay the disability claim is to the insured in life, and that to pay the loss as a death claim is to the beneficiary on the death of the insured. By the terms of the policy the company agreed (1) that in the event of the death of the insured, the company would pay to the beneficiary the sum of $'5,000 in one hundred monthly installments of $50 each; (2) that should the insured attain the age of 78 years while the contract was in full force and effect, she should receive the above-mentioned annuity under the same plan as provided for her beneficiary in the event of death, provided that should the insured die before the sum of $5,000 should be paid, her beneficiary should in like manner receive the unpaid installments; and (3) that should the insured become totally and permanently disabled while the policy was in full force and effect, her premiums should cease during such disability and she should receive an annuity in monthly payments of $25 each, provided that should she recover from such disability the payments to her should cease and the amount paid to her should be charged against the policy as a loan. It is clear that the beneficiary only takes under the policy on the death of the insured.’ The monthly payments during disability of the insured belonged to her, and the amount of the beneficiary’s claim under the policy as á death claim is reduced by payments to the insured on the disability feature of the policy, which is charged against the policy as in the nature of a loan. The beneficiary, therefore, at the time of the liquidation of the company had no matured right under the policy; her only right being to claim such amount under the policy on the death of the insured as by its terms was due as a death indemnity. The insolvency of the company, and the order of liquidation took place before the insured died; and under the principle announced in the first division of this opinion, the policy became canceled on the happening of these events, and the rights of the beneficiary terminated. Judgment affirmed. All the Justices concur.