Lovell v. St. Louis Mutual Life Insurance

Mr. Justice Bradley delivered the opinion of the court. After stating the facts in the foregoing language he continued: The first and main question is, whether, under all the cir-. cumstances, including the insolvency of the company and the transfer of its business to another company, the complainants are entitled to any relief. What they ask is a return of the money actually paid on the policy, with interest, and a surrender of the premium note; but, if not entitled to this relief, are they entitled, under the general prayer, to relief in any form? • • ' We are satisfied that when Lovell surrendered his policy in April, 1873, for the purpose of having it exchanged for a paid- ■ up policy, he exercised -a right which the condition of the-policy gave him.. It is true the precise terms of the condition are, that the policy shall be commuted in case default is made in the payment, of any premium; but. as the making of a default is entirely optional with the insured, it follows that the conversion of the policy from an annual-premium policy to a paid-up policy, is at the option of the insured, at-any time after *270 the payment of the first three annual premiums. Though in no default, he may elect to pay no more premiums, and may give notice to the company to that effect; for it is the exercise of his option against his' own interest; since it would 'be his interest to hold the policy for its whole amount until the maturity of the next premium, and then to make default. But the greater always includes the less. The right to have the policy commuted and reduced to a paid-up policy, by making a default in the payment of a premium, in legal effect includes the right to have it so commuted and reduced by electing at any time to make such default and giving due notice to the company of such election. At all events, neither the agent of the company, nor the company itself, made any objection to the surrender of the policy at the time when it was actually surrendered for the purpose of exchange. But it is clear that both Lovell and the agent of the company labored under a mutual mistake as to the amount of the paid-up policy to which Lovell was entitled. They supposed that he was entitled to a paid-up policy for such amount as the sum of the premiums paid (less the premium note) would .purchase, if paid-as a single premium; whereas the actual stipulation, or condition, was that the sum insured should be commuted or reduced to the amount of the premiums themselves, not the amount of insurance that they would purchase. Now whilst it is true that the mutual mistake of Lovell and the company’s agent could not change the written stipulation, nor bind the company to give Lovell a paid-up policy for a greater amount than the sum of the premiums paid, yet as the mistake was in fact made, and as Lovell surrendered his policy under the influence of that, mistake, and, as he testifies, with the distinct understanding that he was to receive a new policy corresponding to such mistaken view, and also to receive his premium note for cancellation, it was the duty of the company, either to have returned him his policy unchanged, or at least to have given him notice of the mistake, so that he might have had an opportunity of determining whether he Avould still have his policy coinmuted or not. Good faith required this much *271 from the company. For, it must be presumed that their agent, in transmitting the policy to the home office for the purpose of being commuted and exchanged, communicated what had passed between him and Lovell on the subject; and, at all events, the communications made by Lovell to the agent were notice to the company. But nothing of the kind was done. The company neither returned the policy, nor gave Lovell any notice that it would not be commuted for the amount which he supposed and expected it would be; and, of course, he was led to suppose that everything was right, and that he would receive his paid-up policy and note in due time. On the contrary, the company kept the original policy for more than six months — from April until October — until after they had gone or were forced into a process of liquidation, and then some person, designating himself as assignee, made the indorsement on the policy which has been referred to, declaring that, in default of payment of renewal premium due 24th October, 1873, the policy was commuted and reduced to $822, on condition that the interest on outstanding premium notes should be paid annually in advance; and because the interest was not paid on the premium note in April, 1874, the parties having possession of the note, and who had assumed the obligations of the company, declared the policy altogether forfeited, and the complainant entitled to nothing whatever. It seems to us that the mere statement of the case is enough to show the want of equity in the transaction on the part of the companies, and the right of the complainants to some relief at the hands of the court. The sum of the matter is this: the complainant surrendered his policy, as he had a right to do, for the purpose of having it commuted to a paid-up policy; but he did so with the understanding between him and the agent of the company that the paid-up policy was to be for such amount as the premiums paid would purchase, and that his premium note should be returned to him. So far as the amount of the paid-up policy was concerned, the complainant and the agent acted under a mutual mistake; but the company kept the policy for six months *272 without giving the complainant any notice of the mistake, and then, by indorsement on the policy, attempted to reduce it to a different amount, subject to the payment of interest on the premium note, and kept the note instead of. delivering it up for cancellation. In the mean time the company oonveyed all its assets to another company, and transferred to such other company all its business, and all interest in its outstanding policies, and completely and utterly put it out of its own power to fulfil any of its obligations, and virtually went out of existence. Under these circumstances we hold, first, that the complainant Lovell, was in no default, and that he did not forfeit his rights under his policy; secondly, that he was under no obligation to continue his insurance, either under his original policy, or under a paid-up policy, with the new company to which the St. Louis Mutual Life Insurance Company transferred its business ; thirdly, that since the latter company totally abandoned the performance of the contract made with the complainant, and transferred all its assets and business to another company, and since the contract is executory and continuous in its nature, the complainant had a right to consider the contract as at an end, and to demand what Avas justly due to him by reason of its abandonment by the company. Our first conclusion, that the complainant Avas not in default, and therefore that he forfeited no rights under his policy, is based on the fact that when he elected to have his original policy.commuted to a paid-up policy, and surrendered it to the company for that purpose Avithout objection on its part, he had no further duty to perform, and no further premium or interest to pay; and, therefore, he could not make any default. He became entitled to a paid-up policy of some amount or other. If a difference arose between him and the company as to what the amount Avas, he Avould have been