Opinion
14963
November 7, 1939.
Before OXNER, J., Anderson, March, 1938. Affirmed.
Action by Lynne McCuen, by her guardian, Mrs. Gertrude S. McCuen, against the Sovereign Camp, Woodmen of the World, on a beneficiary certificate. Judgment for plaintiff, and defendant appeals.
The order of Judge Oxner follows:
Upon application of W.B. McCuen, on December 4, 1908, the defendant issued to him beneficiary certificate in the sum of $2,000.00, designating his wife as beneficiary. This certificate provided for a monthly premium or assessment rate of $2.55. In 1915 this was increased to $2.65. In 1917 it was further increased to $2.75. In 1919 the defendant increased very materially all assessment rates. Under the last-named change, the correct assessment rate on the certificate in question was $7.31. On June 22, 1920, a rider was placed on this certificate wherein the monthly rate was stated at $3.84. The rate of $3.84 was the new rate on a $1,000.00 certificate. Through a clerical error, the secretary of defendant made the mistake in writing this rider of inserting the rate of $3.84, when he should have inserted the rate of $7.31 monthly. Beginning in 1920, the insured paid each month the rate of $3.84. On October 12, 1933, the insured desired to have the beneficiary changed from his wife to the plaintiff. To this end, the old certificate with the 1920 rider attached was surrendered to the defendant and a new certificate issued with requested change of beneficiary. In issuing this new certificate, the same mistake was made again, the monthly rate being placed at $3.84 when it should have been $7.31. The mistake was discovered by the defendant in February, 1936. Upon discovery of same, the secretary of defendant wrote the financial secretary of insured's lodge, advising him of the mistake. The matter was taken up with insured, who denied the right of the defendant to make any change, and stood upon his policy. Considerable correspondence ensued. Finally, in June, 1936, the general attorney wrote to the financial secretary of insured's lodge, stating, in substance, that if the insured persisted in his refusal, the defendant would be forced to institute a proceeding in equity for reformation. No action was instituted for reformation.
Insured continued to pay the monthly rate of $3.84 which was accepted by defendant, until his death on March 6, 1937. The insured made twelve or thirteen monthly payments of $3.84 from the time of the discovery of the mistake until insured's death. These payments were accepted by defendant.
Proofs of death were filed and the defendant declined to pay the face value of the certificate. In May, 1937, plaintiff instituted suit upon the $2,000.00 certificate above referred to. In its answer, the defendant admitted the execution of the certificate, payment of premiums according to the terms of the certificates, death of assured, and its refusal to pay the face of the certificate. Further answering, the defendant set out the circumstances above narrated showing the mistake, and asks that the certificate be reformed by inserting the monthly rate of $7.31 in lieu of the rate of $3.84.
The defendant admitted that it owed to the plaintiff the sum of $1,016.35, which was paid to plaintiff without prejudice.
An insurance policy is a contract and the rule as to reformation of contracts applies. The Supreme Court of this State has stated this rule in numerous cases as follows:
"(1) Where there is a mutual mistake as to the facts upon which it is based, or as to the terms and stipulations embraced therein. (2) Where one of the parties only is under such mistake, either of the facts or the stipulations, and such mistake has been occasioned by the fraud, deceit, or imposition in any form of the other." Gowdy v. Kelley, 185 S.C. 415, 194 S.E., 156, 160; Main v. Muncaster, 171 S.C. 269, 172 S.E., 222; Federal Land Bank v. Summers, 168 S.C. 510, 167 S.E., 830. Jumper v. Lumber Company, 115 S.C. 452, 106 S.E., 473.
The Court has further stated in Gowdy v. Kelley, supra: "`Before a court of equity will reform a solemn instrument, it must be shown by evidence which is the most clear and convincing, not simply it was a mistake on the part of one of the parties, but that it was a mutual mistake; that both parties intended a certain thing; and that by mistake in the drafting of the paper did not get what both parties intended.'" (Emphasis added.)
There is absolutely no evidence of any fraud, deceit, or any other inequitable conduct on the part of the insured.
The record also fails to show that there was any mutual mistake. On the contrary, the evidence shows that this mistake was not mutual, but wholly unilateral. Defendant had a right, under its constitution, laws and by-laws, to increase the rate. Defendant alone determined the amount of increased assessment. In doing so, it did not increase the assessment of the insured to the extent it intended. Insured did not know the amount to which the assessment would be increased. This was determined from the rate book which was not in possession of insured. With the rate book, only an actuary could have determined the amount. Insured had no part in the fixing of the amount. Instead of a mutual mistake, insured thought, and had every right to think, that he was paying the proper rate. The new certificate of 1933 provided: "The rate charged on this certificate is based on the mortality experience of the Association, covering a period of more than thirty years and more than a million lives, and is a legal adequate rate." (Emphasis added.)
