Court Opinion

ID: 7066732
Source: CourtListenerOpinion
Date Created: 2022-07-24 07:27:33.322738+00
Date Added: 2024-06-11T16:12:25.560626
License: Public Domain

*552On Petition for Rehearing.
Ibach, P. J
Appellee in its brief for rehearing has attacked, the action of this court in holding that on the facts shown by appellee’s answers, the amount of the loan to appellant’s decedent was larger than the amount of valid loan which could be made on said policy. In order to present one of appellees contentions, we quote, as follows from its brief: “The policy sued on was a twenty payment life, with first year preliminary term, requiring a different reserve, and was issued in connection with the loan agreement, which added an element and an obligation that the ordinary twenty payment life policy, or the ordinary twenty payment policy with one year preliminary term insurance, does not have, and which was not included in the figures shown in the American Experience Tables of Mortality referred to by the court. The additional element of obligation I refer to, which would increase the amount of reserve, was the provision in the loan agreement that, in the event of the death of the insured at any time within thirteen years after the policy was actually issued, all of the indebtedness evidenced by the loan agreement would be canceled. The amount of the indebtedness thus evidenced in this case was $1,115.45, with accumulating interest. * * * The company could not pay the usual obligation of the twenty payment life policy with first year preliminary term, and in addition pay $1,115.45 with only the reserve necessary to pay the face of the policy. The agreement to cancel $1,115.45 worth of indebtedness amounts to an agreement to pay that much insurance in ease of death. So instead of the insured having $5,000 of insurance he had $6,115.45 and accumulated interest during thirteen years and $5,000 thereafter. The court will bear in mind that the annual premium charged the insured was exactly the same as the annual premium charged at an age seven years.younger for $5,000 of insurance, and the same amount of premium was charged *553during the whole twenty year payment period. There was no extra premium named in the policy to cover the additional obligation of canceling the indebtedness given for the seven past premiums, and the whole amount of money which the company would have to obtain with which to meet its obligation to cancel the indebtedness in the event of the insured’s death within thirteen years, had to be accumulated during the first seven years of the policy and set aside as reserve, in addition to the reserve necessary to meet the ordinary obligations of the twenty payment policy. The reason all of the amount necessary to meet the indebtedness obligation had to be accumulated during the first seven years is that the insured was charged nothing for that purpose out of the remaining thirteen annual premiums. No further sum was to be collected to assist in meeting the indebtedness obligation. What we have to find out then, is what amount of reserve is necessary at the beginning of the eighth year to meet the obligation to pay off or cancel an indebtedness of $1,115.45 in the event of the death of the insured within thirteen years, and also to meet the ordinary obligations of the twenty payment life policy. This amount can be arrived at by ascertaining the amount of reserve at the beginning of the eighth year necessary to meet the obligations of the ordinary twenty payment life with first year preliminary term insurance policy, assisted by the remaining thirteen annual premiums, and then by ascertaining the amount of additional reserve necessary to cover the insurance of the indebtedness upon a man forty-five years of age, for thirteen years, and thereupon adding the two sums together. This thirteen-year insurance is simply term insurance sufficient to cover mortality. There is no cash surrender, paid up or extended insurance values in connection with it. It is the cheapest kind of insurance in which nothing is charged, except a sum sufficient to take care of mortality, thereby making the amount of reserve as small as possible. * * * This policy was based on the American *554Experience Tables with three and one-half per cent interest instead of with four per cent interest as stated in the opinion and as stated on the face of the policy. The company had a right to value the policy on the higher three and one-half per cent basis notwithstanding the policy stated it was based on a lower four per cent basis, because §4687 Burns 1908, Acts 1903 p. 45, permits a company to value its policies on a higher basis than the minimum four per cent basis, * * * The company changed from a four to a three and one-half basis about the time it commenced issuing the commuted premium policies and actually never valued its dated back policies on anything but a three and one-half per cent basis. In this case, by a clerical error, the company failed to substitute the words ‘three and one-half’ for the word ‘four’ in the policy value clause. I realize there is nothing in the record in this case showing this fact, but the court will take judicial notice of public records in the office of the auditor of State, and there it can find the valuation of this very policy made by the actuary of the insurance department of Indiana, and from his computations, it will appear that the State valued this policy on a three and one-half per cent basis and required the company to put up with the auditor sufficient securities to maintain the higher reserve required upon that basis. So that by referring to the American Experience Tables of Mortality, of which the court in this case took judicial notice, we find that the reserve value on $1,000 of twenty payment life insurance with first year preliminary term, with three and one-half per cent interest at the age of thirty-eight, at the beginning of the eighth year, is $179.83. At page 224 of Willey and Moir, Prin. and Prac. of Life Ins. (8th ed.), showing said tables, the seventh year terminal reserve on $1,000 of said insurance is shown to be $148.98. Add the net premium for the eighth year of $30.94 to find the eighth year initial reserve. On a like policy for $5,000 the reserve would be $899.15. There are no tables published which show the reserve under such a form for thir*555teen-year term policy as is here involved, but the actuary of the insurance department of Indiana prepared such a table, which is a public record in the State auditor’s office, based upon the American Experience Tables of Mortality with three and one-half per cent interest, for the purpose of valuing this and similar policies. Prom this table it appears that the amount of reserve for a single premium thirteen-year term policy issued at the age of forty-five (the insured’s actual age at the date of the execution of -the loan agreement) for $1,115.45 and accumulating interest, on a three and one-half per cent basis, is $224.50. These two amounts added together make $1,124.05. This figure is in excess of the amount of the loan agreement. 