Case Name: Mary K. Hoar, as Administratrix, etc., of Eliza D. Kerr, Deceased, Plaintiff, v. The Union Mutual Life Insurance Company, Defendant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1907-03-13
Citations: 118 A.D. 416
Docket Number: 
Parties: Mary K. Hoar, as Administratrix, etc., of Eliza D. Kerr, Deceased, Plaintiff, v. The Union Mutual Life Insurance Company, Defendant.
Judges: 
Reporter: Appellate Division Reports
Volume: 118
Pages: 416–426

Head Matter:
Mary K. Hoar, as Administratrix, etc., of Eliza D. Kerr, Deceased, Plaintiff, v. The Union Mutual Life Insurance Company, Defendant.
Third Department,
March 13. 1907. )
insurance'—provisions as to payment of premiums on life insurance construed-r-premium notes accepted by the. insurer, but not paid, not ■ effective as payment of premiums.
In an action upon policies of life insurance it appeared that after 'two or more annual premiums had been fully paid the policy became a paid-up, non-forfeit-, urn policy; that if the amount of any annual premium or interest due on any note- taken in part payment of a former annual premium were not fully paid. , the policy-should be rtiill and void and forfeited except ns respects, annual payments for prior years which have been fully made, and that if any-note, cheek or draft shall be given inpayment or part payment of any premium and-.siich note, check or draft shall not be paid according, to the provisions thereof, the. policy became immediately void except, as respects payments for prior years. I ■ further appeared that of the first annual premium only sixty per cent had been paid, but for the remaining forty per cent of the premium a one-year note was given. Only sixty per cent of the second premium was paid and the principal of the former premium note was included in a new premium note also payable twelve months from date. Similar settlements were made each year for six years, the principal of each premium note being included in the principal of the new premium note taken for part payment’of the premiums when due. The first premium note provided that if not paid at maturity all benefits which would have accrued for full payment became void and forfeited to the company. The subsequent premium notes did not contain said provision, but in accepting each note the surplus apportioned to the policy was deducted from the notes before the renewal note was given.
Held; that the beneficiary stood in no contract relations with the company except as she was entitled to reap the profits of.performance by the insured;
That the premium notes were not payments, but merely means of securing payment, and effective only to extend the time therefor, and never having been paid the original indebtedness was revived and the beneficiary was not entitled to recover on the policies;
That although the later notes contained no provision as to forfeiture of benefits in case of non-payment, it was immaterial, as the failure to pay the later notes revived the former note containing such clause and deprived the beneficiary of rights under the non-forfeiture clause.
Held, further, that the insurer by accepting the notes of the insured from year to year did not thereby rely upon his personal responsibility and agree to pay the beneficiary in full, but was entitled to offset against the sum due under the policy any sum due from the insured.
Smith, P. J., dissented, with opinion.
