Butler v. New York Life Insurance ( 1942 )

Townley, J.

This action was brought to recover the amount of two policies issued by the defendant insuring the life of one John A. Butler. The policies were issued on August 29 and 31, 1934, respectively. The premiums thereon were paid up to the anniversary dates in 1939. On said dates the status of each of the policies was as follows: The cash surrender values had been reduced by loans to $24.25 and there was a dividend credit on each amounting to $36.45. It is conceded that the cash surrender values of the policies at that time excluding the dividends were insufficient to keep the policies alive under the temporary insurance clause in the policies up to the day of Butler’s death on July 6,1940. On the other hand it is likewise conceded that if the dividends be added to the amount of the cash surrender values and treated as parts thereof, the sum totals were sufficient to carry the policies as temporary insurance beyond the date of Butler’s death.

The insured was unable to pay the premiums which became due in August, 1939 and within the grace period requested an extension of time to make such payments. The company granted such extension upon the terms expressed in what is commonly called a “ blue note.” The terms of this arrangement called for a cash payment of the interest due on the outstanding notes and the further sum of $26.25. The “blue notes” were for the balance of the premiums due upon each policy. The original cash payments were made by applying the dividend credits and as the notes were renewed from time to time additional small payments of cash were made until, at the time of the default on the last of these notes on March 29 and 31,1940, about seventy-five dollars in cash had been paid on each note.

The question determinative of this appeal is whether the dividends of $36.45 and the additional cash paid the insurance company as consideration for the “blue notes” must, regardless of the intent of the insured, be considered a part of the reserves or cash surrender values of the policies. In that event the provisions of section 88 (now § 208) of the Insurance Law would require that those sums be applied to the purchase of temporary insurance.

Each policy provides in relation to participation in surplus that the insured has certain options as to what shall be done with his share of the divisible surplus accruing annually on each policy. These options are that the dividend shall (a) be paid to the insured in cash, or (b) applied toward payment of premiums, or (c) applied to purchasing a participating paid-up addition to the sum insured, or (d) left to accumulate at such rate of interest as the company may declare on funds so held.

The option originally elected by the insured was the one providing that dividends were to be left with the company to accumulate at interest, although in practice the insured collected the dividends in cash as they accrued. On September 27, 1939, however, the insured revoked all previous selections of dividend options saying, “I wish to withdraw dividends each year on the above numbered policy.”

At this time since the insured was unable to pay the current premiums, he was forced to make a choice whether he would allow the policies to lapse and have temporary insurance for the period purchasable by the reserves remaining in the policies or whether he would make some arrangement by which his policies would be continued in force and his time to pay the premiums extended.

There is a vital difference between keeping a policy in full force and effect and accepting temporary insurance. An insured may not be willing to speculate that his death will occur during the period of temporary insurance. He may as here prefer to make a contract whereby the policies are kept alive for the term of the 1 ‘ blue notes. ’ ’ This arrangement would be of great advantage to a person in failing health who was no longer an insurable risk. When such is the insured’s wish, we do not believe that the statute puts obstacles in the way of assisting an insured who is temporarily embarrassed for money. None of the sections of the Insurance Law is designed to work a hardship on the insured. The “blue note” contracts as such have been upheld by this court in Marek v. Mutual Life Ins. Co. of N. Y. (244 App. Div. 346) and Talsky v. N. Y. Life Ins. co. (244 App. Div. 661; affd., 270 N. Y. 665).

Under the terms of each “blue note” agreement, the insured paid a certain amount of money and agreed to pay the balance of the premium at maturity or to forfeit the amount of the cash paid for the protection offered by the “ blue note.” By the express terms of the “blue note” the cash paid was not paid on account of the premium and never became a part of the reserve under the policy. The “blue note” contract was something entirely outside of the insurance contract although related to it in the sense that it extended the time to pay the balance of the premium. The insured applied to the payment called for by the terms of the “blue notes” the dividends which were due under the policies and which he had elected to receive as cash. The transaction was the same as though the insured had drawn the cash and repaid it to the company as the consideration for the “ blue notes.” He gave the company a receipt for the dividends and the company in turn gave him credit for the amount on the ‘ ‘ blue notes. ’ ’ He gave the company a receipt for the dividends paid to the insured. There is nothing unconscionable in the provisions which allowed the insurance company to retain the cash payments in case of default. That constituted the company’s compensation for continuing the policies during the period covered by the notes.

Unless the insured is under some statutory disability to make a “blue note” contract in the form in which these contracts were made for the purpose of keeping his policies in full force and effect, it seems clear that neither the amount of the dividends nor other cash payments became a part of the surrender value of the policies and did not by act of the parties become a part payment of the premiums.

The decision of the Court of Appeals in Taylor v. N. Y. Life Ins. Co. (209 N. Y. 29) is not in conflict with the views expressed herein. In that case there was no express agreement that the cash payments should not be treated as premium payments on account and there was no clear provision that the cash payments should be forfeited in case of a default on the note. Furthermore, the note in that case was a premium note, whereas, herein it is a collateral agreement.

The waiver forbidden by section 88 of the Insurance Law applies only to the technical “ reserve.” Since neither the dividends nor the other cash payments were a part of that fund, the question of waiver does not arise as a controlling element in the case. There seems to be no other section of the Insurance Law which requires that as a part of every “ blue note ” agreement any money paid for the protection afforded thereby must also be deemed a partial payment of premiums.

If, however, on the record here there be any uncertainty as to the true intention of the parties, such uncertainty would present a question of fact which would require a denial of the motion for summary judgment.

The order should be affirmed with twenty dollars costs and disbursements.