American Western Life Insurance Co. v. Hooker , 1980 Utah LEXIS 1066 ( 1980 )

WILKINS, Justice:

In 1972 Ronald Hooker (hereafter “Ronald”), now deceased, took out a policy of decreasing term life insurance, policy # 43476 (hereafter “policy 43”) with Respondent American Western Life Insurance Company (hereafter “American Western”). In 1973 he purchased another decreasing term policy # 44498 (hereafter “policy 44”) from American Western. His then wife, Helen Hooker, now Respondent Helen Mallard (hereafter “Helen”) was named as beneficiary under both policies.

In 1974, Ronald executed forms supplied by American Western captioned “Change of Policy Ownership Designation,” for each policy. In each he named his first wife, Helen, as owner “so that all rights, privileges, title and interests in said policies] shall be transferred to” her. Both forms were received by American Western on July 5, 1974, and according to notations on each, “[cjhange recorded and copy attached as endorsement on policy” on July 9,1974. By letter dated July 9,1974, American Western informed Ronald that the change of ownership of policy 43 had been properly recorded. No such notice was ever sent covering policy 44. After Ronald’s death American Western discovered that the change form for policy 44 had been erroneously filed in the folder for policy 43. Helen at all times has had both policies in her possession.

In December, 1975, Ronald and Helen were divorced. Though the decree of the divorce apparently contained no provision regarding the maintenance of insurance by Ronald, he did indicate to Helen that he would pay the premiums on the various insurance policies. In the spring of 1976 Helen remarried, and later that year Ronald married Respondent Vonice Hooker (hereafter “Vonice”).

In December, 1976, the premium due on policy 43 was not paid and the policy lapsed. That same month he executed another form provided by American Western entitled “Change of Beneficiary Agreement” and named Vonice as the new beneficiary under policy 44. On December 17, 1976, American Western confirmed that the beneficiary under policy 44 had been changed.

On September 17, 1977, Ronald died. Thereafter Vonice filed a lost policy affidavit and a claim under policy 44. She was paid $67,500 by American Western on September 27, 1977. In October, Helen, through her attorney, made a claim under policy 43. Upon checking that file American Western discovered the change of ownership form covering policy 44.

On October 21, 1977, American Western wrote to Vonice stating that:

Since this change [of beneficiary under policy 44] without the new owner’s [Helen] signature is considered null and void the claim paid by us to you was in error.

We regret that due to these unfortunate circumstances we have no alternative but to ask for return of the $67,-500.00 paid to you.

On October 25, 1977, American Western filed its verified complaint naming Vonice and Helen as defendants and seeking a determination as to who was entitled to the proceeds of policy 44. Subsequently an amended complaint was filed which, in addition to the relief sought in the original complaint, prayed that if the court should find that Helen was entitled to the $67,500, Vonice should be ordered to return the money she had received.

In her answer to the amended complaint, Vonice set up a counterclaim against American Western. Helen also answered the complaint and counterclaimed against American Western for the proceeds of policy 44 and, additionally, for payment under policy 43 which, she alleged, should not have been allowed to lapse without American Western giving her, as owner of the policy, notice that the premium had not been paid. Helen also cross claimed against Vonice and filed a third-party complaint against Vonice as the personal representative of the Estate of Ronald Hooker. Both the cross claim and third-party complaint sought recovery of the proceeds of policy 44 from Vonice.

After extensive discovery in the form of interrogatories and depositions, each of the parties moved for summary judgment on the various claims presented. The District Court ruled on these motions as follows:

1. It granted Vonice’s motion for summary judgment against American Western and dismissed American Western’s complaint.

2. It granted Vonice’s motion for summary judgment against Helen and dismissed Helen’s cross claim.

3. It granted Vonice’s motion for summary judgment as personal representative of Ronald’s estate against Helen and dismissed Helen’s third-party complaint.

4.It denied Helen’s motion for summary judgment against American Western, granted American Western’s motion against Helen and dismissed Helen’s counterclaim against American Western.

On appeal Helen does not attack the dismissal of her third-party complaint against Vonice as personal representative of Ronald’s estate, and so that portion of the judgment must stand. Helen seeks a reversal of the other judgments against her arguing that she should be paid the proceeds of policy 44 by American Western because of her status as owner of the policy, or alternatively, under a theory of equitable assignment. She further contends that she is entitled to a jury trial on the issue of whether American Western should have sought her out as owner of policy 43 so that she could make the premium payments on that policy to avoid a lapse for nonpayment of premiums.

