Reliance Life Ins. Co. of Pittsburgh v. Pearson , 178 Ark. 611 ( 1928 )

STATEMENT BY THE COURT.

Appellees brought this suit to recover on a policy of insurance issued by appellant company on the life of her husband in her favor as beneficiary. The policy was dated November 16, 1925, and provided it should be preceded by "short term insurance beginning June 16, 1925, and continuing until November 16, 1925." Receipt of $3.65 was acknowledged in payment of the short term insurance, by indorsement on the policy of insurance later delivered. Johnson delivered the policy to the insured, taking his note, an ordinary promissory note in terms, payable to himself on the ___ day of ________, ____, for the full amount of the premium.

The contract of Johnson, the agent of the company who took the application for the insurance, was dated June 16, 1925, and 6 of art. 2 of the contract provides:

"The second party shall have no authority on behalf of the first party to make, alter or discharge any contracts, to waive forfeitures, to extend the time of payment of any premium, or to waive payment in cash."

The policy was sent to Johnson for delivery, with a letter of instructions containing the following clauses:

"(b) A policy must not be delivered until the applicant signs and delivers all the papers and performs every act required of him by the company. (c) A policy must not be delivered until the first premium is fully settled for."

The insurance policy, which was introduced in evidence, provides:

"Reliance Life Insurance Company of Pittsburgh, Penn., promises to pay, upon receipt at the home office of the company, in Pittsburgh, of due proof of the death of Sidney Thomas Pearson, of Pleasant Plains, county of Independence, State of Arkansas, herein called the insured, if the death of the insured occurs while this contract is in force, to Irene Edna Pearson, wife, beneficiary, with right of revocation, the sum of $1,000, less any indebtedness hereon to the company, and any unpaid portion of the premium for the then current policy year."

The policy was dated November 16, 1925, but was in fact issued June 16, 1925, and bears the following indorsement relative to its issuance and the payment of the short term premium: "This contract is dated November 16, 1925, but shall be preceded by short term insurance beginning June 16, 1925, and continuing until November 16, 1925. The receipt of $3.65 for said short term insurance is hereby acknowledged."

A letter from the vice president of the company to appellee's attorney, dated January 28, 1928, was introduced, and stated the policy was issued under date of June 16, 1925, and in force by payment of an interim term premium for a period of five months, to November 16, 1925, at which time the annual premium became due, which was not paid when due nor during the grace period provided by the policy. That, after it lapsed, three letters were written by the branch office in Memphis, one on December 16, 1925, another on January 12, next, and the third on February 5, 1926, and no attention was paid to any of these letters nor any acknowledgment of their receipt made. "The regular lapse letter was mailed to Mr. Pearson on February 9, 1926. The fact that a note was given to our then agent, if it be a fact, is immaterial, inasmuch as it appears that this note was never paid. Moreover, the company never had any knowledge of this note until after the death of our former insured. The company, in any event, does not accept notes in payment of first year premium. A condition precedent to the placing of a policy of insurance in effect is that payment of the premium be made as required." This letter denied liability on the policy.

Pearson died on February 2, 1926, before the letters of February 5 and 9, referred to, were written. The note for $30.80, the amount of the first premium after the payment of the short term premium, was taken by Johnson when he delivered the policy to Pearson, within two or three weeks after the medical examination on June 9, 1925, and dated the day of the delivery of the policy. The note was payable to the order of Johnson, the agent, and included his commission. This note had never been sent to the company by the agent Johnson, who was not in the employ of the company at the time of the trial. The note contained no provision that the policy of insurance should lapse or become void if the note was not paid at maturity, and in fact there was nothing in the note indicating that it was given for an insurance premium, and it was due along about November or December. The agent never called on Pearson for a surrender of the policy, which was in the possession of his wife, the beneficiary, at the time of his death, and the note was still in the agent's possession.

The agent's contract contained the following provision relative to the payment of commissions:

"If the amount of insurance written by the party of the second part during any one year of this agreement, commencing with the 16th day of June, upon which policies are issued and the premiums paid in cash thereon within the year, or within sixty days thereafter, shall equal or exceed $50,000, the party of the second part shall be entitled to commissions on the renewal premiums."

The complaint alleged the issuance of the policy to the insured, the amount of the yearly premium, and that the yearly premium due on November 16, 1925, was paid by the insured to the defendant or its authorized agent, the sum of $30.80, by the execution and delivery to the defendant or to its authorized agent, insured's negotiable promissory note for that sum; that the note was accepted by the defendant, or its duly authorized agent, in payment of said premium, and the policy was continued in full force and effect from November 16, 1925, to November 16, 1926; that all the terms and conditions of the policy had been complied with, and that the amount due thereon was the face of the policy, with interest from January 24, 1928, less the amount due the defendant for the principal sum of $30.80, and prayed judgment for the amount of the policy, less the said premium note, with penalties and attorney's fees.