There was never any antecedent agreement on insured's part to pay the stipulated increase now sought by defendant. The defendant advised the insured that the new premium would be $3.84, to which insured agreed, but he never knew of, and certainly never agreed to pay, the premium of $7.31. The minds of the parties certainly never met upon this amount of $7.31. It is easily probable that insured would not have continued the policy at such an increased rate.
It is fundamental that before reformation can be granted upon the ground of mutual mistake, there must have first been a meeting of the minds of the parties upon the contract sought to be established. Stated differently, there must have been an antecedent agreement. No such antecedent agreement is shown in this case.
For illustration, if insured had applied for a $2,000.00 policy with a monthly rate of $7.31 stated in the application, or if there had been a verbal agreement between the parties as to said rate, and in issuing the policy, through mistake the rate was stipulated at $3.84, there would very probably be a sound basis for reformation. In that case there would have been an antecedent agreement for a rate of $7.31, which agreement through mistake was not inserted in the contract. But the instant case presents no such situation.
Defendant relies on the case of Columbia National Life Insurance Company v. Black, 10 Cir., 35 F.2d 571, 71 A.L.R., 128. In that case, insured applied for a policy on an ordinary life plan. The company made a mistake by issuing in part the printed form for an endowment policy. The company sought reformation by making the policy throughout on the ordinary life plan. The mistake was known to insured who sought to take advantage of it. There are at least two distinguishing features between that case and the instant case. In the foregoing case, the minds of the parties met upon a policy on the ordinary life plan, but through the policy as issued did not carry out the antecedent agreement. The insured knew of the mistake, remained silent and was therefore guilty of inequitable conduct.
The facts in the case of Kaufman v. New York Life Insurance Company, 315 Pa., 34, 172 A., 306, are more analogous to the instant case. There the company issued to insured, then 21 years of age, a "Twenty Payment Life Policy" in the amount of $2,000.00. The policy provided for a cash surrender value after twenty years of $1,356.00. Insured elected to take the cash surrender value after paying the premium for twenty years. It was then first discovered that the company, by mistake, had issued a printed form of policy intended for applicants forty-one years of age and that, if it had issued the proper form, the cash surrender value would have been $936.00. The Court refused to reform the policy. The Court said:
"The court below found such a mutual mistake existed because, to quote from its opinion, `both parties hereto contracted with reference to the existing published rates, and both intended that the policy as issued and delivered should conform to such rates; neither intended that the plaintiff should receive a benefit from his policy that every other policy-holder of the same class could not receive.' The difficulty we have with this conclusion is that it is not supported by the facts. These indicate merely that (plaintiff) made written application for a twenty-payment policy in the amount of $2,000; that a policy was delivered to him showing the cash surrender value which he now claims; and that he continued to pay the premiums for a period of twenty years, in the belief that he would receive the benefits set forth in that policy. There is no evidence that (plaintiff), before taking out the insurance, was informed as to what the cash surrender value at the end of any given year would be. * * *
"The facts do not disclose an antecedent agreement to fix the cash surrender value at the figure now put forward by the defendant and an inadvertent substitution of other figures, contrary to the intention of both parties. We therefore conclude that no such mutual mistake existed as would justify a reformation under the settled principles of equity jurisprudence."
The Court reviews and distinguishes a number of cases, including Columbian National Life Insurance Company v. Black, supra, and reaches this conclusion: "It will be noted that these cases fall generally into two categories: First, those in which there was an obvious conflict between different clauses of the same policy, with the result that the insured could not be said to have been misled; and, second, those in which the mistake was so great that an inference might easily have arisen that the insured must have recognized the error. If the facts of this case had brought it within either class, it might be held that the mistake could be corrected — not upon the ground that a mutual mistake existed, but upon the cognate ground that a mistake by one party, coupled with knowledge thereof by the other, may, under certain circumstances, afford a basis for equitable relief. `It has been held with obvious justice that a mistake by one party and knowledge of the mistake by the other will justify relief as fully as mutual mistake.'"