We address first the issues connected with policy 44. In its memorandum decision, the District Court stated that its decision was governed by a provision of the policy in question entitled “Control of Policy,” which states:

During the minority of the Insured the right to exercise all privileges under this Policy and to agree with the Company as to any change in or amendment to this Policy, shall vest successively, during their respective lifetimes, in the Owner, the Beneficiary, the Contingent Beneficiary, if any, and the Insured. After the Insured has attained his majority, such rights shall vest solely in the Insured unless otherwise provided in the Policy.²

The Court interpreted the final sentence to mean that “the control of the policy is in the insured as to any changes.” In the face of the clear terms of the “Change of Policy Ownership Designation,” we cannot agree with this interpretation.

The change designation recites:

AMERICAN WESTERN LIFE INSURANCE COMPANY is hereby requested to endorse Policy No. 44498 on the life of Ronald Dean Hooker the insured, so that all rights, privileges, title and interests in said policy shall be transferred to Helen M. Hooker — wife.

While it is true that the policy reserves the right to exercise all privileges thereunder to the insured, it is also true that the policy provides for assignment, and the form provided by the company to effect such an assignment clearly contemplates the transfer of all rights under the policy to the new owner.

Furthermore we do not believe that American Western’s mistake in misfiling the change in ownership for policy 44, coupled with its failure to confirm that change, in any way detracts from the efficacy of the change. Ronald did all that was within his power to effect the change by filling out and submitting the forms provided by American Western. All that remained to be done by American Western was to record the change — which it did — even though the completed form was misfiled.³

However, as another ground for denying the validity of the change in ownership, respondents argue that the change, though absolute on its face, in reality was intended to be only conditional. On the basis of the deposition testimony of Helen, respondents argue that the change was made on the mistaken assumption that unless Helen were the owner of the policies, any proceeds payable thereunder would go into the estate of Ronald, and therefore be subject to probate. American Western asserts that as the change was motivated by a mistake of law, the change need not be considered absolute. Further, the testimony of Helen that the reason the policies were taken out was to insure that a mortgage covering her home would be paid off shows, say respondents, that the change in ownership of the policies was intended as security only. In such a situation — and since the debt was paid off and the mortgage discharged — respondents maintain that the incidents of ownership had reverted to Ronald as of the time he attempted to change the beneficiary of policy 44.

We are unconvinced by either argument. Respondents go too far in connecting the original purpose for taking out the insurance policies in question — which purpose is irrelevant and speculation in any event— with the purpose for the assignments. The mere fact that Helen and Ronald were of the mistaken opinion that Helen had to be owner of the policies in order to avoid probate of the proceeds does not impugn the absolute character of the change. Indeed, that basis provides strong evidence beyond the terms of the assignment itself that the assignment was intended to be absolute. As to the argument that the change amounted to no more than an assignment for security, the District Court did not address the issue in its memorandum decision, and there is no evidence which would support the conclusion that the change was conditional. We therefore hold that the District Court erred in concluding that Helen was not entitled, as the owner of policy 44, to the proceeds thereunder.

The proceeds of policy 44 were paid to Vonice. Thereafter, claiming a “clerical error,” American Western demanded repayment of the proceeds. Vonice argued in the District Court and here on appeal that if it is determined that the proceeds should have been paid to Helen then American Western should be estopped to demand repayment from Vonice. We agree.

It is true that if an insurer has made a payment under a mistake of fact that the terms of an insurance contract require such payment, the insurer is entitled to restitution, at least where the payee has not so changed his position that it would be inequitable to require him to make full payment.⁴ However, in this case we believe principles of equitable estoppel control.

Citing Benner v. Industrial Acc. Comm.,⁵ this Court in Rice v. Granite School District⁶ stated:

To create an equitable estoppel, “it is enough if the party has been induced to refrain from using such means or taking such action as lay in his power by which he might have retrieved his position and saved himself from loss.” * * *⁷ (Emphasis in original.)

The record here reflects that prior to December, 1976, Ronald wanted to have his second wife, Vonice, named as beneficiary of an insurance policy on his life. To that end he discussed his options with Martin Reeder, an insurance agent for American Western. According to Mr. Reeder, Ronald inquired whether the beneficiary of policy 44 could be changed or if a new policy would have to be taken out naming Vonice as beneficiary. As a result of these discussions, on December 9, 1976, Ronald executed a Change of Beneficiary Agreement provided by American Western. On December 19,1976, American Western notified Ronald by mail that “your requested change of beneficiary has been properly recorded...”

