Piedmont & Arlington Life Insurance v. Young , 58 Ala. 476 ( 1877 )

STONE, J.

-Life insurance, like fire insurance, conducted on proper economic principles, is, no doubt, a prudential and valuable investment. Its tendency is to equalize and adjust tbe burden of domestic sustentation, so as to provide for tbe families of tbe short lived, at tbe expense of -those who live longer. The annual premiums paid by the assured, are graduated by tbe average length of human life; so that tbe families of those who are cut down before they reach tbe average age, share in tbe surplus paid in by those who are spared beyond that period. To this common fund to meet death losses, there must be added a sufficient sum to defray tbe administration expenses of tbe institution, with a margin to cover contingent excessive mortality. Properly conducted, with a view to these ends, and only to these ends, life insurance is worthy of public patronage.

But if the premiums be adjusted on a fancy schedule, with a view of enriching the corporators, or of furnishing undue compensation to a numerous army of officers and employes, or of squandering the accumulations in extravagance or ill-advised experiments, then the evils of life insurance exceed all possible benefits that can be derived therefrom.

Since the close of the late sectional war, life insurance has become a business — we may say, a large business — in the Southern States. Agents have flooded the land, and have Tied with eacb other in extolling its benefits in general, and particularly the excellencies of the companies represented by them respectively. Each insurance company has been, in turn, praised for some boasted specialty, which it was contended should commend it to particular confidence and patronage. When one agent failed to convince, another, more fluent or more reckless of speech, has succeeded in overcoming all objections raised; and the result has been that millions, which the South was poorly able to part with, have found their way into these institutions, which only here and there, a death loss paid, has gladdened one family, and furnished to the company an occasion for trumpeting to the world the beauties and benefits of life insurance. Policy holders have suffered grievously, in the matter of excessive premiums exacted from them, to meet a too expensive administration of the affairs of such corporations.

Another fruitful source of loss to policy holders, has been the numerous and disastrous failures of life insurance companies. Such failures, when the companies have succeeded in establishing a business, are without excuse, and should be ascribed to incompetent or dishonest administration. The losses from these failures have been very great.

But there has been another cause of loss to the policy holder, which has been much more severely felt than either of these. In making application for a policy, the applicant only sees and knows the soliciting agent. Large dividends to be distributed, and reduction of premium as a consequence thereof, are among the benefits he is assured will accrue to him. Two propositions are prominently presented to him; gradual reduction of the annual premium he will be required to pay, and the gross sum his family will enjoy at his death. And, in most cases, he is informed that after paying a given number of annual premiums, should he be unable or unwilling to make further payment, he can obtain a paid-up policy, for the proportion of payments made by him. All this occurs before he receives his policy. Nothing said to him of the strict process by which he is to obtain a paid-up policy, or of the many clauses formed in tbe body of the policy, or in the note endorsed upon it, which look to a forfeiture of the insurance. When the policy comes, he usually puts it away without perusal; or if he read it, and be not skilled in the law, the probabilities are that he will not understand the technical strictness required of him. He knows only the soliciting agent in the transaction, and he looks to him, and to him alone for counsel.

We do not say the portraiture above is the universal rule. There are honorable exceptions to it, both in companies and agents. But the picture we have hastily drawn, is of sadly frequent presentation. The hundreds, if not thousands of confiding persons, who, when they asked for paid-up policies, or cash surrender values, have been met with the cold response that, by reason of some strict rule they had failed to observe, their policies were forfeited, will attest the fidelity of the sketch. But these views are not entirely original with us. The deceptions practiced by life insurance companiés, through agents of their own appointing, have several times called forth the animadversions of the courts of the country.

In Insurance Company v. Wilkinson, 13 Wal. 222, 234, the court said, “It is well known, so well that no court would be justified in shutting its eyes to it, that insurance companies organized under the laws of one State, and having in that State their principal business office, send agents all over the land, with directions to solicit and procure applications for policies, furnishing them with printed arguments in favor of the value and necessity of life insurance, and of the special advantages of the corporation which the agent represents. They pay these agents large commissions on the premiums thus obtained, and the policies are delivered at their hands to the assured. The agents are stimulated by letters and instructions to activity in procuring contracts, and the party who is in this manner . induced to take out a policy, rarely sees or knows any thing about the company or its officers by whom it is issued, but looks to and relies upon the agent who has persuaded him to effect insurance, as the full and complete representation of the company, in all that is said or done in making the contract. Has he not a right to so regard him? It is quite true that the reports of judicial decisions are filled with the efforts of these companies, by their counsel, to establish the doctrine that they can do ail this, and yet limit their responsibility for the acts of these agents to the simple receipt of the premium and delivery of the policy,' the argument being that, as to all other acts of the agent, he is the agent of the assured. This proposition is not without support in some of the earlier decisions on the subject; and, at a time when insurance companies waited for parties to come to them to seek assurance, or to forward applications on their own motion, the doctrine had a reasonable foundation to rest upon. But to apply such a doctrine, in its full force, to the system of selling policies through agents, which we have described, would be a snare and a delusion, leading, as it has done in numerous instances, to the grossest frauds, of which the insurance corporations receive the benefits, and the parties supposing themselves insured are the victims. The tendency of the modern decisions in this country, is steadily in tbe opposite direction. The powers of tbe agent are, prima fade, co-extensive witb the business entrusted to bis care, and will not be narrowed by limitations not communicated to tbe person witb wbom be deals. An insurance company, establishing a local agency, must be beld responsible to the parties witb wbom tbey transact business, for tbe acts and declarations of tbe agent within the scope of bis employment, as if tbey proceeded from tbe principal.”

