Opinion
No. 29942.
May 16, 1932.
1. INSURANCE.
"Life insurance policy" is contract to pay specific sum on death of insured without regard to value of his life to beneficiary.
2. INSURANCE.
Corporation had insurable interest in life of one who was treasurer and active manager when policy was issued.
3. INSURANCE.
That beneficiary's interest in insured's life ceased after policy was issued had no effect upon validity of policy or on beneficiary's right to proceeds.
4. INSURANCE.
Beneficiary in life insurance policy has vested interest therein after its delivery of which he cannot be deprived without his consent, absent provision therefor in policy.
5. INSURANCE.
Courts cannot, without beneficiary's consent, change beneficiary in policy providing for such change only with beneficiary's consent.
6. INSURANCE.
That animosity existed between beneficiary's officers and insured even before he severed connections with beneficiary did not entitle insured to change beneficiary after severing connections.
APPEAL from chancery court of Lowndes county. HON. T.P. GUYTON, Chancellor.
Frierson Anderson, of Columbus, for appellant.
The state of Texas is an exception to the general rule and holds very strictly that the beneficiary cannot collect insurance on the life of an insured unless the beneficiary has an insurable interest at the date of the death of the insured.
Cheeves v. Anders, 47 A.S.R. 107, 87 Tex. 287[ 87 Tex. 287].
Where there has been a divorce and remarriage by both parties the defense of cessation of insurable interest by reason of the divorce was set up. The court held that the wife was entitled to collect, although cessation in insurable interest had occurred by the divorce. Even in that case the result might have been far different, if, after the divorcement and the marriage of each party again, either one of them before the death of the other had come into a court of equity and asked for a cancellation of the contract or to be released from the contract, or for a change of beneficiary.
Conn. Mutual Life Ins. Co. v. Schaeffer, 94 U.S. 457, 24 L.Ed. 251.
Courts have decreed reformation of contract of insurance after divorce, to conform to the intention of parties.
Ann. 52 A.L.R. 386.
The necessity of an interest in the subject matter of property insured is apparently based on the principle that a contract insuring property is strictly a contract of indemnity. If a contract of life insurance is not one of indemnity there would seem to be no reason for acquiring an insurable interest in the life to support the policy in the absence of statutory provisions.
1 Cooley's Brief on Insurance, sec. 127.
While contracts of insurance are generally regarded as contracts of indemnity prevailing doctrine is that life insurance contracts are not contracts of indemnity. The reasons on which this doctrine is based are, however, regarded by some courts, as utterly inadequate and incorrect with the funadmental principles of which the validity of the contracts depends and in accordance with which it is construed. Certainly this is true in so far as creditor's policies are concerned, and these at most must be looked upon as contracts of indemnity. These contracts were first regarded as from year to year.
1 Cooley's Briefs on Insurance, 1333.
Whatever may have been the rule at common law it is settled as a fundamental principle of American law that one taking out a policy of insurance on the life of another person for his own benefit must have an interest in the continuation of the life insured.
1 Cooley's Brief on Insurance, 330.
To have an insurable interest in the life of another one must be a creditor or surety or be so related by ties of blood or marriage as to have reasonable anticipations of advantages from his life, and that an insurable interest in the life of another is such an interest, arising from the relation of the party obtaining the insurance, either as creditor or of surety for the assured, or from ties of blood or marriage to him, as will justify a reasonable expectation of advantage or benefit for the continuance of his life.
May on Insurance, 102.
There was no vested interest in the beneficiaries except by the death of the insured.
Fleming v. Grimes, Admx., 142 Miss. 522, 107 So. 420, 45 A.L.R. 618.
But in any case it would be very difficult after the policy had continued for any considerable time for the courts without the aid of legislation to attempt an adjustment of equities arising from the cessation of interest in the insured life. A right to receive the equitable value of the policy would probably come as near to a proper adjustment as any that could be devised.
Mutual Life Ins. Co. v. Schaeffer, 94 U.S. 457, 24 L.Ed. 251.
Life insurance in such a case as the one before us is valid and is not a wagering contract. Life insurance in such a case is like that of fire and marine insurance a contract of indemnity. The benefits to be gained by death has no periodicity. It is a substitution of money value for something permanently lost, either in a house, a ship or a life.
