Johnson v. Hartford Life Insurance

JOHNSON, J. — In 1888, defendant, a life insurance company incorporated under the laws of Connecticut, issued to James T. Johnson, a citizen of Henry county, ah assessment policy in its “Safety Fund Department” hy the terms of which it agreed “that ninety days from the receipt hy the president, or secretary of said company of satisfactory proofs ... of the death of the herein named member, while this certificate is in force, all the conditions hereof having been conformed to by the member, there shall be due — 263 — and payable, out of the aforesaid mortuary fund, and not otherwise, the indemnity of five thousand dollars . . . to his wife, Nannie M. Johnson.” The assured died in January, 1907, and, claiming the certificate was in force at the time of his death, plaintiff, his widow, brought th’j suit to collect the indemnity therein provided. The answer pleaded “that the certificate required the assured to pay periodical assessments; that five years before his death assessment numbered 95 was levied against him for $74.55; that the call was dated May 2,1902, and became due June 1, with a grace period expiring June 20, that at the request of the assured the time of payment of this assessment was extended to July 5, that payment was not made and in consequence of the default the certificate was forfeited and that the assured acquiesced in the forfeiture and abandoned his membership and certificate.” The reply was a general denial. Plaintiff admits that such assessment was levied, that her husband received notice thereof and that he failed to pay it, but she contends the assessment was illegal; that its non-payment did not work a forfeiture of the policy and that her husband did not acquiesce in the forfeiture nor abandon his insurance. A trial of the issues resulted in a verdict and judgment for plaintiff and the cause is here on the appeal of defendant. In King v. Insurance Co., 133 Mo. App. 612, we had before us a similar policy issued by defendant and, as in the present case, a forfeiture was claimed on account of the failure of the assured to pay an assessment levied shortly before his death. That assessment, numbered 91, fell due in March, 1901, and the plaintiff met the defense of forfeiture with the claim that the assessment on which it was founded was illegal. She prevailed in the circuit court and we affirmed the judgment. The main issues in that case were the — 264 — same as those now before us, though our concern then was with an assessment levied in March, 1901, and now is with one levied in May, 1902. Now, as then, the validity of the' assessment depends on the solution of questions raised by the policy and practices of defendant in relation to the conduct of its business, particularly that part of the business known as the ‘ ‘ Safety Fund Department.” We find the evidence in the present record differs in some respects from that considered in the King case. Defendant insists these differences distinguish the two cases in all vital particulars and, therefore, that the opinion in the King case should not be accepted as decisive of this case.; We shall consider that contention after. stating the facts disclosed by the record in hand. In 1880 defendant, which, prior to that year had been doing an “old line” insurance business, established its “Safety Fund Department” and, thereafter, and until 1899, issued new policies out of no other department. The safety fund business was conducted on an assessment plan but the members — as they were called — were merely policy holders and had np voice in the management of the business. In 1899, defendant discontinued issuing new policies out of this department and returned to “old line” business. It continued the business accumulated in this department but deaths and lapses have reduced the number of members to one-third the number holding policies when the department ceased taking new business. The plan of the Safety Fund Department was as follows: At the time of the delivery of each certificate of $1000, the assured paid an admission fee of eight dollars (which went to the soliciting agent as a .commission) and a further fee or deposit of ten dollars to be placed in the “Safety Fund.” Thereafter, he was required to pay expense dues of three dollars per annum to defray the expenses of conducting the business. Provision was made for the payment of deatJi — 265 — losses out of a “Mortuary Fund” raised by assessments levied on tbe policy holders. The safety and mortuary funds and the management of them by defendant furnish the field of controversy and the relation of their history and their condition at the time of the levy of assesment No. 113 is necessary to a proper understanding of the questions of law argued by counsel. The foundation of the safety fund consisted of the deposits of ten dollars on each certificate of $1000. As fast as they were received defendant turned such deposits over to the Security Company of Hartford who held and administered the fund thus acquired as trustee under the terms of a trust agreement executed December 31, 1879, by the Security Company and defendant. A copy of this agreement was printed on each certificate issued by defendant. Material provisions thereof are as follows: “Whereas, The party of the first part (defendant) purposes to issue to persons contracting therefor, certificates of membership in a special department of its business to be known as the Safety Fund Department, and in