Omaha Nat. Bank v. Mutual Ben. Life Ins.

| U.S. Circuit Court for the District of New Jersey | Jun 16, 1897

ACHESON, Circuit Judge.

1. It is -contended on behalf of the plaintiff that there was no “indebtedness to the company on this policy” to be deducted from its net reserve within the meaning of the non-forfeiture provisions, and therefore that the extended insurance wms for the full term of 3 years and 258 days from November 11, 1893, the date of the lapse, which would carry the term insurance beyond the date of the death of the insured. The plaintiff insists that the “indebtedness” mentioned and provided for in the nonforfeiture provisions is indebtedness for loans made in cash by the company to the policy holder upon an assignment of the policy as collateral, and does not apply to a transaction represented by the certificate of loan, which, it is urged, is simply a credit of 30 per cent, of the premium payment, not enforceable as a debt, but which is to be'liquidated, acquitted, and recouped as therein provided, and not otherwise. But I am not able to perceive any sound reason for thus construing the non-forfeiture provisions of the policy. No distinction is therein made between cash loans and premium loans. The language used is, “Any indebtedness to the company on this policy.” This is comprehensive enough to embrace the transaction evidenced by the certificate of loan. While it may be that in the settlement of an annual premium the portion thereof represented by the certificate of loan does not actually pass back and forth between the insured and the company, yet the transaction in substance is a loan of money. The certificate designates it a “loan,” the amount bears “interest,” and it is made a lien on the policy ’until “paid.” No doubt the company’s main reliance is upon ibis lien because of its effectiveness, but personal liability is not expressly or necessarily excluded. A loan imports an obligation to pay back. 1 do not see' why an action could not be maintained on the certificate of loan after demand. Debt lies whenever a sum certain is due. without regard to (he way in which the obligation was incurred, or by what it is evidenced. Stockwell v. U. S., 13 Wall. 531" court="SCOTUS" date_filed="1871-12-11" href="https://app.midpage.ai/document/stockwell-v-united-states-88491?utm_source=webapp" opinion_id="88491">13 Wall. 531. But "whether or not the premium leían imposes a personal liability upon the-insured, it is an "indebtedness to the' company on the policy,” within the fair meaning of the nonforfeiture provisions. The authorities relied on do not. I think, sustain the contrary view. It is the ne*t reserve, less all indebtedness on the policy, including tlie outstanding premium loan, that is to be invested in the new form of insurance, whether under the first or second alternative clause. This does exact: justice to both parties to the contract. But if, in case of the purchase of term insurance, the premium loan is not deducted, and the insured should outlive the purchased term, then the company's lien would be gone, and the premium loan left unpaid. A construction of the contract which might lead to such a result is no¡ to be accepted. 1 am of the opinion that the premium loan on each of the policies in suit outstanding at the time of the lapse was an indebtedness to tlie company on the policy within the meaning of The nonforfeiture provisions.

2. It is, however, further contended on behalf of the plaintiff that, if there was an indebtedness to the company on the policies for premium loans at: the date of the lapse, the plaintiff had a right to pay off that indebtedness on February 18, 1896, and that the tender of payment then made opera! ed to extend the term of insurance until July 27, 1897. This argument is based upon the statement on the back of the policy immediately preceding the table', which, among other things, shows the additional time for which the insurance will be continued in full force after lapse by nonpayment of premium, viz.:

"TIu! figures given are Based upon the assumption iliai tlie premiums (loss current dividends) liave Been fully paid in cash. If there lie any indebtedness upon the policy, the values as stated in the table would have to be reduced proportionally upon the principles srarni in the policy. The indebtedness, it any, may be paid off in cash, in which ease the figures in the table will apply."’

Now, treating this statement as part of the contract: of insurance, it must: be read in connection with tlie body of the policy and the non-forfeiture provisions indorsed thereon, and when so read no such effect as is here claimed can reasonably be given to the statement. This clause has relation to the time of the lapse, when the original policy ceases and determines, and new insurance is to be substituted agreeably to (he nonforfeiture provisions. Those provisions give to the policy holder upon such lapse the benefit of the net reserve then appertaining to his policy after deducting therefrom tlie indebtedness to the company on the policy. The net reserve, less said indebtedness, tlie company must apply to the purchase' of term insurance; or, at the option of the insured, if signified within three months after lapse, to the purchase' of a paid-up policy. The explanatory clause in eoimeelion with the (able' states: . “The indeibtedness, if any, may be paid off in e-ash, in which e-ase the figures in the table will apply.” But when may the indebtedness be paid off to secure the application of the figures in the table? Certainly, it must be within the three months after lapse, during which the insured has the option, to demand a paid-up policy instead of term insurance. Clearly, the net reserve, less the indebtedness, must be invested either in term insurance or in a paid-up policy, during or at the expiration of three months from the lapse. Upon the expiration of that period the rights of the parties are definitely fixed. This construction of the contract harmonizes all its provisions, is reasonable, and is perfectly just both to the insured and the company.

I do not regard it as a matter of any moment that the certificates of loan were not surrendered, nor the certificates of extended insurance delivered to Johnson. In this there was no departure by the company from its usual course of business. Johnson retained possession of his policies, and did not apply for the other papers, which he could have had for the asking. I am of the opinion that the term insurance to which Frank O. Johnson was entitled under the policies in suit expired on the 23d day of February, 1896. Accordingly, upon the facts and law of the case as above stated, the court finds in favor of the defendant.