Court Opinion

ID: 9653226
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:41:33.770182+00
Date Added: 2024-06-11T18:12:57.167512
License: Public Domain

PHILLIPS, Circuit Judge
(dissenting).
The pertinent provisions of the group policy are set out in Note 1a, and the certificates issued to insured in Note 1b.
*683It will be noted from the italicized portion of the provisions of the policy set out in Note Ia that there were alternative methods for payment of the total and permanent disability benefits, one in the lump sum of $8,000 and the other in installments aggregating $8,616, as the employer under the group policy might elect. The employer in the instant case is also the Insurance Company.
The majority hold that when the Insurance Company failed, after the proofs of disability were filed, to pay tho total and permanent disability benefits in accordance with either alternative, it breached the contract, and thereupon the right of election as between tho alternatives inured to the insured; and that by bringing an action to recover the installments in a lump sum, insured eleeted that alternative.
It may he observed that the proofs of disability were sworn to on August 2, 1932, and forwarded by mail to the local agent of the Insurance Company at Salt Lake City on August 3, 1932, and that on the same day insured commenced the instant action, wherein he prayed for recovery of total and permanent disability benefits of $8,000 in a lump sum.
Payment in a lump sum, were that alternative properly elected, was not due under the terms of the policy until six months after proof of disability had been received by the Insurance Company, or until six months after tho instant action had been commenced.
At the elose of the evidence, the Insurance Company moved the court to instruct the jury to return a verdict in its favor on the grounds (1) that the evidence did not establish total and permanent disability, and (2) that it did not establish that insured suffered such disability subsequently to the issuance of the policy of insurance. This motion was denied. The Insurance Company then requested the court to instruct the jury that if it found for the insured it should assess Ms damages at $143.60 with 8 per cent interest from August 3, 1932. This request was denied.
The court submitted one form of verdict finding for tho Insurance Company; and one finding for the insured, being the verdict returned by the jury and set out in the majority opinion.
The Insurance Company excepted to the form of tho verdict for insured on the ground that it had the election to pay either in installments or in a lump sum, and that insured in this action could recover only the amount of the first installment, since that was the only amount due at the time this action was commenced.
The court held that the Insurance Company, by its request to limit the recovery to one installment, had eleeted to pay the benefits in installments, and entered a judgment on the verdict. The material portions of the judgment are set out in the majority opinion.
Assuming that the Insurance Company breached both alternative provisions by failing, after proofs of disability were made, to choose one of the alternatives and to pay in accordance therewith, the right of election did not, in my opinion, because thereof, inure to the benefit of the insured.
Under a true alternative contract where tho choice of alternatives is in the promisor and he breaches the contract before he has made an election, the measure of damages is tho value of tho alternative least onerous to the promisor (Holliday & Co. v. Highland Iron & Steel Co., 43 Ind. App. 342, 87 N. E. 249; Pope v. Campbell, Hardin (3 Ky.) 34, 3 Am. Dec. 722; White v. Green, 19 Ky. (3 T. B. Mon.) 155; Hixon v. Hixon, 7 Humph. (Tenn.) 33; Kimball Bros. v. Deere, Wells & Co., 108 Iowa, 676, 77 N. W. 1041; Cochburn v. Alexander, 6 C. B. 791, 814; Williston on Contracts, § 1407, p. 2498); or the least valuahlc alternative (Sedgwick on Damages [9th Ed.] vol. 1, § 421); or in accordance with the alternative that will result in the smallest recovery. Restatement, Contracts, § 344.
Care must he exercised to distinguish between truly alternative contracts and contracts which provide for the payment of liq*684uidated damages in ease of breach, and also contracts under which there is a primary and secondary obligation and the promisor is to become liable upon the secondary obligation only in the event he fails to perform the primary obligation. Williston on Contracts, § 1407, p. 2408; Restatement, Contracts, § 344.
The contract here clearly does not fall within the two classes of contracts last mentioned, but is a true alternative contract.
There are cases which hold that where the promisor breaches a contract by failing to perform any one of the alternatives, the choice of alternatives inures to the promisee, and that he may sue and predicate his measure of damages and recovery on the alternative he chooses. See Note 2.
