Hencken v. United States Life Insurance

J. F. Daly, J. [After stating the facts as above.]—We have held in this court that a mutual life insurance company is not a trustee for its policy holders (Taylor v. Charter Oak Life Ins. Co., 9 Daly 489). The company receives its premiums as its own property, to do with them what it pleases except as it is restrained by statute; it is wholly immaterial to the policy holder what is done with the money until the maturity of his policy. Dividends are paid out of the profits of a business carried on by the company, and are not in any sense profits made by the policy holder (People v. Security Life Ins. (&c. Co., 78 N. Y. 114). The relations between the company and the policy holder are those of contractors, the contract being the policy, and the liabilities of the company are to be determined by that (St. John v. American Mut. Life Ins. Co., 13 N. Y. 33-39). These authorities must dispose of the case as an action for equitable relief based upon an assumed trust in the ofScers of the company for the benefit of policy holders. So far as a claim for damages upon [290] a purely legal cause of action for fraud is concerned, plaintiffs expressly disclaim any; but if we were bound to retain the action to give legal relief (Sternberger v. McGovern, 56 N. Y. 12) the proof in my opinion fails to establish a ground for it. Fraud is alleged by which plaintiffs were induced to surrender their policies and their dividends for a sum much below their real value, and to take out a new policy at a higher annual premium and containing terms and conditions less beneficial to the assured. But fraud cannot be alleged against these transactions, because plaintiffs acted with their eyes open with full opportunity for ascertaining every fact which was not patent. The new policy bore a larger premium (based on Mr. Hencken’s increased age) than the old ones, and contained harder conditions, but that was apparent on. the face of the paper when plaintiffs accepted it. Nothing was then done or said by the company to induce an acceptance of it. It was accepted with four years’ pre-. miums credited in advance upon it. No complaint was made until after the four years, when Mr. Hencken went to pay the next premium; and then, with knowledge of all" the facts, he used an accrued dividend on the new policy to pay that premium, thus affirming the contract in the strongest manner. ■ Mr. Hencken says that he does not recollect reading the finely printed portions of the policy, but gives no reason for not doing so.. Had he'read.it he would have perceived the stringent conditions as to. the use of intoxicating liquors,'opiates, as to self-destruction, felony and so forth, which it contained. Having simply neglected to read his contract he can have no relief against defendants. As to the surrender of accrued dividends amounting on their face to $545.35 on the old policies, for. an allowance in cash of $408.99, the plaintiffs knew the amount credited on their policies, and could have ascertained what should have been credited ; they were offered as the then present value of the dividends $408.99. No other dividends than those credited on the policy had. been declared. The plaintiffs had as much knowledge as defendants of the value of the [291] 'dividends; they were not then (May 1st, 1871) payable, but fell due only at Mr. Hencken’s death, with the policy. His chance of life was one basis for estimating the present cash value. But the were subject to another contingency—that plaintiffs would keep their contract by payment of premiums and living up to the conditions of the policy. The company used an arbitrary rule for ascertaining present values, viz.: discounting the face of the dividends at 4J per cent, for the time the policy had to run to maturity, according to life insurance computations. The plaintiffs might make their own guess at the value ; whatever might be said on either side was matter of opinion only, upon which no allegation of fraud could be founded. Plaintiffs did not complain of this transaction for seven years, and' until this' action was brought. It is said, however, that the old policies surrendered had an “ acquired value ” and represented a “liability” of the company, exclusive of dividends, amounting to over $2,000, and that setting off the credit of four years’ premiums allowed on the new policy, the company was the gainer by the exchange to the amount of several hundred dollars. It seems, however, that the “ acquired value ” of the old policies was based on a computation of'the value of the “ reserve ” on each policy of the company. This reserve is not a sum of money which in any possible contingency would be payable to the assured, but is that' amount which the company “since its,organization-.has been required, bylaw to beep at all times on hand and safely invested, as if, increased by compound interest at 4-|-' per cent, per annum, would be at any time sufficient to re-iusure, protect and - indemnify all its outstanding risks and obligations.” If policies be surrendered the gain to the' company is the diminished reserve it has to keep up ; the reserve is merely a fund for the security of the policy holder, not to be divided with , him, and the loss to. the. assured on this account, when he surrenders a policy, is merely fanciful. The surrender by the wife of Mr. Hencken was author [292] ized expressly by the act, chapter 710, Laws of 1870, section 3. The judgment should be affirmed, with costs. Van Brunt and Van Hoesen, JJ., concurred. Judgment affirmed, with costs.