The answer admitted the delivery of the policy; denied that the premium for the short term was paid by the insured, alleging that it was paid by the soliciting agent; admitted the execution of the note for the premium, but denied that the insured ever paid such sum, "or any other sum to the defendant, or to any duly authorized agent of defendant, by the execution and delivery of a promissory note, and denied the acceptance of said note by defendant or by any duly authorized agent;" alleged that the premium due November 16, 1925, was never paid by the insured or any one for him, or by the execution of the note to defendant or its agent authorized to accept notes in payment of premiums, or to any agent who could bind the defendant by accepting a note in lieu of cash for said premium; denied that the premium had been paid, and alleged that the policy had lapsed for want of payment, and denied liability thereunder.

The case was submitted to the court without a jury, and from the judgment against it the insurance company has appealed. (after stating the facts). It is insisted that the court erred in holding that the giving of the note by the insured to the agent of the company, who delivered the policy to him, constituted a payment of the yearly premium and continued the policy in force at the time of the death of the insured.

Appellant concedes that the taking of such a note by a general agent of the company would have constituted a payment of the premium, so far as the company was concerned, but contends that the soliciting agent was without authority to accept such note, and that the policy lapsed and was void because of the nonpayment of the premium in cash when it became due. It is undisputed, however, that the first premium for the short term insurance was duly paid to the company, and that the policy was issued and delivered by the insurance company through its soliciting agent, who was authorized to collect the premium, and who took the note payable to himself for the first premium due after the end of the short term, or that any action was taken by the insurance company to ascertain how the premium had been paid upon the delivery of the policy, or any steps to claim lapse of the policy for failure to pay the premium before the death of the insured.

The policy itself does not provide it shall be void until the payment of the first premium note is made in cash, and, if it had done so, the first premium due for the short term was conceded to have been paid, and does provide for the payment of the amount of the policy, "less any indebtedness herein to the company or any unpaid portion of the premium for the current policy year."

It is true the letter of instructions provided that the policy must not be delivered until the first premium is fully settled for and the insured has done "all the acts the company requires of him, and has settled the premium in full, then, and not until then, the agent may deliver the policy to the applicant;" provided 60 days have not expired after the medical examination. It is not disputed that these instructions were for the agent, and not communicated to the insured, nor that the policy was actually delivered to him while he was in good health, within the time provided therefor, upon the settlement of the premium in full by the execution of the note therefor to the agent.

It was the duty of the agent to report his action, of course, to his principal, and no steps were taken by the principal to ascertain whether the policy had been delivered to the insured in accordance with its instructions, nor any effort made to demand the return of the policy or give information to the insured of its alleged lapse and invalidity before insured's death occurred. The insured necessarily rested secure in the belief that the agent's prior instructions, of which insured had no information whatever, were complied with in the delivery of the policy, and, not having had any information from the company to the contrary, before the time of his death, it is now estopped to deny that delivery was made of a valid policy or contract of insurance.

Under the rule of our decisions, the insured is allowed a reasonable time only for examination of the policy, after its delivery to him, to ascertain whether it is the policy applied for, and is held, as a matter of law, to have accepted it and become bound to pay the premium, unless he shall notify the insurer, without unreasonable delay, of his rejection of or refusal to accept such policy. Remmel v. Griffin, 81 Ark. 268, 99 S.W. 70; Carrigan v. Nichols, 148 Ark. 336, 230 S.W. 9; People's Savings Bank v. Raines, 175 Ark. 1155, 2 S.W.2d 20.

A note given for the premium on insurance is required by statute to state the purpose of it, and declared not negotiable until the policy for which the note was given as payment of premium shall have been issued and delivered to the maker of the note, and presented to him in the form applied for and its acceptance refused. The purpose of the statute, as held in People's Savings Bank v. Raines, supra, evidently being to prevent irresponsible insurance companies and irresponsible agents of insurance companies from realizing on the obligations given for insurance by applicants before the delivery of the policy, and without affording them the protection applied or contracted for; and so also should the insurer be held bound by its contract of insurance, in accordance with its terms, by the delivery of its policy, upon his application to the insured through an agent, general or special, unless it shall notify the insured, within a reasonable time after he receives such policy from such agent, that it was delivered without authority and contrary to instructions to the agent, and did not become effective or a valid contract.

It is true the circumstances indicate that the agent was not greatly experienced in soliciting applications for insurance, the policy being dated upon the day of the date of his agency contract, but there is no indication whatever that the insured had many intimation that the agent had not complied with his instructions, if such was the fact, in the delivery of the policy to him. Under the circumstances we hold that the agent had authority to make settlement of the premium with the insured, and, having done so by the acceptance of the note and delivery of the policy upon its execution, that the note amounted to a settlement of the premium within the terms of the instructions, and that the policy so delivered was not invalid because cash was not collected instead of the note taken in settlement of the premium.

No complaint is made of the instructions. The majority of the court holds that the record is free from error, and that the judgment must be affirmed, in which holding the writer does not concur. It is so ordered.