70 Conn. 647 | Conn. | 1898
Lead Opinion
In the years 1872, ’73 and ’74, the defendant issued a number of participating policies, providing for a dividend upon the policies of each year at the end of ten years. All were term, life and endowment policies for differing periods. Forty-one of these are mentioned in the complaint, one in each count. In the case of each policy mentioned the defendant, at the expiration of ten years from its date, paid the holder the amount promised as an endowment, or, where the policy was for a longer term than ten years, purchased the policy by the payment of its surrender value. The defendant also declared upon all these policies a dividend, and paid the amount to each holder. The assured and insured under each policy gave to the defendant a release acknowledging the receipt of the payments so made, “ in full payment and settlement and discharge of all claims and demands whatsoever.” After the policies had been surrendered and the amounts due upon them thus satisfied, the plaintiffs obtained from the former owners of the policies assignments of all “ claims, demands and causes of action ” against the defendant; and relying upon these assignments have brought this action in their own names.
Upon the trial much evidence, documentary and oral, was received to explain the meaning of the policy. The plaintiffs rightly claim that it is a question of law not to be concluded by any finding of fact; and we think its meaning upon the point in controversy clearly appears from its language, read in the light of those settled and commonly known principles of insurance of which we may take judicial notice.
Life insurance is protection given to one person against the damage he may suffer through the death of another. A mere wager on the accident of death is void. In mutual life insurance the protection is furnished by the premiums paid by policy-holders. The duration of any particular life is the merest chance; but the average duration of life from any particular age approaches mathematical certainty. Hence it is possible to calculate the sum which, paid annually by a large number of insured, will satisfy the insurance on those who may die each year. It is the yearly death claims which constitute the cost of insurance that the premiums must pay. This cost for a young man is small, but increases each year until it becomes very large. To avoid the necessity of an increasing premium a uniform premium is calculated, which furnishes at first much more than enough to pay the cost of insurance, and later on is entirely insufficient for that pur
The surplus may also be increased through the failure of some to continue their policies. Where a policy thus lapses the company has in hand the accumulations of a portion of its premiums invested and held.in reserve to supply the insufficiency of future premiums to pay future cost of insurance. (The amount thus held in reserve depends on the judgment of the company in calculating its premiums and the condition of its business, but the statute treats the company as legally insolvent unless its whole reserve is at least equal in amount to the reserve value of all the policies calculated according to a rule established by law. Some companies accumulate a reserve larger than that required by statute; none can have less and remain solvent.) By a lapse the company loses the future premiums, and may lose in other ways ; but it is relieved from providing for future cost of insurance as to that policy and ordinarily, when the reserve fund is good, there is a considerable gain which may increase the surplus. Formerly, whatever gain there was went to increase the surplus; but latterly, in view of the fact that these overpayments are made to provide for future cost of insurance by a policy-holder who up to the time of lapse has theoretically paid his full share of the yearly cost and expenses, the equity of the lapsed policy-holder has prevailed over the equity of those who remain, and he is allowed an equitable portion of these overpayments, and this is called the surrender value of his policy. When a policy lapses the portions of prior premiums invested and held in reserve can no longer be applied to the purpose for which they were made, and, to the extent of the net gain by the
The company is the absolute owner of its assets, and within the limits of honest dealing has complete control of the time and manner of declaring a dividend on its policies. This time and manner, however, may be controlled by law, by its charter, and by contract. But no contract can make a “ dividend” anything but the return to policy-holders of funds derived from their premiums not used and not needed for the purpose for winch they were paid. So no dividend can be made by a company until after a valuation of its assets and liabilities, showing an excess of assets over liabilities. Unless there is such excess of assets over liabilities, every payment in the company’s hands is needed for the purpose for ‘which it was made; there are no overpayments to be returned, and a dividend cannot legally be made. De Peyster v. American Fire Ins. Co., 6 Paige Ch. 486, 488; Scott v. Eagle Fire Co., 7 id. 198, 202; Lexington Life, etc., Ins. Co. v. Page et al., 17 B. Monroe, 412, 440.
