Metropolitan Life Insurance v. Benton

Per Curiam. Lurner 0. Benton brought suit against the Metropolitan Life Insurance Companj', alleging, in part, that on April 10, 1899, the American Union Life Insurance Company (hereinafter called the Union Company) executed and delivered to Eugene Benton a $2000, twenty-pay life-insurance policy in which the plaintiff was named as beneficiary; that the policy (which is attached to the petition as an exhibit) provides that when three or more yearly premiums have been paid the owner will be entitled to non-participating, paid-up insurance for such proportion of the amount of the policy as the premiums paid bear to the number required; that the assured paid premiums for six full years, and was entitled to $600 paid-up insurance; that on February 18, 1901, the business and assets of the Union Company were taken over by the Security Trust & Life Insurance Company (hereinafter called the Security Company), and the policies of the Union Company were assumed by the Security Company; that the ’ Security Company entered on the policy an endorsement acknowledging its assumption of liability under the policy; that — 299 — the Security Company accepted and receipted for three of the six yearly premiums paid by the assured; that on September 17, 1906, the business and assets of the Security Company were taken over by the Pittsburgh Life and Trust Company (hereinafter called the Pittsburgh Company), and the Pittsburgh Company assumed all liabilities on the policies of the Security Company; that the policy in question was an outstanding policy of the Security Company, and, under this contract between the companies, it was assumed by the Pittsburgh Company; that on May 7, 1917, the Pittsburgh Company was taken over by a receiver; that on August 3, 1917, the receiver of the Pittsburgh Company made a contract with the Metropolitan Life Insurance Company whereby that company (hereinafter called the Metropolitan Company) agreed to assume the insurance policies of the Pittsburgh Company, including the policies of all companies which the Pittsburgh Company had reinsured or assumed, subject to a policy lien of 33-1/3 per cent, of the legal reserve on the policies; that the Metropolitan Company assumed liability on all policies that were in force on May 7, 1917, and by the terms of the policy sued on it was in force as a paid-up policy for $600 on said date; that the insured had no notice of the receivership or of the contract of assumption between the Pittsburgh Company, through its receiver, and the Metropolitan Company; that the insured died on September 4, 1930, and the Metropolitan Company denied all liability under the policy; that the Union Company, the Security Company, and the Pittsburgh Company have all been liquidated and dissolved; and that the receiver of the Pittsburgh Company has been discharged and dismissed, and none of them can be made a party to this suit. The plaintiff prayed for judgment in the amount of the paid-up insurance, $453.33, less the lien above mentioned. In its answer the Metropolitan Company admitted that the policy contained a provision entitling the owner to a non-participating, paid-up policy after three or more yearly premiums had been paid, that the Security Company assumed liability on outstanding policies of the Union Company, that the Pittsburgh Company assumed liability on outstanding policies of the Security Company, and that the Metropolitan Company under its contract with the receiver of the Pittsburgh Company assumed liability on — 300 — outstanding policies of tlie Pittsburgh Company that were in force on May 7, 1917; but the defendant averred that the policy sued on was not an outstanding policy in force on May 7, 1917, and therefore liability thereon was not assumed by the Metropolitan Company; that the policy provided that the insured would be entitled to a paid-up policy if he complied with a specified New York statute; that the New York statute provided that the insured, on demand made, with surrender of the policy within six months after lapse, might use the reserve in the policy as a single premium to continue the insurance in force for its full amount so long as the reserve would pay the premium, or could use the reserve to purchase paid-up insurance for a proportionate amount; that the insured never made the demand or surrendered his policy, and therefore “the policy sued an lapsed for the nonpayment of the annual premium due April 10, 1905;” that the policy was not in force when the Pittsburgh Company assumed the liabilities of the Security Company in September, 1906, and liability thereon was not assumed by the Pittsburgh Company; that the policy was not carried by the Pittsburgh Company as a liability on its .books; that the Metropolitan Company assumed the liabilities of the Pittsburgh Company “subject to an agreement on the part of each holder and owner so consenting that the Metropolitan Company may establish and place against his or her policy a lien equal to 33-1/3 per centum of the legal reserve thereon as it had been established and carried on the books of the Pittsburgh Company;” that the insured never consented to this, and therefore the condition on which said policy was to be assumed was not complied with. The defendant denied liability on the policy sued on. An agreed statement of facts shows that the application for the policy