In speaking of the discrimination statute, the Court said: "Defendant contends that, if recovery be allowed for the amount stated on the face of this policy, the intent of the statute will be violated as certainly as if the discrimination had been knowingly made. In our opinion this places too strict a construction upon the statute. Obviously, the assets of insurance companies must be preserved for the benefit of all, but the common good will not be harmed through occasional and inadvertent mistakes in the preparation of policies. Such errors occur but seldom, and will cause no substantial detriment; only when an insurance company deliberately enters upon a course of discrimination will its reserves become depleted. It is against such intentional discrimination on the part of the company, and intentional acceptance of such preferential benefits by the insured that the statute is aimed."
The syllabus in the case of National Fidelity Life Insurance Company v. Gerard, 175 Okla. 219, 52 P.2d 1, is as follows:
"Statute prohibiting making of insurance contracts discriminating between insureds of same class in respect to premiums charged held not to render void a life policy containing an annuity feature or to prevent suit thereon by insured where, by mistake without fault on part of insured, insurer had agreed to pay a higher annuity rate than ordinary rate (St. 1931, § 10512, 36 Okla. St. Ann. § 195). * * *
"Where insurer erred in computing monthly payments to be made under old age annuity clause of life policy so that policy provided for payment of $182.04 instead of $18.20, but mistake was not mutual insured was not guilty of fraud or inequitable conduct, and insurer, after discovering mistake, accepted two annual premium payments without directing insured's attention to mistake, insured held not entitled to reformation of policy."
In the foregoing case, the Court refers to the case of Columbian National Life Insurance Co. v. Black, supra, and distinguishes it.
In the case of New York Life Insurance Co. v. Street, Tex. Civ. App., 265 S.W. 397, through mistake of the company, the cash surrender value was placed at $2,650.00 when the correct amount was $2,035.00. Reformation was refused. The Court held that the mistake was not a mutual one; that failure on the part of the company to discover the mistake for a period of fourteen years created an estoppel; and that to deny reformation, was no violation of public policy, nor of statutes forbidding discrimination between persons of like classes.
In the case of Hayes v. Travelers Insurance Co., 10 Cir., 93 F.2d 568, through mistake disability benefits were fixed at $100.00 per month, when the proper amount was $50.00. Reformation was refused. The Court held that there was no mutual mistake and that the company was liable on the basis of $100.00 per month under the disability provision.
Also see Equitable Life Insurance Society v. Saurman, 126 Pa. Super., 184, 190 A., 422.
The defendant has cited the case of Gray v. Supreme Lodge, 118 Ind., 293, 20 N.E., 833. In that case the insured contracted for, and directed to be issued to him a policy of $1,000.00, and paid the premium on that basis. Through mistake, a $2,000.00 policy was delivered. This case is not applicable for the reason that the insured contracted for and expected to get a $1,000.00 policy. The contract for $2,000.00 did not therefore represent the prior or antecedent agreement of the parties. There was a mutual mistake.
For the foregoing reasons, it seems clear to me that the defendant is not entitled to reformation. But if reformation were granted, the plaintiff would still be entitled to recover the full amount of the certificate. The defendant asks that the policy be reformed so as to change the monthly rate from $3.84 to $7.31. If this were done, it would remain a policy for the face amount of $2,000.00. Under such circumstances, any relief to the plaintiff would be on the basis of recovery of the difference in premium. A serious question would arise as to whether or not there could be a recovery of premiums against the beneficiary. But in any event, this would be in the nature of a counterclaim. No counterclaim is interposed in this action. It must be borne in mind that the defendant has cited no provision in the certificate, or the by-laws, which gives the defendant a lien on the policy for such a difference in the amount of premiums. In other words, the reformation sought does not go to the amount of recovery under the policy. There is, in any event, an additional reason why the plaintiff must prevail. For a period of sixteen years the defendant led the insured to believe that for a monthly premium of $3.84 he was entitled to insurance in the sum of $2,000.00. It might be plausibly argued that this would be sufficient to constitute an estoppel. After discovery of the mistake, the defendant accepted thirteen monthly premiums from the insured and retained the same. All these circumstances taken together, in my opinion, would create an estoppel.
The defendant relies on Section 57, Subsection 7, of the constitution and by-laws, which is as follows: "If the applicant misstates his age, or if the amount collected is less than the required rate for his correct age, then the benefits payable under the Certificate shall be such an amount as the rate paid by the applicant would have purchased at his correct age."
This provision is not applicable, because it applies only in the case of a misstatement of age.
In conclusion, to grant the relief sought by defendant would have a far-reaching effect. An insured would never know for a certainty the amount of insurance which would be paid upon his death. The layman is not familiar with rates. This is a highly specialized field, almost wholly within the knowledge of the actuaries alone. To say that after a great number of years, the insurer is permitted to say that it has made a mistake, and, in effect, cut the amount of insurance in half, is going farther than I think the Court should.