'The reason is that the loan agreement is the eighth midyear reserve and not the eighth year initial reserve. All of the policies written in a given year are valued by the insurance department of Indiana at the middle of the year, and their midyear reserve or valuation is ascertained by the insurance department. The company could have legally made the loan agreement for the eighth year initial reserve, but chose to make the loan agreement a few dollars less because the policy would be valued as of the eighth midyear reserve, as above stated. The court, in its opinion in determining the reserve on the ordinary twenty payment policy, took the seventh year terminal reserve. The fact that 1he policy was dated back seven years, no doubt, made it seem proper to find the amount of the seventh terminal reserve. The fact in this case was that with the first actual premium payment, which was made in advance of the issuance of the policy, the policy commenced its eighth year. In other words, the day of the issuance of the policy was the beginning of the eighth j^ear. This policy never had any seventh year terminal reserve because it did not come into existence until the beginning of its eighth year. So to ascertain the amount of reserve, one would have to ascertain the eighth year initial reserve. During a policy year the reserve is decreased by mortality, *556except in certain forms of endowment insurance, but increases by the next premium payment. So to find the midyear reserve add the initial reserve and the terminal reserve and divide by two. The midyear reserve on the $5,000 twenty payment life with first year preliminary term policy is $891.90, and the midyear reserve on the single premium thirteen-year term policy is $223.55. Adding the two sums together, we obtain the $1,115.45, for which the loan agreement was taken.”
9. We have quoted thus fully from appellee’s brief, in order to show the peculiar nature of the questions involved, and the manner in which appellant justifies the amount of the loan. Appellee’s contention as to thirteen-year term insurance to meet the obligation to pay off or cancel the indebtedness in the event of insured’s death within thirteen years, and the necessity of adding the reserve to carry such insurance to the amount of indebtedness, is foreign to the issues in this case. Appellee’s answer expressly avers “that the sum named in said loan agreement above set forth, represents the premiums for the period that said policy was dated back, less the expense of carrying such insurance for said period of seven years.” Insurance to meet the obligation to cancel the loan if the insured should die within thirteen years is, by appellee’s own statements, no part of the expense of carrying the insurance for the seven years that it was dated back.
10. As to the contention that the policy should have been valued on a three and one-half per cent basis, it is true that under the law appellee has a right to issue its policies on a three and one-half per cent basis. But the contract states that the insurance in question was issued on a four per cent basis, and having thus contracted with insured, appellee will not be permitted to assert, in any manner to diminish the rights of the insured, that its policjr was actually issued on a three and one-half per cent basis.
*55711. Next it is insisted that the calculation oí the reserve should have been made as the eighth year initial reserve, and not as the seventh year terminal reserve. The specious argument is made that as the policy did not come into existence until the beginning of the eighth year, it never had any seventh year terminal reserve. The policy did not exist at all during the seven years for which appellee made its loan, yet if the fiction of its existence during that time is sufficient on which to base the loan, the policy will be regarded as actually existing during that time, for all purposes as well as some purposes. The initial reserve for any year is much larger than the terminal reserve for that year or the year preceding, for the reason that the initial reserve for any year is computed just after the payment of a premium, and includes the reserve necessary to carry the risk during the whole of the succeeding year. When the terminal reserve is computed at the end of the year, it is smaller than the initial reserve for that year by the amount required to carry the risk through the year then at its close. Manifestly the increase in the amount of the eighth year initial reserve over the seventh year terminal reserve has nothing to do with the expenses of past years. All which the company could legally loan to Hay was an amount equal to the seventh year terminal reserve, not to the eighth year terminal reserve, or midyear reserve. The eighth year initial reserve did not come into existence until after payment of the eighth premium,- and the amount of the difference between the seventh year terminal and the eighth year initial reserve is cared for by adding to the seventh year terminal reserve a portion of the eighth premium. The loan is averred to represent the premiums for the past seven years, less the expense of carrying the insurance for those years. But by charging the insured in the loan with the eighth midyear reserve, he was charged with an amount which he had already paid in the form of *558the eighth year premium, namely, the difference between the seventh year terminal reserve and the eighth midyear reserve.
It is also urged that the insurance here was not ordinary twenty pay life, but twenty pay life with one year preliminary term, and that the reserve should have been calculated as such. We grant this, but such calculation would make the amount of reserve yet smaller than was our calculation.
We hold that the loan was valid and binding to the amount which could be legally loaned, computed according to the principles laid down in this opinion. We are satisfied with our conclusion in the original opinion as to the construction of the policy. The petition for a rehearing is overruled.
Note. — Reported in 101 N. E. 651; 105 N. E. 919. As to delivery and acceptance of policies of insurance, see 138 Am. St. 29. As to tlie computation of extended insurance, where policy holder has borrowed on the policy, see 23 L. R. A. (N. S.) 828.