Memos' by the defendant, The Union Mutual Life Insurance Company, for a new trial under section 1001 of the Code of Civil Procedure after the entry of an interlocutory judgment in the office of the clerk of the county of Ulster on the -23d day of July, 1906, upon the decision of the court rendered after a trial at the Ulster
Special Term. The action is brought upon two policies of insurance, upon the life of John W. Kerr, now deceased. The first policy was issued on July 1, 1869, for the sum of $3,000, with an annual premium of $213 due the first day of July in each year for ten years. This policy contained the following provision ; “ That after two or more of said annual premiums have been fully paid, this Policy becomes a Paid-up Mon-forfeiture Policy, for an amount equal to the sum of one-tenth of that hereby insured for each and every premium which shall have heen so paid; requiring no further payments of premiums, subject to no assessments, but entitled to its apportionment of the surplus accumulation in the ratio of its contribution thereto.” The policy was payable to the wife of John W. Kerr, to. wit, Eliza D. Kerr, her executors, administrators or assigns. The policy contained the following conditions: “ First. That if the amount of any Annual Premium herein provided for, or the interest due on any note taken in part payment of a former annual premium is not fully paid on the day and in the manner so provided for, then this Policy shall be null and void, and wholly forfeited, except as respects annual payments for prior years, which shall have been promptly and fully made and the benefits of which are thus hereinbefore secured from forfeiture; second, that if, at any time, any Note, Check or Draft (other than the usual Premium Note, for jiart of Annual Premium forborne) shall be given in payment or part payment of any premium then due or to become due, for or on account of this Policy, and such- Note, Check or Draft shall not be paid according to the provisions thereof, then this policy shall ■ become immediately void, and the Company be thereby released from all obligations under it, except as respects payments for prior years which shall have been promptly and fully realized by the Company in all respects, according- to their terms, and the benefits, of which are thus secured from forfeiture as above provided.” The first annual premium of $213 was settled July 1, 1869, in the following manner: Sixty per cent thereof was paid, one-fourth in cash and the balance of three-fourths in three promissory notes of equal amounts payable in three, six and nine months. These promissory notes were called cash notes. They were paid by Mr. Kerr and delivered up' to him at maturity. Eor the remaining , forty per cent of the premium Mr. Kerr gave his note for $85 payable twelve months after date with interest. This note was also made out on a printed blank furnished by the company and was called a regular premium note. Upon July 1, 1870, the premium of $213 was settled in a similar manner. Sixty per cent thereof was paid, one-fourth in cash and the other remaining three-fourths in cash notes, payable in three, six and nine months. The interest on the premium note of the prior year was paid in fall, but the principal' of such premium note was included in the new premium note, which was given .for forty per cent of the premium due July 1,1870, making the premium note for $170 payable twelve months after date. Similar settlements were made each year for six years, the principal of each premium note being included in, the'principal of the new premium 'note taken for a part of the premium due at the time it was taken. The first three premium notes contained a provision, “ That if the interest on this note ■ is not paid annually, or the note itself at maturity, then all benefits which full payment in cash of said annual premium would have secured shall become immediately void and forfeit to said Company.” The other three notes did not contain such provision. In each of the last four settlements certain sums aggregating ninety-five dollars, being the surplus apportioned to the policy, were deducted from the notes before the renewal note was given. Applying this amount in extinguishment of the two first premium notes would leave a balance remaining unpaid upon them of seventydive dollars. After the sixth settlement of this nature two of the cash notes were paid. The third óash note was not paid, nor was-the premium note or any interest paid thereupon; .no other payments..were made on the policy. The claim of the plaintiff is that under the policy the first five premiums were fully paid, and that upon the death of John W. Kerr, his widow, or her executors, as she died before he did, were entitled to- five-tenths of the face of the policy. The policy provided : •“ Said Company shall have a right to setoff any demand they shall have against said assured, her assigns or representatives, arising incidentally to or in connection with this insurance against any claim for which this company shall be liable thereon.” The contention of the defendant is that the failure to pay this cash note and the failure to pay this last premium note or interest thereupon constituted an entire forfeiture of all benefit under the policy, and that two annual premiums were- hot actually paid or received, and that the notes were a proper offset against any liability of the company upon the policy.
The second cause of action raised substantially the same questions. That was a policy taken -out December 12, 1870, for $5,000 upon the life of John W. Kerr. It was payable to his wife, Eliza D., but, in case of her previous death, to his surviving children. The amount of the annual premium was $3(32.25. These premiums were settled in the same way for five, successive years: Keither the cash notes- nor the premium notes given in December, 1874, nor any other premiums, were ever paid. The wife having died before John W. Kerr, the plaintiff holds the rights of the children by assignment. Upon this policy the plaintiff claims the right to recover as for four-tenths of the face of the policy. This claim the defendant disputes upon the ground that all benefits under the policy have been forfeited by failure to pay the cash notes and the premium note given in December, 1874. The court at Special Term held that upon the first policy the premium liad been fully paid for five successive years within the meaning of the policy, and upon the second policy the premium had been fully paid for four successive years, arid recovery was allowed as upon a paid-up policy, in the first case for five-tenths and in the second case for four-tenths of the amount of insurance. Interlocutory judgment was entered and this motion made under section 1001 of the Code of Civil Procedure for a new trial.
