Ulrich v. Reinoehl , 143 Pa. 238 ( 1891 )

Opinion,

Mr. Chief Justice Paxson:

This case is not free from difficulty. It has been twice argued, and has received a most careful consideration. It presents the question, to what extent a creditor may lawfully insure the life of his debtor. We have avoided ruling this point before, because it was one of grave importance, and the cases in which it was raised did not necessarily require it, nor did they present all the facts necessary to enable us to dispose of it satisfactorily. This record raises the whole question squarely. The facts are substantially as follows:

The defendants are doing a firm business at Lebanon, Pa., and held a judgment against one Andrew Bleistine in the Court of Common Pleas of Lebanon county, which, with interest and costs, amounted to $110.02. The judgment was sufficiently secured on real estate, and the defendants were not pressing their debtor for the money. He was being pressed by other creditors who held subsequent liens on his property. It was necessary to quiet them for Bleistine to pay off the judgment held by the defendants, or get rid of it in some manner. Not having the money, he applied to the defendants to satisfy it and take a policy on his life instead. The evidence is uncontradicted that the defendants were averse to this, and for a time declined, but finally yielded to Bleistine’s entreaties and his wife’s tears, to save their home. The evidence shows that Bleistine offered them an insurance of three thousand dollars, or five thousand, or ten thousand, or any amount they wanted. The negotiation resulted in the defendants taking a policy of three thousand dollars on the life of Bleistine in the U. B. Mutual Aid Society. The policy was issued in the name of Bleistinas beneficiary, and afterwards assigned by him to the defendants, who paid the entrance fee and all subsequent assessments. The assignment was absolute and not as collateral security, and the judgment referred to was satisfied of record. After Bleistine’s death, the insurance money was paid by the company to the defendants. Subsequently, this suit was brought by the executor of Bleistine to recover from them the amount received over the debt and interest, and premiums paid; the plaintiff alleging that the amount of insurance was so disproportioned to the debt as to make it a gambling transaction, within the doctrine of Gilbert v. Moose, 104 Pa. 74, and the cases following it.

We may safely assume that the debt due by Bleistine to the defendants was bona fide; that, so far from the latter having procured the former to insure his life for their benefit for a speculative purpose, they entered into it with reluctance at the earnest request of Bleistine and his wife, to relieve them from financial embarrassment and to save their home. This takes out of the case the controlling element which existed in Gilbert v. Moose, and that line of cases. Yet, if the defendants, even for an honest purpose, have transgressed the law and made this a gambling transaction, they must suffer the penalty for such violation.

The first and second assignments present the main question in the ease. Upon the trial below, the defendants proved, under exception, the life expectancy of Bleistine, and the amount of assessments on this policy had he lived out his full life expectancy. It appears from this evidence that the insured was forty-two years of age, and that his expectation of life, according to the Carlisle Tables, was twenty-six years; that, had he lived that length of time, the interest on the judgment, with the annual dues and assessments and interest thereon, would have amounted to §4,336.31, being §1,336.31 in excess of the amount of the policy. This evidence was not contradicted. Its admission forms the subject of the first assignment.

In the second assignment, complaint is made that the learned judge erred in his answer to the plaintiff’s sixth point. The point is as follows:

“ The amount allowed and paid as the consideration of the transfer of the insurance, to wit, the sum of §99.51, with interest thereon from December 7, 1875, to April 2, 1877, and the costs, was grossly inadequate; and the disproportion between that amount and the amount of the insurance, three thousand dollars, is so great as to require the court to say, as matter of law, that the transaction was a wager, and that in this action Reinoehl & Meily have no right to retain more of the insurance money received by them than the amount of their satisfied judgment, with interest and costs, and the premiums and assessments paid by them with interest thereon; and therefore, the verdict of the jury must be in favor of the plaintiff for the amount received by the defendants, with interest from the date of its receipt, less the amount of the judgment, interest and costs, and assessments and premiums paid, with interest.”

This point was refused.

