Washington Life Insurance v. Miles

Opinion of the court by CHIEF JUSTICE GUFFY — Affirming. The petition in this case shows that the appellant issued to appellee, Samuel I. Miles, a policy of life insurance in the sum of $5,000, June, 16, 1890. This policy was on what — 746 — is termed the “twenty-year life survivorship distribution plan,” the insurance being for the benefit of Alma Miles, sister to the insured. The premiums to be paid were $27.10, payable quarterly, which payments were made by plaintiff for three years. It is further alleged as follows: “Plaintiff says that by the.terms and conditions of said policy of life insurance the- defendant agreed and stipulated that, if the said policy should lapse and become forfeited for the nonpayment of any premium upon which the same shall fall due after the payment of three annual premiums, the said defendant company agreed, upon demand of' said insured plaintiff, to issue to said plaintiff a nonparticipating paid-up policy for such sum as the reserve on such policy at the time of such lapse and forfeiture by such nonpayment will purchase as a single premium at the company’s rates. Plaintiff says that he has so paid to the said defendant three annual premiums, as hereinbefore set out, and that on the 16th day of December 1893, the said policy did lapse and become forfeited for the nonpayment of a premium due upon that said date. Plaintiff says that in accordance with the conditions hereinbefore set out 'he did demand of said defendant the issual of a paid-up policy as aforesaid, but that defendant declined and refused to issue the policy aforesaid, and is now declining and refusing to issue same. Plaintiff says that at the time' of the said lapse and forfeiture according to the published rates of the, said defendant company there was and is now due him from the said defendant a paid-up nonparticipating policy of life insurance for $7S(), which said defendant refuses and declines to issue to said plaintiff. So much of the answer of defendant as is deemed material reads as follows: “The defendant company admits that it did, on the 16th — 747 — day of June, 1890, execute and deliver to plaintiff, Samuel I. Miles, its policy of insurance for $5,000, No. 69,066, filed with the petition herein, and the contract of insurance between plaintiffs and defendant is set forth in said policy, and not otherwise. Defendant admits that said policy was so issued for the benefit of Alma Miles, sister of the insured, 'her coplaintiff; and admits that plaintiffs have paid three full annual premiums on said policy of, insurance, and admits that on December 16, 1893, said policy did become lapsed and forfeited for nonpayment of premiums. For further answer the defendant company says that said policy and contract of insurance between plaintiffs and defendant contained and does now contain, the following stipulations and conditions, via: ‘(3) Notwithstanding this policy shall lapse and become forfeited for nonpayment of any premium upon the day upon which the same shall fall due according to the terms. thereof, as hereinbefore contained, yet, after the payment of three annual' premiums^ and\ upon demand made with surrender of this policy within six months after such lapse by such nonpayment, this company will issue, a nonparticipating paid-up policy for such sum as the reserve upon this policy at the time of such lapse and forfeiture by such nonpayment, as provided by chapter 347 of the Laws of New York of 1879, will purchase as a single premium as the company’s published rates, 'and the paid-up insurance purchased by the surrender of this policy shall be payable at the same times and under the same conditions, except as to payment of premiums and the guaranty of the full reserve as a cash value as the original policy; provided and agreed however, that any voluntary application by the company of such dividends as hereinafter mentioned shall, as relates to action under chapter 347 of the Laws of New York, 1879, be taken into consideration — 748 — .in computing the amount of the reserve thereunder.’ Defendant, further answering, says that the law of New York referred to in said stipulation and agreement, is and was in words and figures as follows, to-wit: ‘Chapter 847. Laws of New York, 1879. An act to protect the rights of policy holders in life insurance companies. Passed May 21st, 1879. The people of the State of New York represented in senate and assembly, do enact as follows: (1) Whenever any policy of life insurance hereafter issued by any company or-' 'ganized or incorporated under the laws of this State after being in force three full years, shall' by its terms lapse or become forfeited for the nonpayment of any premium or loan made in cash on the policy as security, or of any interest on such note or loan, unless.the provisions of this act are waived in the application and notice of such waiver written or printed in red ink on the margin of the face of the policy when issued, the reserve on such policy including dividends, additions, calculated at the date of the "failure to make any of the payments above described according to the American Experience Table of Mortality and with interest at the rate of 4per cent, per annum, after deducting any indebtedness of the insured on account of any annual, semiannual or quarterly premium then due, or any loan made in cash on such policy, evidence of which is acknowledged 'by the insured in writing, shall on demand made with