Court Opinion

ID: 8014595
Source: CourtListenerOpinion
Date Created: 2022-09-09 02:02:51.677432+00
Date Added: 2024-06-11T16:35:41.965043
License: Public Domain

Dissenting Opinion.
MARSHALL, J.
I am unable to agree with the majority opinion in this case, and because a simple dissent will not adequately express my opinion, and because of the grave consequences that will necessarily result from the- rules of law as enunciated in the majority opinion, I herewith, as briefly as possible, state my views.
The decision in this case depends upon the proper construction to be placed upon section 5856, Revised Statutes 1889 (being sec. 7897, R. S. 1899). That section is as follows:
*344“Sec. 7897. No policies of insurance on 'life hereafter issued by any life insurance company authorized to do business in this State, on and after the first day of August, A. D. 1879, shall, after payment upon it of three annual payments, be forfeited or become void, by reason of non-payment of premiums thereof, but it shall be subject to the following rules of commutation, to-wit: The net value of the policy, when the premium becomes due, and is not paid, shall be computed upon the actuaries’ or combined experience table of mortality, with four per cent interest per annum, and after deducting from three-fourths of such net value, any notes or other evidence of indebtedness to the company, given on account of past premium payments on said policies, issued to the insured, which indebtedness shall be then cancelled, the balance shall be taken as a net single premium for temporary insurance for the full amount written in the policy; and the term for which said temporary insurance shall be in force shall be determined by the age of the person whose life is insured at the time of default of premium, and the assumption of mortality and interest aforesaid; but, if the policy shall be an endowment, payable at a certain time, or at death, if it should occur previously, then, if what remains as aforesaid shall exceed the net single premium of temporary insurance for the remainder of the endowment term'for the full amount of the policy, such excess shall be considered as a net single premium for a pure endowment of so much as said premium will purchase, determined by'the age of the insured at the date of default in the payment of premiums on the original policy, and the table of mortality and interest aforesaid, which amount shall be paid at end of original term of endowment, if the insured shall then be alive.”
In this case the assured did not pay all of the premiums in cash, but thirty per cent thereof was evidenced by a note given to the company, and the sum of such notes was due on June 10, 1896. The assured *345also owed the company at that time other sums of money that he had borrowed from the company and to secure which he had pledged the policy to the company. On June 10, 1896, the net value of the policy amounted to $1,769.30. The assured then owed the company, on account of the thirty per cent of premiums paid by notes as aforesaid, and on account of money loaned on the security of the policy, the sum of $915.10. He was unable to pay the premium that fell due June 10,1896, and thereupon he applied to the company for a loan of $672.10, out of which the premium due June 10th was to be deducted. This was accorded by the company. This brought his indebtedness to the company, with interest thereon, up to $1,634.92. The company deducted this sum from the three-fourths of the premiums, with interest thereon, and a dividend due on that day added, and applied the balance to the purchase of extended insurance, which balance was sufficient to carry the policy only to September 7, 1897. If only the thirty per cent premiums that were evidenced by the notes had been deducted from the said net value of the policy, the balance would have carried the policy beyond July 1, 1898, the day on which the assured died.
When the arrangement of June 10, 1896, was perfected the assured and his wife, the plaintiff herein, assigned the policy to the company as security. That assignment was as follows:
‘ ‘ This is to certify that we have this day borrowed from The ¡Mutual Benefit Life Insurance Company the sum of fifteen hundred eighty-seven and 20-100 dollars, to secure the payment of which we hereby assign, transfer and set over to the said company policy No. 119009, issued by said company, and all su'm or sums of money, interest, benefit and advantage whatsoever, now due or hereafter to arise or become due by virtue thereof; to have and to hold unto the said company, its successors and assigns forever, as collateral security for the payment of said loan, with interest thereon from the date *346hereof at the rate of six per cent per annum, payable as, the premiums on said policy become due.
“It is understood and agreed that if the interest shall not be paid when due, either in cash or by dividend, it shall be added to the principal of the loan, and that if, owing to the non-payment of interest, the-principal of the loan shall ever equal or exceed the then cash surrender value of the policy, the policy shall thereupon become null, void, and be surrendered to the company, in consideration of the cancellation of the loan.”
The crucial question, therefore, is whether the company was entitled to deduct from three-fourths of the net value of the policy the total sum due it by the assured for notes given for the thirty per cent of premiums paid in notes and for loans made to the assured on the security of the policy, or whether said section of the statute prohibits anything from being deducted from such three-fourths of such net value except 44 any notes or other indebtedness to the company, given on account of past premium payments on said policy.”
Or, in other words, whether the statute was intended to prohibit the assured from borrowing money on the policy, and agreeing that if the premiums were not paid the loan should be deducted from the three-fourths of the said net value, in addition to the indebtedness for premiums, before the balance should be applied to the purchase of extended insurance.