In Miller v. The Mutual Benefit Life Insurance Company, 31 Iowa, 216, 226, speaking of tbe powers of a soliciting agent, and of notice to him, tbe court said : “ It is quite time that tbe technical constructions which have pertained witb reference to contracts of this kind, blocking tbe way to justice, and leading to decisions opposed to tbe general sense of mankind, should be abandoned, and that these corporations, grown opulent from the scanty savings of tbe indigent, should be beld to tbe same measure of responsibility as is exacted of individuals. It follows that, in our opinion, tbe court did not err in instructing tbe jury that tbe defendant was bound by notice communicated to its agents.”

In Van Allen v. Farmers’ Joint Stock, Ins. Co. 4 Hun. (N. Y.) 413, it is said, “A parol waiver of a condition in a policy is good, notwithstanding a provision in tbe policy that nothing but a written agreement, signed by an officer of the company, shall have that effect. A general agent of an insurance company may waive tbe performance of a condition inserted in the policy for tbe benefit of tbe company.”

In tbe case of Malleable Iron Works v. Phœnix Ins. Co. 25 Conn. 465, tbe question raised was whether tbe insurance company was liable for acts, representations and omissions of duty on tbe part of its agent. Tbe defense was, that in tbe service complained of, the agent was acting outside of bis authority, and that be was, pro hac vice, tbe agent of the assured. He bad been furnished by tbe company witb printed blank proposals, containing proper questions to be answered by the applicant; and be was authorized to receive and forward applications for insurance. Tbe court said, “ We think there must be an incidental power in tbe agent, adequate to tbe explanation of tbe description of property which is to be insured, or tbe meaning of words and phrases-, and tbe application of answers to tbe subject matter. We do not say that an insurance agent is, of course, a general agent, witb no limitation; but, only that be is, in certain cases, clothed witb an incidental power to perfect that which is committed to bis care. Tbe agent was to obtain and forward a perfect application. It was within tbe sphere of bis duty to explain the questions, and decide for himself and the bona fide applicant, what was a satisfactory answer, and how the answer should be applied to the subject. In such a case, the agent can not be said to make the insurance himself, but his principals do it at the home office, obtaining only through him the necessary information.” And the company was held bound by his acts.

In the case of Rowley v. Empire Ins. Co. 36 N. Y. 550, it was declared that “a policy of insurance should not be avoided for an error by the agent of the company, acting within the general scope of his power, on the artificial and unwarranted assumption that he is the agent of the other party to the contract.”

In May on Insurance, §143, is the following language: “It has, in fact, been very generally held that knowledge by, or notice to the agent, of the inaccuracy of a statement in the application upon which a policy is issued, after such notice or knowledge, binds the company and prevents them from availing themselves of the inaccuracy in defense, some of the cases regarding the facts as amounting to a waiver, and others as working an estoppel in pais. And this is true even when the policy provides that when the application is made through an agent of the company, the applicant shall be responsible for such agent’s representations. And, indeed, the tendency of the courts generally, is daily becoming more decided to hold that such an agent may waive any of the conditions of the policy, and bind the company by such waiver.”

This is supported by a vast array of authorities. Substantially the same doctrine is asserted in Bliss on Life Insurance, §§ 281, 287, 288. See, also, Beebe v. Hatrford Ins. Co. 25 Conn. 51; Lightbody v. North Amer. Ins. Co. 23 Wend. 18; Plumb v. Cataraugus Co. &c. 18 N.Y. 392 ; Coreelis v. Hannibal Sav. Ins. Co. 43 Mo. 148; Hodgkin v. Farmers' Mut. Ins. Co. 34 Barb. 218; May on Insurance, § 144; Woobury Sav. Bank v. Charter Oak Ins. Co. 31 Com. 517 : Hanitz v. Equitable Ins. Co. 40 Mo. 557; Beal v. Park Ins. Co. 16 Wis. 241; Davenport v. Peoria Ins. Co. 17 Iowa, 276; Howard Ins. Co. v. Bruner, 11 Har. (Penn.) 50; Lycoming Ins. Co. v. Schollenberger, 8 Wright, 259; Currier v. Continental Life Ins. Co. 53 N. H. 538; Adman, Miller & Co. v. Phoenix Ins. Co. 27 Iowa, 203; Canngi v. Atlantic Fire Ins. Co. 40 Geo. 135; Post v. Ætna Fire Ins. Co. 43 Barb. 351; Ames v. N. Y. Union Ins. Co. 14 N. Y. 253; Carrol v. Charter Oak Ins. Co. 38 Barb. 402; Van Bories v. U. S. Life Ins. Co. 8 Bush. (Ky.) 133; Benedict v. Ocean Ins. Co. 31 N. Y. 389; Smith v. Ætna Ins. Co. 5 Lansing, 545; Walch v. Ætna Life Ins. Co. 80 Iowa, 133; Haugh v. City Fire Ins. Co. 29 Conn. 10.