United States v. Supply Biddle Hardware Co., 265 U.S. 192, 68 L.Ed. 970, 975.
Marine and fire insurance is considered as strictly an indemnity, but while this is not so as to life insurance which is simply a contract, so far as the company is concerned, to pay a certain sum of money upon the occurrence of an event which is sure at some time to happen, in consideration of the payment of the premiums as stipulated, nevertheless the contract is also a contract of indemnity. If the creditor insures the life of his debtor, he is thereby indemnifying against the loss of his debt by the death of the debtor before payment yet, if the creditor keeps up the premiums and his debt is paid before the debtor's death, he may still recover upon the contract which was valid when made and which the insurance company is bound to pay according to its terms, but if the debtor obtains insurance on the insurable interest of the creditor and pays the premiums himself and the debt is extinguished before the insurance falls due, then the proceeds would go to the estate of the debtor.
Bank of Washington v. Hume, 128 U.S. 195, 205, 32 L.Ed. 370, 375.
The policy is a chose in action.
Murphy v. Red, 1 So. 761, 64 Miss. 614; Grant v. Independent Order of Sons and Daughters of Jacob, 52 So. 698, 97 Miss. 182.
To have insurable interest in another's life, there must be reasonable ground founded upon relation of parties to expect advantage from the continuation of assured's life.
National Life Accident Insurance Company v. Ball, 126 So. 268, 157 Miss. 163; Warnock v. Davis, 104 U.S. 775, 779, 26 L.Ed. 924; 14 R.C.L. 919; 37 C.J. 391.
None of the courts anywhere permit the taking out of an insurance policy on the life of the third party where insurable interest does not exist in the beneficiary.
Colgrove v. Lowe, 333 Ill. 360, 175 N.E. 569.
A policy payable to the wife, became, upon its delivery to the insured, a vested interest in the wife, and such interest thereafter irrevocable by the insured, except with the consent of the beneficiary.
Jackson Bank v. Williams, 26 So. 965, 78 A.S.R. 530.
Our contention is that the phraseology for the benefit of the beneficiary named in the policies was only to prevent a fraudulent change of beneficiary; that is, a change of beneficiary by the insured which would have defrauded the beneficiary named to the extent of loss of expenses incurred by way of premiums or any indebtedness which the insured might owe the beneficiary, or change by the insured while the beneficiary still had an insurable interest. The limitation was for the benefit of the beneficiary so long as the relationship continued on which the insurable interest was grounded. Otherwise, why have any clause in the policy about "change of beneficiary?" Why not strike it out.
Where there was a question as to whether the proceeds of the policy went to the legal heirs of the beneficiary named in the policy or to the legal heirs of the insured, the proceeds went to the legal heirs of the insured.
Fleming v. Grimes, 142 Miss. 507, 107 So. 420, 45 A.L.R. 618.
But insurable interest is not dependent upon who pays the premiums, solely upon the relationship of the parties toward each other.
Western Southern Life Insurance Company v. Webster, 189 S.W. 429, L.R.A. 1917B 375, 376.
If a contract is against public policy, the courts will not lend their aid to its enforcement.
Howe's Executor v. Griffin's Admr., 26 Ky. 373, 103 S.W. 714, 128 A.S.R. 296.
Life insurance is protection given to one person against the damage he may suffer through the death of another, and hence that where this element of protecting is wanting the insurance is a wagering contract.
Fuller v. Met. Life Insurance Company, 70 Conn. 647, 41 A. 4.
Our own state holds that a divorce does not terminate insurable interest, but we have not found any case that denied the right of the insured where proper application and proper form had been made to reform the insurance contract so as to change the beneficiary, following a divorce, even where the right to change the beneficiary had not been reserved.
Grego v. Grego, 28 So. 817, 78 Miss. 443.
The amount of a creditor's insurable interest is the amount of his debt.
Crotty v. Union Mutual Life Insurance Company, 144 U.S. 621, 36 L.Ed. 566.
A corporation has no insurable interest in the life of one of its stockholders who is not indebted to it.
Elliott on Contracts, 4075; Tate v. Commercial Building Association, 97 Va. 74, 75 A.S.R. 770, 33 S.E. 382.