sued on was solicited, prepared, and executed in Monticello, Georgia, that the policy was executed in New York, and was delivered to the insured in Monticello; that the premiums were paid for six full years and up to April 10, 1905; that the Security Company assumed liability on the policy, issued an endorsement to that effect, and accepted three of the six yearly premiums; that the Pittsburgh Company and the Security Company executed the contract as alleged in the petition, whereby the Pittsburgh Company assumed the liabilities of the Security Com — 301 — pany; that the policy was never carried on the books of the Pittsburgh Company as an outstanding policy or as a liability of any sort; that the Metropolitan Company made the contract with the receiver for the Pittsburgh Company as alleged in the petition; that the policy was not taken into account in the calculation of the assets of the Pittsburgh Company; that the insured, Eugene Benton, was not notified of the receivership of the Pittsburgh Company or of the contract between the receiver and the Metropolitan Company; that, “not having had any notice of said contract, said Eugene Benton did not enter into any agreement consenting to it;” that if the policy had any legal reserve on May 7, 1917, the amount of the reserve and the amount of the lien to be placed against it were correctly calculated in the petition; that the insured died on September 4, 1930, and the Metropolitan Company denied liability and refused to furnish blanks for proof of loss; that the Union, Security, and Pittsburgh Companies have been dissolved, and the receiver of the last-named company has been discharged; that the New York statute contains the provision set out in the defendant’s answer; and that the insured did not make the demand or surrender his policy within six months after the lapse of the policy on April 10, 1905. The case was submitted to the judge without a jury. Judgment was rendered for the plaintiff, and the defendant excepted. The first question presented for determination is: did the insured forfeit his policy by a failure to elect one of two options and to surrender his policy within six months from April 10, 1905, the date to which the premiums were paid? In considering this, we have in mind numerous decisions which hold that if insurance policies contain inconsistent, conflicting or ambiguous provisions, the construction favorable to the insured must be given; and the further principle that the law does not favor forfeitures. As stated in State Mutual Life Insurance Co. v. Forrest, 19 Ga. App. 296 (91 S. E. 428), “Insurance policies are prepared and proposed by the insurers; and where such a contract is capable of being construed in two ways, that interpretation must be placed upon it which is most favorable to the insured. Especially is this true where, as in this case, the construction insisted upon by the company would work a forfeiture of the policy, while the other will preserve the obligations of both the company — 302 — and tlie insured.” (Italics ours.) See also Winder National Bank v. Ætna Life Ins. Co., 36 Ga. App. 703, 705 (137 S. E. 848). ll is admiiled that ihe insured had paid for a reserve of $600. This belonged lo Ihe insured, and not lo ihe company. Neither the insured nor the beneficiary has ever received this reserve fund which was bought and paid for. What became of it? The general policy of the law is against it being forfeited, and in recognition and pursuance of that policy of the law the contract in the instant case provided, in effect, that it should not be forfeited, as is shown by paragraph 2 of the policy entitled “Non-forfeiture.” ■ The terms which the defendant company now insists the insured should have complied with, in order to get the benefit of this reserve fund which he had already bought and paid for, were not embodied in the policy. They were embodied in a statute of New York, which was not set out in the policy and to which mere reference was made in the policy. The policy was not complete within itself. The effect of the contention of the defendant is that the insured would have to know a statute of New York in order to know his rights under this insurance policy. It would be a dangerous precedent to hold that an insurance company could circumvent the rights of the insured by mere reference to a statute of a foreign State, not known to the insured and difficult of ascertainment. However, conceding but not deciding that the New York statute would govern, certainly, under the law which requires interpretations favorable to the insured and the prevention of forfeitures in cases of doubtful interpretation, the insured was entitled to paid-up insurance of $600 under the policy sued on. The New York statute provides that the insured, on demand made, with the surrender of the policy within six months, may use his reserve fund as a single premium to carry the insurance for the full amount so long as it is sufficient to pay for the full amount, or he may use it to purchase paid-up insurance for a proportionate amount of the face value of the policy. And the statute thereafter and in the same connection says: “If no such agreement be expressed in ihe application or policy, such single premium may be applied in either of the modes above specified at the option of the owner of the policy, notice of such option to be contained in the demand