People v. Legg

Townley, J.

Defendant appellants were convicted in the Court of Special Sessions, New York county, for violation of section 60 of the Insurance Law, as amended by chapter 439 of the Laws of 1923. The information charged that the defendants unlawfully issued a statement misrepresenting the terms of two insurance policies and made an incomplete comparison of the policies for the purpose of inducing the insured to surrender his insurance policies. Two questions are raised by this appeal: (1) Whether under the law, as amended, the acts of the defendants Legg and Stapler constituted a crime, and (2) whether, assuming that a crime was charged, there was evidence sufficient to warrant the conviction.

Section 60 of the Insurance Law reads as follows: “ Estimates and misrepresentations prohibited. No life, health or casualty insurance corporation, including corporations operating on the co-operative or assessment plan, mutual insurance companies, and fraternal benefit societies operating on the subordinate lodge system, doing business in this State and no officer, director, representative, or agent therefor or thereof or any other person, copartnership or corporation shall issue or circulate, or cause or permit to be issued or circulated, any illustration, circular or statement of any sort misrepresenting the terms of any policy issued by any such corporation, or any certificate of membership issued by any such society, or the benefits or advantages promised thereby, or any misleading estimate of the dividends or share of surplus to be received thereon, or shall use any name or title of any policy or class of policies, or certificate of membership or class of such certificate, misrepresenting the true nature thereof. Nor shall any such corporation or society, or officer, director, representative or agent thereof or any person, copartnership or corporation make any misleading representation or incomplete comparison of policies or certificates of membership to any person insured in any such corporation, or to any member of any such society, for the purpose of inducing or tending to induce such person or member to lapse, forfeit, or surrender his said insurance or membership in any such society. The Superintendent of Insurance may in his discretion revoke the certificate of authority issued to any corporation, society or agent on his being satisfied that such corporation, society or agent has violated any of the provisions of this section.”

The italicized words were added by the amendment of 1923. At the time of the- amendment the following sentence was stricken out: "Any violation of this section shall constitute a misdemeanor, and it shall be the duty of the Superintendent of Insurance to revoke the certificate of authority of the corporation or agent on a conviction for so offending.”

Section 53 of the Insurance Law now and at the time of the 1923 amendment to section 60 read as follows: “Any corporation or person violating any provisions of this chapter, except where such violation constitutes a felony, shall, in addition to any penalty otherwise prescribed for such violation, be guilty of a misdemeanor.”

The question is whether the Legislature by the amendment of 1923 intended to repeal that part of the law which makes a violation of this section a misdemeanor, or whether those words were stricken out as superfluous in view of the general provisions contained in section 53 of the Insurance Law. Section 53 was a part of the original Insurance Law passed in 1892. The penalty prescribed was a fine of $500. In the general revision of 1906, section 53 was amended to its present form and section 60 was added to the Insurance Law. Section 53 in general terms provided that a violation of any .of the provisions of the Insurance Law should constitute a misdemeanor, and section 60 also contained a provision that a violation of its provisions should constitute a misdemeanor. There was, therefore, from 1906 down to the amendment of 1923, a duplication of the provisions declaring the penalty which attached to a violation of section 60.

At the time of the 1923 amendment, it will be seen the general purpose of the amendment was to make the provisions of section 60 applicable to mutual benefit societies and to fraternal societies having insurance features connected with membership therein. The Legislature intended by this amendment to broaden the scope of the protection afforded by section 60. In dropping its penal provision, it cannot reasonably be said to have been the intention of the Legislature to limit the punishment for its violation to the possibility of discipline by the Superintendent of Insurance. The prohibition contained in the section is not confined to those who are subject to control of the Superintendent of Insurance. The construction contended for by defendants would leave no penalty for violations by any persons other than those directly connected with insurance companies and would involve a determination that the Legislature intended that a violation of every section of the Insurance Law should be a misdemeanor under the provisions of section 53 except violations of section 60. Such was not the intention of the Legislature in maldng the amendment. Section 53 was allowed to remain in its present form unaltered. The incidental change merely eliminated the duplication involved in sections 53 and 60. We are, therefore, of the opinion that under the law as it now stands a violation of section 60 of the Insurance Law constitutes a misdemeanor.

The proof, however, did not sustain the charge made in the information. To establish the charge it was incumbent upon the People to prove material misrepresentations of the policies made with the intent to induce the holder thereof to change them. The statements relied on by the People to sustain this conviction concerned minor details and incidents connected with the insurance contracts which did not affect or destroy the substantial merit of the suggestion made by the defendants to the insured with respect to his policies.

