#### Schauberger v. Morel's Administrator.

(Decided February 9, 1916.)

Appeal from Jefferson Circuit Court (Chancery Branch, Second Division).

1. Insurance — Life Insurance — Wife Named in Policy as Beneficiary —When Divorce Divests Wife of Interest in Policy. — A divorced wife cannot claim the proceeds of a life insurance policy issued to her former husband before their divorce, in which she is named as beneficiary with right reserved in the insured to change the beneficiary, even though before the divorce she paid all the premiums on the policy, as the insurance granted by the policy is property and the judgment of divorce, operating to restore to the divorced parties the title to such property as either may have obtained from or through the other during marriage, in consideration or by reason thereof, divested the wife of all right to or interest in the policy of insurance.

2. Insurance — Right to Proceeds — Divorced Wife Entitled to be Reimbursed Out of Proceeds of Policy for Premiums Paid by Her Before Divorce. — Where a divorced wife before divorce paid four premiums on a policy on the life of her husband, the only premiums ever paid thereon, although divested by the judgment of divorce of all interest in the policy as beneficiary, she is entitled *369to be reimbursed out of the proceeds thereof for the amount of the premiums paid by her, with interest on each from the time it was paid.

ROBT. L. PAGE and L. D. GREEN for appellant.

L. S. LEOPOLD for appellee.

Opirior op the Court by

Judge Settle

— Affirming.

April 12,1907, the Metropolitan Life Insurance Company issued a policy to Edward J. Morel, insuring his life for $1,000.00. When the policy was issued the appellant, Arrahvola Sehauberger, then Arrahvola Morel, was the wife of Edward J. Morel and was named in the policy as the beneficiary, but it was provided therein that in the event of the death of the beneficiary before that of the insured, the amount due thereunder should, at the latter’s death, be payable to his executor or administrator *•*and by a further provision -of the policy the insured was given the right to change the beneficiary. In June, 1911, the appellant, Arrahvola Sehauberger, then Arrahvola Morel, instituted an action in the Jefferson Circuit Court, chancery branch, first division, against Edward J. Morel, in which she sought a divorce *a vinó-culo*from the latter, and on August 23, 1911, such divorce was granted her by judgment of the court; which also restored to each of the parties such property, not disposed of at the commencement of the action, as either might have ¡obtained, directly or indirectly, from or through the other during marriage or by reason thereof. On the 28th day of January, 1914, Edward J. Morel died in Jefferson County, the place of his residence, intestate, and shortly thereafter the appellee, Emile L. Morel, was appointed by the Jefferson Circuit Court and duly qualified as the administrator of the decedent’s estate. On the 28th day of August, 1914, he, as such administrator, brought this action in the Jefferson Circuit Court, chancery branch, second division, against the Metropolitan Life Insurance Company to compel the payment to him, by it, of the amount of the policy in question, alleging that by the terms of the policy the same was due and should be paid to him as the. administrator of the decedent’s estate.

The Metropolitan Life Insurance Company, by answer, which it made a counter-claim and cross-petition against the appellant, Arrahvola Sehauberger, admit*370ting its' indebtedness upon'the policy to the amount of $994.00, which sum represented the face value of the policy less an indebtedness of six dollars due thereon from the insured; that the above amount of $994.00 it was willing to pay to whomsoever the court might adjudge entitled thereto, but alleging that it was claimed both by the appellee, as administrator of the decedent, and the appellant, Arrahvola Sehauberger; and that the latter had threatened to bring suit against it for same, for which reasons the answer was made a counter-claim against appellee and cross-petition against appellant, it being asked that the latter be made a party to the action and required to assert whatever right she might have to the proceeds of the policy. The answer, counter-claim and cross-petition expressed the willingness of the Metropolitan Life Insurance Company to pay into court the amount due upon the policy that it might be relieved of further liability therefor, and shortly thereafter, with the consent of the parties and by order of the court, the amount due on the policy was by it paid into court.