The majority opinion concedes that the assured has a right to borrow money and to pledge or assign the policy as security for the loan, but it denies that under the statute, the assured could legally agree that the amount of such loan should be deducted from the three-fourths of the net value of the policy aforesaid. And right here is where we have come to the parting of the ways,” and I disagree with the opinion.
It is a mathematical axiom that the whole embraces all its parts* and all the incidents thereto belonging. So the policy embraces all the parts and all the inci*347dents, rights and benefits belonging thereto. Hence, it is wholly illogical to say the policy can be pledged or assigned, bnt that the incident to the policy, the three-fourths of the net value at the time of default in the payment of a premium, can not be assigned. Either it ought to be held that a policy could not be pledged or assigned at all, or else it ought to be held that anything of value belonging to the policy — whether it be the whole or only a component part thereof — can be pledged or assigned. There can be no middle ground. It will not do to say that the statute permits the one but prohibits the other.
There is nothing in the letter, context, spirit and meaning or object and purpose of the statute that affords support for such a construction of that section of the statute. The words of the statute contain no such prohibition against the pledge of the policy or any of its incidents or parts to secure a loan, nor against the assured agreeing that the total amount of the loans shall be deducted from the net value and only the balance remaining be applied to the purchase of extended insurance. The object and purpose that caused the enactment of this statute, was to cure the evil that theretofore prevailed of an insurance company declaring a policy forfeited if any premium was not paid promptly, and thereby getting the benefit of all premiums that had been previously paid. The law books are full of cases where insurance companies had been guilty of such practices. It had become a matter of common information that as long as the assured was in good health, the company would take the premium even if it was not promptly paid, but if his health failed and there appeared a probability of a loss, the agents of the company were instructed to “watch them like a hawk” (James v. Ins. Co., 148 Mo. l. c. 9), and if the premium was not promptly paid to forfeit the policy.
It is also a matter of common knowledge that the premiums charged are average premiums. That is, the amount charged when the assured is young and when *348the policy is first taken out, is in excess of the risk run, while the premium paid when the assured grows old, is not as much as the risk would require if the policy was taken out at that age. Therefore, by as much as the excess charged when the policy is young exceeds the risk run, that is, the cost of carrying the risk, there is an equitable interest properly belonging to the assured in such excess. [Since writing this opinion, my attention has been called to the case of N. Y. Life Ins-Co. v. Statham, 93 U. S. 24, which fully sustains what is here said.] Recognizing this, and in order to cut out the evils of absolute forfeitures that formerly prevailed, and to preserve to the assured this equitable -interest in such excess, our lawmakers have declared that any insurance company that desires to do business in this State shall do so on the terms prescribed, that is, that after the payment of three annual premiums the policy shall not be forfeitable, but if the assured fails to pay a premium, the net value of the policy shall be ascertained, in the manner prescribed by the section quoted, and that three-fourths thereof shall be ascertained, and from that sum anything the assured owes the company for past premiums shall be deducted, and the balance shall be used to purchase extended insurance. Thus the Legislature annihilated the evil and created a trust estate in the premiums paid in favor of the assured. And- this law was held valid by the Supreme Court of the United States. [Equitable Life Society v. Clements, 140 U. S. 226.] This was absolutely all the lawmakers intended to do when they enacted this law. It is perfectly plain that the Legislature never intended to prohibit the assured from selling, pledging or assigning either the whole of his policy or his equitable interest in such net value of the policy. That this is true is conclusively shown by the following considerations: Prior to the adoption of this statute there was no such thing known as an assured being able to borrow money upon the security of a policy on his life. Creditors often took life policies as security for *349past due debts, knowing they had to keep up the premiums, if the assured did not do so-, and to wait for his death for their money. But the assured could not borrow money on his policy. This law gave an actual, cash, ascertainable value to the policy, which it did not theretofore possess. It made it a thing of value in the market. It enabled the assured to borrow money upon the policy as security. It offered substantial and safe security to the company or person lending the money, which neither the assured nor any one else could take away. No failure to pay a premium could take this security away, for after three premiums had been paid the policy was non-forfeitable.
But what was the value thus given to the policy. Manifestly it was not the amount written in the- face of the policy. The assured could not borrow that amount any more after'this law was passed than he could have done before. It was the net value; the surrender value. It was the sum that could be obtained and applied to the payment of the money borrowed, from the equitable interest in the premiums paid. It was, under our statute, three-fourths of the net value after deducting any sum due for unpaid premiums. This was the thing of value that the lender had in his reach whenever the assured failed to keep the premiums paid up.