A corporation has an insurable interest in the life of its president, general manager. However, a corporation does not have an insurable interest in the life of a director merely by virtue of his position as such and in the absence of additional circumstances; an association or society is held to be without insurable interest in the life of a member or a stockholder.
36 C.J. 396, 397.
A contract of insurance is purely a business adventure, not founded on any philanthropic or charitable purpose, and the design and purpose of all insurance companies and the dominant and characteristic feature of its contract is the granting of an indemnity or security against loss for a stipulated consideration.
Com v. Equitable Beneficial Asso., 137 Pa. 412, 18 A. 1112.
Life and accident insurance is a contract whereby one party for a stipulated consideration agrees to indemnify another against injury by accident, or death from any cause not excepted in the contract.
State v. Pittsburg, etc. Railway Company, 68 Ohio State 9, 67 N.E. 93, 96 A.S.R. 635, 639.
It is a well settled rule that life insurance is a contract to pay a specified sum on a contingency involving the death of the person insured without regard to the value of the life itself, and is not a contract of indemnity like other insurance contracts, unless it is apparent from the language of the policy that its object is to afford indemnity.
37 C.J. 361.
A backer of a mining expedition who was to receive one-half the profits from the venture has an insurable interest in the prospecting miner's life, and that such a contract was a contract for indemnity against loss.
Miller v. Eagle Life Health Ins. Co. (2 Ed.), Smith 268.
An employer's insurable interest in the life of an employee cannot be based upon ordinary service by the employee, but it will exist only in case the success of the business is dependent upon the employee's continued life to such an extent that his death would cause substantial loss to the employer.
68 L.Ed. 971; United Sec. L. Ins. T. Co. v. Brown, 270 Pa. 270, 113 A. 446.
These contracts of life insurance in the case at bar are; (1) contracts of indemnity, (2) are not choses in action; therefore, (3) the interest was not a vested interest but was a defeasible interest, or a voidable interest, the defeasance of which was brought about by the acts of the beneficiary there named, and (4) that the great fundamental principles of morality and public policy overwhelmingly sustain our position in this matter. Public policy is that principle of law which holds that no one can lawfully do that which has a tendency to be injurious to the public or against the public good; it is that rule of law which declares that no one can lawfully do that which tends to injure the public, or is detrimental to the public good, the principles under which freedom of contract or private dealing is restricted by law for the good of the community.
50 C.J. 858; U.S. v. Musgrave, 160 Fed. 700, 702; Kintz v. Harriger, 99 Ohio State, 240, 124 N.E. 168, 12 A.L.R. 1240, 1244; 37 C.J. 361.
Owen Garnett, of Columbus, for appellee.
The named beneficiary acquired a vested interest.
Jackson Bank v. Williams, 77 Miss. 398, 26 So. 965.
It is settled law in this state that the beneficiary named in the policy acquires an absolute vested interest therein unless the policy or the application thereof reserved the right to change the beneficiary named in the policy.
Williams v. Penn. Mut. Life Ins. Co., 133 So. 649.
A life insurance policy designating a beneficiary is the property of such beneficiary at the moment of its issuance.
Goza v. Provine, 140 Miss. 315, 105 So. 534; 5 Elliott on Contracts, sec. 4354; Central National Bank v. Hume, 128 U.S. 134, 32 L.Ed. 370; Harley v. Heist, 44 Am. Rep. 285, 290.
In an early English case an attempt was made to apply the principle of indemnity to the contract of life insurance, but the case has long since been overruled and it is now the doctrine, that life insurance is not a contract of indemnity, but an agreement to pay a certain sum in the event therein specified, in consideration of the payment of the stipulated premium or premiums.
Am. Eng. Enc. of Law (2 Ed.), 842.
The rule, stated in general terms, may then be said to be that if the policy is valid at its inception, because based on an adequate insurable interest the existence of such an interest at the maturity of the policy is unnecessary. While it has not been approved by all American courts, it has been indorsed by a large majority of them. Therefore the designation of a beneficiary valid in its inception, remains so, although the insurable interest or relationship of the beneficiary has ceased, unless otherwise stipulated in the contract.
1 Cooley's Brief on Insurance, 414; 1 Cyc. of Insurance Law, sec. 303, page 804; 2 Joyce on Insurance (2 Ed.), 902.
Divorce has no effect upon that property which is the wife's solely. This is an ordinary life policy, under the express terms of which the whole beneficial interest was vested solely in the appellant. Neither the appellee nor the courts could take that which was hers solely from her. That would be depriving her of her property without due process of law.