surrender of the policy within six months after such lapse be taken as a single premium of life insurance at the published rates of the company at the time the policy was issued and shall be applied as shall have been agreed in the application and policy, either to continue the insurance of the policy in force at its full amount so long as such single premium will purchase temporary insurance for that amount, at the age of the insured at the time of lapse or — 749 — purchase upon the same life at the same age paid up im jsurance payable at the time under the same conditions, except as to payment of premiums as the original policy; provided that if no such agreement be expressed in the application and policy the said single premiums may be applied in either of the modes above specified, at the option of t(he 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. Provided, also, that the net value of the insurance given for such single premium under this section computed by the standard of this State shall in no case be less than two-thirds of the entire reserve after deducting the indebtedness as specified; but such insurance shall not participate in the profits of the company.’ Defendant says that said law was printed in .said policy filed herein, and made part hereof, and that defendant company and plaintiffs in issuihg and accepting ■said policy contracted with reference to said law, and agreed that same should become and was a part of said'contract of 'insurance. Plaintiffs, in accepting said policy, did so upon the conditions and agreements printed by the company on the inside of the policy, and. such conditions and agreements were referred to and accepted by plaintiffs and the assured as part of the said contract of insurance, and it is and was agreed that such conditions and agreements should and shall have the same force and effect as iff printed in full over the signature of the parties to said contract. Defendant further says that the law referred to and stated herein was by the people of New York represented in Senate and assembly duly enacted for the benefit and to protect the rights of policy holders in life insurance companies, and said law was duly signed and sealed by proper authority, whereby it was placed in full force and effect, and was at the — 750 — ■time of the making of the contract filed herein and is now the law of New York, and in full force and effect. Defendant further says that by the express terms, conditions, and agreements of said contract of insurance, as more particularly set out hereinbefore, it was provided and agreed .between plaintiffs and defendant that no nonparticipating paid-up policy of insurance should be issued unless demand therefor was made • within six months, with surrender of this'policy, No. 69,066, from .the time default was made in payment of premiums and from time policy lapsed and became forfeited for reason of nonpayment of the premium when due; and defendant says that six months was and is a reasonable time within which to make said demand and surrender of policy aforesaid. Defendant says that plaintiff did make suoh default and said policy did lapse and become forfeited for nonpayment of premiums as aforesaid, on the 16th day of December, 1893, and plaintiffs did not demand of defendant such paid-up policy or any policy within six months from the date of default and lapse as hereinbefore mentioned, and did not within said \ time offer to surrender said policy No. 69,066, and plaintiffs did not until in the month of December, 1897, four years after said default and lapse, make demand for such paid-up policy. Defendant pleads a!nd relies upon said default in payment of premiums and plaintiffs’ failure' to demand said paid up nonparticipating policy, with said surrender, within six months, thereafter, as provided by. the terms and conditions and agreements of said policy of |ife insurance and the laws of New York, in bar of plaintiffs’ right to relief •sought.” “(3) The defendant, Washington Life Insurance Company, !for further answer, says: It is a corporation created under and by virtue of the laws of the 'State of' New York for the — 751 — purpose of insuring the lives of its members upon what is known as ‘the mutual plan’ of insurance, and defendant says jts insurance business has always been, was at the time of issuing of the policy filed herein, ever since then, and Is now conducted on the principle of giving policy holders interest in the profits of the company, as is required by its charter, a copy of which is filed herewith', and made part thereof, marked ‘Charter;’ and defendant says section 2 of article 3 of said charter reads as follows: ‘Section 2, art. 3, (amended 1863 to read as follows): The insurance business of the company shall be conducted upon the principle of giving to policy holders an interest in the profits of the company as hereinafter provided, unless otherwise expressly agreed between the company and the insured.’ Defendant says that its policy holders have at all times shared in the profits of the company as required by its charter, and said defendant has never otherwise expressly agreed with its policy holders at any time, but said policy holders have at all times shared in' any and all profits of the com: pany to which they were entitled under the charter of said ^defendant company and under its by-laws, and said profits ’have at all times been apportioned among such policy holders and paid or applied in the manner and at suoh times, as the board of directors determined from time, which said board of directors had a right to so determine under the company’s) charter under the laws of the State of New York. Defendant says that section 2 of article 7 of said charter is in words and figures as follows, to-wit: ‘Section 2 (amended 1863 to read as follows): The holders of said capital stock shall be- entitled to a semi-annual net dividend out of the earnings of the company of (but not exceeding) three and one half per cent, on the amount of stock held by them respectively, payable on and after the first day of February — 752 — and August without deduction,; and said payments commencing with the first day of August, 1863.’ Defendant says section 1, art. 8, of said charter is in words and figures as follows, to-wit: ‘Section 1 (amended 1S63 to read as follows: The company withifi sixty days next after the expiration of five years from the first day of January, 1861, and within the first sixty days next after the expiration of every subsequent period of five years, shall cause a general statement to be made of the affairs of the company, which shall then exhibit the amount of the then remaining net profits of the company after allowing a sufficient amount to reinsure all outstanding risks and to cover all other obligations. The whole amount of the net profits- so ascertained as above provided shall be credited to the account of the policy holders entitled to participate'in the profits, which shall be apportioned among them and paid* or applied in such manner and at such' time as the board of directors ¡may deem equitable and from time to time provided.’ Defendant says that out of the premiums paid by plaintiffs on said policy this defendant retained and held on hand until 1st day of July, 1894, which was and is three years and six months from the date of said policy, the sum' of $94.10, which was the net reserve derived from said policy, which was the full extent of plaintiffs’ interest, if any they had, for life insurance in this defendant mutual life insurance company by reason of said policy No. 69,066. Defendant says that all other sums paid’ on said policy, and all otiker policies issued by said company then in existence and force, have long since been distributed and disposed of among its then outstanding policy holders according to the terms of its charter and as required by the laws of the State of New York, after having first paid therefrom the necessary costs and expenses of conducting the business of — 753 — said defendant company. Defendant says by reason of plaintiffs’ failure to pay premiums on said policy No. 69,066 when due, and their failure to deliver up to defendant the .said policy within six months as hereinbefore more specifically set out, said plaintiffs forfeited all right and interest in and to said net reserve derived from premiums paid on said policy and all other policies outstanding against said company, and plaintiffs’ said interest in said net reserve was so forfeited and became the assets of the existing and continuing policy holders of said company, and has long since said lapse and forfeiture, with the knowledge and consent iof plaintiffs, been credited and paid to them, the said existing and continuing policy holders, after first having paid costs a,nd expense of carrying on the business of said defendant company, according to and as required by defendant’s charter and by the laws of New York; and defendant says said net reserve derived from said policy No. 69,0186 has been so credited as the assets of the continuing policy holders of defendant company in all subsequent declarations and distributions of surplus and profits which said company has declared and distributed among its members Isince plaintiffs ceased to be members thereof. Defendant says that sixty days after the 1st of January, 1896, as required by its charter (section 1, art. 8), it made a general statement of its business and affairs, which exhibited the then remaining net profits of the company after allowing a sufficient amount to insure all outstanding risks and to cover all obligations, and the whole amount of net profits was ascertained and credited to the existing and continuing-policy holders, and was apportioned among them as required by defendant’s charter at which time plaintiffs were not members of the defendant company, their policy haying — 754 — long prior thereto lapsed and become forfeited as herein-before specifically set out. Defendant says that it was the duty of plaintiffs to surrender said policy with a demand for the paid-up policy in lieu thereof, if they intended to require defendant to issue paid-up policy, within a reasonable time from time of default as hereinbefore set out; but defendant feays plaintiffs did not make such demand, coupled with surrender of policy, or at all, within a reasonable time after the lapse of said policy for nonpayment of premiums as hereinbefore more specifically set out. Defendant says that since the lapse of said policy and filing of petition herein the rights and interest of continuing policy holde'rs have intervened, and to now require defendant to issue said paid-up policy would plunge its business in an unsettled and uncertain condition, would be a fraud and hardship upon its continuing members. Defendant says that said policy ceased to be a liability against said defendant on the — day of -, 189--, and prior thereto, and has never since that time