On December 19, 1914, the appellant, Arrahvola Sehauberger entered her appearance in the action, both to the petition and cross-petition, by the filing of a pleading, styled an answer and counter-claim to the ■ appellee, administrator’s, petition, and a cross-petition against him; also an answer and counter-claim to the cross-petition of the Metropolitan Life Insurance Company, in which it was denied that appellee, as administrator of the estate of Edward J. • Morel or otherwise, was entitled to the proceeds of the policy in question or any part thereof, and, in substance, alleged her right thereto as the beneficiary named in the-policy, which was issued upon the life of the decedent while he was her husband, in consideration of the premium of $22.20, required at the time to be paid therefor, and an annual premium of a like amount, to be paid each year thereafter by the insured to the insurance company; that she, with money belonging to her, paid the first premium of $22.20 and each subsequent annual premium that became due thereon in the years 1908, 1909 and 1910, but that she borrowed of the insurance company on the policy, six dollars, which was applied in part payment of the last premium, paid in April, 1910; and that all of the premiums referred to, aggregating $88.80, were paid by her prior to the institution of her action against the deeed-*371ént for a divorce. It was further alleged in the answer-, counter-claim and cross-petition that'by the terms of the policy issued by the Metropolitan Life Insurance Company upon the life of the decedent, it was provided that after four annual premiums had been paid, after default of any subsequent premium the policy would be automatically extended and kept in force for a period of four years ;■ that before August 23, 1911,- the day upon which she was divorced from the decedent, she became vested with an absolute right in and to the proceeds of the policy, contingent upon the death of the decedent within the four years next following the payment of the last premium-that was made, covered by the extended insurance, and that the decedent’s death occurred within that time and without his having made any change in the beneficiary of the policy. By reason of the foregoing alleged facts appellant asked that she be adjudged entitled to the $994.00, proceeds of the policy paid into court by the Metropolitan Life Insurance Company, but that if the court should be of opinion that she was not entitled to the $994.00, that she recover, to be paid out of the fund, the aggregate amount of the annual premiums' paid by her on the policy, with interest on each from the time it was paid. -

The answer and reply filed by appellee to the counter-claim and cross-petition of appellant traversed the averments thereof and pleaded as a bar to the claim asserted' by her to the proceeds' of the policy, the judgment, of the Jefferson Circuit Court divorcing her from the decedent; and alleged that as it was thereby adjudged that each of the parties to the action for divorce should restore to the other such property,' not disposed of at the commencement of the action, as either might have obtained directly dr indirectly, from or through the other during marriage or in' consideration thereof, such judgment divested- appellant of all interest in the policy in question.

Following the taking of proof by the parties and submission of the case the court rendered the following judgment:

> *‘1*This action having been heard ' and submitted in chief and the Court being Sufficiently advised, it is considered, ordered and adjudged ■ that' by virtue of the divorce granted to the defendant and cross-plaintiff, Arrahvola Schauberger -from- plaintiff’s decedent, Ed*372ward J. Morel, on the 23d day of August, 1911, the said defendant and cross-plaintiff was divested of all her right, title and interests except as hereinafter set out, in the proceeds of the policy of insurance issued by the defendant, Metropolitan Life Insurance Company, upon, the life of plaintiff’s decedent on the 12th day of April, 1907, and that upon the death of plaintiff’s decedent, the assured, which occurred on or about the, 28th day of January, 1914, the proceeds of.said policy except as hereinafter set out became the property of the estate of the plaintiff’s decedent, Edward J. Morel, deceased.

> “The records herein showing that the defendant, Arrahvola Schauberger, did, on the 24th day of April,. 1907, and on the 12th day of April, 1908, on the 12th day of April, 1909, and on the 12th day of April, 1910,.paid the annual premium of Twenty-two Dollars and Twenty Cents ($22.20) upon each occasion, said sum being the amount then due by way of premium upon said policy, mating a total of Eighty-eight Dollars and Eighty Cents-($88.80), paid by defendant, Arrahvola Morel Schau-berger, it is ordered and adjudged that of the proceeds of said policy of life insurance paid into Court herein, the defendant and cross-plaintiff, Arrahvola Schauber-ger, be and she is awarded said sums so paid for premiums with interest thereon at the rate of six (6) per cent per annum from the date of each payment until paid, and that the balance of the proceeds of said policy of insurance be awarded to and are the property of the estate of the decedent, Edward J. Morel.

> “It is further considered and adjudged that each of the parties, plaintiff and defendant and cross-plaintiff, Arrahvola Schauberger, shall pay out of the sum awarded him his own costs and the costs of the defendant Metropolitan Life Insurance Company shall be assessed against the plaintiff and defendant, Arrahvola Schauberger, and that each of those parties shall pay one-half of said costs.

> “Leave to withdraw said sums is hereby granted to said parties. To all of which the defendant, Arrahvola Schauberger excepts and objects and prays an appeal to the Court of Appeals, which is granted.”

Appellant’s dissatisfaction with the judgment led to this appeal.