The policies in question insure a life for a term of years, and also agree to pay an endowment at the end of the term. The net premium for the life policy is calculated in one way and that for the endowment in another. A part of the net life premium is used to pay current cost of insurance, and a part is reserved for future cost. The whole net premium of the endowment is reserved to meet the final payment, there being no current cost of insurance. The endowment in these policies is fixed at such a sum that the life premium and endowment premium added together equal the premium for a whole life policy for the same amount of life insurance. The policies are participating, and contemplate the payment of an equitable surrender value in case of lapse. They make special provisions in respect to the distribution of the profits by
In the first place the policy-holders stipulate and the company agrees that the dividend surplus in which all the policies issued in that policy year may be entitled to share, shall be apportioned and paid in cash to the surviving and persisting policy-holders at the end of ten full years. Tins is clearly stated in the first and fifth clauses of the conditions contained in the policy. Second, each policy-holder, by the stipulation in clause four, foregoes his right to an equitable surrender value during the dividend period, so that in case his policy lapses, the whole amount of payments on that policy held by the company in reserve, remains in its hands. Third, each policy-holder stipulates, in clause five, that any share of the dividend surplus which his policy might be entitled to during the dividend period, shall be apportioned among the surviving and persisting policy-holders. The other conditions are not especially pertinent to the disputed question. This disposition of the surplus the policy calls “ the reserve dividend plan; ” and it calls the fund accumulated through these stipulations of the policy-holders, “ the reserve dividend fund.”
The practical effect of these provisions is patent. The policies of each year constitute a class by themselves, and their contributions must be treated separately so far as consistent with the necessities and obligations of mutual insurance, in order to give effect to the provisions. The policies in force at the .end of ten years will be entitled to the whole dividend fund, which may have been fed not only by the annual overpayments on their own policies increased by compound interest, but also by the overpayments of those who have died, made up to the time of death, and of those whose policies have lapsed, and by overpayments of holders of lapsed policies to the fund held in reserve to meet the future cost of insurance. As these policies stipulate that they shall receive no surrender value during the dividend period, the whole reserve or unexpended portion of the premium remains in the hands of the company, and the gains upon a lapse are
This is the plain meaning of the policy, by which the obligations of the company and the rights of the insured must be determined. It is the only meaning consistent with the terms of the policy and the fundamental condition of mutual insurance, that dividends must be derived from overpayments of policy-holders and that there can be no dividend, annual or decennial, unless at the time there is a surplus in the hands of the company.
The plaintiffs claim a widely different meaning, viz“ That the usual dividends and the total reserves on lapsed policies should have been credited to a fund yearly, that this sum should have been kept at interest and not resorted to for losses, death claims or expenses, and that it should have been divided at the end of the reserve dividend period among the survivors of the class.”
So far as this claim relates to bookkeeping only, it is immaterial. The company may change its methods of entries and computation at any time. The essential ’ feature is in the plaintiffs’ claim that the policies did not simply provide for a decennial dividend, but that the defendant promised to incur certain fixed liabilities, and at the end of ten years to divide the amount of those liabilities.
A yearly dividend has its advantages: an uncertain equitable interest in a fluctuating fund is converted into legal ownership of a definite sum. A decennial dividend has its advantages : the rapidly increasing surplus is an additional guaranty against adverse experience of one or more years,
But the plaintiffs rely mainly on the other part of their claim, viz: that “ the total reserves on lapsed policies should have been credited to a fund yearly; ” meaning that the company promised that upon the lapsing of each policy during the dividend period, it would become the debtor of the class policy-holders for a sum equal to the reserve value of that policy, that it would pay compound interest upon this debt, and at the end of the period would pay over the whole amount. This claim is stated by the plaintiffs’ counsel in various forms: “ In no case (of lapse) did the obligation to keep up the reserve of the class policy-holder cease to be a liability of the company during the class period, only the payee was changed.” And again: “ Until it had provided for the payment of such reserves (including reserves on
Such a contract as this is unheard of. It is impossible of execution. It cannot he found in the policy, and is inconsistent with the terms of the policy. Indeed the plaintiffs do not claim to find such a contract in the policy. Their claim is that it may he inferred from the contents of a certain canvassing pamphlet entitled “ Key to the Reserve Dividend Plan,” written by one Stewart for the exclusive use of the agents of the Widows & Orphans Benefit Life Ins. Co., and that the plan of insurance contained in the defendant’s policy is set forth and expressed on pages 10 and 11 of said hook, and as so expressed had been adopted by the defendant prior to the issue of the policies. The trial court has found as a fact that this pamphlet was not adopted by the defendant. It was prepared and published for the exclusive use of the agents of the Widows & Orphans Co., and at the time the first of the policies in suit was issued that company was transacting business through its own agents. The pamphlet, after the manner of insurance literature, attacks the defendant and other companies named, as incapable of carrying on this plan of insurance, and attacks the standing of the defendant and other companies named. It seems hardly credible that the defendant in issuing these policies as its own peculiar plan of insurance, should have sanctioned the distribution and use of such a pamphlet of another company.