Grego v. Grego, 78 Miss. 443, 28 So. 817.
Since it was a valid policy in its inception, its assignment to Maggie Nicholson was valid under our laws, although assignee had no insurable interest in the life of insured.
Grant v. Sons Daughters of Jacob, 97 Miss. 182, 52 So. 698.
An insurable interest in the assured, at the time the policy is issued, is essential to the validity of the policy, but it has been often decided, as where a creditor takes out a policy on the life of his debtor, that it is not necessary to the continuance of the insurance that the interest in the life insured should continue. Cessation of interest, payment of the debt in the case supposed, would not terminate the policy.
Murphy v. Red, 64 Miss. 614, 1 So. 761.
Since the contract was valid when made, it did not become subsequently invalid when insured's connection with the manufacturing company ceased.
Surzing v. N.Y. Life Ins. Co., 203 S.W. ___; Keckly v. Coshoeton Glass Co., 99 N.E. 299, 301.
Moreover the manufacturing company in this case is entitled to the full amount of the policy. This is true because a policy of life insurance is not now held to be a mere contract of indemnity, but is a contract to pay the beneficiary a certain sum of money in the event of his death.
Wursburger v. N.Y. Life Ins. Co., 203 S.W. 332; Keckley v. Coshoeton Glass Co., 99 N.E. 299, 301.
The law seems to be well settled that it is wholly unnecessary to prove an insurable interest in the life of the assured at the maturity of the policy if it was valid at its inception; and in the absence of express stipulation to the contrary, the sum expressed on the face of the policy is the measure of recovery.
Appeal v. Carson, 6 A. 213, 217; Rawls v. Am. Mut. Ins. Co., 84 Am. Dec. 280; Reilly v. Penn. Mut. Life Ins. Co., 207 N.W. 583; Conn. Mut. Life Ins. Co. v. Shaeger, 94 U.S. 457; Blum v. N Y Life Ins. Co., 197 Mo. 513; Grigsby v. Russell, 222 U.S. 149, 56 L.Ed. 133; Wellhouse v. United Paper Co., 29 F.2d 886; Allen v. Hudson, 35 F.2d 330, 331; White v. Brotherhood of American Yeoman, 99 N.W. 1071; Aetna Life Ins. Co. v. Kimball, 112 A. 708; Case Note to Ritter v. Smith, 2 L.R.A. 844, 845; 3 A. E. Enc. of Law (2 Ed.), 960; 37 C.J. 397.
Argued orally by J.F. Frierson, for appellant, and by C.L. Garnett, for appellee.
In December, 1920, the appellee, D.S. Pate Lumber Company, obtained from the National Life Insurance Company two insurance policies on the life of Walter N. Holesapple, one of its executive officers and stockholders, payable "to the D.S. Pate Lumber Co. a corporation of Chicago, Illinois, its successors, or assigns, or to any other beneficiary designated by the insured as thereinafter provided," and providing that: "The insured shall have the right, at any time, when this policy is in force, and with the written consent of the beneficiary or beneficiaries named herein or endorsed hereon, and not assigned, to change the beneficiary or beneficiaries, in accordance with the rules of this company, by filing with the company a written request for the change desired and presenting the policy for endorsement, such change to take effect upon endorsement of the same upon the policy by the company."
When these policies were issued, Holesapple was, and continued to be until some time in 1927, a stockholder in and treasurer and one of the managers of the lumber company. In 1927, he sold his stock in the appellee company and ceased to be an officer therein. He then requested the appellee company to turn the insurance policies it had taken out on his life over to him. It complied with this request as to one of the policies, but refused as to the other. In 1930, he filed a bill in the court below against the D.S. Pate Lumber Company and the National Life Insurance Company, in which he offered to pay the appellee (D.S. Pate Lumber Company) the cash surrender value of the policy, "or whatever amount may be just and fair in the premises, and prayed that the beneficiary in the life insurance policy be changed to Mrs. Lena W. Holesapple, if living, and if not, to the insured's executors, administrators or assigns."
The case was tried on bill, answer, and proof, and a decree was rendered dismissing the bill.
