Case Name: Robert M. Whiting, Appellant, v. The Fidelity Mutual Life Association of Philadelphia, Pennsylvania, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1910-04-23
Citations: 137 A.D. 758
Docket Number: 
Parties: Robert M. Whiting, Appellant, v. The Fidelity Mutual Life Association of Philadelphia, Pennsylvania, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 137
Pages: 758–762

Head Matter:
Robert M. Whiting, Appellant, v. The Fidelity Mutual Life Association of Philadelphia, Pennsylvania, Respondent.
First Department,
April 23, 1910.
Insurance — option to surrender policy—increase in annual premiums — right of insured to accounting.
An insurance policy which provides that on a certain day, being the end of probable life, the assured may surrender the policy and receive a sum as a cash disability benefit, merely gives the assured an option and, if he do not avail himself of it, the original contract remains in force, and he is bound to pay only the premium originally stipulated unless a larger one be fixed in a manner provided in the contract.
Where the scheme of insurance outlined in the policy is that the premiums of the assured shall be divided between the mortality, equation and expense funds; that the losses shall be paid from the mortality fund, which shall be replenished from the equation fund if it prove insufficient, and if the equation fund be found insufficient by the actuary, then an assessment determined by the actuary may be levied payable “ within thirty days from the date of notice,” the provision in relation to the assessment furnishes no authority for a permanent increase in the annual premiums. . ■ .
Until the actuary has determined that there is a deficiency according to the standard specified in the policy he is without power to fix its amount and. lie is not authorized to make his determination arbitrarily or contrary to the fact.
Where ah insurance company at the end.of the assured’s probable life demanded an increased annual premium to continue the policy in force the assured is entitled to'a judicial accounting and determination whether or not the increase is justifiable under thé policy and a judgment dismissing the complaint upon the merits will be reversed.
Lauohlin and Clarke, JJ., dissented.
Appeal by the plaintiff, Eóbért M. Whiting, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 3d day of February, 1909, upon the decision of the court rendered after a trial at the New York Special Term dismissing the complaint upon the merits.
Alexander 8. Bacon, for the appellant.
William B. Ellison, for the respondent.

Opinion:
Scott, J.:
As I read this record the plaintiff is entitled to the aid of this court. There is no doubt that the relation between plaintiff and defendant is a contractual one, and that the policy expresses the contract. It needs no citation of authorities to maintain that proposition. The plaintiff holds two policies issued by defendant which, except as to the amount of premiums to be paid and the amount of insurance effected, are identical. The larger one may be taken as the basis of discussion. It requires the plaintiff to pay an annual premium of fifty-eight dollars and eiglity-three cents for the mortality fund, forty dollars and seventy-two cents for the equation fund and ten dollars for the expense fund on or before the twenty-fifth day of January in every year, or in lieu thereof twenty-nine dollars and three cents on the twenty-fifth day of th.e months of January, April, July and October in every year " during the continuance of this contract." The term of the contract is clearly measured by the life of the assured, for it is only upon his death that the defendant becomes obligated to pay the amount of the insurance. The defendant has either been itself confused or has attempted to confuse the question by reason of a provision in the policy that on the 16th day of July, 1905, being the end of probable life, the assured may surrender the policy and receive a sum as a cash disability benefit. This date does not, as defendant seems to assume, mark the end of the contract, so that if the insurance be continued it will be under a new contract. There is extended to the .assured merely an option, which-he may. or may. not avail himself of. If he does not, the original contract remains in force, under which the assured continues to be bound to pay the premium originally stipulated unless a larger premium is or was fixed in the manner provided- in the contract itself.