been a liability against defendant, and is not now a liability against defendant company, by reason of plaintiffs’ failure to demand a paid up; policy and surrender said" policy No. 69,066 within a reasonable time after failure to pay premiums due and after lapse of said policy. Defendant says six months was and is a reasonable time within which to make such demands and surrender, and defendant says that by the negligence, laches, and failure to perform the condition of said policy and 'the conditions imposed by the law copied herein plaintiffs are estopped to maintain this "action, and defendant pleads such negligence, laches and failure as a bar to prosecution of this action; and relief sought. ‘‘(4) Defendant says, if it is liable to plaintiffs for a paid-up nonparticipating policy in any sum, which it denies, it — 755 — is only liable for nonparticipating paid-up policy for such sum as the reserve, $94.10, on said policy at the time of lapse and forfeiture by reason of nonpayment of premiums, will purchase as a single premium at the company’s published rates, and defendant says that said reserve would, at icompany’s published rates, purchase only a paid-up nonparticipating policy for $250, and no more, when ascertained in the manner set out in the policy No. 69,066, which was and is the manner agr-eed to by and between thé plaintiff and defendant for determining the amount of such paid-up inburance. Wherefore defendant, having fully answered, prays that the petition herein be dismissed, that it have judgment for costs, and it prays for all proper and equitable relief.” It will be seen from the foregoing that the stipulations of the policy require the insured to apply for the paid-up- policy in question, and required the demand, accompanied with a surrender of the policy, to be made within six months from the time at which the policy had lapsed on account of the nonpayment of premiums. The court, however, upon final submission of the cause, adjudged that the plaintiff should recover of the defendant, the appellant, a paid-up nonparticipating policy 'of life insurance for $240 in said company for the benefit of the plaintiff Alma Miles, and it was further adjudged that the defendant, now appellant, issue to him, the plaintiff, the said policy of insurance aforesaid; and it was further adjudged that plaintiff hare judgment against the defendant for the costs; to all of--which the defendant excepted, and prayed an appeal to this court, which was granted. Numerous authorities are cited by both appellant and appellees. It is the contention of appellee that time fs not of the essence of the contract, and that under the stipula — 756 — lions of the policy the appellees had paid for and were entitled tó a paid-up policy as stipulated for in the policy of insurance. In Montgomery v. Insurance Co., 14 Bush, 51, it appears that a policy of life insurance was issued with the stipulation that, after certain payments had been made, the insured, within a certain specified time, might surrender the policy, and obtain a paid-up policy for a certain amount. The question in the case involved was the right of the insured to a paid-up policy although demand was not made within the time specified in the policy, and this court said: “Time is not generally of the essence of contracts. Story, Eq., section 776. It may be so when the contract is executory on both sides, or when the nature of the transaction or stipulation of the parties shows it was so intended by them; but, when the defendant has received the entire consideration for performance on his part, and has no other defense except that the plaintiff did not come within the stipulated time- to demand performance, we are not acquainted with any authority or legal principle upon which such a defense can be upheld in a court of equity. If, for any reason, the defendant has become unable to perform his. agreement, or performance would be more difficult or onerous at the time of the demand than it would have been at the time; stipulated, there might be plausibility in such a defense, and a court of equity would no doubt either deny all relief to the plaintiff or grant relief upon terms that would compensate the defendant for the additional burden resulting from the plaintiff’s delay; but nothing of the kind is pretended in this case. The proposition upon which this branch of the company’s defense rests is this, and nothing more: It is admitted that the assured, paid for a paid-up policy for $4,000, and that, if the old policy had been surrendered at — 757 — any time between September 5, 1872, and September 5,1873, the company would have been bound to issue a new policy for that sum; and because the old policy was not surrenxlered within that time the assured has lost the benefit of. $4,000 paid-up insurance.” In Insurance Co. v. Jarboe, 102 Ky., 80 (19 R., 1501) 42 S. W., 1097, 80 Am. St. Rep., 343), the syllabus reads: “Under the provision of a policy of life insurance that, ‘after three full annual payments have been paid upon this policy, the company will, upon the legal surrender thereof before default in payment of any premiums, or within six months thereafter, issue a 'nonparticipating policy for paid-up insurance, payable as herein provided, for the proportion of the amount of this policy which number of full years’ premium bears to the total number required, time is not of the essence of the contract, and the insured does not forfeit his right to such paid-up