Opinion
No. 31230.
May 7, 1934. Suggestion of Error Overruled June 11, 1934.
INSURANCE.
As regards amount of extended insurance due under policy after failure to pay premiums, statement in life policy of guaranteed loan and surrender value held not intended to definitely fix amounts thereof, but was simply guaranty that such values would not be less than amounts stated; true cash surrender value of policy being determined by amount of reserve apportioned thereto under another paragraph.
APPEAL from Circuit Court of Adams County.
Wells, Wells Lipscomb, of Jackson, for appellant.
The policy in the case at bar is a nonparticipating policy during the premium paying period. The cash surrender value was absolutely fixed in dollars and cents, to-wit, on October 18, 1932, one hundred seventy-seven dollars. There is no provision in the policy for deducting any amount from any other amount to arrive at that one hundred seventy-seven dollars. That one hundred seventy-seven dollars, the cash surrender value, was agreed upon between the parties to constitute the basis in the formula to be used and which was used by the Lamar Life Insurance Company for arriving at the amount and term of the automatic extended insurance.
The rules as to liberal or strict construction are, however, to be applied fairly and reasonably. Not only must there be an unexplained ambiguity in the language of the contract (Union Life Ins. Co. v. Jameson, 31 Ind. App. 28, 67 N.E. 199), but, even when it exists, the court, in construing the contract, cannot go further than a fair construction of the language used will permit.
Behling v. Northwestern Natl. Life Ins. Co., 117 Wis. 24, 93 N.W. 800; 1 Cooley, Briefs on the Law of Insurance, page 637; Liverpool London Globe Ins. Co. v. Kearney, 94 Fed. 314, 36 C.C.A. 265, 46 S.W. 414, 2 Ind. T. 67; Washington Fire Ins. Co. v. Davison, 30 Md. 91; Seecomb v. Provincial Ins. Co. (Mass.), 10 Allen 305; Guarantee Company of North America v. Mechanics' Savings Bank, 183 U.S. 402, 46 L.Ed. 253; Interstate Businessmen's Accident Association v. Lewis, 257 Fed. 241; Maryland Casualty Co. v. England, 2 F.2d 795; Ponder v. Lamar Life Ins. Co., 6 F.2d 297; Mississippi Mutual Ins. Co. v. Ingram, 34 Miss. 215; Cooperative Life Association v. Leflore, 53 Miss. 1; American Life Acc. Ins. Co. v. Nirdlinger, 113 Miss. 74, at 84 and 85.
The contract is plain and unambiguous and the company in calculating the amount of the paid-up term insurance and the term thereof clearly carried out the terms of that agreement.
The effort is made in this case, and successfully in the lower court, to persuade the court that it should not follow the plain contractual stipulations set forth in paragraph 18, page 3, of the policy of insurance, as to the amount of the paid-up term insurance and the term thereof. The lower court fell into error in not following the plain contractual stipulations of the amount to be used in the purchase of this extended insurance, to-wit: the cash surrender value specified in the table on page 3, to-wit: one hundred seventy-seven dollars, but took the reserve value of the policy and substituted that for the cash surrender value.
Brandon Brandon, of Natchez, for appellee.
The legal reserve set aside, being charted in and withheld from the premiums paid, constitutes a trust fund for the benefit of policyholders. The reserve is not the absolute property of the insurer but is a fund created by setting aside the unearned portion of policy premiums.
Upon the payment of a loss under a contract of insurance the amount of accumulated reserve is used, to the extent thereof, in payment of the loss, and thereby, as to each policy, is consumed. In the event of a surrender by the insured of the policy for cancellation, then the insurer is entitled under the policy contract to deduct from the reserve the agreed amount deductible as a surrender charge, and is then obligated to pay over to the insured the remainder. That remainder, in such instances, is termed the "cash surrender value." The "cash surrender value" always is the full reserve of the policy less an agreed surrender charge.
Where an insurance company has in its hands funds belonging to insured, it is its duty to apply such funds to payment of any premiums or assessments which may be due at the time by the insured.
National Life Ins. Co. of Washington, D.C. v. Sparrow, 151 Miss. 387, 118 So. 195.
The courts uniformly condemn any attempt on the part of insurance companies to discriminate against borrowing policyholders.
New York Life Ins. Co. v. Scheuer, 73 So. 409; Emig v. Mutual Benefit Life Ins. Co., 127 Ky. 588, 106 S.W. 230.
There is no essential difference from this case and that of New York Life Insurance Co. v. Blaylock, 144 Miss. 541, 110 So. 432.
Argued orally by Hubert Lipscomb, for appellant, and by Gerard Brandon, for appellee.
The appellee recovered a judgment against the appellant on a life insurance policy issued by it to her deceased husband, in which she was the beneficiary.
