Knickerbocker Life Insurance v. Dietz ( 1879 )

Grason, J.,

delivered tlie opinion of the Court.

It appears from the record in this case that, on the fifth day of May, in the year eighteen hundred and sixty-eight, Lewis Dietz obtained from the appellant a policy of insurance on his life for the benefit of his wife, the appellee, for the sum of two thousand dollars, the annual premium on which was one hundred and eight dollars and thirty-two cents. This policy was of the character known as a ten year policy, requiring the payment of the annual premium for ten years, at the expiration of which time the payment of premiums was to cease. Under this policy half of the annual premiums was to be paid in cash, and premium notes given for the other half. The premium notes were not to be paid until the policy itself became due and payable, when they were to be deducted from the amount secured by the policy. The interest on these notes was to be paid annually on the fifth day of May in each year, during the continuance of the policy, and if no.t so paid, the policy contained a provision that, the policy should become void. It contained a further provision, that, if after two or more payments of premiums were made, the policy should cease, in consequence of the non-payment of premiums, thén upon a surrender of the same, the appellant would issue a new policy for the full value acquired under the old one, subject to any notes that, should have been received on account of premiums ; that is to say, that, if payments for two years should have been made, it would issue a new policy for two-tenths of the sum originally insured; if for three years then for three-tenths and in the same proportion for any number of payments made, without subjecting the assured to any subsequent charge except the annual payment of the interest on all premium notes remaining unpaid at the time of issuing the new policy. The policy of 1868 was to become void if the insured should fail to pay the annual premium on the day appointed for its payment, or to pay, at maturity, any note (other than the annual premium notes) given for premium interest or other obligation on said policy. The insured paid part of the annual premium in cash, and gave his notes for the balance up to the 5th May, 1873, when he surrendered his policy and obtained a new policy for five-tenths of the amount originally insured, to wit, for one thousand dollars. The second policy, thus issued, states that it was so issued in consideration of the surrender of a policy theretofore issued by the appellant on the life of Lewis Dietz and of the representations made to the appellant in the application therefor, and upon the faith of which the present policy was issued, and upon the payment of the interest annually on all notes or credits given for premiums on the surrendered policy, (which notes or credits, amounting.to one hundred and eighty-three dollars and ninety-one cents, are now charged against this new policy) on or before the fifth day of May in each year until said notes or credits are paid. The new policy further states that it is issued, and is accepted by the assured upon the express condition and agreement, amongst others, that if the interest upon the notes or credits shall not be paid on or before the days named in the policy for payment thereof as therein provided, the company shall not be liable to pay the sum assured, or any part thereof and said policy shall cease, and be null and void, without notice to any party or parties interested therein. This policy'was issued on the fifth day of May, 1873, and the interest on the premium notes, then remaining in the hands of the appellent, was paid to that date, hut it was not paid or tendered on the fifth day of May, 1874, and the policy was cancelled on the hooks of the appellant. At the time this policy was issued Lewis Dietz gave his note to the appellant by which he promised to pay the interest on the sum of one hundred and eighty-three dollars and ninety-one cents on the fifth day of May in each year, and by which he also stipulated that the loan of the aforesaid sum of money should he a proper offset, or counter claim, against any amount which might become due or payable upon the policy, and that the appellant should deduct such sum from the amount to he paid thereon, and that the failure to pay said interest at the times specified in said note, should cause the policy to cease and determine. It also appears that a short time after the 5th May, 1874, the appellee tendered the amount of interest, due on that day, to the appellant’s agent in the city of Baltimore, and that he declined to receive the same. Lewis Dietz was taken sick in December, 1874, and died in the month of April, following, and due notice and proof was furnished to the appellant within proper time. The appellant declined to pay the amount of the policy and the appellee brought an action at law on the policy, but suffered a nonpros and afterwards filed her hill in equity in the Circuit Court of Baltimore City, in which it is charged that no interest was due on the 5th of May, 1874, that the clause of the policy, by which the non-payment of interest at the time specified, was to cause the policy to cease and become null and void, was improperly in said policy and does not properly express the contract between the parties, and that it is inconsistent with the meaning and true interpretation thereof and should he rejected, and the contract should he construed as it really was, and as it is set forth in the hill of complaint; that said stipulation is in the nature of a penalty, which it is the province of a Court of equity to properly construe and relieve from, and prays that a decree may he passed for the payment to the appellee of one thousand dollars, less the amount of the said notes and credits and interest due thereon, and for general relief. To this hill the appellant filed its answer under oath, hy which the material averments of the hill are denied, and a commission to take testimony was issued, under which the appellee was the only witness examined. Her answers to the third, ninth and thirteenth interrogatories, so far as they gave the statements made to her hy her husband, were excepted to as hearsay, hut do not appear to have heen passed upon hy the Circuit Court, nor do we consider them as material to the determination of this case. The decree below was in favor of the appellee, and from it this appeal was taken hy the Insurance Company.

