Meridian Life Ins. Co. v. Hobbs ( 1917 )

The defendant's special pleas set up in varying form a lapse of the policy prior to the death of the insured under the proviso to the nonforfeiture clause of the policy contract, which said contract was made an exhibit to the pleas. It appears that the insured paid four annual premiums, and under the table of options he was entitled to extended insurance for face value of the policy for 4 years and 206 days, to paid-up insurance for $157, or to cash or a loan to the extent of $78. It also appears that he defaulted in the payment of the fifth and succeeding premiums, and that he borrowed from the company, shortly after payment of the fourth premium and prior to the default in the payment of the fifth premium, the full loan or cash surrender value of the policy, $78, and under the terms of his note secured the same with the policy. So much of the nonforfeiture clause of the policy as is essential to a decision of the question involved in this case reads as follows:

"Nonforfeiture Provision. — If after the premiums for three full years have been paid there shall be a default in the payment of any premium when due, this policy being then in force, the company, without any action on the part of the insured, will continue this policy in force as paid-up nonparticipating term insurance for the term specified in the table of options for the end of the last year for which full annual premiums shall have been paid: Provided, that any unpaid note given for a premium, and any existing indebtedness to the company on account of or secured by this policy, shall reduce the amount of such extended insurance in the ratio of such indebtedness to the net value of such extended insurance."

It must be noted that the indebtedness incurred is not confined to any unpaid note, or indebtedness for unpaid premiums, but to any note or existing indebtedness on account of or secured by the policy, and the loan to the insured was not only evinced by a note, but was secured by the policy. Therefore, as the insurer had loaned to the insured the full amount of the cash surrender value of the policy, and which the pleas aver was the net value of said extended insurance, so that at the time of the default such surrender value was just sufficient to satisfy the loan, there was nothing due the insured with which to purchase extended insurance. To hold otherwise would not only violate the plain and unambiguous terms of the contract, but would, in effect, fasten upon the company an obligation for extended insurance without premium or compensation. Mutual Ben. Life Co. v. First Nat. Bank, 115 Ky. 757,74 S.W. 1066; Black v. Franklin Ins. Co., 133 Ga. 859,67 S.E. 79; Pavy v. Franklin Ins. Co., 125 La. 262, 51 So. 191; N.Y. Life Ins. Co. v. Slocum, 177 Fed. 842, 101 C.C.A. 56; Perry v. Prudential Ins. Co., 144 App. Div. 780,129 N.Y. Supp. 751; Dibrell v. Citizens' Nat. Life Ins. Co., 152 Ky. 208,153 S.W. 428; Sexton v. Greensboro Life Ins. Co., 160 N.C. 597,76 S.E. 535; Jagoe v. Ætna Life Ins. Co., 123 Ky. 510,96 S.W. 598. This case presents a policy and conditions quite similar to the one involved in the Kentucky case, supra; only the clause there used the words "full cash surrender value," while the words used in the present policy are "the net value of such extended insurance." We are relieved, however, from determining what is the net value of the extended insurance under the present policy by the averment of the pleas that the amount of the loan which was the loan or cash surrender value was the net value of the extended insurance and if this averment is true there was a lapse and the pleas present a complete defense.

Our case of New York Life Ins. Co. v. Smith, 139 Ala. 303,35 So. 1004, involved the construction of a different provision from the one here involved. There the clause provided for premiums subsequently due and of the payment within 30 days thereafter of any indebtedness to the company on account of this policy, and it was held that a note given and accepted by the company and a failure to pay same at maturity did not forfeit the policy. Here we have a much broader clause, and which, in effect, provides for a lapse or forfeiture if any unpaid note for a premium and any existing indebtedness to the company on account of or secured by the policy should equal or exceed the net value of the extended insurance, meaning, of course, the cash surrender or loan value of the policy at the time of the default.

The trial court erred in sustaining the demurrer to the defendant's special pleas 2, amended plea A, and plea B, and the judgment of the circuit court is reversed, and the cause remanded.

Reversed and remanded.

MAYFIELD, SAYRE, and SOMERVILLE, JJ., concur. McCLELLAN, GARDNER, and THOMAS, JJ., dissent.