The plaintiffs, however, claim that upon the special facts found the adoption of this pamphlet is a necessary conclusion of law. For the purpose of this decision we will assume that the plaintiffs’ claim is correct, and that the defendant did authorize the use of this pamphlet as an explanation of the plan of insurance contained in its policies. It must be remembered, however, that a hook of this kind is not the policy, hut is simply explanatory of the policy; it must be read in connection with the terms of the policy, and when its language may be construed as consistent with those terms, a different and inconsistent construction cannot he given. We think any fair construction of this pamphlet is consistent
The significance of this language lies in the fact that a “ dividend ” is defined as an equitable share in all the surplus and earnings; that the reserve policies differ from others only by reason of the stipulations contained in the policies themselves, and that the fund for the reserve dividend accumulates in a special way only by reason of these stipulations. This accumulation is the same as that mentioned on the policies, namely “the total gains” from all sources. And the final conclusion of Stewart is: “ It is plain, therefore, that the dividend to the existing members at the close of the class must be considerably larger than the dividend accumulating in the ordinarj1- way.” The dividend to the existing members, fed from the five sources named, is an equitable share of the surplus; in this respect precisely like the dividend accumulating in the ordinary way, the only difference being that the surplus is liable to be considerably larger. This language, in connection with that which goes before, is conclusive that the “ reserve dividend ” Stewart is talking about is a “dividend”—an equitable share of surplus—and not a payment. This fundamental assumption that the reserve dividend is a “ dividend ” implying surplus and derived only from profits, runs through the whole book and fixes its meaning. He starts with a statement that the plan is a division of “profits.” He states that it “differs from all others in that it recognizes the sources whence the surplus
Stewart says the persisting policy-holders are entitled to share in a surplus; the plaintiffs claim they are entitled to the payment of a debt. Stewart says the company promised • to distribute what it has; the plaintiffs claim a further promise to pay a sum it has not. Whether we read these policies by themselves, or in connection with the “ Key to the Reserve Dividend Plan,” as an authorized explanation, the result is the same. There is no foundation for the plaintiffs’ claim; and upon our interpretation of the policies they cannot maintain this action.