With respect to the eases cited in Note 2, Mr., Williston in his work on Contracts, at section 1407, says:
“An inconsistent and, it seems, erroneous rule has been laid down in a few eases, which, relying on a passage from Coke relating to grants rather than contracts, hold that if the promisor fails to make an election the prom-isee thereupon has the option. Such a rule would entitle the promisee after breach to recover damages based on the performance most onerous to the defendant. Doubtless it is possible for the parties to make a contract that until a certain time the promisor may choose but that thereafter the promisee shall have the choice. There seems no propriety, however, where the parties have not made such a contract in the- court making it for them.”
In Restatement, Contracts, in the comment under section 325, “Breach of an Alternative Contract,” it is stated:
“Where the ultimate time has arrived when some performance must he rendered by the promisor, and he neither performs nor elects, it cannot be said that the promisor is under a duty to perform any particular one of the alternatives. The breach of duty is the failure to render any one of the performances promised. As to the damages recoverable for such a breach see Sec. 344.”
Section 344, supra, reads as follows:
“The damages for breach of an alternative contract are determined in accordance with that one of the alternatives that is chosen by the party having an election, or, in ease of breach without an election, in accordance with the alternative that will result in the smallest recovery.”
The principle announced in the eases cited in Note 2 is of course inconsistent with the doetrine of predicating the damages on the least onerous or the least valuable alternative. The application of that principle results in the imposing upon the promisor, as a penalty for the breach, a greater obligation or duty than does the contract itself; its effect is to increase the contractual rights of the promisee upon a breach by the prom-isor when the contract does not so provide, and to make a new contract for the parties.
Furthermore, if the rule laid down in such cases and by the majority opinion is applied here, it will take from the Insurance Company a valuable right reserved by the contract, namely, the right, -where the disability benefits are to be paid in installments, to cease payment thereof and again exaet premiums, iu the event of the insured’s recovery from such disability before the full amount of the benefits has been paid.
The importance of the right of the Insurance Company to require proof of continued disability is apparent. Therein lies its only protection against fraud or malingering or unexpected recoveries from actual disabilities. Without it, a full recovery may be had for a permanent disability that ultimately may prove to be a sham or mistaken prognosis.
This contractual right to require additional proof of continued disability makes the right, also reserved by the contract, to elect between alternatives of paramount importance to the Insurance Company in eases where it has reason to doubt the permanence of the claimed disability.
But the doetrine of the majority opinion takes these contractual rights from the Insurance Company, in cases where it doubts the existence of disability and in good faith submits to a court'the question of whether the insured’s claim of disability is well founded in fact. Under that doetrine the Insurance Company must either forfeit its right to its day in court on a bona fide defense to a claim, or waive its contractual rights to pay in installments and require proof of continued disability. Therein I respectfully as*685sert is the underlying fallacy of the majority opinion. It imposes a severe penalty— the forfeiture of valuable contract rights— for-asking a court to determine a contested question of fact. The statutes provide that the losing party in an action at law shall pay the court costs; to impose more severe penalties is to legislate where Congress has not.
like every other citizen, the Insurance Company here, if in good faith it believed the disability insured against bad not happened, bad the right to have that issue adjudicated by courts organized for that purpose. To say to it that if you seek such an adjudication and the issue is determined against you, you must not only pay the court costs, but must have your contract emasculated, is not in keeping with the cherished theory that the courts exist to determine the bona fide controversies of our citizens.
Doetor Hummer testified that he examined insured in the latter part of February or the early part of March, 1932, and on a second occasion shortly thereafter; that he subjected him to the usual examinations and tests for heart disease and found no evidence of angina pectoris or myocarditis, and that his heart was normal in size and functioned normally.
Doetor Critchlow, a specialist in internal medicine and an examiner for the Veterans’ Bureau, testified that he examined the insured in April, 1931, and in September, 1931; that he made a special examination of the heart and found that insured had no evidence of angina pectoris, chronic myocarditis or mitral heart and that his heart was normal.
Doctor Ossman, an examiner for the Veterans’ Bureau, testified that he examined insured in 1922 and found no indications of organic heart disease; that he examined him again in December, 1924, and found his temperature, pulse, blood pressure, and heart normal, and no indications of heart disease.