"Whether the question of excess of insurance is to be disposed of by the court as a matter of law, or by the jury as a question of fact, it is essential that we should have a fixed rule. We have none now. I felt the importance of this, in delivering the opinion of the court in Grant v. Kline, 115 Pa. 618, where I said: “ Speaking for myself it may be that a policy taken out by a creditor on the life of his debtor ought to be limited to the amount of the debt, with interest, and the amount of premiums, with interest thereon, during the expectancy of life, as shown by the Carlisle Tables. This view, however, has never been adopted by this court in any adjudicated case, nor do we feel compelled to define the disproportion now, in view of the particular facts of the case in hand.” In the subsequent case of Cooper v. Shaeffer, 20 W. N. 123, our Brother Stebbett, after quoting the above, remarked, “ This appears to be a just and practicable rule.” No such rule was established, however, in Cooper v. Shaeffer. In that case, there was an insurance of three thousand dollars, to cover a debt of one hundred dollars, and this court said, through Mr. Justice Stebbett : “ In view of the undisputed facts, the learned judge of the Common Pleas held that the disproportion between the insurance of three thousand dollars and the debt of one hundred dollars, was so great as to require him to say, as matter of law, that the transaction was a wager, and that the assignors of the policy had no right to retain more of the insurance money recovered by them than the amount of the debt, plus the premiums paid and interest thereon. In this he was clearly right. The disproportion is so great as to make the insurance a palpable wager, and no court should hesitate to declare it so as matter of law.”

We have no doubt that in a proper case, where the facts are not disputed, it is the duty of the court to pronounce upon the character of the policy. Thus, in Grant v. Kline, supra, it was said, “To take out a policy of five thousand dollars to secure a debt of five dollars, would be such a palpable wager that no court would hesitate to declare it so as matter of law.” It is true, this remark was made by way of illustration, and we only refer to it for that purpose now. Cooper v. Shaeffer decided nothing but that particular litigation. It laid down no rule for the future beyond its own particular facts, viz., that an insurance of three thousand dollars for a debt of one hundred dollars, unexplained, was a gambling policy. It may be asked why it does not rule this case, where the amount of insurance was the same, and a difference of a few dollars only in the amount of the debt? The answer is not difficult. Cooper v. Shaeffer was decided upon the single ground of the disproportion between the insurance and the debt. There were no facts in evidence by which this disproportion could be explained or shown to be justifiable. This appears by the report of the ease, as well as from the opinion of Judge McPherson, who tried that, as well as this case below. In refusing a new trial in the case in hand, that learned and able judge said, in reference to Cooper v. Shaeffer: “ Even the age of the insured was not dwelt upon as an element of the problem, and there was not a word of evidence as to the expectancy of life, or the probable amount of annual payments to be made. Here, however, these important matters were proved, urged as a principal ground of defence, and required consideration. In our opinion, they necessarily carried the case to the jury, and abundantly justified the verdict. The defendants insured a healthy man of forty-two years, in the sum of three thousand dollars to protect a debt of one hundred dollars. If he had merely lived out his expectancy, and no longer, they would have been obliged to pay for assessments and annual dues $2,436.32, to which, if interest be added, the amount of their investment would have been $4,336.31. In return they would have received three thousand dollars, thus suffering a considerable loss. Surely, to call such a transaction speculative, is to misuse the word. That it happened to be profitable, because the insured died within a few years, is manifestly not to the point.” I have quoted this extract at length, because I could in no better way emphasize the distinction between Cooper v. Shaeffer and the case in hand.

The law very properly lays a mailed hand upon speculative life insurance; of all the forms of gambling it is one of the most objectionable. The records of our own court show that it sometimes leads to murder. The holder of a policy upon a life in which he has no interest, either of a social or pecuniary nature, has a strong interest in the death of the assured. This interest grows and strengthens with each payment of premium. He has made a bid upon the life of another person. A man who will engage in such a transaction cannot safely be regarded as a saint. He sees with growing impatience that life prolonged from year to year, and his money slipping away in premiums. A man thus situated soon becomes familiar with the thought of the death of the person who stands between him and what, in his morbid fancy, he may regard as his rights. That crime follows, in some instances, is a fact of which we have judicial knowledge.