If this sum be not available to pay such loans at such times; if the balance of such net value- after deducting what is due for unpaid premiums must be applied, as the majority opinion holds is the law, to the purchase of extended insurance, and the extended policy only is security for the loan, then it will be impossible for any assured to borrow any money on his policy, and in this way a thing of commercial value to the assured, that has tided many a man over financial shoals and saved him from bankruptcy, will be struck down and utterly destroyed, and the assured will be the only loser. That the Legislature never intended such a thing seems to my mind absolutely clear. This right, this thing of value, was unknown when this act was passed. *350Therefore the Legislature could not have intended to prohibit a practice, to cut off a right, that they never heard of and that at that time had no existence.
I concede that in creating this new thing of value the lawmakers had a right to throw around it any restriction they saw fit, even to the extent of saying, if they chose, exactly how it should be invested and of prohibiting even the insured from using it or enjoying it in any manner contrary to the statute which created it. But I do not think the Legislature ever intended in passing this statute to do anything more than to preserve this portion of the premiums to the insured, and did not intend to prohibit the insured from making any other kind of a contract for his own benefit with reference thereto, except such a contract as would waive those benefits and turn them over to the company.
In construing this section of our statute (as also sections 5857, 5858, and 5859, which relate to the same subject) the Supreme Court of the United States, speaking through Mr. Justice Gray, in Equitable Life Society v. Clements, 140 U. S. l. c. 233, said:
“The manifest object of this statute, as of many statutes regulating the form of policies of insurance on lives or against fires, is to prevent insurance companies from inserting in their policies conditions of forfeiture or restriction, except so far as the statute permits. The statute is not directory only, or subject to be set aside by the company with the consent of the assured; but it is mandatory, and controls the nature and terms of the contract into' which the company may induce the assured to enter. This clearly appears from the unequivocal words of command and of prohibition above quoted, by which, in section 5983, ‘no policy of insurance issued by any life insurance company authorized to do business in this State’ ‘shall, after the payment of two full annual premiums, be forfeited or become void, by reason of the non-payment of premiums thereon, but it shall be subject to the following rules of commuta*351tion; ’ and, in section 5985, that if the assured dies within the term of temporary insurance, as determined in the former section, ‘the company shall he bound to pay the amount of the policy,’ ‘anything in the policy to the contrary notwithstanding.’
‘ ‘ The construction is put be/ond doubt by section 5986, which, by specifying four cases (two of which relate to the form of the policy) in which the three preceding sections ‘shall not be applicable,’ necessarily implies that those sections shall control all cases not so specified, whatever be the form of the policy.
“Of the cases so specified, the only ones in which the terms of the policy are permitted to differ from the plan of the statute are the first and second, which allow the policy to stipulate for the holder’s receiving the full benefit, either in cash, or by a new paid-up policy, of the three-fourths of the net value, as determined by sections 5983 and 5984. The other two cases specified do not contemplate or authorize any provision in the contract itself inconsistent with the statute; hut only permit the holder to surrender the policy, either in lieu of a new policy, or for a consideration adequate in his judgment. In defining each of these two cases, the statute, while allowing the holder to mate a new bargain with the company, at the time of surrendering the policy, and upon such terms as, on the facts then appearing, are satisfactory to him, yet significantly, and, it must be presumed, designedly, contains nothing having the least tendency to show an intention on the part of the Legislature that the company might require the assured to agree in advance that he would at any future time surrender the policy or lose the benefit thereof, upon any terms but those prescribed in the statute.
“It follows that the insertion, in the policy, of a provision for a different rule of commutation from that prescribed by the statute, in case of default of payment of premiums after three premiums have been paid; as well as the insertion, in the application of a clause by. *352which, the beneficiary purports to ‘ waive and relinquish all right or claim to any other surrender value than that so provided, whether required by a statute of any State, or not;’ is an- ineffectual attempt to evade and nullify the clear words of the statute.”
This statute was intended as a benefit -to- the assured. It was not intended to prohibit the assured from making any contract he chose for his own benefit, as to the net value so preserved to him. It was not even intended to absolutely command that such net value, after the amount due for past premiums is deducted, should be used solely for the purchase of extended insurance. For if this had been the intention of the law, the lawmakers would never have- enacted sections 5857 and 5859.
Those sections clearly confer upon the assured a right to use this net value in some other manner than for the purchase of extended insurance. Thus instead of using such net value to purchase extended insurance for the sum written in the policy for such a time as that net value would carry a policy for such a sum, section 5857 allows the insured to- demand that such net value shall be used to buy a paid-up policy, and it prescribes the rule for ascertaining what amount of paid-up insurance such net value will buy. And section 5859 further provides: ‘ ‘ The three preceding sections shall not be applicable in the following cases, to-wit: If the policy shall contain a provision for an unconditional cash surrender value at least equal to the net 'single premium for the temporary insurance provided hereinbefore, or for the unconditional commutation of the policy to non-forfeitable paid-up insurance for which the net value shall be equal to- that provided for * in section 5857, or if the legal holder of the policy shall, within sixty days after default of premium, surrender the policy and accept from the company another form of policy, or if the policy shall be surrendered to the company for a consideration adequate in the judgment *353of the legal holder thereof, then, and in any of the foregoing cases, this act shall not be applicable.”
