Court Opinion

ID: 6849966
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:34:38.880827+00
Date Added: 2024-06-11T16:05:03.125859
License: Public Domain

HICKENLOOPER, Circuit Judge
(dissenting) .
I am unable to concur in the decision of the majority. I agree that extended insurance, although it may very properly be regarded as one type of “paid-up insurance,” that is, paid-up term insurance for the face of the policy, is not to be regarded as within the meaning of these words as used in section 659, Kentucky Statutes. I also agree, of course, that judicial construction of a policy of insurance is a matter of general law upon which the decisions of the state courts are not binding upon the federal courts; and that the statute does not require the issuance of extended insurance. What does seem to me controlling, however, is that the Court of Appeals of Kentucky has construed section 659 as requiring the elimination from the policy provision for such extended insurance only of the requirement for deduction of a surrender charge, and that, in so far as this is a definition of the scope and effect of the statute, it is a construction of such statute which is binding upon the federal courts whether those courts are in agreement with the processes of reasoning of the state courts or not. New York Life Insurance Co. v. Cravens, 178 U. S. 389, 395, 20 S. Ct. 962, 44 L. Ed. 1116.
Subdivision 4 of section 659 provides that “any condition or stipulation in the policy of insurance or elsewhere contrary to the provisions of this section and any waiver of such provisions by the assured, shall be void.” The effect of this provision has been defined as eliminating only so much of the policy provisions as is in contravention of the statute. The policy provides that in ease of default in payment of premiums the insured may have the option “(a) to accept the cash value of the policy, or (b) to have the insurance continued in force for its face amount as term insurance * * *, or (c) to purchase paid up life insurance * * The next paragraph then defines the “cash value” as the reserve at the date of default “less a surrender charge of not more than two and one half per cent, of the amount insured * * Regarded as a definition of the “cash surrender value,” this is a. valid provision under the statute; but the difficulty arises under the next provision: “The term for which the insurance will be continued or the amount of paid-up policy will be such us the said cash value will purchase as a net single premium at the attained age of the insured * * This latter provision only is in direct contravention of the statute, at least in so far as, by reference, it authorizes the deduction of a surrender charge.
In Peak v. Mutual Benefit Life Ins. Co., 172 Ky. 245, 189 S. W. 195, Prudential Ins. Co. v. Ragan, 184 Ky. 359, 212 S. W. 123, and Security Life Ins. Co. v. Watkins, 189 Ky. 20, 224 S. W. 462, while not construing the statute as requiring the issue of extended insurance, the court expressly held that where provision was made for extended insurance (in all respects similar to that in the present case) the insured was entitled, by virtue of the statute, and not as a matter of judicial construction of the contract, to have the policy enforced with only the objectionable provision for deduction of the surrender charge eliminated. If the statute as construed by the highest court of the state be read into each policy subsequently issued, this effect would result. The reserve, in the present case, calculated as required by the statute, would then have been sufficient to purchase extended insurance for a period beyond the date of death.
To hold that, because the statute does not affirmatively require the issue of extended insurance, the use of the “cash value” instead of net reserve as the measure of the term in *938the purchase of such extended insurance is permissible, the effect of our present decision, seems to me not only to contravene the construction of such statute, already the established law and announced public policy of the state, but also to negative the general intent that other types of life insurance, not required by the statute, but offered, shall be of “equal value,” that is, predicated upon the same purchasing power of the net reserve. It does not seem to me a hardship upon the company to read this requirement (known to the company) into the policy, and to hold that the insured, or his beneficiary, is entitled to that construction of its terms which would result from excising those words only which violate the statutory requirements. This is but requiring the company, in its contract representations to its policyholders, to comply with the statutory requirements, while preserving all other portions of the agreement, as, it seems to me, good faith and fair dealing, and compliance with the law, should require. >