There is another view of these contracts that may be material. All that distinguishes ordinary life insurance from a wagering contract, is the theory of protection against damage that may be suffered through another’s death. This protection may be purchased by the insured in behalf of his own family, or of those he sees fit to make his beneficiaries; it may be purchased by one on his own account where he may suffer damage from another’s death by reason of kinship, the relation of creditor, or other insurable interest. But when this element of protection is entirely eliminated, the insurance is a wager and the contract is void. Cronin v. Vermont Life Ins. Co., Supreme Court of R. I., 40 Atl. Rep. 497. In the present case the policy-holders stipulate between themselves that the surrender value of each policy lapsing, which represents payments made in behalf of the beneficiary, shall go to benefit other policy-holders living at a certain time, who are total strangers to the policy and the insured. This is a mutual wager upon the chances of life. There is no conceivable element of protection. The sole purpose of the bet is personal profit. It is the risk of what is due to each in the case of a lapse, for the chance of winning what is due to others. It is correctly described by the plaintiffs’ counsel as “ the chance to speculate on his chances of surviving the other members.” On this ground these policies were urged upon the public, by appeals to the gambling instinct,
A number of assignments of error in rulings of the court are well taken. The most material occurred in the examination of experts, so-called. Mr. Whiting was asked in reference to the “ Key to the Reserve Dividend Plan,” being a book claimed as the defendant’s authorized statement of the contract in dispute: “ Is there anything in that book that requires, anything in that book, or in that plan of insurance, that requires that there should be constituted and set aside,” etc. ? In respect to the indorsement on some of the policies in suit, Mr. Whiting was asked: “ I wish you would state a little at length your opinion in reference to that language, and the reasons which are at the bottom of it.” And he was further asked, in reference to the indorsement, whether it was inconsistent with a printed statement of the defendant, in evidence, as to the accumulation of its dividend fund. Mr. Homans was asked in reference to the “ Key to the Reserve Dividend Fund ”: “ From what fund are the expenses
This testimony was inadmissible. The meaning and legal effect of the policy and of the document claimed as referred to by the policy, was a question of law for the court. Experts may be called to define terms of art, to explain the principles of their science, where such principles are necessary to be understood, to state the condition and practice of their business, when material; but not to instruct the court as to the meaning of a contract. Sometimes a definition of a term or explanation of a principle may be decisive of the meaning of a document, but it is for the court to draw the conclusion ; the opinion of any one else is immaterial. Here opinions were received as to the very point at issue in the case.
Ordinarily a new trial will not be granted on account of errors, where it appears from the record that a new trial cannot lawfully produce a different result. But this is a matter of discretion. In the present ease the trial court seems to have found the meaning of the policy as a fact inferred from documentary and oral testimony. The opinions erroneously received from witnesses learned in insurance matters, must have been given weight, possibly controlling weight, in reaching the conclusion, which was the basis of the judgment. Under the circumstances of this ease a majority of the court think our discretion should be exercised in setting aside a judgment so reached.
In a former appeal in this case the defendant assigned 167 errors; in the present appeal the plaintiff assigns 326 errors. There was no just ground in either appeal for such prolixity.
There is error and the judgment of the Superior Court is set aside.
In this opinion Torrance and Hall, Js., concurred.
Concurrence in Part
(concurring in the judgment, but dissenting in part from the opinion). I cannot agree with the majority of the court in approving the construction given, by the judgment appealed from, to the contract contained in the policies in question.
The plaintiffs introduced in evidence a pamphlet entitled as follows:—
“ New Plans of Insurance presented by the Metropolitan Life Insurance Company, 819 Broadway, New York, entitled Reserve Endowment and Reserve Dividend Plans, claiming advantages not hitherto offered. Originated and published by William P. Stewart, Actuary of the Metropolitan, and copyrighted by him in 1869.
“Entered according to Act of Congress in the year 1872 by the Metropolitan Life Insurance Company in the office of the Librarian of Congress at Washington.”
It is found that William P. Stewart, prior to 1872 was the actuary of the Widows and Orphans Benefit Life Insurance Co., compiling and publishing while such, a pamphlet entitled a “ Key to the Reserve Dividend Plan,” etc., which was copyrighted in his name in 1871; and that in 1872 he became the actuary of the defendant under a contract by which he gave it the exclusive right until 1878 to use and practice the plan so copyrighted.
No other proof was offered that the defendant or any of its agents prepared the matter in the pamphlet of 1872, or had it copyrighted, except the fact of such copyright and the document itself. The plaintiffs asked the trial court to find as a fact that it was copyrighted by the company, and the refusal to comply with the request is assigned for error. It seems to me plain that it was error. Hoyt v. Danbury, 69 Conn. 341. The pamphlet served to throw light on a material point, and if its statements were indorsed and put forward by the defendant, they became thus entitled to great weight in determining the nature of the policy contracts in controversy. That it was copyrighted in the name of the defendant was prima fade evidence that it was so cop3rrighted by its authority, and there was nothing to abate from the force of that presumption.