consideration of the sum of ten dollars to be received on each one thousand dollars of the amount of each and every such certificate for the purpose of creating a safety fund, to insert therein sundry agreements with such persons in the following words, to-wit: “That said company will deposit said sum of ten dollars, when received, with the trustee, named in a contract made with it (of which a copy is printed hereon), as a safety fund in trust for the uses and purposes expressed in said contract; and shall at the expiration of five years from July 1,1879, if said safety fund shall then amount to three hundred thousand •dollars, or whenever thereafter said sum shall be attained, make a semi-annual division of the net interest received therefrom by it, pro rata among all the holders of certificates in force in said department at such — 266 — times, who shall have contributed five years prior to the date of any such division their stipulated proportion of said fund, by applying the same to the payment of their future dues and assessments; and that, whenever said fund shall amount to one million dollars, all subsequent receipts therefor shall be divided by the said company in like manner as the interest. ’ ’ “Said company further agrees that if at any time, after said fund shall have amounted to three hundred thousand dollars, or after five years from January 1, 1880, if that amount shall not have been attained before that date, it shall fail, by reason of insufficient membership, or, shall neglect if justly and’ legally due, to pay the maximum indemnity provided for by the terms of any certificate issued in said department, and such certificate shall be presented for payment to said trustee by the legal holder thereof, accompanied by satisfactory evidence, as hereinafter provided, of its failure to pay, after demand upon it within the time herein stipulated for limitation of action then it shall be the duty of said trustee to at once convert said safety fund into money and divide the same (less the reasonable charges and expenses for the management and control of said fund), among all the holders of certificates then in force in said department, or their legal representatives, in the proportion which the amount of each of their certificates shall bear to the amount of the whole number of such certificates in force; and that in such event it shall file with said trustee a correct list, under oath, of the names, residences and amounts of the certificates of all members entitled to participate in such division. The evidence referred to above to be either certification by said insurance company’s president or secretary that a claim is justly and legally due and that payment thereof has been demanded and refused, or the duly attested copy of a final judgment obtained thereupon in any court of competent jurisdiction, satisfaction oí — 267 — which has been neglected or refused for the period of sixty days from its date. . . . “ That, as often as the sum composing such fund shall be in amount sufficient to purchase one thousand dollars, par value, of United States bonds, said trustee shall make investments of such funds therein and register the same in its name as trustee of the safety fund of the said insurance company, and, provided no default by the party of the first part as hereinbefore recited shall occur, shall accumulate said fund and the income thereof (less the reasonable compensation and expenses), for five years from July 1, 1879, or until such time thereafter as said fund shall amount to three hundred thousand dollars, par value, of the bonds purchased for said fund, when the party of the second part will pay over to the party of the first part, semi-annually thereafter, all the further income from said fund (less the accruing and unpaid compensation and expenses) to be by the party of the first part used for the purposes mentioned in -the hereinbefore recited agreements: And, unless such default shall occur, will thereafter add to the principal of said fund the deposits thereafter received from the party of the first part, exclusive of the income therefrom, until the whole fund shall amount in such bonds, at their par value, to one million dollars; and in the event of the failure or neglect mentioned in the hereinbefore recited agreements, will convert said fund into money and divide the same in accordance with the hereinbefore recited agreements, as soon as can reasonably be done after the necessary information of the proper persons and their shares shall have been obtained. Said party of the first part hereby agreeing to put the party of the second part in possession of the information required for the making of a proper division thereof as agreed with its certificate holders.” The safety fund reached its contractual limit of one million dollars sometime before 1899, and one of — 268 — the issues contested'at the trial and submitted to the jury was whether or not defendant and the trustees had suffered the fund to increase beyond that limit instead of dividing the surplus among the policy holders. On the face of the reports made by defendant to the insurance department of this state, it appears that a surplus was being accumulated in the hands of the trustee and, further, it appears that defendant had accumulated and was maintaining a large reserve fund and also was maintaining a standing mortuary fund. The report filed December 31, 1900, contains the items: “Net Safety Funds in Security Company of Hartford, Conn...........