While the case was pending, Holesapple died, and the First-Columbus National Bank, his duly appointed executor, was substituted as complainant therein.
The contentions of the appellant, as set forth in the brief of its counsel, are as follows:
"The insurable interest of the corporation in the life of the insured had ceased; the insured had requested a change of beneficiary and been refused, and the corporation did not have the right to continue as the beneficiary in these policies over the objection and protest of the insured, after the insured made this request and offered to reimburse the corporation for whatever amount was fair, equitable and just.
"These insurance policies having been taken out by the corporation for its own benefit were indemnity policies to indemnify the corporation in case of loss by death of the services of the insured, and, after termination of insurable interest of the corporation in the life of the insured, it was against public policy and against good morals to permit the corporation to remain the beneficiary in these policies over the protest of the insured, who was offering to do equity.
"These policies did not represent a vested interest and if they did represent a vested interest it was such a vested interest as became defeasible after the severance of insurable relationship with the insured protesting and offering to do equity."
A life insurance policy, though sometimes designated as a contract of indemnity, is not, in fact, such, unless made so by its language, but is a contract to pay a specific sum on the death of the person insured without regard to the value of his life to the beneficiary. The authorities supporting this proposition are too numerous to cite, but will be found collated in 37 C.J. 361.
As Holesapple was treasurer and one of the active managers of appellee's business, it had, as the appellant admits, an insurable interest in his life when the policy was issued, 37 C.J. 396, and that this interest in the life of the insured thereafter ceased has no effect upon the validity of the policy, or the right of the beneficiary therein to its proceeds. Grego v. Grego, 78 Miss. 443, 28 So. 817, 818. In Murphy v. Red, 64 Miss. 614, 1 So. 761, 762, 60 Am. Rep. 68, the court, in holding that an assignment of a policy to one having no interest in the life of the insured was valid, said that: "An insurable interest in the assured, at the time the policy is issued, is essential to the validity of the policy, but it has been often decided, . . . that it is not necessary to the continuance of the insurance that the interest in the life insured should continue. Cessation of interest . . . would not terminate the policy." This is in accord with the weight of authority elsewhere. 37 C.J. 397; 1 Cooley's Briefs on Insurance (2 Ed.), 414.
The beneficiary in a life insurance policy has a vested interest therein after its delivery, of which he cannot be deprived without his consent in the absence of a provision therefor in the policy. Jackson Bank v. Williams, 77 Miss. 398, 26 So. 965, 78 Am. St. Rep. 530; Johnson v. Bacon, 92 Miss. 156, 45 So. 858; Mutual Benefit Life Ins. Co. v. Willoughby, 99 Miss. 98, 54 So. 834, Ann. Cas. 1913d 836; Goza v. Provine, 140 Miss. 315, 105 So. 534; Williams v. Penn. Mutual Life Ins. Co., 160 Miss. 408, 133 So. 649.
The policy here involved provides for a change of beneficiary, but only "with the written consent of the beneficiary." For the court to change the beneficiary without the appellee's consent would not only be to deprive it of a vested right, but to do that which the policy itself expressly provides shall not be done.
That the courts are without power to change the beneficiary in such a policy without the beneficiary's consent seems to have been settled in the case of Grego v. Grego, supra. In that case a husband filed a bill against his wife for a divorce and prayed that she be divested of all rights in an insurance policy he had taken out upon his own life payable to her. The court below granted both prayers of the bill. This court affirmed the decree in so far as it granted the divorce, but reversed it in so far as it changed the beneficiary in the policy. In the course of its opinion, the court said: "The contract . . . by its terms, conferred a vested interest on Mrs. Grego, irrevocable by appellee or by any court. The court had no more power to take from appellant this policy, — her property vested by contract, — than to take from her anything else that was her sole property, . . . This is an ordinary life policy, under the express terms of which the whole beneficial interest was vested solely in the appellant. Neither the appellee nor the courts could take that which was hers solely from her. . . . The law as to this is well settled, and is quite independent of any statutory basis, resting upon the terms of the contract itself."
It is said by counsel for the appellant that the evidence discloses that "actual animosity existed between the officers of the corporation and the insured even before he severed his connections with the corporation."
This charge is probably not borne out by the evidence, but, if true, it would not affect the legal rights of the parties hereto.
Affirmed.