Three of the policies in suit bear an indorsement which also states what is to be credited to this fund. As these policies, in other respects, are identical with all the rest, I think that each of the whole number should be construed as if it bore a similar indorsement.
From these sources of information, and others to which allusion is made in the preceding opinion, it seems to me that the contract of the defendant was not that found by the Superior Court.
The defendant was a stock company. Its capital in 1872 was $200,000; in 1888, $500,000. Its means for meeting its obligations were therefore not limited to its premium receipts and the accumulations from them. It offered insurance upon the “ participating ” plan, under which dividends are annually declared from the surplus of the year’s operations, if any there be, payable to all policy-holders, in proportion to the premiums received from them. It also offered insurance upon the “ Reserve Dividend Plan.” This was to ton-tine a number of participating policies for a fixed term of years, and instead of paying over the dividends which might be declared upon them, reserve payment until the end of the term, crediting interest meanwhile on the sums so reserved. But this was not all. In the words of the copyrighted pamphlet of 1872:—
“ On the reserve dividend and reserve endowment plans a fund will accumulate from five sources, as follows: First. From the ordinary dividends, as allowed by the company, accumulated upon existing policies. Second. From the accumulated dividends bequeathed to the class by dying members. Third. From the accumulated dividends forfeited to the class by retiring members. Fourth. From the reserve of all policies lapsing before the close of the class. Fifth. From the addition of compound interest. It follows,
One of the five sources of credit to the “ Reserve Dividend Fund ” was therefore “ the reserve of all policies lapsing before the close of the class.”
On a previous page of the same work we find another description of the “ Reserve Dividend Plan,” as follows :—
■ “ The Reserve Dividend Plan contemplates the reserving for ten years of the usual dividends paid policy-holders annually, and then of dividing this sum equitably among the survivors. In the event of death during this period the full face of the policy is paid; in which case it has proved a productive investment to the extent of from 500 to 5,000 per cent of its cost. In the event of a policy-holder relinquishing his insurance, his reserve reverts to the surviving members.”
In the indorsement on three of the policies, to which reference has been made, the credits to the reserve dividend fund are described as “ gains from the following sources,” and one of these sources is given as “ The total reserve on all policies lapsing before the completion of said period.”
I think that the tontine fund, under the plan thus stated by the defendant, was entitled to be credited either with the total amount of the legal reserve on all policies lapsing within the tontine period, or with such part of that amount as, in the fair judgment of the company, might properly be treated as surplus funds, not needed to strengthen its capital or otherwise to secure the performance of its obligations.
The “ ordinary dividends allowed by the company,” and paid or credited annually upon participating policies, came from such surplus as mig'ht remain, when, from the premiums accrued during the year upon all such policies, receipts of income from investments other than those representing the capital stock, and gains on sales of such investments,
Such was the case of the tontine policy-holders under the reserve dividend plan. They had agreed, in lieu of receiving the usual dividends every year, to have the sum to which these would amount remain in the hands of the company for ten years, during -which it would serve, in favor of its creditors, including themselves, as a “ guaranty capital ” in addition to the regular re-insurance reserve fund required by law, as was stated in Stewart’s original Key to the Reserve Dividend Plan. In consideration of this the company promised them whatever gain might accrue from lapses of any of the policies in their tontine. One gain accrued by chalking off from the list of the company’s liabilities the reserve previously held for each lapsed policy; for this left its amount a free asset, to be treated as such in computing the surplus available for dividends. But this cannot be what was intended by the separate specification of the total reserve on lapsed policies as an additional source of gain to those already described. The tontine policies were to have some benefit by these lapses besides that which was exhausted in
The “Reserve Endowment Plan,” which was combined with the “ Reserve Dividend Plan ” in all the policies in controversy, ensured to each surviving policy-holder who kept his policy in force during the whole term of Ms insurance (which might be longer than the tontine term), the full amount of the reserve which ought to have been held against his policy, whether in fact the company had maintained it inviolate, or not. The sum insured upon his life, being no longer payable in any contingency, he might fairly stipulate to have the reserve returned, which had been or ought to have been kept to meet the contingency of his previous death.
