Title: Praetorians v. Fisher

State: florida

Issuer: Florida Supreme Court

Document:

89 So. 2d 329 (1956)
The PRAETORIANS, Dallas, Texas, a fraternal organization, Appellant,
v.
Ila Virginia FISHER, Appellee.

Supreme Court of Florida. Division A.
July 25, 1956.
Rehearing Denied September 24, 1956.
H.L. Killian and Cooper, Cooper & Killian, Tampa, for appellant.
V.R. Fisher, Tampa, for appellee.
HOBSON, Justice.
Appellee, Ila Virginia Fisher, filed her complaint in the circuit court, alleging that The Praetorians, a fraternal organization, appellant herein, was indebted to her in the amount of $1,000, less an outstanding loan of $167, on a life insurance policy of which she was beneficiary. Both parties moved for summary judgment which, after hearing, was granted for the appellee.
It is undisputed that the appellee is beneficiary of a life insurance policy issued by appellant on November 15, 1939, on the life of one Roy E. Lewis, in the face amount of $1,000. On May 28, 1952, the insured obtained from appellant a loan upon the policy in the amount of $167. Thereafter, he continued to pay the full premiums on the policy until he permitted it to lapse for nonpayment on May 1, 1953. On June 15, 1953, the insured was killed in an automobile accident. Interest at six per cent accrued on the loan to the insured up to the date of his death in the amount of $2.50, thus making a total indebtedness against the policy of $169.50.
The non-forfeiture provisions of the policy, where pertinent, read as follows:
A "Table of Non-Forfeiture Values" followed the above provisions containing a column setting out the terms of extended insurance "For Sum Insured on Face Hereof." Since the insured did not select any option under the non-forfeiture provisions, Option 3, for extended term insurance, automatically went into effect.
The trial judge held that the provision reducing the amount of the policy in the proportion that the indebtedness bears to the cash value was null and void, because it discriminates against a borrowing insurant in contravention of F.S. § 635.02, F.S.A., which reads in pertinent part as follows:
Accordingly, it was held below that the amount of the loan plus interest thereon was to be deducted from the principal amount of the policy and would leave a balance due the beneficiary of $831.50, plus interest and costs.
Appellant contends that according to the weight of authority this non-forfeiture provision should be upheld, and should not be considered discriminatory. If this contention prevails, the face amount of the policy would be reduced in the proportion that the indebtedness against the policy bears to its cash value, which would leave something over $60 as the amount to which the appellee is entitled.
Appellee relies in great measure upon the case of Afro-American Life Insurance Co. v. La Berth, 136 Fla. 37, 186 So. 241, 246, wherein we held that a beneficiary under non-forfeiture provisions of a life insurance policy was entitled to elect to take extended term insurance where the net cash value of the policy was sufficient to purchase insurance to a date later than that upon which the insured died.
Appellant urges that our opinion in the La Berth case should be restrictively interpreted, and argues that we did not there pass upon the precise issue now presented. To demonstrate the scope of our consideration of the basic problem, we quote the following language from our opinion in that case:
The result of the La Berth case was that we declined to disturb a judgment for the beneficiary in the face amount of the policy less the amount of the indebtedness, i.e., a judgment reached by the application of the same formula used by the trial judge in the instant case. This result was reached in the La Berth case in spite of the language we there quoted from the policy and its similarity with the language of the policy here confronting us.
Appellant contends that there is no discrimination between borrowing and non-borrowing insurants in the policy in suit, because Option 3 would come into effect automatically after default on the premiums, where no other option is selected, whether the insured had borrowed or not. But the provision of the policy styled Option 3 operates very differently upon borrowing and non-borrowing insurants in otherwise identical situations, and our inquiry must be whether the difference in treatment is justified by the difference in status, as the appellant would have us hold. It might not be amiss, at this juncture, to observe that our statute forbids discrimination "in the dividends or other benefits payable thereon, or in any other of the terms and conditions of the contracts it makes * * *." (Emphasis supplied.)
Appellee points out that the amount payable to the beneficiary of a non-borrowing insurant, otherwise situated identically with the insurant herein, would be the face amount of the policy, or $1,000, whereas under the facts of the instant case the insurance company seeks to apply the proportional formula which reduces the amount payable to considerably less than one tenth of the face value, even though (1) the policy was security for the loan (up to the amount of the "reserve" or "cash or loan value", in this case $182); (2) the insurance company has repaid itself out of the reserve for the amount of the loan plus interest thereon (in this case $169.50); and (3) there is a residual sum, or "net cash reserve", left in the hands of the insurance company to purchase term insurance (in this case the "net cash reserve" was $12.50). It will thus be seen that the borrower from the insurance company is severely penalized in the amount of his term insurance coverage simply by virtue of his status as borrower. If he had borrowed from a third party, and pledged his policy as security, the result would have been far different than that contended for by the appellant. The beneficiary *332 would be entitled to the face value of the policy minus the amount of the loan with interest.