From which it clearly apiiears that under the law after two (now three) annual premiums have been paid, the policy shall not be forfeited, but that the company shall employ three-fourths of the net value of the policy, after deducting any sum duefor unpaid premiums, to the purchase of extended insurance, without the assured being required to do or say anything. But the assured may have other arrangements made for his benefit, that is, under section 5857 he may demand a paid-up policy in such sum as that much money will buy, or under section 5859 he may, in the policy, provide that -instead of such extended insurance or such paid-up policy he shall be entitled to such net value in cash, or he may provide for the surrender of such policy and the issuance of a new policy, or he may surrender the policy to the company for a consideration adequate in his judgment. And this right last mentioned is not required to be reserved in the policy. It is reserved to him by the law. It is a recognition of the right of the assured to deal with this fund as he sees fit.
It can not, therefore, be properly said that section 5856 absolutely requires the net value to be invested in extended insurance, nor that it prohibits the assured from dealing with it as specified in sections 5857 and 5859.
It would be very hurtful to the insured to hold that section 5856 only permitted the net value to be used to buy extended insurance. For if this was the law, the company could not thereafter be required to accept any other premiums on the policy and the policy would cease when the extended term expired. In'other words, it amounts to the purchase of that much insurance for that length of time. If the assured died before the expiration of the extended insurance, of course his representative or the named beneficiary would get the *354amount of the policy. But if the assured did not die during the period of extended insurance, the policy-would cease with the expiration of the extended period, and then the lately insured person would have to take out new insurance and pay premiums fixed for original insurance at that time of life, or if he could not then stand a physical examination he could get no insurance. In addition, no man would lend a dime on a policy of insurance if that was the law, because, all the insured would have to do to cut off the security of the lender, would be to stop paying premiums, require the company to use the net value to purchase extended insurance, and then if he lived beyond the extended period the policy would cease and the security be lost. Such a rule would not make it certain that the lender would get his money even at the death of the insured, unless he died within a certain time, which would be before the end of his life expectancy.
But it is said that these laws were'not made for the benefit of money-lenders. That is true. They were made for the benefit of the assured. The right fi> borrow money on the policy is for the benefit of the assured. Without this law the company would lend its money to others who- had other security to offer, but without this law, construed as I construe it, the assured could borrow no money on the policy.
It is said, however, that if the insured is permitted to borrow money on the policy, the lender could come in at any time, surrender the policy and collect the net value of the policy in cash, and thus cut out the very life of the policy. This is a total misapprehension of the law. The assured could always prevent such a thing from happening by keeping the premiums paid up. As long as the premiums were kept paid up the company could not, and would not, accept a surrender of the policy and pay the net value in cash. But-it is said that by allowing the insured to borrow money on the policy, the benefit of extended insurance or'a paid-up policy is *355taken away from the insured. Be it so, if such is the result, it is a result that can only be brought about by the act and contract of the insured himself, and this law was intended to protect him against the company, not against himself.
Moreover, even if all that is thus said against- allowing the insured to borrow money on the policy be true, it does not cover the case. For section 5859 expressly permits the insured at any time within sixty days after he has made default in payment of a premium, to surrender the policy 'for any consideration he deems adequate. This right exists by virtue of the law, and whether the policy contains a reference to it or not, it exists and can not be taken away from the insured by any one. It is- therefore a thing of value — it is property. If it is something the insured can do' for himself, it is something he can authorize an agent to do for him. If this is true, it is wholly immaterial at what time he gives the power to his agent, whether before or after the failure to pay the premium. If he may delegate this power to an agent, he may also direct the agent what to do with the consideration or money that was received from the company. This he may do by an assignment of the policy, a pledge of the policy, or an express power of attorney to collect the money and an express direction how the money shall be applied.
It follows inexorably that the lawmakers never' intended to prohibit an insured from borrowing money on a policy, nor did they absolutely require the net value of the policy to be used to buy extended insurance, but they directly gave the assured the right, instead of taking extended insurance for, a limited time, to demand a paid-up policy for such sum as such net value would buy, or instead of any such arrangement, it gave the assured the right to contract in the policy that he should be entitled to take the net value in cash, and also, without it being so nominated in the policy, it gave him aright to surrender the policy to the .cpmpany for a consideration *356deemed adequate by him.. And all these rights which he might exercise, he had a right to authorize another to exercise for him.
For these hastily-thrown-together reasons I am constrained, very reluctantly, to dissent in this case.
Robinson, O. J., and Fox, J., concur in the within.