John J. Linson and D. M. De Witt, for the plaintiff.
Moody & Getty [E. V. B. Getty, of counsel], for the defendant.

Opinion:
Kellogg, J.:
By the contract of insurance between the company and the husband, he agreed to make certain annual payments on each July first for ten years, in consideration of which it was to pay the wife the amount of the policy upon his death. Whether she would ever realize anything upon the contract depended upon the mariner in which he performed his contract. She stood iñ no contract relations with the company, except that as the beneficiary of her husband-she was to reap the benefits of his performance. . Hot one of the cash payments provided for by the policy was made by the husband. He gave his promissory note for a part of each. The giving of a debtor's note does not pay a debt. It may extend the time of payment, but if default is made in the payment of the note the original indebtedness is revived with all its incidents.
The non-forfeiture clause in the policy applies only where two annual premiums have been fully paid, and the provision as to pay ment is made more certain by the further provision in the policy where, in speaking of the non-payment of a cash note, check or draft, it provides that upon such non-payment the policy shall be void "except as respects payments for prior years which shall have been promptly and fully realized by the Company in all respects according to their terms, and the benefits of which'are thus secured from forfeiture as above provided." The provision in the premium notes that they shall not be allowed under the non-forfeiture clause as full payment until paid really adds nothing to the transaction. They were not payments, but were only means of procuring payment, and until paid were practically unimportant except to show extension of time for payment, but when past due they ceased to have any material effect. The maker had defaulted in his contract and could gain no benefit from his broken promise, but falls back upon the original contract, which he never has performed. But these notes make certain the understanding of the parties that after default they cannot give the delinquent any benefit under the non-forfeiture clause.
The neglect to continue this provision as to the non-forfeiture clause in some of the renewal notes does not benefit the plaintiff. Upon failure to pay such renewal note, the former note was revived with all its provisions and incidents; and clearly all notes containing this clause which are represented in the last renewal note cannot now be considered under the non-forfeiture clause. The long-continued default in payment of the last renewal note, representing an unpaid part of each annual premium on the policy, deprived the plaintiff of any benefit under the non-forfeiture clause.
If the clau'se in the policy that any claim that the company has against the assured may be set off -against the amount due upon the policy relates only to a claim against the wife of the party making the contract, that clause would clearly indicate that none of the notes was intended as actual payment under the non-forfeiture clause.
The policy seems to draw a distinction between the words "insured" and "assured," treating the husband as the insured and the wife as the assured; but she had no dealings with the company, and it could not have any claim against her arising out of the policy. He bad dealings with it, and naturally would be indebted to it on account of matters arising out of the policy. The words "assured" and "insured" are so nearly synonymous that they are frequently used interchangeably. It is not probable that the company would accept the notes of the husband from year to year, relying upon his personal responsibility, agreeing to pay the wife the full amount of the' policy, without the right to offset the notes. Any claim against the wife for any cause could be legally offset against the amount payable úpon the policy. It is not probable that that right of offset was intended to- be limited to a claim arising out of the policy only. Neither is it probable that the parties inserted this provision without intending that ;t should have some reasonable effect. The situation indicates clearly that it was the intention that-any indebtedness on account of the policy should be an offset against any amount due upon it.. In either view of the case there can be no recovery. ,
The judgment should he reversed on the law and the facts and a new trial ordered, with costs to the appellant to abide the event.
Chester, J., concurred ; Coohbane,- J., concurred in result iqion ground last stated; Smith, J., dissented in opinion ; Parker, P. J., not voting, not being a member of this court at the time the decision was handed down.