Doetor Kerby, a specialist in X-ray diagnosis, testified tba-t the X-ray pictures of insured’s heart, introduced by insured, showed a normal heart and no indications of chronic heart disease.
The foregoing evidence on which the Insurance Company mainly rested its defense demonstrated its good faith and fully justified it in asking the verdict of a jury on the issue of disability.
There is another reason why, in my opinion, the Insurance Company did not lose its right of election. The insurance contract was a true alternative contract and the right to choose which alternative should be performed upon tbe happening of the contingency of total and permanent disability was in the Insurance Company. It did not deny its obligation under tbe contract. It admitted the promise, hut said it was conditional and that the condition, namely, the total and permanent disability of the insured, had not occurred. It demanded, as was its right, that the issue of such disability be determined by a court of competent jurisdiction. Tbe insured sued upon the contract. He was entitled under the contract, upon the happening of the contingency, to payments in accordance with one of the alternatives, but no particular one. When the court determined the condition had occurred, the right of the insured to receive, and the duty of the Insurance Company to make payments in accordance with one of the alternatives was established. It then became the duty of the Insurance Company to elect in order for the court to enter a proper judgment. Had the Insurance Company elected the more onerous alternative, the insured would not have been injured; and had it elected the less onerous, the insured would have recovered judgment for all he was entitled to under the contract. I fail to see how the failure to elect at an earlier date would have in any wise impaired insured’s rights under the contract, nor any reason why an earlier election should have been required.
This procedure is approved by Mr. Williston in suits for specific performance and I see no distinction between such a suit and an action on a contract, — where the promise is to pay a stipulated amount in money, — to recover the amount of money promised. See Williston on Contracts, vol. III, p. 2499, Note 14, and Taylor v. Mathews, 53 Fla. 776, 787, 44 So. 146; Smith v. Rector, 107 N. Y. 610, 14 N. E. 825; Greenleaf v. Blakeman, 40 App. Div. 371, 58 N. Y. S. 76. The trial court held as above stated that the Insurance Company had elected the alternative for payment in installments.
But if the Insurance Company by failing, after receipt of the proof of disability, to pay in accordance with either alternative lost its right of election, the right to choose did not thereby pass to the insured. The Insurance Company either in a suit on the contract or for damages for its breach was liable at most for a judgment predicated on tbe less onerous alternative. The less onerous was payment in installments. Eight thousand dollars was more than the present value of the future installments computed on the statutory rate of interest, 8 per cent. Payment. *686under the installment alternative exacts immediately a less amount of money, and, in the possible event of insured’s recovery before all the installments had been paid, it would ultimately exact a less amount of money. At least it cannot be said that the payment in a lump sum would be less onerous than the payment in installments and therefore the trial court erred inadopting the alternative providing for payment in installments.
• Furthermore, the insured took no exception to the verdict or judgment, both of which provided for payment in installments, and I fail to see why on this appeal we should grant him relief he does not seek.
The judgment, therefore, in my opinion, should be based on the alternative providing for payment in installments.
Should it have included future installments? In the event of the death of the insured before the end of the five-year period, under the judgment the Insurance Company would be liable to the personal representatives of the insured for the installments remaining unpaid, and also the beneficiary for a sum equal to the commuted value of the unpaid installments. The contract contemplated no such double payment. Furthermore, under the judgment the Insurance Company would be liable, in the event the insured recovered from such disability before all of the installments had been paid, for installments accruing after such recovery, notwithstanding the provisions of the policy to the contrary. For these reasons the judgment should have been limited to the first installment, or, at the most, to the installments past due when the judgment was rendered. United States v. Worley, 281 U. S. 339, 50 S. Ct. 291, 74 L. Ed. 887; United States v. Andrews (C. C. A. 10) 43 F.(2d) 80; United States v. Napoleon (C. C. A. 5) 296 F. 811.
The above decisions hold that judgment for future total and permanent disability benefits upon a war risk insurance policy is erroneous, because such a judgment would subject the United States to a double liability, as in the instant case, in the event of the death of the insured before all of such installments had matured.
The question of whether the insured in an action for damages might have recovered the present worth of the future installments, I do not stop to consider. The action was to recover on the contract, not damages for its breach, and the majority opinion after discussing that question says it is not involved or decided.