hereinbefore required to be made to prevent the forfeiture of the policy.” (Italics ours.) This provision of the — 303 — statute (which is designed to prevent forfeitures) certainly indicates that election of the option is to be made only in cases where it is not already “ expressed in the application or policy.” In the instant case it was not necessary to make an election of the option when the insured ceased to pay premiums, because it was already made and expressed in the policy. The policy, under the head of “Non-forfeiture,” provides that “if premiums upon this policy for not less than three full years have been paid in cash, and the policy be terminated by the non-payment of any premium when due, the owner will be entitled to a non-participating paid-up policy (for such proportion of the amount of this policy as the number of full years’ premiums paid bears to the total number required); as specified in the statutes of the State of New York. . . ” This provision of the policy plainly and unqualifiedly provides for non-participating, paid-up insurance in the event the policy is terminated by non-payment of premiums. If the other option had been chosen, the policy would have provided, in effect, that the insurance for the full amount would be continued in force so long as the reserve fund was sufficient to carry it. The first-named option was expressed in the policy, evidently as a business precaution in the event the insured could not continue payment of the premiums; and there was no necessity for the insured to reiterate his choice of options. This reserve fund was a provision of the policy contract. The contract of insurance containing this provision did not cease to be an outstanding policy when payment of premiums stopped. It remained in force to the extent of this secondary insurance provided for therein, because the option had previously been elected by the insured and expressed in the policy; and being expressed in the policy contract of the insured it was a “property right” which survived to the beneficiary. Veal v. Security Mutual Life Ins. Co., 6 Ga. App. 721 (2) (65 S. E. 714); McEachern v. New York Life Ins. Co., 15 Ga. App. 222 (3, 4) (82 S. E. 820). Since the assured had not forfeited his policy, the next question presented is whether the Metropolitan Company assumed liability thereunder. In determining this we must consider that, under the ruling hereinbefore made, the policy remained an “outstanding policy” — a policy “in force.” It was also an “unmatured” policy, since it would not mature and become payable until the — 304 — death of the insured, which occurred in September, 1930. The Union Company, which wrote the policy, and the Security Company, which by endorsement acknowledged, its' liability under the terms of the policy, each accepted three years’ premiums from the insured, and it is unnecessary to refer to the contract between these companies. The contract between the Security .Company and the Pittsburgh Company provides that “It is the purpose of this agreement to more effectually secure to the policyholders of the Security Trust & Life Insurance Company payment of their policy contracts already matured or which may hereafter mature according to their terms and conditions, by the perpetuity of the business, and to that end to transfer to the said Pittsburgh Life & Trust Company as and for a consideration of such assumption, and for the assumption of the payment of all unpaid death claims and all other policy obligations, sufficient of the assets of the said second party [the Security Company] to enable the said first party [the Pittsburgh Company] to carry out the said policy contracts. . . Now, therefore, in consideration of the assumption of the Pittsburgh Life & Trust Company, of Pittsburgh, Pa., of all the liabilities of said Security Trust & Life Insurance Company to its living policyholders in good standing, of any kind or nature whatsoever, as evidenced by its policies now in force, and also in consideration of the assumption of the payment of all unpaid death claims and all other policy liabilities, the Security Trust & Life Insurance Company will transfer” certain securities and money to the Pittsburgh Company. Under this contract there can be no doubt that the Pittsburgh Company assumed liability for all policies in force and for all other policy liabilitiesj and the defendant company admitted that this contract and other contracts between the companies involved were duly executed as alleged. Another contract between the Security Company and the Pittsburgh Company, relating to purchase of stock, is based upon the fact that the business of the Security Trust & Life Insurance Company had been reinsured in the Pittsburgh Life é Trust Company. This brings us to a consideration of the contract between the receiver of the Pittsburgh Company and the Metropolitan Company. The defendant company insists that it is not liable on the Benton policy, because it was not listed on the books of the Pittsburgh Company, and because the assumption of liability by the defend — 305 — ant company was subject to the approval and consent of Benton, which was not given. With certain exceptions, not material to this case, the Metropolitan Company agreed “to assume, with consent of the several owners and holders thereof, the policies of insurance of the Pittsburgh Company, including the policies of all