American Western clearly represented to Ronald that he could designate a new beneficiary under policy 44 and confirmed such a change. Ronald was entitled to rely on that representation and did so rely to his detriment; that is, he did not secure other insurance naming Vonice as beneficiary. American Western is therefore estopped to deny that the change in beneficiary under policy 44 was accomplished even though that change could not be made without the consent of the policy owner, Helen.⁸

The theories under which Helen and Von-ice are each entitled to $67,500 are separate and distinct, and so a recovery by each against American Western, under the circumstances here, is legally justified.⁹

We turn now to a consideration of policy 43. Helen maintains that as owner of that policy she was entitled to notice of premiums due so that she could pay the same in order to keep the policy in force. In the absence of such notice, she argues, American Western could not cancel the policy for failure to pay the premium due.

American Western counters that it was not required, either by the terms of the policy or by statute, to give any notice whatever. We agree generally that in the absence of a policy provision or statute requiring notice of premium due, or proof of a course of dealing establishing a custom of sending such notice, notice need not be given as a prerequisite to a policy lapsing for nonpayment of premium. We do not agree, however, that there was no requirement in the policy here that notice of premium be sent.

The application for insurance is a part of the policy.¹⁰ Item 12 of the application for policy 43 states “SEND PREMIUM NOTICE TO:” which is followed by the words “HOME”, “BUSINESS”, “OWNER” and “OTHER”. We therefore conclude that a fair interpretation of the policy shows that premium notices were required to be sent.¹¹

Further the record reflects that no such notice was sent for the premium falling due in December, 1976. On March 21 or 23, 1977, American Western did send a notice to Ronald that policy 43 had lapsed for nonpayment of premium. That notice was returned to American Western marked “RETURN TO SENDER, UNDELIVERABLE AS ADDRESSED NO FORWARDING ORDER.” This notice, however, was clearly not a premium notice.

Based on the record before us, therefore, American Western was obligated to send a premium notice and failed to do so. And while the terms of the policy provide that the policy lapses upon expiration of the thirty-one day grace period, in this case the failure to send a premium notice prevents that from happening. Based on this disposition we do not believe remand for trial on this issue, though requested by Helen, is necessary.

Helen is entitled to the death benefit payable under policy 43 as of the date of Ronald’s death, less the premium due and earned as of that date.

Reversed and remanded for entry of judgment in accordance with this opinion. Costs to Helen.

CROCKETT, C. J., and MAUGHAN, J., concur.

2 . Of course, the insured here, Ronald, was not a minor and the last sentence is applicable to him.

3 . Cf., Wentworth v. Equitable Assurance Co., 65 Utah 581, 238 P. 648 (1925); Novosel v. Sun Life Assurance Co. of Canada, 49 Wyo. 422, 55 P.2d 302, rehearing denied 57 P.2d 110 (1936); Allen v. Abrahamson, 12 Wash.App. 103, 529 P.2d 469, 78 A.L.R.3d 461 (1974). While all of these cases dealt with an attempted change in beneficiary, we consider the same reasoning to apply to situations where a change in ownership of a life insurance policy is involved.

4 . See, e. g., Aetna Casualty & Surety Co. v. Melancon, 348 So.2d 717 (La.App.1977); Aetna Life Insurance Co. v. Nix, 85 N.M. 415, 512 P.2d 1251, 79 A.L.R.3d 1109 (N.M.1973); Hodges Food Stores, Inc. v. Gulf Insurance Co., 441 S.W.2d 309 (Tex.Civ.App.1962); and, generally, 44 Am.Jur.2d, Insurance, § 1806.

5 . 26 Cal.2d 346, 349, 159 P.2d 25, 26 (1945).

6 . 23 Utah 2d 22, 456 P.2d 159 (1969).

7 . Id., 23 Utah 2d at 27, 456 P.2d at 162. See, also, Morgan v. Board of State Lands, Utah, 549 P.2d 695 (1976); Buchanan v. Switzerland Genera] Insurance Co., 455 P.2d 344 (Wash.1969); Marett v. World Fire & Marine Ins. Co. of Hartford, Conn., 160 P.2d 664 (Kan.1945); 43 Am.Jur.2d, Insurance, § 1053.

8 . Phillips v. Continental Assurance Co., 210 Pa.Super. 178, 231 A.2d 422 (1967).

9 . Cf., Trowbridge v. Prudential Insurance Co. of America, 322 F.Supp. 190 (S.D.N.Y.1971), and cases cited therein at 193.

10 . The policy itself so provides:

This Policy and the Application herefore, a copy of which is attached hereto and made a part hereof, shall constitute the entire contract of insurance between the parties hereto. This provision is in compliance with § 31-22-4, Utah

Code Ann., 1953, as amended.

11 . See, Sorenson v. National Life Insurance Co., 56 Wis.2d 92, 201 N.W.2d 510, 68 A.L.R.3d 354 (1972).