For the reasons above stated, it is my opinion that the ease should be reversed with instructions to enter a judgment for the amount of the installments due when the verdict was returned.

.
“Disability Before Age 60:
“Waiver of Premiums — Payment of Insurance. If any person insured under this Policy shall become totally and permanently disabled, either physically or mentally, from any cause whatsoever, to such an extent that he (or she) is rendered wholly, continuously and permanently unable to engage in any occupation or perform any work for any kind of compensation of financial value during the remainder of his (or her) lifetime, and if such disability shall occur at any time after the payment of the first premium on account of such insurance, while this Policy is in full force and effect and the said person is less than sixty years of age, the Company, upon receipt of due proof of such disability, will grant the following benefits:
“(1) Waiver of Premiums. — The Company will, during successive renewal periods, waive the payment of that portion of each premium under this Policy applicable to the insurance on the life of such disabled person the due date of which, as specified on the first page hereof, shall .occur after receipt by the Company of said proof of such disability.
“(2) Payment of Insurance. — The Company will, in addition to waiving the premiums, pay to said person at its Home Office the amount insured on his (or her) life, as the Employer may request, either in one sum six months after the Company shall have received such proof, or in sixty monthly installments during five years, each installment to be of the amount of $17.95 per $1,000 of insurance payable. The first of such monthly installments shall be paid immediately upon receipt by the Company of due proof of such disability and subsequent monthly installments shall be paid on the first day of each month thereafter. (Italics mine.)
“The total amount of insurance under this Policy on the life of the said person at any time after one or'more of such installments have been paid shall not exceed the commuted value of such of said installments as are not then due computed at the rate of three and one-half per cent per annum compound interest.
“Any .insurance remaining at the death of the said person shall be paid to the Beneficiary or Beneficiaries of said person. * * *
“Proof of Continuance of Disability. Notwithstanding the acceptance by the Company of proof of total and permanent disability, the said person, upon demand by the Company from time to time, but not oftener than once a year after the disability of said person has continued for two full years, for the purpose of verifying that such disability is actually permanent and not temporary, shall furnish due proof that he (or she) actually continues in the state of disability defined above. In case of failure to furnish such proof, no further proportional parts of the premium on account of said person’s insurance shall be waived and no further monthly installments shall be paid on account of such disability and any insurance on the life of said person then remaining under this policy may continue to be renewed subject to the terms of the Policy. * * * >•

.
“The Prudential Insurance Company of America in accordance with' and subject to the terms and conditions of its Group Policy No. 1690, insuring the *683lives of a group of the employees of The Prudential Insurance Company of America, Newark, Now Jersey, has insured the life of Robert Faulkner, * * *.
“Total and Permanent Disability. If the said employee, while less than sixty years of age, and while the insurance on the life of said employee under said Policy is in full force and effect, shall become totally and permanently disabled or physically or mentally incapacitated to such an extent that he or she by reason of such, disability or incapacity is rendered wholly, continuously and permanently unable to perform any work for any kind of compensation of financial value during the remainder oí his or her lifetime, said amount of insurance will be paid to said employee either in one sum six months after the Company has received due proof of such disability or incapacity, or in 'monthly installments during five years, the first installment to be payable immediately upon receipt by the Company of due proof of such disability or incapacity; in accordance with the provisions of said Policy. The disability benefits will be granted subject to cessation, in accordance with the provisions of the Policy, should such disability or incapacity prove to be temporary and not permanent. • * *«

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Virginia Export Coal Co. v. Rowland Land Co., 100 W. Va. 559, 131 S. E. 253; Ellison v. Boyd, 130 S. C. 269, 125 S. E. 493, 36 A. L. R. 855; Warren Corbin v. Fairbanks, Barlow & Co., 56 Vt. 538; Patchin v. Swift, 21 Vt. 292; Phillips v. Cornelius (Miss.) 28 So. 871; Coles v. Peck, 96 Ind. 333, 49 Am. Rep. 161. See, also, Travelers’ Ins. Co. v. Turner, 239 Ky. 191, 39 S.W.(2d) 216, cited in the majority opinion.