All life insurance is in one sense speculative. Yet within proper- restrictions it has been found to be highly beneficent, and not in conflict with public policy. It enables a man, in the days of his early struggles, to provide for his family in case of his death. It renders it possible for a business man to borrow the capital needed for success. It furnishes the means, and the only means, by which a creditor may sometimes secure a doubtful claim. Yet, in all these cases, there is the element of speculation, for if the assured dies shortly after the policy is issued, the beneficiary, whether he be a blood relation or a creditor, gets a sum of money greatly disproportioned to the amount paid.’ But in these cases the law does not regard the speculative element as one of danger. It is true that a son who takes out a policy on the life of his father, or a creditor upon the life of his debtor, may have an interest in the death of the assured and resort to crime to procure it, but experience shows that such instances are extremely rare, and the temptation no greater than in thousands of other instances in which one person may be benefited pecuniarily by the death of another. But a policy taken out by one who has no interest, either as a creditor or a relative, in the life of the assured, is always a danger signal.

It is settled law that a creditor has an insurable interest in the life of his debtor, but up to this time there is no decision as to the limit of this right. Our own cases furnish us no settled rule, and for this reason I do not think it necessary to review them. Each case has been decided upon its own facts. In Cooper v. Shaeffer, as before observed, it was said the insurance was too large; in Grant v. Kline, on the other hand, we held that the amount of insurance was not disproportioned to the debt. We have now reached a point where it is necessary to lay down some fixed rule by which such cases can be disposed of in the future, otherwise the rulings of the courts and the verdicts of juries upon such questions will be arbitrary, and where there is nothing in a case but the amount of the insurance and the amount of the debt, it is impossible for either a court or a jury to arrive at a correct result.

Starting out with the conceded proposition that a creditor has an insurable interest in the life of his debtor, and may lawfully take out a policy thereon, it follows logically that he may take out the policy in such a sum as may reasonably secure the debt. It needs no argument to show that if my debtor owes me one thousand dollars, a policy for one thousand dollars would be inadequate, for if my debtor dies within twenty-four hours after the policy is taken out, I am a loser by the amount of the premium paid, and it would be but a few years before the interest on the debt and the premiums would exceed the debt. Every future payment then would be a loss, with the only alternative of adding to this loss year by year, or abandoning the policy altogether, and sinking the whole amount paid. It seems clear upon reason that the creditor may take out a policy in excess of his debt. But to what excess ? The answer to this question obviously depends upon circumstances. An important element in the consideration of this question is the age of the assured. The difference between a policy on the life of a man of twenty-five years of age and one of seventy-five, is clear to the dullest understanding. The assured was only forty-two years of age, and his expectancy of life was twenty-six years. The chances were greatly in favor of his living out his expectancy. The Carlisle Tables were prepared with care by competent experts, and are the result of actual experience. I am therefore justified in saying that the chances were in favor of the assured living out his expectancy, in which case there would be the loss of interest on the debt for twenty-six years, added to the dues and assessments with interest thereon for the same period. The evidence shows that, in such event, the defendants would have been losers by a considerable sum. In fact, I infer from the tables furnished that after about seventeen years the defendants would have carried this policy at a loss. The defendants assumed this risk when they took out the policy. They also had the chance of the assured not living out his expectancy. This is a risk which an insurance company assumes upon every policy which it issues. In a particular instance, the assured may live many years beyond his expectancy, which is a large gain to the company. But this gain is equalized by the loss in instances where the assured dies before the expiration of his expectancy, so that in the vast volume of business of sucb corporations tbe average result is reasonably uniform. But tbe holder of a single policy can have no average result. He takes the risks with the chances fairly balanced. Had these defendants taken out one hundred policies on the lives of as many debtors, it is more than probable that some of them would have largely exceeded their expectation, while others would not have reached it. In such case, there would not have been material gain or loss.

Had the assured lived out his expectancy of life, no question would probably have arisen as to the right of the defendants to retain the whole of the money. It could not then have been successfully assailed as a gambling transaction. I submit that the character of the contract cannot depend upon results, or the accident of death. If not lawful in its inception it could never become so.

