Court Opinion

ID: 9750990
Source: CourtListenerOpinion
Date Created: 2023-08-28 15:54:48.72852+00
Date Added: 2024-06-11T07:26:30.793497
License: Public Domain

*131Hehee, J.
(dissenting). The crucial inquiry here concerns the legislative design; and I find no indication of an intention to distinguish between life insurance policies and annuity contracts in the ordained exclusion, L. 1945, c. 132, N. J. S. A. 54:18R-5(a), of “cash surrender values” as an allowable deduction from the “taxable premiums and taxable considerations” as specified in section 3 of the act, defined in section 5 “to be gross contract premiums and gross considerations,” less, inter alia, “(a) Premiums received for reinsurance assumed and premiums or considerations (but excluding cash surrender values) returned on policies or contracts, * *
I would not have the intent of the lawgivers determined as a fact on “expert” testimony that “* * * within the insurance business ‘cash surrender value’ has a technical meaning, i. ea refund of the accumulated reserve (the excess of net level premiums over the cost of insuring the policyholder for the time the policy was in force with, in some instances, an added surrender charge) plus interest, applicable only to policies of life insurance.”
The arrangement of clause (a), the apparent parenthetical modification of “premiums or considerations,” followed by the words “returned on policies or contracts,” is in my understanding a negation of the suggested limitation of the “cash surrender values” provision to life insurance policies. Indeed, Prudential and Mutual have, since the adoption of the act, made no such deductions in any case involving an individual annuity contract “(b) [u]pon the cancellation of the contract by the prospective annuitant prior to the commencement of annuity payments,” but now assert the right to do so hereafter. And, as pointed out by the majority, the annuity contracts at issue here provide for “cash surrender values” or “cash value.” Plaintiffs’ witness Shepherd explained that the term “cash surrender value” was employed in annuity contracts “* * * because we thought the public would understand it because of their familiarity with the term in their life insurance policies.” But is not this the essential sense and significance *132of the transaction as conveyed hy these plaintiffs to the annuitants by the terms used to express the mutual intention and expectations? George M. Brewster & Son, Inc. v. Catalytic Construction Co., 17 N. J. 20 (1954). A contract makes known agreement and obligation; and here by common acceptance the expression has a certain and definite application to annuity contracts. The parties themselves have given the contract a characterization that is now rejected as illusory.
The payment of premiums on life insurance policies according to the “level premium method,” and the deduction of “expense allocable to the policy” and a “mortality charge” in determining the cash surrender value of the policy, are not conclusive of the distinction offered by plaintiffs in assessing the legislative intent and purpose. Plaintiffs’ witnesses Menagh, Peterson and Lunsford all testified in substance and effect that annuity surrender values are determined by the sum of premiums or considerations paid plus accrued interest, minus the company expenses; and they and plaintiffs’ actuarial witness Guertin also affirmed that the “cash surrender value” of life insurance policies represent the premiums paid plus accrued interest, less company expenses and the cost of the insurance to the point of surrender or cancellation of the policy, deemed to be the “mortality factor,” an actuarial assumption “according to some mortality table, that the policyholders in the class in which that policy is issued, will die according to a certain rate based on age.” Thus, the “cash surrender value” of life insurance policies means premiums plus interest, minus expense including the “mortality factor”; and so also the “considerations” returned on an annuity contract represent premiums plus interest minus expenses. Compare Guggenheim v. Rasquin, 312 U. S. 254, 61 S. Ct. 507, 85 L. Ed. 813 (1940).
Unlike the illustration of an annuity contract given in 1 Appleman, Insurance Law and Practice, § 83, as a payment hy the person designated as the “recipient” “in a fixed sum at one time, in return for which the company must *133then perform a series of obligations over a period of years, at designated times,” the annuity contracts here provide for payments in installments. And there are provisions for death benefits; and, in case of cancellation under a non-forfeiture clause, the annuitant is given the option of a cash surrender value: if the annuitant should die before the annuity date, there would be payable (a) the installment premiums paid or (b) the cash surrender value, whichever is greater. Under the non-forfeiture clause, the annuitant is given an option of a reduced paid-up annuity or a cash value which is equated with “cash surrender value.” There is in this regard no difference of substance between the Prudential and Mutual policies. In Mutual’s policy, the term “cash surrender value” is used throughout in the non-forfeiture, loan, dividend, and settlement option clauses. The death benefits payable under its Cash Deferred Life Annuity equal premiums paid without interest; no surrender is permissible under the non-forfeiture clause; if the policyholder defaults, he is given a lesser paid-up annuity. And Equitable’s policies provide for death benefits and cancellation. The benefit, in the event of death before the annuity date, equals a cash surrender value or total premiums, whichever is greater. The cash surrender value is here termed “cash value,” defined in the contract and described in the policy schedule captioned “value on surrender or lapse.” This policy also provides for benefits characterized as “cash values.”
Prudential’s “group annuity contracts” provide for death and termination-of-employment benefits equal to the premiums paid by the employee plus interest; there is a like plan making no provision íot interest.
Equitable’s Eon-Contributory Retirement Annuity Contract makes no provision for benefits either at death or termination of employment. Another plan provides for the same death benefits and cash values as in the Prudential contracts.
The distinctions made by plaintiffs between life insurance policies and such annuity contracts, in respect of the “moT*134tality factor” and risk, are not relevant to the fulfillment of the basic policy of the statute, N. J. 8. A. 54:18fi.-l, 2, 3, to lay upon life insurance companies an annual tax at the rate of 2% upon the “taxable premiums collected by the company * * * under all policies or contracts of insurance on residents of this State and 1% upon the taxable considerations collected by the company * * * under annuity contracts on residents of this State,” less certain franchise and other taxes.
Rescission or cancellation of an annuity contract for mistake, fraud, misrepresentation, or the like, is in a different category.
The parties themselves have provided for a cash surrender value; and their intention controls. The terms of insurance and annuity contracts are to be taken in their ordinary and popular sense, unless a technical usage is clearly indicated ; and where the words have a common usage a technical construction is to be avoided, absent a compelling inference contra,. Abbotts Dairies, Inc. v. Armstrong, 14 N. J. 319 (1954); Salz v. State House Commission, 18 N. J. 106 (1955); Bew v. Travelers’ Insurance Co., 95 N. J. L. 533 (E. & A. 1921); Bayonne Textile Corporation v. American Federation of Silk Workers, 116 N. J. Eq. 146 (E. & A. 1934). See 29 Am. Jur., Insurance, §§ 157, 159; 50 Am. Jur., Statutes, §§ 238, 277.
The purpose of statutory construction is to bring the operation of the statute within the apparent intention of the Legislature; to this end the general intention of the law controls the interpretation of its several parts, and so general words may be restrained accordingly and words of narrower significance expanded; the essential reason of the law prevails over the literal sense of terms. The motive which led to the making of the law is the key to its understanding. It is not the words but the internal sense of the law that gives it meaning. Here, there is no ground for supposing that the Legislature had in view a “technical” rather than the common usage.
*135I would reverse the judgment and remand the cause for further proceedings in conformity with the foregoing considerations.
For affirmance—Chief Justice Weesttraub, and Justices Btjrlifg, Jacobs, Erancis and Proctor—5.
For reversal—Justice Hehbr—1.