companies reinsured by it, in force by their terms on the 7th day of May, 1917. . . This agreement shall apply . . to all unmatured policy contracts, . . it being intended that this agreement shall cover, as and from the 7th day of May, 1917, all policy and annuity contracts of the Pittsburgh Compcmy then in force and unmatured, where the holders and owners are willing to and shall consent to the assumption of their contracts by the Metropolitan Company under the terms herein proposed.” It was further agreed that “all books, papers, letters, records, cards, files, and fixtures of the Pittsburgh Company relating to its policy and annuity contracts” should be turned over to the Metropolitan Company. The policy sued on was “in force,” and therefore was assumed by the Metropolitan Company. Since the Metropolitan Compawy assumed liability for all policies of the Pittsburgh Company in force, it ivas the business of the Metropolitan Company to ascertain what policies were in force. They had all books, records, and files of the Pittsburgh Company, which necessarily disclosed the deal between the Pittsburgh Company and the Security Company ; and by proper diligence' and investigation they could have learned of the instant contract on which the Security Company accepted three years’ premiums. But be that as it may, since the Metropolitan Company assumed liability for all insurance of the Pittsburgh Company in force, the burden was on the Metropolitan Company to know or ascertain what it was assuming, and its failure to do so showed a lack of business precaution and diligence for which the insured was not responsible. Both the receiver of the Pittsburgh Company and the Metropolitan Company agreed lo use diligence in getting the consent of policyholders. In this respect also the defendant company was apparently lacking in diligence, for it did not notify the insxxred in this ease. It was xxot •within the power of the insured to give his consent to the assumption of liability by the Metropolitan -Company, because he had no notice and Tcnew nothing of the receivership of the Pittsburgh Company or of the contract between the receiver and the Metropolitan — 306 — Company. To hold that an insurance company could assume the obligations of a defunct insurance company which, though insolvent, still had some assets, under a contract which made the assumption of liability dependent upon the consent of policyholders who were in total ignorance of the contract between the two companies, and then for the companies to fail to notify the policyholders and by so doing nullify their contracts, would furnish ample opportunity for fraud. It is a matter of common knowledge that practically every standard life-insurance company has thousands of policyholders who have paid-up policies put away which they never look at, the policyholder resting secure in the thought that his insurance is paid for, and that it will be paid to his beneficiary upon his death. For such a policy to be forfeited without notice to the insured would be a flagrant injustice. There are some provisions in the contract between the receiver and the defendant company that are inconsistent and of doubtful interpretation. For instance, the contract provides that the Metropolitan Company, with the consent of the policyholders insured or reinsured by the Pittsburgh Company, may place against his or her policy a lien equal to 33-1/3 per cent, “of the legal reserve thereon as it has been established and carried on the books of the Pittsburgh Company on May 7, 1917;” and the defendant company insists that since the instant policy was not carried on the books of the Pittsburgh Company' on said date, it is not liable thereon. Yet the contract between the -receiver and the defendant company undoubtedly provides that the defendant company assumes liability on all policies insured or reinsured by the Pillshiirgh Company which were in force on May 7, 1917, and the policy sued on was in force on said date. The insured had no knowledge of and was in no way responsible for his policy not being on the books of the Pittsburgh Company. Having paid for it, he had a right to presume that it was on the books. It is undisputed that the insured had bought and paid for this reserve, and that it belonged to him. Neither he nor his beneficiary ever received the benefit of the reserve. His policy expressly provided that in the event of non-payment of premiums, after three or more yearly premiums had been paid, this reserve should be applied as a single premium for paid-up insurance. This paid-up insurance remained in force. The insured was in no way responsible for it not being — 307 — on the books of the Pittsburgh Company. Each company involved, including the defendant, assumed the liability on policies of the preceding company which were in force. The insured had no notice of the receivership of the Pittsburgh Company or of the contract between the receiver and the defendant, and therefore had no opportunity to give his consent to the assumption of liability by the defendant. The defendant having assumed liability for all policies in force, the burden was upon it to ascertain what policies were in force and what it was assuming. Under the law and the facts, the judge properly ruled against the forfeiture of the policy; and the judgment in favor of the plaintiff is Affirmed. MacIntyre and Guerry, JJ., concur.