So, it seems that where application or notice is required to be in writing, verbal notice will be sufficient, if not objected to. — See Liddle v. Market Fire Ins. Co. 29 N. Y. 184; Bachen v. Williamsburgh City Ins. Co. 35 N. Y. 131; Bodime v. Exch. Fire Ins. Co. of N. Y. 117.

Insurance policies are framed by insurance companies with great care and caution, with a view of limiting their liability as much as possible ; and in most cases impose conditions and duties on the assured, to be performed with marked particularity. They should be, and are liberally construed in favor of the assured; which conditions and provisos are strictly construed against the insurer. — Bliss on Life Ins. § 404.

The policy, in the present case, shows on its face .that it is of the class called “participating.” — See 1 Phil. on Ins. 47; Patch v Phœnix Mut. Life Ins. Co. 44 Term. 481. We think Mr. Young so understood it at the time it was applied for and obtained, and there is no evidence in the record tending to show the contrary. The testimony of the table rates was rightly ruled out for several reasons — one of which is, that it is not shown to have been, at any time, brought to the notice of the assured.

The present case presents strong claims to our consideration favorable to the assured. It is proved, and not denied, that in December, 1871, Young, the assured, notified Walker, the agent, from or through whom he had obtained the insurance, that he would pay no more premiums, and that he wanted a paid-up policy. Walker was still the agent of the defendant corporation. Instead of informing Young that his policy was non-participating, and hence, not of a class which authorized him to obtain a paid-up policy; and instead of informing him that he must make his application in writing, Mr. Walker, the agent, replied that it was all right, and he would attend to it. This was a month before any default in the non-payment of premium. Walker was frequently after-wards called on to know if the paid up policy had arrived, and at no time intimated a doubt of Young’s right to it. When he first communicated Young’s request to the insurance company in Virginia, is not shown. Nor, judging from the language of his letter, to be presently copied, does there appear to have been any answer received to his first communication. He writes as if he thought Young was entitled to a paid-up policy, and had no information that the right was denied. ' His ietter to the president of the insurance company, dated May 6th, 1873, is as follows :

“I again write you in reference to T. A. Brannon’s policy, favour of Young & "Woods. There were three payments of $426 each, made upon that policy, making in the aggregate $1,278. A paid up policy for that amount is wanted. Your immediate- attention will oblige,

Very-truly yours,

A. A. Walker.”

To this the president replied promptly, that the policy ceased for non-payment of premium in January, 1872.

We hold that the conduct of the agent in this case, and of the insurance company, estops the latter from denying that the demand of a paid-up policy was rightly made, even if such estoppel were necessary to protect his right, which we do not assert.

There is nothing in the objection that Young alone sues, based on the transfer made by Woods, his co-partner, without the approval of the company. — Burnett v. Eujaula Home Ins. Co. 46 Ala. 11; McMasters v. Ins. Co. 25 Wend. 379; Pierce v. Washna Ins. Co. 50 N. H. 297. If this objection were available at any. time, it ceased at the death of Mr. Woods, before this suit was brought, which vested in Young, the surviving partner, 'the sole right to sue.

The measure of damages in this case, according to the proof, was the money value, at the time of the trial, of a paid-up policy of $1,278, on the life of T. A. Brannon. The record contains no testimony or rulings of the court on that question, and hence, no question bearing on that, is presented for our consideration. The charges asked and not given assumed an enormous measure of damages, and were rightly refused. None of the charges asked should have been given.

The legislatures of most of the States have enacted statutes for the protection of policy-holders against insolvency and fraud of life insurance companies. As a condition of doing business, they are required to maintain a reserve of assets, sufficient in amount, at a rate of four to six per cent. interest, to cover their liabilities. The modern tendency is to increase the required reserve, to a standard of protection at a low rate of -interest, say four and a half per cent., and in some cases four per cent. There has been no legislation in Alabama on this subject; and we avail ourselves of this occasion to invite the attention of the legislature to it.

Another question for legislative inquiry. We have penal enactments which punish the offense of obtaining money under false pretenses with great severity. It is worthy of consideration if some amendment is not necessary, to embrace, restrain and punish reckless misrepresentations, too frequently indulged in by soliciting agents. Possibly present statutes would reach many cases; but it would be well that the statutes should denounce this crime against the public in no uncertain terms. And insurance companies will become much more circumspect in the selection of their agents, if they be held civilly accountable for all the representations and assurances held out by such agents in soliciting insurance.

Lest our language may be misunderstood, we feel it our duty to say we find no evidence of fraud or misrepresentation by the ag-ent in this case; nor does the record furnish evidence of intentional wrong in the company.'

"We find no error in the record prejudicial to appellant, and the judgment of the Circuit Court is affirmed.