I In order to ascertain whether an insurance is disproportioned to the debt, regard must be had to the age of the assured, his (expectation of life, and the cost of carrying the insurance, with [interest thereon, as well as upon the amount of the debt. The evidence which forms the subject of the first assignment was not only proper, but essential to an intelligent understanding of the case. It is just what was lacking in Grant v. Kline, and was one of the reasons why we avoided deciding the broad question in that case. But any one who reads that opinion between the lines, can see that the judicial mind must have been influenced, to some extent, by the suggestion in reference to the Carlisle- Tables.

The rule we now announce may not be the best, but we have not been able to find a better, after a most careful and anxious consideration of the question. That it will not produce exact justice in all cases is possible. There will always be cases of individual hardship in the application of all general rules. No general rule can be made to fit each particular case, otherwise it would cease to be a rule. My attention was especially called to this difficulty by the following extract from the opinion of the learned judge below in refusing a new trial:

“ With much respect it is suggested that the principle indicated in Grant v. Kline, 115 Pa. 625, and Cooper v. Shaeffer, supra, as the proper rule to determine for what sum a creditor’s policy should be taken out, ought to be somewhat expanded before it is positively adopted. As now stated, it would not provide for a case like this, where the policy is taken out in a company which levies annual (monthly?) assessments, and where, therefore, allowance must be made in the creditor’s forecast for possible fluctuations; neither would it now provide for the not infrequent contingency of the insured outliving his expectancy. Under the present form of the indicated rule the creditor must always lose if the debtor lives beyond his expectancy; and it cannot be accurately applied to assessment insurance, because in this variety of the business the annual payments are not a previously known and certain sum.”

We have no difficulty in disposing of the objection that the rule does not provide for the case of the assured living beyond his expectancy and thus entailing a loss upon the creditor. If we go beyond the expectancy where are we to stop)? A man may live to the age of a hundred, and such length of days is of frequent occurrence. To sanction a policy covering such a period, and yet to allow the holder to recover the full amount in case of death within a year, would be a retrograde step in our decisions. Under such a system the creditor would be absolutely secure, with the possibility of an enormous gain in case of an early death; whereas, at present, as I have endeavored to show, the risk of a debtor exceeding his expectancy is equalized by the possibility of his death within it, and in a given number of cases the result produces uniformity. The want of uniformity is not the fault of the rule, but of its application to a single case.

There is more difficulty in the other objection. The policy in question, however, was taken out in a mutual company, where assessments are made from time to time, and there appears to have been no difficulty upon the trial below in ascertaining with sufficient accuracy the amount of assessments which the defendants would have been called upon to pay had the assured lived out his expectancy. The precise amount of such assessments cannot, of course, be estimated with the same accuracy as in the case of a company in which the annual premium is a fixed sum. But the assessments, even in a mutual company, can be approximated by the experience of other similar companies with sufficient accuracy to base an insurance upon it. And where a policy has been taken out in good faith by a creditor, the law does not exact impossibilities. A slight mistake, one way or the other, owing to the condition of the company’s business by which assessments are increased or diminished, would not necessarily vitiate a policy. The cost of life insurance, by whatever system adopted, it is believed does not vary so greatly as to prevent a reasonable approximation thereof.

It may be that few men would take out a life policy to secure a debt of one hundred dollars, where there is an expectancy of life for twenty-six years, and pay an annual assessment or premium in excess of the whole amount of the debt. But we do not pass upon the wisdom of -contracts; we only consider their legality. And care must be taken in the enforcement of an admittedly sound rule of public policy, not to-impinge upon the right of the citizen to contract. In this instance, the contract was lawful, and the defendants appear to have entered into it not so much for their own benefit as for the accommodation of the assured. We are not to measure its legality by its results, but by its surroundings at the time it was made.

We are of opinion that a creditor may lawfully take out a policy on the life of his debtor in an amount sufficient to cover the debt with interest, and the cost of such insurance with interest thereon, during the period of the expectancy of life of the assured according to the Carlisle Tables. We find no error-in the ruling of the court below.

Judgment affirmed.