That this is the clear intention of the policy is further confirmed by the provisions contained therein that if it be not surrendered at the date estimated as the und of probable life "its equitable share of the Equation Fund shall thereafter be applied to the payment of the insurance afforded under this Policy." When the plaintiff arrived at the date fixed by the contract as the end. of probable life lie was informed that if he desired to continue the policy in force •lie would be obliged to1 pay an annual premium of $309.60 or $82.04 quarterly, being practically three times the amount of the premium provided by his contract. The justification for demanding this increased premium is sought to be found in certain conditions attached to and made part of the policy. The mortality fund, which is the fund from which death losses are to be paid,.is treated in condition No. 9,and it is provided that "any deficiency in the mortality fund due to the advancing age of the member shall be made good out of the equation' fund." Condition No. 10 provides that: " The member shall pay into the equation fund (which shall be deemed and regarded.as a surplus of 'the Association) an amount sufficient-to. cover his share of- the increasing mortality cost due to advancing • age, and if- the amount specified in the body of .this policy for said purpose, based on the tabulated -experience of Life Insurance Companies shall be found by the Actuary to be insufficient, then * . the Actuary shall determine the amount of deficiency properly chargeable to the member, which amount the member shall pay to the Treasurer of the Association within thirty days from the date of notice thereof." The scheme of insurance outlined in the policy, and its conditions is that the premium paid by the assured shall be appropriated from the beginning in fixed proportions to the mortality fund, the equation fund (representing surplus) and the expense fund. The mortality fund is to be used in paying, losses, and if found to be insufficient is to be replenished" from the equation fund (surplus), and if the latter becomes insufficient, an assessment may be levied payable " within thirty days from the date of notice thereof." This provision, that payment of the sum found necessary to replenish the equation fund shall be paid in thirty days after notice, is appropriate to an assessment, but furnishes no authority for and is inappropriate to a permanent increase in the annual premiums, and no other provision s to be found in any clause of the policy or conditions which justi fies an increase in the annual premium. It seems, therefore, that while the defendant might under certain conditions lawfully levy an assessment in order to replenish the equation fund, it has reserved no right to permanently increase the annual premium.
In my opinion, however, enough appears in the case to require the court to call upon the defendant to justify any increased charge upon the plaintiff. The policy imposes upon the actuary the power and duty to- do two things: First, to determine whether or not the amount specified in the body of the policy is insufficient to cover the assured's share of the increasing mortality cost due to advancing age; second, to determine the amount of deficiency properly chargeable to the member. Until the actuary has determined that there is a deficiency (according to the standards specified in the policy) he is without -power to fix the amount of deficiency. Although the policy leaves this determination in the first instance to the actuary, he is not authorized to make such determination arbitrarily or contrary to the fact. Upon a somewhat similar question as to the powers of the officers of a life insurance company the Court of Appeals said in Uhlman v. N. Y. Life Ins. Co. (109 N. Y. 421): " We do not, however, accede to the claim of the defendant herein to its full extent as made in the brief submitted, which is that the apportionment as made by the defendant is absolutely and, at all events, conclusive upon the policyholders. We hold that, under the terms of this policy, the apportionment was to be equitably made, and, in the first instance, by the defendant's officers or agents. But, inasmuch as the agreement is that the apportionment shall be an equitable one, the question of what is an equitable one, all the facts and circumstances being known, may be one over which the -courts have supervision. Prima facie, the apportionment, as made by the defendant should be regarded as a compliance with the terms of the policy, or, in other words, should be regarded as an equitable apportionment. It should be. thus regarded, because by the terms of the policy the duty of making it is cast upon the corporation, and it ought to be presumed that the defendant has performed its duty instead of presuming that it has failed to do so.: But the question is still left, has or has it not complied with its agreement to make an equitable' apportionment ? And the plaintiff, and all others similarly situated, have the right, upon proper allegations of fact showing that the apportionment made by the defendant is not equitable, or has been based upon erroneous principles, to have a trial and make proof of such allegations, and, if proved, the court will declare the proper principles upon which the apportionment is to be made, so as to become an equitable apportionment."
The evidence on the present case tends very strongly to indicate that there- was in fact no deficiency in the equation fund, or the plaintiff's share of it. On the contrary, there was a surplus to plaintiff's credit of $338.50, and the actuary himself when asked the point blank question whether or not there was a deficiency in the equation fund declined to say that there was, although he claimed that there was what he called a " contract deficiency; that is, there is a deficiency in the share of certain members," whatever that may mean.. In short, as I read the evidence, the defendant has endeavored to permanently increase the plaintiff's annual premium without any authority whatever under the contract, and has professed, to find a deficiency in his share in or contribution to the equation fund, when he has an actual surplus to his credit in it, and the fund itself shows no deficiency. The involved and cryptic explanations offered by the officers of the company do not, in my opinion, explain at all, and I think that a proper case is made'out for a judicial accounting and determination whether or not the condition has arisen •which, under the terms of the policy, would justify an increased charge upon the plaintiff for carrying the insurance. I am, therefore, in favor of a reversal of the judgment and a new trial.
IngrahaSi, P. J., and Miller, J., concurred; Laughlin and Clarke, JJ., dissented on the opinion of Mr, Justice Fitzgerald at Special Term.
Judgment reversed, new trial ordered, costs to appellant to abide event.