It is now a settled rule of law in this jurisdiction that if a husband procures a life insurance policy on himself, *373naming bis wife as beneficiary, bnt with the right, reserved to himself to change the beneficiary, and the parties are thereafter divorced by a judgment of a court of competent jurisdiction, the wife is thereby divested of all interest in the policy of insurance and cannot at the death of the husband claim the proceeds. In other words, the wife’s interest in the policy on the husband’s life is divested by the judgment of divorce, and this is true-though the premiums thereon may have been paid by the wife, but in the latter case she will be entitled to be reimbursed out of the proceeds of the policy the amount of the premiums paid by her thereon. The judgment of divorce operates to restore to the divorced parties the title to such property as either may have obtained from or through the other during marriage, in consideration or. by reason thereof; and this is true whether the return of the property is ordered by the judgment of divorce or in a subsequent proceeding. If the order of restoration be, as is often the case, merely formal, or none is made when the divorce is granted, any question thereafter arising as to what property shall be restored by either party to the other may be settled by subsequent proceedings.

In Sea, Adm’r v. Conrad, 155 Ky., 51, the question involved in the instant case was fully considered and decided. In that case the husband procured a policy of insurance for $5,000.00 on his life, in which the wife was made the beneficiary. The policy was what is known as a ten-year term policy, that is, in-consideration of ten annual premiums the insurance company, by the terms of the policy, agreed to pay the sum of $5,000.00 to the .insured’s wife within sixty days after due notice and satisfactory proof of his death. The policy gave the insured the right to change the beneficiary, but such change was never made by him. After the payment of the tenth annual premium the insured was divorced from his wife. His death later followed, and in a contest between- the former wife and the administrator ’ of his estate it was held that the judgment of divorce divested her of all right to or interest in the proceeds of the policy, notwithstanding her retention of the possession of the policy from the time it was issued until his death. In the opinion it is said:

> “There can be no doubt of the fact that appellee was, by the terms of the policy issued upon the life of Henry *374Conrad, named therein as the beneficiary because she was bis wife and by reason thereof bad an .insurable interest in bis life;'it is patent, therefore, that whatever interest or right she then bad or took under the policy was acquired in consideration or by. reason of - her marriage to Henry Conrad. The interest or right she thus acquired was destroyed by the judgment of divorce which operated, by virtue of its terms and the provisions of the Code, to divest her of it. It is not material that there was never an actual return of the policy by her to her former husband, or that its return was never demanded by him. The mere physical retention of the policy by her, whether intentional or otherwise, did not confer upon her any right to it, and the fact that she never demanded or received the dividends that accrued and were paid upon it, and that they were demanded and recéived by Henry Conrad as long as he lived, shows that each of them understood that she no longer had any interest in the policy. The policy was merely evidence of the contract with the company, upon which its liability could hot be enforced until the death' of Henry Conrad. Had he, at'any time after his divorce from ap-pellee, instituted proceedings for that purpose, he might have compelled the delivery to him of the policy, but his failure to ■ do so, whether it arose from a disinclination to have further litigation with his former wife, or other' cause, in view of his continued collection of the dividends thereon, is not to be taken as evidencing- his recognition of her right to it; nor is his administrator, by reason thereof, now estopped to claim its proceeds.

> “While appellee, at no time subsequent to the divorce and before Henry Conrad’s death, had an insurable interest in his life, it is unnecessary to determine whether that fact, of'itself, was sufficient to divest her of any interest in the policy ‘of insurance, it is sufficient to place our decision, as we do, on the ground that she was divested of such interest by ■ the -judgment of divorce, and the éffect sectioii 425 óf the Code compels us to give it.”

It is true that' in the .instant pase the insured did riot, as in the ease *supra,*receive a dividend or dividends on the policy after the paymerit ’of the last'‘annual premium thereori, but that fact does not affect the question under consideration. In the case *supra*the payment- to the insured of the dividends earned by thé policy after *375bis divorce from tbe wife was not a controlling fact in tbe decision of tbe case, but was mentioned in tbe opinion only for tbe purpose of showing by way of argument that'notwithstanding tbe former wife’s retention of tbe policy after tbe divorce and until bis death, she and tbe insured understood that she no longer bad any interest in tbe policy. Tbe opinion distinctly rests tbe decision upon tbe conclusions that an insurance policy is property and that any interest she may have bad in tbe proceeds of tbe policy was divested by tbe judgment of divorce,. although it bad not expressly directed, as did tbe judgment in tbe instant case, tbe restoration to tbe divorced parties of tbe title to such property as either may have obtained from or through tbe other during marriage, in consideration or by reason thereof. This is shown by the following further excerpt from tbe opinion in tbe case *supra:*

