Aetna Life Insurance v. Sugg

Opinion by Judge Settle Affirming. Henry H. Sngg, of Logan county, at 45 years of age procured on his life what is called a twenty-payment policy of insurance for $5,000 in the appellant company, and the annual premium on which was $203.90. He paid nine annual premiums, -hut failed to pay any subsequent premium maturing before his death, which occurred four years and eleven days after the first default in the payment of premium. Alfter his death, and within five years of the time of the first default in the payment of premium, his widow, the appellee, Mary E. Sugg, beneficiary in the policy, demanded of appellant that it issue to her a paid-up policy for $2,150, or pay her that sum as provided by the terms of tbe first policy, and, ber demand not being complied with, she brought suit against appellant to recover of it $2,150, the value of the paid-up policy as of the death of the insured. The answer of appellant denied that appellee was entitled to a paid-up policy for $2,150, or any other sum, or to recover of it that sum or any other, as the value of such policy, but admitted that she was entitled to receive what is designated in the policy is [453] sued on the life of her husband as the “legal reserve,” amounting to $1,198, which it paid into court and tendered appellee in satisfaction of her claim, but which she refused to accept. The lower court sustained a demurrer to appellant’s answer, and, it failing to plead further, judgment was rendered in appellee’s behalf for $2,150, as the value of a paid-up policy, and of that judgment appellant now complains. Sections 2 and 3 of the policy issued by appellant on the life of Henry H. Sugg contain the provisions bearing on the questions presented by1 the record. They are as follows: “Sec. 2. When the premiums of this policy have been paid as they become due for three years or more, and default thereafter occurs in the payment of any premium, a paid up non-participating stock policy will, be issued in accordance with the printed table on the reverse of this page, provided this policy is surrendered and returned to this company and application made for said paid-up policy within twelve months from the time of the first default of the payment of premium, otherwise this policy shall become and be null and void, except as provided in section 3 of these conditions; and in determining the amount of paid-up insurance to be issued, the premiums paid for entire years only will be considered. “Sec. 3. In every case where this policy shall be or become void, if the premiums for three entire years have been paid, the legal reserve at end of last policy year for which the entire premium has been paid, calculated according to the actuaries’ table of mortality and 4 per cent, interest shall not be forfeited to said company, but the same shall be due and payable ninety days after satisfactory proof of the death of the said insured.” It is contended by appellant that though the in [454] sured, under sec. 2 of the policy, would ‘have been entitled to a paid-up policy for $2,150 if he had applied for it within 12 months after the first default in the payment of premium, as he failed to do so the policy became null and void, notwithstanding which, under the condition expressed in sec. 3, he automatically became entitled to the legal reserve at the end of the •last policy year for which the entire premium had been paid, calculated according to the Actuaries’ Table of Mortality, and 4 per cent.' interest, payable in 90 days after satisfactory proof of the death of the insured. In other words, it is appellant’s contention that two substantial surrender values are provided in the policy, and that where this is the case, and one of them may be had if applied for within a given time, but is not applied for within such time, then the other surrender value must take effect; the limitation of time is valid, and should be enforced as any other condition of the contract. In support of this view, appellant cites the cases of Crutchfield v. Union Central Life Insurance Co., 113 Ky., 53, 67 S. W., 67, 23 Ky. Law Rep., 2300; Drury’s Adm’x v. New York Life Ins. Co., 74 S. W., 663, 25 Ky. Law Rep. 68, 61 L. R. A., 714; Mutual Benefit Life Ins. Co. v. Hervey, 117 Ky., —, 79 S. W., 218, 25 Ky. Law., 1992; New York Life Ins. Co. v. Meinken’s Adm’r, 80 S. W., 175, 25 Ky. Law Rep., 2113, and 2 May on Insurance, sec. 344b, note. In each of the cases cited the policy allowed the insured, in payment of premium, after the third premium had been paid, in the event of default, to have his legal reserve applied in payment of other paid-up insurance, if applied for in a given time and the first policy surrendered; but if no demand was made for such paid-up insurance in the specified time, then the reserve was applied by the terms of the policy to the purchase for the insured of [455] extended or term insurance, payable after the death of the insured, if such death should occur within a limited time after default in payment of premium. That is, the insured had two options, which by the terms of the policy, had to be exercised within a given time, consequently time was of the essence of the contract. But while the failure of the insured to surrender the old policy and demand a paid-up policy within the specified time constituted a bar to his right to thereafter demand a paid-up policy, it did not forfeit his reserve, i. e., that portion of the annual premiums the company is by law required to set apart for the payment of the policy at a certain date or at the death of the insured. The failure to demand the paid-up policy was treated, however, as an election on the part of the insured to take the term or extended insurance, which thereupon automatically went into effect. 'The policy in the case at bar is unlike those involved in the cases, supra. Under its provisions the reserve of the insured could be used by him in the purchase of but one kind of insurance— the paid-up life — therefore he had but one option, which was to surrender the policy and demand of the company a paid-up policy. His failure, however, to make such demand did not forfeit the reserve, or authorize its application to the purchase of extended or term insurance; it was simply retained by the company until his death. Section 3 in the policy can have no effect until “the policy shall be or become void,” as provided by sec. 2. Should it be held by this court that the failure of the insured to demand a paid-up policy within 12 months after default in payment of premium rendered the policy void, it would result in confining appellee’s recovery to the amount of the legal reserve, which, being much less in amount than the value of [456] a paid-up policy, would in ’effect cause a forfeiture to the extent of the difference in these amounts. This court has in recent years in numerous cases held that five years is a ’reasonable time in which a demand might be made for a paid-up policy or its value. (Washington Life Ins. Co. v. Miles, &c., 112 Ky., 743, 66 S. W., 740, 23 Ky. Law Rep., 1705; Equitable Life Ins. Co. v. Warren Deposit Bank, 76 S. W., 391, 25 Ky. Law Rep., 839; Washington Life Ins. Co. v. Glover, 78 S. W., 146, 25 Ky. Law Rep., 1327; Washington Life Ins. Co. v. Lyne, 119 Ky., —, 83 S. W., 122, 26 Ky. Law Rep., 1070.) The demand was made in this case and brought within five years next after the first default in payment of premiums by the insured. Finding n<j reason for distinguishing the policy in this case from those of the cases in which the five-year rule was applied, the judgment is affirmed.