policy by a failure to demand it or to surrender the original policy within six months after default. The original policy being dead, the insured' is not required to surrender it before bringing suit for the paid-up policy.” The court, in discussing the question under consideration, said: “It will be seen from the policy in the case at bar that it was distinctly provided that, if the assured paid three annual payments, he was then entitled to a paid-up policy, in proportion to the premium paid, provided he surrendered the policy before he made default or within six months after default in the payment of premiums. It is clear under the contract that the three payments not only continued the policy in force for the time being, but also paid, at the election of the assured, for a paid-up policy in proportion to the premiums paid. The contract has none of the elements of an offer to sell, but it is a clear case in which the assured has bought and paid for a certain thing. It has — 758 — a stipulation, in effect, that he shall demand it within six months after his abandonment of the' other benefits acquired under the same contract. The only defense presented in this case is the simple fact that the'appellee had not, within six months after the failure to pay the premium due, surrendered the original policy and demanded the issuing of the other. It is not pretended that it was any more difficult or expensive for the appellant to issue a paid-up policy when demanded than if it had been demanded at the end of the six months, nor can. it be of any pecuniary consequence to defendant whether the forfeited policy was delivered up before the institution of this suit. The original policy, being dead and of do effect, could be of no value to any person.” It is further stated in the opinion as fol- ■ lows: “To the extent, if any, that the principles announced in the decisions in Insurance Co. v. Barbour, 92 Ky., 427 (16 R., 619) (17 S. W., 796, 15 L. R. A., 449), and Hexter v. Insurance Co., 91 Ky., 356 (12 R., 921) (15 S. W., 863), conflict with the doctrine announced in Montgomery v. Insurance Co., they are overruled.” The same doctrine was affirmed in Insurance Co. v. Patterson (109 Ky., 624) (22 R., 1282) (60 S. W., 383, 53 L. R. A., 378). From the foregoing it will be seen that the settled rule •of this State is that time is not considered of the essence •of the contract in such insurance policies as the one under consideration, and that the mere failure to surrender the policy and demand the issuance of the paid-up policy within the time prescribed in the policy does not defeat the right of the insured to obtain the paid-up policy stipulated for ; in the contract of insurance. Tt is, however, insisted for appellant that, under the principles of the decisions heretofore referred to, the appellant in this case comes within the rule laid down in the decision supra, torwit: That the — 759 — conditions of the parties had changed, or that performance would be more onerous than if required within the specified time; and it is claimed that the appellant in this case had •distributed the supposed surplus accruing from the forfeited policy in question, and that the laws of New York, under whose laws the appellant was authorized to do business, •required it to distribute such surplus amongst the policy holders, and that, therefore, to be required now to issue the paid-up policy'demanded would impose upon the policy holders or others a loss or some deprivation of rights or interests that would not have occurred if the demand had been made within six months from the time the policy lapsed. We do not think there is any force in this argument. In the first place, it may be said that the company should be presumed to know the law, and should not report the proceeds of the lapsed policy as a surplus until after the time in which it would be exempt from issuing the paid-up policy. Moreover, the policy holders must be presumed, when they receive policies of insurance in the company to assume whatever risks that legally attend or may result from the issuance of their policies. In addition to this, it may be said that there is nothing in this- case to show that the reserve fund of appellant is not amply sufficient to equalize and protect the interests of all the policy holders in said company. It is contended for the appellant that under the rules and customs of? the company, on the 1st of January succeeding the expiration of the time lapsed policy holders can apply for a paid-up policy, the surplus is distributed or disposed of, and therefore they should not be required after that time to issue paid up policies. If this be true as a matter of law, they might adopt any other rule, and in 10 or 20 days after the termination of six — 760 — months make distribution of the surplus so acquired, and thus always defeat the rules laid down in the cases supra. The appellant earnestly insists th^t the courts should lay down some rule or some time at which the right to demand and receive a paid-up policy should terminate. Taking into consideration the nature of life insurance, and all the facts and circumstances involved therein,.we are of opinion that the insured should, within five years from the time he was entitled to demand a, paid-up policy, make such demand, or that his laches in so doing should bar his night to demand and receive the same. For the reasons indicated, the judgment appealed! from is affirmed. Whole.court sitting.