Hoffman v. New York Life Insurance

Mr. Justice Jones delivered the opinion of the court. John A. Hoffman was the holder of two policies of insurance issued to him by the New York Life Insurance Company. Sarah C. Hoffman was named as beneficiary in said policies. There were two premiums due on said policies on May 3, 1919, amounting to $250 each. Hoffman was unable to pay said premiums in cash and on that day executed his two promissory notes payable to said insurance company each for $250, with interest thereon from date. Each note recited on its face that it is a premium lien note and given in lieu of cash for premium; that it is a lien against the policy and that the amount due upon the note shall be deducted from the sum to be paid under the policy. Afterwards on June 5, 1920, the said Hoffmans being indebted to Arthur Keithley in a sum of money largely in excess of the surrender value of said policies, assigned and delivered them to him to secure the payment of said indebtedness. On May 3, 1921, the Hoffmans being unable to pay the interest due on the premium notes given to the insurance company executed two renewal notes for $265 each. These notes recited that they were renewal notes and were liens upon the respective policies. After the assignment and delivery of the policies to Keithley he paid two annual premiums thereon aggregating $1,341. The Hoffmans having failed to pay Keithley the amounts due him from them, Keithley applied to the insurance company for the surrender value of the policies in accordance with a printed table forming a part of each policy. The insurance company claimed the right to deduct, from the surrender value, the amounts due on the lien notes held by it. Keithley denied the right of the company to do so and this suit was brought. Afterwards the company paid Keithley $1,588.64 and retained $561.80 claimed by it to be due on said premium lien notes. A trial by jury was waived and the cause was heard by the court. Judgment was rendered in favor of the appellee insurance company and this appeal is prosecuted by Keithley. It was stipulated that the only question for the trial court to decide was whether the insurance company had the right to make said deduction against Keithley as assignee of said policies and that, if it had such right, judgment should be in favor of the appellee. It is contended by appellant that the insurance company is not authorized to loan money for the payment of premiums to it and therefore the notes are invalid; that even though the notes are not invalid they did not create a lien as against him because he had no notice of said claim of lien at the time he became the assignee of the policies; and that it was the duty of the insurance company to cause the policies to be delivered to it whenever they claimed a lien on them by reason of loans it had made. In reference to the first contention we are of the opinion that the insurance company was not without authority to provide for the payment of premiums by means of so-called premium lien notes. There is no provision of law against such practice and it is certainly in the interest of policyholders and their beneficiaries that this means of paying premiums may be resorted to. It often happens that it is quite difficult for a policyholder to pay his insurance premiums, and he is enabled to keep his insurance in force by giving premium lien notes. These notes are not in the form of ordinary promissory notes and as a general rule they are not negotiable instruments. They do not evidence a loan of money as that term is usually understood. They evidence a charge made against the policy for premiums which have not been paid in cash. We therefore conclude that the premium lien notes are not invalid. The policies themselves are not negotiable instruments and an assignee takes subject to the conditions expressed in the policy and is in no better condition than his assignor. (Insurance Co. of North America v. Garland, 108 Ill. 220; Illinois Mut. Fire Ins. Co. v. Fix, 53 Ill. 151; 25 Cyc. 777.) There can be no doubt that as against the Hoffmans, the insurance company had a lien upon any sums which might become due under the policy, and inasmuch as Keithley stood in their shoes in this behalf his rights as assignee were subject to the rights of the insurance company. The rights of the insurance company were in no way affected by the fact that Keithley had no notice of the existence of a lien in favor of the insurance company. He was dealing with the insured and it was his duty to ascertain what were the rights of the insured under the printed terms of the policy. As to the contention of appellant that it was the duty, under the statute, of the insurance company to compel a surrender of the policies to it when the premium notes were given, we conclude it is without force. Appellant relies upon the sixth subdivision of paragraph 375 of the Insurance Act, Cahill’s Eev. St. 1921. We think this statute has no application whatever to the situation as it here exists. It applies to loans which are required to be made by the company to the insured. It has no reference whatever to charges made against a policy for unpaid premiums; but even if it did have application to such charges, the statute does not make it mandatory for the company to take up and hold the policy during the existence. of the lien. It simply gives it authority to do it. For the reasons herein expressed we think the judgment of the trial court was correct and should therefore be affirmed. Judgment affirmed.