entitled to change his mind, and take back his original policy. The company being presumably informed, through its agent, of the amount which the complainant considered himself entitled to, should have given bini notice, if they did not agree to that amount. They gave him no notice, but assumed to reduce his policy to an amount different from that which he deemed his due, and *273 retained his note, which he expected to be delivered up to be cancelled; and no notice of this procedure was communicated to the complainant until after the company had been declared insolve: .t, and had placed all of its assets and business out of its hands. We think it clear that the-complainant was in no default whatever. Our second conclusion, that the complainant was under no obligation to continue his insurance in the new company, we think is equally clear. He had nothing to do with that company ; it was a stranger to him. It is true that it received all the old company’s assets, and assumed all its obligations on policies and otherwise; and the complainant was relegated to the new company for the obtainment of his rights, whatever they were. But that was a transaction between the companies themselves, with which he had nothing to do; and under such a total change of relations and parties, it would be most unreasonable that he should be compelled, against his will, or with the alternative of abandoning all his rights, to continue all his life to fulfil an executory contract by the payment of premiums to a company to which he was a total stranger, and in which, perhaps, he reposed no confidence whatever, or to take a paid-up policy in such company. Still the complainant might be without other remedy than that of accepting insurance in the new company, or of prosecuting the old and virtually defunct company, if it were not for the fund deposited with the treasurer of Tennessee as indemnity to the citizens of that State holding ^policies in the company. The assignment of all its assets by the old company to the new one upon fihe consideration of its obligations being assumed by the new company, is somewhat analogous to an assignment of property by a debtor for the benefit of his creditors, in which only those creditors who are preferred, or those who choose to come in and participate in the fund assigned^ receive any benefit, whilst those who refuse to come in take no benefit, preferring to retain their claim against the debtor. So here, if the complainant does not choose to continue his insurance with the new company, he would- have no remedy except against the old company (which is totally unable to *274 respond) were it not for the fund which has been attached in the hands of the State treasurer of Tennessee. To this fund the complainant, being a citizen of Tennessee, had a right to resort. The object of the laws of Tennessee in requiring the fund to be placed on deposit with the treasurer was to protect and indemnify its own citizens in their dealings with the company. The assignment to the new company in Missouri could not deprive them of the right to this indemnity. Our third conclusion is, that as the old company totally abandoned the performance of its contract with the complainant by transferring all its assets and obligations to the new company, and as the contract is executory in its nature, the complainant had a right-to consider it as determined by the act of the company, and to demand what was justly due to him in that exigency. Of this we think there can be no doubt. Where one party to an executory contract prevents the performance of it, or puts it out of his own power to perform it, the other party may regard it as terminated and demand whatever damage he has sustained thereby. We had occasion to examine this subject in the recent case of United States v. Behan, 110 U. S. 339, to which we refer. It is unnecessary to discuss it further here. The question remains as to what is justly due to the complainant in this case, by reason of the contract being terminated by the act of the company. He demands a return of all the premiums paid by him, with interest, less the amount of his premium note; and that said note shall be delivered up to be cancelled. But we do not think that he is entitled to a return of the full amount of his premiums paid. He had the benefit of insurance upon his life for five years, and the value of that insurance should be deducted from the aggregate amount of his payments. In other words, the amount to which the complainant is-entitled is, what is called and known in the life insurance business as the value of his p'olicy at the time it was surrendered, with interest, less the amount of his premium note, Avhich should be surrendered and cancelled. The balance due him will be small, but it will be something; and whatever it is, he is entitled to it, as well as to a surrender of his premium *275 note; and Ms bill ought not to have been dismissed. The amount due the complainant can easily be ascertained by the court by calling in the aid of an expert, without the trouble and expense of a reference to a master. The equitable value of a policy, according to the age of the insured life at the time it was issued, and the number of years it has run, is shown by the ordinary tables used by every life insurance company, and there can be no difficulty in ascertaining the amount in this case. The point of time for calculating the value will be immediately after the payment of the premium due on the 2éth of April, 1873, five years having fully expired, and the first payment being made on the sixth year. The question has been raised whether the complainant can maintain this suit alone, without bringing in all the other policy holders. We see no reason why not.- It does not appear that there are any other policy holders who have not accepted the terms of the arrangement between the two companies, and continued their policies in the new company. Nor does it appear but that the fund now in court is abundantly sufficient to meet all demands upon it in favor of those for whose indemnity it was deposited in the treasurer’s office, without any abatement, or the necessity of a pro rata distribution. Of course, the St. Louis Life Insurance Company is a proper party to this suit, by reason of its claiming the fund attached therein, as part of the assets of the' St. Louis Mutual Life Insurance Company assigned to it. In conclusion, our opinion is, that the following answers should be returned to the questions certified by the judges of the Circuit Court, that is to say: To the first: That during the lifetime of the complainant, James W. Lovell, a suit is maintainable upon the policy of life insurance set forth in the record, under the circumstances and for the cause stated in this opinion. To the second: That the insolvency of the St. Louis Mutual Life Insurance Company, and its contract of reinsurance with the Mound City Life Insurance Company, accompanied by the transfer of all its assets to the latter company, as set forth in the record, did operate to confer upon the complainants a *276 right of action against the said companies as stated in this opinion. . To the third: That this suit may be maintained upon the record presented therein, apart from the other policy holders of the St. Louis Mutual Life Insurance Company. It follows that The decree of the Circuit Court must he reversed, and the cause remamdedfor further proceedings in accordance with this opinion ; and it is so ordered.