The appellant's defense is that the policy had expired by limitation prior to the death of the insured. The insured failed to pay a premium on the policy, but under its terms it continued in force for some time thereafter. This time, according to the appellee, extended beyond the death of the insured, but, according to the appellant, expired before his death.
The policy provides:
"11. Reserve Basis. The reserve on the life insurance benefit of this Policy shall be computed on the American Experience Table of Mortality with interest at the rate of three and one-half per cent per annum according to the Illinois standard of valuation. The values shown in the Table of Guaranteed Loan and Surrender Values on the third page hereof are equivalent to the full reserve on the Policy less a sum not in excess of one and one-half per cent of the amount insured."
"18. Automatic Extended Insurance. If any premium or installment thereof shall not be paid on or before the date when due, and, if this Policy shall not have been surrendered for its cash value or for a Paid-up Endowment Policy, and, if there shall be no indebtedness to the Company, this Policy will continue in force for its face amount as paid-up term insurance from said due date of premium for the time (including days of grace) specified in the Table of Guaranteed Loan and Surrender Values. The amount, if any, stipulated in the column headed `Cash if Living' (Pure Endowment) will be paid on the same conditions as this Policy if the Insured be living at the expiration of the term period. If there shall be any indebtedness to the Company on account of this Policy, the amount of such paid-up term insurance shall be the face amount of this Policy less the indebtedness, and the Period of such paid-up term insurance (including days of grace) shall be that which the excess of the cash surrender value herein specified over the indebtedness will purchase at the Insured's then attained age; at the net single premium rate according to the American Experience Table of Mortality with interest at the rate of three and one-half per cent per annum. If the sum applicable to the purchase of said paid-up term insurance shall be more than sufficient to continue the insurance to the end of the policy year nearest to age eighty-five, the excess shall be used to purchase in the same manner a paid-up pure endowment payable at the end of the endowment period and on the same conditions as this Policy."
"Table of Guaranteed Loan and Surrender Values.
"This table shows the guaranteed values of this Policy free from indebtedness. Any existing indebtedness on or secured by this Policy will reduce the benefits hereunder as elsewhere stated in the Policy.
========================================================== End of Automatic Cash if Policy Cash or Paid-up Extended Ins. and Living Year Loan Value Endowment Years Days Pure End ---------------------------------------------------------- 3 $43 $ 78 2 253 $ 0 4 66 118 3 308 0 (And so on for each year through and including the 20th.) — --------------------------------------------------------
"The Loan Value obtainable at the end of any policy year may be secured during that year if the premium is paid to the end of such year. Due allowance will be made for any portion of a year's premium paid over and above the premiums for the full number of years indicated. Values for years subsequent to the twentieth will be equal or equivalent to the full reserve upon the basis stated herein and will be furnished on request to the Home Office of the Company."
The case was tried without a jury on an agreed statement of facts, from which it appears that the insured owed the appellant one hundred seventy dollars on a loan made by it to him, and that at the time of his death, after deducting this loan, the balance due on the cash surrender value of the policy, as set forth in the automatic extended insurance and surrender values, was seven dollars, which would automatically extend the insurance for a time, but which had expired before the insured's death. It also appears therefrom that, if the cash surrender value should be based on the reserve on the policy set forth in paragraph 11 thereof, this value, after deducting the loan therefrom, would be sufficient to purchase extended insurance for a time beyond the death of the insured.
The contention of the appellee is that the statement in the policy of its guaranteed loan and surrender values was not intended to definitely fix the amounts thereof, but was simply a guaranty that these values would not be less than the amounts stated; that the true cash surrender value of the policy is determined by the amount of the reserve apportioned thereto under paragraph 11 of the policy, hereinbefore set forth.
While the question is not without difficulty, this seems to be the correct interpretation of the policy. Paragraph 11 thereof evidently proceeds on the theory that the surrender value of the policy is "the full reserve on the policy less a sum not in excess of one and one-half per cent of the amount insured;" and the express stipulation is that "values for years subsequent to the twentieth will be equal or equivalent to the full reserve upon the basis stated herein." It would seem, therefore, that the values set forth in the table of guaranteed loan and surrender values are mere guaranties that for each of those years the loan and surrender values will not be less than the stipulated amounts. The policy is certainly susceptible of this construction, and under well-recognized rules it must be so construed.
The policy was for one thousand dollars, and the court deducted therefrom the amount of the indebtedness due the company by the insured. The appellee has filed a cross-appeal by which she seeks a reversal of the judgment, and a judgment here for the face of the policy. The judgment is in accord with the express provision of the policy, and is therefore correct. Whether the extended insurance should have been calculated on the face of the policy or on the amount thereof, less the indebtedness due thereon, is here of no consequence and will not be determined; for, should it be calculated on the reduced amount, the result would simply be to extend the insurance for a longer time.
Affirmed.