Some question was raised as to the admissibility of a certificate copy of the rate book, constitution and by-laws. In view of the foregoing conclusions, I do not deem it necessary to pass upon this question. For the purpose of the foregoing discussion, I have regarded them as in evidence.
It is therefore ordered: That the plaintiff have judgment against defendant for the principal sum of $2,000.00 with interest thereon from ____, 1937, at the rate of six per cent. per annum, less a credit of $1,016.35 as of June, 1937, making the total amount to which the plaintiff is given leave to enter up judgment, including interest to date, the sum of $ ____.
Messrs. Watkins Prince, for appellant, cite: Reformation of instrument: 59 N.Y., 244; 77 N.Y., 226; 33 Am.Rep., 613; 98 U.S. 79; 25 L.Ed., 66; 120 S.C. 232; 113 S.E., 78; 115 S.C. 452; 6 A.L.R., 367; 97 S.E., 6; 179 N.W., 895; 79 A., 427; 81 A., 1133; 1 A., 620; 10 N.E., 114; 10 N.W., 147; 35 F.2d 571; 71 A.L.R., 128; 52 P.2d 1; 265 S.W. 397. Estoppel: 21 C.J., 1133; 14 F.2d 328.
Mr. Leon W. Harris, for respondent, cites: Waiver and estoppel: 32 S.E., 762; 117 S.E., 209; 156 S.E., 865; 154 S.E., 859; 81 S.E., 654; 180 S.E., 204; 165 S.C. 427; 164 S.E., 6.
November 7, 1939. The opinion of the Court was delivered by
This Court is satisfied of the correctness of the result of the decree of the learned trial Judge in this case.
A reformation of the contract of insurance in this case would amount to a cancellation of fifty (50%) per cent. of the insurance. Reformation — an extraordinary equitable remedy — is thus asked in the face of the fact that when the insured was requested to agree to the reformation, either by paying the increased premium or submitting to a reduction in the amount of the insurance, he failed and refused to accept either alternative. And yet, in the face of such failure and refusal on the part of the insured, the insurer continued to accept the monthly premium which it knew was paid to it upon the insistence of the insured that he had $2,000.00 of insurance.
When appellant under these circumstances continued to accept premiums at the monthly rate of Three and 84/100 ($3.84) Dollars from February, 1936, the date at which it knew there had been a mistake on its part in calculating the amount of the premium, until the death of the insured (March, 1937), without instituting an action to have the contract of insurance reformed, and without offering to restore the insured's status as of the time (June 22, 1920) of the last increase in the monthly premium on the policy of insurance, it was some evidence that appellant waived the right to reform the contract of insurance, and especially as against the beneficiary. The letter of C.J. Hanrahan, field auditor of appellant, to the insured, of date March 6, 1936, lends color to evidence of waiver, because in this letter it is stated:
"Your position when I saw you was that you would not give up the certificate which you now hold and that you would not pay a higher rate. The Secretary's letter of February 6th. did not contemplate this situation and I am unable to say whether or not they will continue to accept your payments of installments on $1,000 while holding the certificate issued in error for $2,000.00.
"Therefore I am sending to the Home Office a copy of this letter, all of which is subject to their approval; and I am referring the matter to their further attention. Sovereign Dunlap will soon receive further information and instructions from them and I trust that this regrettable error will soon be adjusted to our mutual satisfaction."
This case is decided under its own peculiar facts and is not to be construed as a deviation from the general rule of law governing the reformation of instruments which by mistake do not correctly reflect the agreement. The excellent brief filed on behalf of appellant correctly states as a general rule the law applicable to the reformation of instruments of writing which by mistake do not reflect the agreement; and that an instrument may in a proper case be reformed as between privies, as well as between the original parties.
We venture to suggest that the observation of the trial Judge in reference to Section 57, Subsection 7, of the constitution and by-laws of appellant should be enlarged upon so as to read: "This provision is not applicable, because it applies only in the case of a misstatement of age," or error as to age.
The exceptions are overruled, and the judgment of the Circuit Court is affirmed.
MR. CHIEF JUSTICE STABLER, MR. JUSTICE FISHBURNE and MR. ACTING ASSOCIATE JUSTICE C.T. GRAYDON concur.
I concur in the result of the main opinion upon the grounds that there was no mutual mistake at the inception of the contract, and there is no allegation nor proof of fraud.