$1,112,569.14 Reserve on Safety Fund policies........ 230,220.00 Mortuary Fund held in addition to reserve ............................ 111,495.36 ’ ’ The report filed December 31, 1901, which was the last report preceding the alleged lapse of the policy in suit showed $1,166,905.02 in the safety fund; $262,257.00 in the “reserve on safety fund policies” and $116,313.59 in “the mortuary and other funds.” These reports show that defendant had built up funds which its contracts with policy holders did not authorize, consisting, at the close of business in 1901, of $166,905.02, surplus in the safety fund, $262,257,000 in the reserve fund and $116,313.59, in the mortuary fund, malting a total of $545,475.61. Had the assured, when notified of the call for the 95th assessment, examined this report (and it was open to his examination) he could have reached no other conclusion than that defendant was maintaining and increasing a great reserve fund it has no right to maintain' and which greatly exceeded the total of the death losses the 95th assessment was levied to pay. In other words the report, which was made under oath and filed in pursuance of the insurance laws of — 269 — this state, disclosed that the 95th assessment was illegal because it was levied to pay losses which could be paid out of funds in defendant’s hands or under its control applicable to the payment of such losses. But it is contended by defendant that its evidence conclusively disproves these solemn statements. It appears from that evidence that there was no surplus in the safety fund and that the apparent excess consisted of the safety fund in its “"Woman’s Department” and not of a surplus in the fund belonging to the “Men’s Department” and' that the item “Deserve in Safety Fund Policies” was not what it purported to be but referred to a fund applicable to policies of another class. As to the mortuary fund, that-evidence shows that it varied and at the time of the call for the 95th assessment was less than $50,000 but it appears beyond question from the testimony of defendant’s president that defendant kept on hand a standing mortuary fund out of which it paid losses promptly without waiting to levy an assessment to pay them, and that assessments were levied, not for the payment of unpaid death claims, but to replenish the mortuary fund. By this practice, policy holders were assessed to pay anticipated death losses before and not after their occurrence. Eeturning to the items of excess in the' safety fund and reserve on safety fund policies, we hold the evidence of defendant is not conclusive and, to say the least, the verified reports made to the Insurance Department were of sufficient evidentiary potency to raise an issue of fact to go to the jury. On their face these reports are clear -and unequivocal. They do not mention a woman’s department, and they purport to speak of the two funds under consideration only as funds belonging to the department out of which the policy in suit was issued. The statements in those reports are so radically and importantly antagonistic to the evidence adduced by defendant as to preclude the — 270 — thought that an honest mistake might have been made in them. The only permissible conclusion is that defendant either knowingly misstated vital facts in the reports or has distorted them in its evidence. The jury were entitled to accept the reports as veracious and to reject the contradictory evidence. Taking up‘the mortuary fund again, we pass to the contention of defendant that its right to maintain a margin in that fund equal to the proceeds of one assessment was adjudicated in a decree entered in the Superior Court of New Haven county, Conn., in the case of Dresser et al. v. Hartford Life Ins. Co. (the present defendant) and others. That was a suit in equity begun in 1906 by thirty-one certificate holders against defendant, the trustee of the safety fund and certain officers of defendant to obtain an accounting and the appointment of. a receiver on the ground of mismanagement and intended misappropriation of funds belonging to policy holders. The lower court sustained the demurrer to the petition and on the appeal of plaintiffs to the Superior Court of Errors, the judgment was reversed and the cause remanded for further proceedings. We quote from the opinion: “The language of the certificate is that ‘if at any time it (the insurance company) shall fail by reason of insufficient membership, or shall neglect, if justly and legally due, to pay the maximum indemnity provided for by the terms of any certificate, ... it shall be the duty of said trustee (the security company) to at once convert said safety fund into money, and divide the samn . . . among the holders of certificates then in force. . . .’ The plaintiffs claim that by this provision there must be such a division of the safety fund among the certificate holders, when their number becomes so reduced that the aggregate amount of their insurance does not exceed $1,000,000, as would be the case when there were but 1000 holders of certificates at $1000 each. The claim of the insur — 271 — anee company, as- stated in paragraph 29 and admitted by the demurrer, is that, even after tbe number of certificate holders are so reduced, it may continue to collect dues and to make mortuary assessments, unlimited in the average amount, and unrestricted by the number of certificate holders, and to declare the rights of certificate holders forfeited who fail to pay such dues and assessments. If the insurance company may so continue to levy assessments unlimited in amount, it is difficult to see when there can be a failure to pay certificates by reason of insufficient membership, or how the certificate holders have much protection from the existence of the so-called safety fund. Which of these constructions is the correct one depends upon what is meant by the-provision, if the insurance company shall ‘fail (to pay the amount of any certificate) by reason of insufficiency of membership.’ Clearly by the word ‘fail’ is not meant a default in any obligation assumed by the insurance company. While the company undertakes to make the assessments (Lawler v. Murphy, 58 Conn. 295, 20 Atl. 457, 8 L. R. A. 113), and to pay the sum collected, its express agreement is to pay the amount of certificates from ‘the mortuary fund, and not otherwise.’ If, after an assessment for the payment of the amount due upon a certificate is properly made and the assessment paid, the amount realized proves insufficient to pay the indemnity due, the failure is that of the mortuary fund, and not of the insurance company, and there can be no such failure of the mortuary fund, ‘by reason of insufficient membership,’ unless there is a fixed maximum limit of assessment. The certificate fixes such a limit. It provides that the payment of ‘mortality calls’ to form a ‘mortuary fund’ for the payment of ‘all indemnity matured by the deaths of members’ are to be levied ‘according to the table of graduated mortality ratios given hereon, and as further determined by their respective ages, and the aggregate indemnity at the dates of such deaths — 272 — . . . ’ In the application, which is by its terms made a part of the contract of insurance, each member agrees to pay ‘all mortality calls determined as within set forth.’ Attached to Exhibit B is a table showing’ the method of determining mortuary calls and the ratios graduated according to ages of certificate holders for assessments against each holder of a $1000 certificate, for the collection of a death loss of $1000. This method is based upon a minimum outstanding insurance of $1,000,000. There is no other method provided by the contract, and therefore none for the making of mortality calls after the total amount of outstanding insurance falls below $1,000,000. It is expressly stated that these ratios will decrease as the total amount of outstanding insurance increases. There is no suggestion that they can ever be increased. It must be held that they cannot. Even if it is doubtful which of the two claimed constructions of the contract should be adopted, the doubt should be resolved in favor of the insured. [Liverpool & L. & G. Ins. Co. v. Kearney, 180 U. S. 132, 21 Sup. Ct. 326, 45 L. Ed. 460; Fricke v. U. S. Indemnity Co., 78 Conn. 188, 192, 61 Atl. 431.] The demurrer to the first prayer for relief in so far as it applies to that part of the prayer which asks that the certificates be construed as providing that when the amount of the face of outstanding certificates is reduced to $1,000,000 the safety fund is to be distributed among the certificate holders should have been overruled. Since the contract may be construed as above stated, it should not be reformed as requested.” The case was remanded to the New Haven County Superior court where a decree was rendered March 23, 1910. The court found, as we find, that defendant constantly carried a margin or reserve in the mortuary fund and speaking of that practice, said: “The plaintiffs claimed it was improper and wrongful to accumlate these margins and to carry this balance in said mortuary fund, and claimed that said — 273 — balance of margins should be distributed among the Outstanding certificate holders.; but it is held that it is proper and reasonable that the company should ■ hold some such fund for the purpose of enabling it to pay losses promptly, but it is not necessary for that purpose that the company should hold more than the amount of one average, quarterly assessment for the previous year. Said fund belongs to the certificate holders and is held in trust for them and the Hartford Life Insurance Company has the right to hold the same to the extent above stated in trust for said certificate holders and for application to the settlement of death claims and said fund should be ultimately distributed in the settlement of death claims as hereinafter provided, before said certificates in accordance with their provisions are extinguished and the safety fund distributed in accord with the-judgment of this court.” It was adjudged that when the amount of the outstanding certificates “falls to the face amount of one million dollars and the safety fund is distributed among the holders of said certificates the balance, if any, of said mortuary fund remaining in the hands of the Hartford Life Insurance Company, shall be distributed pro rata among the certificate holders whose certificates are outstanding at that time.” Defendant argues: ‘ ‘ Perhaps it will be urged that this opinion and judgment is no more than persuasive authority. But, if it is only this, surely it ought to persuade. It would be little less than abominable if the company was controlled as to the management of these funds by divergent view of numerous different courts, for then neither the company, the insured, their lawyers nor the courts could ever possibly tell what were the company’s rights and duties with respect