The main question presented hy the record and argued hy the solicitors of the respective parties is, has a Court of equity jurisdiction of such a case as this ? The .answer to this question depends upon the further question, whether the time for the payment of interest in contracts of insurance of life, is of the essence of such contracts or not? It has heen urged in argument that the clause of forfeiture, contained in the policy as well as in the note given hy Lewis Dietz, given at the time the policy was issued, is in the nature of a penalty against which a Court of equity ought to relieve, and that the appellant can he compensated for not receiving the interest at the time stipulated for its payment, hy the allowance of interest thereon during the time of default, and several cases have heen cited in support of this proposition. We have carefully examined the authorities referred to, and find that very few of them touch this point, the question in most of them being whether or not the insured was entitled to a paid up policy after a forfeiture of the original one, for an amount in proportion to the sum of the premiums paid. The case of St. Louis Mutual Life Ins. Co. vs. Grigsby, 10 Bush., 310, is, however, directly in point, and it was held in that case that the forfeiture was in the nature of a penalty against which a Court of equity would relieve, and the company was held liable. This case was followed by one or two others in Kentucky and other States. While-entertaining great respect for the learned Court by which this decision was rendered, we cannot concur in its view-of the law upon this subject. While there are some-forfeitures against which a Court of equity ought to, and will relieve, it will be found that they are of such a character that the time of payment is not of the essence of the contract, and for failure to comply at the day full compensation can be made. .But in contracts of life insurance time is of the very essence of the contract. The theory on which the amount of the premium is fixed, as is. well said in the brief of the appellant’s attorney, is, that assuming that a man of a given age has a prospect of living a certain number of years, as shown by experience and observation, the premium charged is such a sum as, invested annually at a certain rate of interest and compounded, will, at the expiration of that time, amount to. enough to pay the policy and cover the expense of the company. To accomplish this result the premium must be punctually paid and invested, and the interest re-invested at the assumed rate. Otherwise the ability of the company to pay the policy, instead of being a matter of reasonable certainty, becomes a mere matter- of chance, the business of life insurance ceases to have any scientific or accurate basis, and a policy of insurance becomes a mere wager on the life of its holder. The prompt payment of interest on premium notes is as necessary to the successful working of an insurance company, as well as to the security of the insured, as are the payment of the premium notes themselves. If one policy holder can fail to-pay his interest, any number of them may do the same, and the ruin of the company would he the inevitable result. The time for payment of interest on premium notes, therefore, is of the essence of contracts of insurance. Such contracts must be strictly complied with, and Courts of equity cannot exercise a dispensing power over them, without defeating the ends and objects of one or both of the contracting parties. All the authorities hold that the right to beep the policy alive by the payment of the stipulated premium, is a privilege secured to the insured by his contract. And in Grigsby’s Gase, before referred to, the Court say, “this privilege he may exercise or abandon at his discretion. But if he does abandon it, those beneficially interested cannot complain that the insurer refuses longer to be hound by a contract, that has lost all the elements of mutuality.” Then why will not the failure to pay the interest on premium notes, at the day named in the policy produce the same result ? In this case there was no charge upon the insured, other than the payment of the interest on the premium note on the day named in the policy, and in it was the express stipulation assented to by the insured by an acceptance of the policy, and re•affirmed in the premium note given, that the policy should become void if' there was a failure to pay the interest on the premium note on the day named therein. Upon the failure to pay at the day named the contract between the parties was at an end, and it was so treated by the appellant.

In support of the views herein expressed we refer to Patch and Wife vs. Phœnix Mutual Life Ins. Co., 44 Vermont, 488; Anderson vs. St. Louis Mutual Life Ins. Co., decided by the Circuit Court of the United States for the Western District of Tennessee and reported in 5 Bigelow’s Life and Accident Ins. Reps., 531, 532; Russum vs. St. Louis Mut. Life Ins. Co., 5 Bigelow, 245, 246; Nettleton vs. St. Louis Life Ins. Co., 6 Ins. Law Journal, 428.

(Decided 19th June, 1879.)

The decree appealed from will he reversed, and the hill of complaint dismissed.

Decree reversed, and

bill dismissed.