So all the members of the tontine might fairly stipulate with the company and each other, that if any of them let his policy lapse, the reserve which had been or ought to have been held against it, being freed by the lapse, should forthwith go into the tontine fund. While in the fund, it would be an asset of the company quoad its creditors. At the end of the tontine, it would be payable to the tontine survivors, subject only to such rights of creditors, and to any statute requirements as to the maintenance of an adequate re-insurance reserve.
The Superior Court has found that the policy contract was that dividends to members of the tontine should be made only out of the receipts for premiums upon the tontine policies, improved at interest; and that there must first be deducted, among other things, all sums paid for insurance upon the lives of those of the class who had died, and any amounts paid to buy in any of the class policies. I find no such provisions in any of the documents in proof. On the contrary, in the Key to the Reserve Dividend Plan, Stewart expressly says that “ the expenses and death claims are paid out of the general fund of the company, and not charged to the class
The Superior Court also denied the tontine fund any benefit from lapses, except that shared by all participating policyholders in the ascertainment of the surplus applicable to ordinary dividends. I think the policy, which, if obscure, should be construed against the defendant whose production it is, promised some addition to the fund, outside of its share in the usual dividends, from the reserves which were or ought to have been held against the lapsed policies; and that this proviso was valid and enforceable. In the preceding opinion of the court, it is said that if the undertaking were to account for the entire reserve, it would be a mere wager, and so void. To this I cannot agree. It seems to me a legitimate mode of reducing the cost of insurance to the survivors of the ton-tine, in the benefit of which all share alike at the inception of the contract, since the chances of life are then uncertain.
In my opinion, the total amount of the reserves belongs to the tontine fund, subject only to the rights of creditors or the provisions of statute law as to the necessary insurance reserve.
In Stewart’s Key to the Reserve Dividend Plan, after explaining its right to the usual dividends, he saj^s: “ It is further stipulated that in case any member fails to keep his policy in force for the ten years he shall forfeit his reserve for the benefit of his class, which sum shall be kept at interest by the company, and divided in like manner.” In his “ Key to the Reserve Endowment Plan,” he recurs to the subject of the “ reserve dividend,” and describes it thus: “ The dividend is not a return at compound interest of the policyholder’s own money, but the payment to him of his equitable share in the funds of the company. This share will include the contributions from lapsed dividends, reserves, and the dividends bequeathed by dying members.” All this seems to me fundamentally inconsistent with the conclusions of the Superior Court, which were that the business of each
Considerable weight is attached by the majority of the court to the provision in every policy that “ an equitable surrender value will be allowed in purchase of this policy only at such times as a dividend may be due and payable upon it by its terms.” As dividends while they might become “ due ” annually were not to be “ payable ” until the end of the ton-tine term, this forbade the company to buy in any of the tontined policies prior to that event. Its object, as it strikes me, was not to express a promise to pay a surrender value, but to provide against wronging the tontine survivors by denying them the full benefit of any lapse. Each policy provides distinctly that “in every case when this policy shall cease and determine or become or be null and void, all payments thereon shall be forfeited to the company,” and that if there be any default in the payment of premiums, it “ shall cease and determine.” A purchase, therefore, of one who contemplated dropping his insurance, was an act of mere grace. If he belonged to a tontine, it was better for the other members that his relations to them should be terminated by a lapse rather than a purchase. A purchase would prevent a lapse, and by giving the company some rights as his assignee, or as respects the purchase money paid, would complicate or disarrange the final settlement of the tontine account. On the other hand, if a purchase were made at the end of the term, the company simply would become the assignee of the vendor’s right in the accumulated fund, whatever it was.
I concur in the opinion that in the admission of expert testimony to determine tbe construction of written documents there was error, for which a new trial should be granted.
Concurrence Opinion
I concur in the result, and in the opinion written by Judge Hamersley, that there was error in the admission of the expert testimony. I dissent from that part of his opinion which discusses the meaning of the policies. On that part of the case I agree with the views expressed by Judge Baldwin.