to these funds. On principles of comity, this court should incline to follow and adopt the rule there laid down. But we submit that the case' is something more than — 274 — merely persuasive authority. It is the opinion, judgment and decree of the court in which this fund is actually being administered and by the decrees of which the defendant is bound, and the defendant being bound thereby, the rights of the beneficiaries of these funds ought not to be determined by a rule variant from that by which the company is bound to administer the fund. The mortuary fund, which the defendant has maintained, it has been adjudged right and proper for it to maintain by the courts of Connecticut.” The Superior Court of Errors is a court of last resort for which we entertain the highest respect and we are willing to accord the decision of that court the same effect that would be given it by that court itself if this case were before it for determination. The two cases are not identical in parties, cause of action, or decisive issues. Paintiff was not a party to that suit; there was ño question of the forfeiture of her rights involved therein, the issues before us were not considered in that case and there is nothing in the opinion from which we quoted to sustain the contention of defendant that it had a right to maintain a surplus in the mortuary fund. The New ITaven County Superior Court is not a court of last resort and its decrees are no more persuasive than would be the decree of a trial court in this state. Plaintiff stands on entirely different ground from that occupied by the plaintiffs in the Dresser case. This is an action at law and defendant is standing on a forfeiture alleged to have occurred automatically by Johnson’s failure to pay an assessment. The law abhors forfeitures and courts will indulge in no presumption to aid them. Under the admission that Johnson was a certificate holder in good standing up to the time he defaulted in the payment of the 95th assessment, the burden was on defendant to show affirmatively the existence of the facts on which-it predicated its.right to declare a forfeiture. No presumption of — 275 — right acting in the levy will he entertained but on the contrary, defendant will be held to prove that the assessment was necessary, was not excessive, and was levied in the manner prescribed in the contract. [Earney v. Modern Woodmen, 79 Mo. App. 385; Agnew v. A. O. U. W., 17 Mo. App. 254; Puschman v. Ins. Co., 92 Mo. App. 640; Hannum v. Waddill, 135 Mo. 153; Stewart v. A. O. U. W., 46 S. W. 579 (Tenn.); 2 Bacon on Benefit Soc. (3 Ed.), sec. 377.] A certificate holder in an assessment company cannot be put in the wrong and subjected to the penalty of forfeiture until he neglects or rejects a lawful demand. If the assessment in question was illegal, defendant was without legal justification in refusing to pay the loss. Defendant argues it was necessary to maintain a margin in the mortuary fund in order that losses might be paid promptly. That argument might have weight but for two facts: First, the contracts with policy holders expressly provided that assessments for the mortuary fund should be levied only for the payment of losses already matured by death and, in effect, forbade the maintenance of a reserve in that fund and, second, there was no business reason to serve by anticipating the regular method prescribed in the contracts for the payment of the death losses for the reason that the department was not taking new business and continuing members could not complain as long as defendant was observing the terms of their contracts. Doubtless it would be reasonable for a going assessment company to provide in its contracts with members for the maintenance of a reserve in the mortuary fund to pay death losses promptly, but it is indefensible for a company retired from active business to levy assessments for such purpose in violation of the terms of its contracts with members It matters not how reasonable it might have been to keep on hand a surplus fund. The contract did not permit it and in declaring a forfeiture defendant — 276 — elected to stand on the strict letter of the contract and will not be heard to complain of the unreasonableness of its terms. We conclude that the jury were entitled to find from the evidence that the assessment in question was illegally levied and that defendant had on hand in the safety, reserve, and mortuary funds a sufficient fund for the payment of all accrued death claims. The defense of abandonment we find is not well founded. Johnson did ask for an extension of time which was granted. After the expiration of that period, he had no further communication with defendant and his silence cannot be tortured into acquiescence in the forfeiture. He had no voice in the affairs of the company and, therefore, was not required to protest or appeal to defendant for redress. Nor was it required of him to make a tender of subsequent assessments, if any, that were lawfully levied, for that would have been a vain and useless formality. In the case of Wayland v. Insurance Company, decided at this term, we considered at length the subject of abandonment in such cases and refer to our opinion in that case for a full discussion of the subject. In conclusion we reaffirm our decision in the King case and apply it here as far as it may be applicable to the present facts. The judgment is affirmed. Broaddus, P. J., concurs ; Ellison, J., dissents in separate opinion.