At the heart of appellant's contention that the trial court erred in ruling that the policy provisions we are discussing are discriminatory is the argument that the term of the extended term insurance is fixed by the policy, and that the amount of such insurance which the net cash reserve will buy is therefore variable. It is urged that the insurance company may be held liable for no more extended term insurance than the net cash reserve will buy, and that such insurance may be varied in either of two respects: the amount payable to the beneficiary at the death of the insured, or the length of the term for which any amount is payable. Thus the net cash reserve may be applied to a comparatively small amount of insurance for a long term or to a comparatively large amount of insurance for a short term. In considering a policy which has no language fixing the term, as in the La Berth case, the court may interpret the policy in the light most favorable to the beneficiary, as was done in that case. Appellant, however, points to the language in its policy "but the extended term period will remain the same * * *" and contends that this language fixes the term and that there is therefore no alternative but to reduce the amount payable in accordance with the proportional formula.
The insured paid premiums on this policy for over 12 years, and the policy was in effect for over 13 years when the insured died. At the end of policy year 13, the "Table of Non-Forfeiture Values" shows that the term of "Extended Insurance for Sum Insured on Face Hereof" is 36 years. The language "but the extended term period will remain the same", read in conjunction with the table, would appear to mean that the term is fixed at 36 years, and if such were the case a drastic reduction in the "Sum Insured on Face Hereof" might reasonably be anticipated in spite of the caption on the table. The policy provision does not end with the language fixing the term, however, but is immediately sharply qualified by the words "unless the total indebtedness shall equal or exceed the cash value, in which event all benefits become null and void." Under another part of the policy, entitled "Loan Privilege", it is stated in part:
The time when the loan is to be considered "due" is apparently not specifically provided in the policy. It is quite clear, however, that interest upon the loan, as well as interest upon items of interest added to the principal, will absorb the net cash reserve at a rapid rate, and that when this reserve is completely absorbed, "all benefits become null and void." Thus the "fixed" term of 36 years, so emphasized by the appellant insurance company in this case, is completely illusory. If the net cash reserve had been absorbed before the death of the insured, the insurance company could contend that it had no liability whatever on the policy. Indeed, in its reply brief it states in part:
*333 This, of course, would also be the case where the net cash reserve had been absorbed by the accumulation of interest.
Since the term fixed in the table cannot be used here, the application of the proportional formula in this case would be discriminatory in nature, as the trial judge held, and the ruling below was entirely consistent with the La Berth case. It is not contended by the appellant that the funds of the insured in its possession were insufficient to pay a reasonable premium on extended term insurance in the face amount of the policy for the short term occurring between the automatic commencement of such coverage and the death of the insured. If such were the case, and the matter were properly raised by the insurance company as a defense to a claim by the beneficiary, there would be no coverage by extended term insurance unless some formula were available to reduce the amount of the policy and extend the term to encompass the death of the insured, and we express no opinion regarding the validity of the proportional formula in such case. It is sufficient for present purposes to hold, as we do, that no error has been shown in the judgment appealed from, which must accordingly be affirmed.
In affirming this judgment, we have not overlooked the cases from other jurisdictions, cited by the appellant, holding generally that a proportional reduction formula, such as is contained in the provision we have discussed above and in the policy which was before us in the La Berth case, is valid. This is said to be the majority view, 2 Appleman Insurance Law and Practice, Sec. 1937, and cases cited. We have examined these cases and find that in some the collateral policy provisions were different from, or not shown to be the same as, those now before us, and that there were some statutory differences. A single insurance policy provision must not be considered in isolation, but should be construed with other policy provisions, against the background of the case. See James v. Gulf Life Ins. Co., Fla., 66 So. 2d 62. Insofar as the results reached in the cases cited by appellant are inconsistent with the result that we have reached, we think that the application of a general rule upholding the proportional formula would represent an oversimplification of the problem here before us and would result in injustice to the beneficiary.
Life insurance policies are prepared by experts in this complex field, and the interplay of their various provisions is intricate and difficult for the layman to understand. For this reason, the public interest requires that a policy be interpreted by the courts in the manner most favorable to the insured, Sovereign Camp, W.O.W. v. Lee, 125 Fla. 736, 171 So. 526; New York Life Ins. Co. v. Kincaid, 122 Fla. 283, 165 So. 553; and Algoe v. Pacific Mutual Life Ins. Co. of California, 91 Wash. 324, 157 P. 993, L.R.A. 1917A, 1237, and also that statutes governing insurance contracts be liberally construed so as to protect the public, Covington v. Covington, Tex.Civ. App., 271 S.W.2d 849; Utah Ass'n of Life Underwriters v. Mountain States Life Ins. Co., 58 Utah 579, 200 P. 673; 44 C.J.S., Insurance, § 65.
Affirmed.
DREW, C.J., and TERRELL and THORNAL, JJ., concur.