> “We are of opinion that tbe question here involved is controlled by the provisions of Section 425, Civil Code, and section 2121, Kentucky Statutes. Though hot in all respects identical in language, these sections are identical in meaning, hence in this connection it will be sufficient to quote either. Section 425, Civil Code, provides :

> “ ‘Every judgment for a divorce from the bond of matrimony shall contain an order restoring any property not disposed of at tbe commencement of tbe action, which either party may have obtained, directly or indirectly, from or through tbe other, during tbe marriage, in consideration or by reason thereof; and any■ property so obtained, without valuable consideration, shall be deemed to have been obtained by reason of tbe marriage. Tbe proceedings to enforce this order may be by petition of either party, specifying the property which the other has failed to restore; and tbe court may bear and determine tbe same in a summary manner, after ten days’, notice to tbe party so failing.’

> “It is manifestly tbe meaning of the Code that tbe judgment of divorce operates to restore to the divorced parties the title to such.property as either may have obtained from or through tbe other, during marriage, ‘in consideration or by reason thereof;’ and this is true whether tbe return of' tbe property is ordered by tbe judgment of divorce, or in a subsequent proceeding. If tbe order of restoration be, as is often tbe case, merely *376formal, or none is made when the divorce is granted, any question as to what property shall he restored by either party to the other may be settled by subsequent proceedings. Williams v. Gooch, 3 Met., 487: Smith v. Smith, 22 Rep., 225; Bennett v. Bennett, 95 Ky., 545; Johnson v. Johnson, 96 Ky., 391.”

The instant case does, however, present one feature not found in Sea, Adm’r v. Conrad, which is this, that here the former wife named as beneficiary in the policy paid all the premiums that were received by the insurance company on the policy, but this fact no more had the effect to give her a right to the proceeds of the policy than did the failure of the insured to change the beneficiary. It did and does, however, give her the eqilitable right to be reimbursed out of the proceeds of the policy the amount of the premiums so paid by her, with interest on each from the time it was paid. Such right is expressly recognized by the opinion in Sea, Adm’r v. Conrad, *supra,*and the several cases therein cited, and was accorded her by the judgment of the chancellor in this case. Indeed, the judgment of divorce, in divesting her of any interest which she may have had in the proceeds of the policy on the life of her former husband, compels him or his estate to restore to her the money which she paid to enable him to carry the policy, because the benefit thereof was obtained by him, as was the interest in the proceeds of the policy of which she was the beneficiary as long as they were husband and wife, in consideration and by reason of the marriage.

In Guthrie’s Adm’r v. Guthrie, 155 Ky., 146, the insured died a resident of Shelby County, Kentucky, leaving among other property a policy on his life of $1,000.00 in the Northwestern Mutual Life Insurance Company. By the terms of the policy the insurance was payable to “Mary B. Guthrie, beneficiary, wife of James M. Guthrie.” The parties were divorced in Chicago, Illinois, on December 20, 1909. James Guthrie died May 16, 1912. The opinion expressly reaffirms the doctrine announced in Sea, Adm’r v. Conrad, *supra,*but holds that it was not applicable in that case because the divorce was obtained in Illinois and the record did not show that it was the duty of the court in Illinois to restore the property after a decree of divorce. So in refusing to divest the wife of the interest in the policy in the Guthrie case, we said:

> *377“The appellants, however, insist that the divorce granted by the circuit court of Cook County, Illinois, and which admittedly had jurisdiction of the parties, like a Kentucky divorce decree of itself, operates to bar the right of the divorced wife, and is one of the conditions that divest her of any interest in the policy of insurance; that is, the Illinois decree should have the same effect as a divorce granted in Kentucky. The difficulty is, that appellant makes no allegation that there are, or were, in force at the time of the divorce in Illinois any laws of similar import to the Kentucky Statute and Code above referred to. Since the Illinois court had jurisdiction of the parties and the subject matter, and the record not disclosing that it was the duty of that court under the laws of Illinois to. restore any property obtained through the other marriage, or in consideration, or by reason thereof, and in view of the further fact that James M. Guthrie never attempted to chang’e the beneficiary named in the policy, we are constrained to hold that Mary B. Guthrie, named as beneficiary, is entitled to the proceeds, and the judgment of the lower court is, therefore, affirmed.”

As we fully concur in the conclusions reached by the circuit court in this case, the judgment is affirmed.