An expert analyst of insurance policies testified on behalf of the People and set forth some eight respects in which Legg is supposed to have misrepresented the policies which the insured Atwater held. Rightly to understand the nature of the misrepresentations urged, it is necessary to examine the statements which defendants made. The first part of the analysis given to the nsured, Atwater, read as follows:

“ Present Insurance Condition

(Cash due)

Company

“ Mutual Life.

“ Mutual Life,

Plan

20-Pay Life.....

20-Pay Life.....

Amount

$25,000 00

25,000 00

Premium

$892 50

828 25

Loan Value

$5,435 00

5,435 00

“Totals......................... $50,000 00

“ Less Average Dividends about....................

$1,720 75 $10,870 00* 570 00

“Net Premium

$1,150 75 6%

“ Loss of Interest on cash due

652 20 652 20

“ * The Cash Due or Loan Value is the amount you have paid over and above the cost of carrying the insurance to date.

“ Ton receive none of the earnings from this Equity.

“ In case of death, this Equity $10,870, is a loss to your estate.’’

The first and most substantial of these alleged misrepresentations and the only one deserving serious consideration is that in which Legg, speaking of the cash surrender value of the policies in force amounting to $10,870, said: “ You receive none of the earnings from this Equity.” This statement is interpreted as meaning that the insured literally received no earnings from the equity of his policies, whereas in fact he did receive part of it as a dividend and part as an increase in the cash surrender value of his policy. That the above-quoted statement is not open to this construction is demonstrated by the fact that the statement itself in estimating the net insurance premiums upon the existing policies allows a credit of $570 for dividends. There is, therefore, on the face of this written statement a self-contradiction of the construction claimed. The obvious intent of the representation was that until the insured had taken the cash surrender value of his policy, none of the income thereof would be available to him for any use outside of his insurance policies. This statement must be read in the light of what Legg had advised the insured, namely, that he could collect the cash surrender value and invest it, and out of its earnings pay a premium on the new straight life policies, so that he would actually have, outside of the protection of his new policies, which in turn would earn dividends, the cash surrender value of his present policies invested at six per cent. Taken as intended, this statement was true.

The second alleged misrepresentation is that “ In case of death, this Equity $10,870, is a loss to your estate.” This statement is literally true. In case of death the insured would only receive the face of the policy and would receive nothing more. The equity is simply a part of the face amount of the policy which the insured receives from the company at death. The defendants’ representation was to the effect that by surrendering the existing policies and taking out new straight life policies, the insured would have insurance for the same amount and at death would receive the face of the policies and have $10,870 in addition thereto, which would not be true if the present policies remained in force.

The third alleged misrepresentation is contained in the phrase, “ Less average dividends about $570.” This had been the dividend for 1930 and it also represented an average covering twenty years’ experience as actually computed by the defendant. The use of the word “ about ” clearly indicates that it was an approximation which the proof shows was substantially correct.

The second part of the statement furnished the insured reads as follows:

“ Improved Insurance Condition

Plan

“ Basic Rate Ordy.

Amount Premium $50,000 00 $1,074 50

Cash Received $10,870 00 6%

$652 20

“ Less interest on cash received....................... 652 20 =====

“ Net annual cost

$422 30

“ The new insurance provides the following extraordinary features:

“ In ease of total disability prior to age 60, you pay no more premiums. In ease of accidental death, your beneficiary will receive $100,000.00. After 3 years the above insurance becomes participating. The premium is increased $181.00 and the dividend for this year will be $208.50. The dividend will increase yearly thereafter, reducing your net cost annually as you grow older.”;

The fourth alleged misrepresentation is the statement: “ Net Annual Cost, $422.30.” The claim of falsity as to this is based upon the assertion that the premium for the first year would be greater because certain earnings would not be applied in reduction of the premium until the second year. No one claims that this representation was not true as to all years after the first. The accrued interest on the existing policies, however, would have made up the difference and the statement is substantially true.

The fifth alleged misrepresentation is the sentence: “In case of total disability prior to age 60, you pay no more premiums.” This is claimed to be false because suspension of premiums only occurred in case the total disability was permanent. That any one would have understood it in any other way seems incredible. The trivial character of this claim fairly indicates the spirit in which the criticism of this statement was undertaken.

The sixth alleged misrepresentation was that “ The dividend for this year will be $208.50.” This representation is challenged on the ground that there was no guaranty that there would be any dividend of any particular amount nor that the dividend would increase yearly thereafter as stated in the memorandum submitted. This figure was arrived at by applying the Prudential Insurance Company’s own schedule of current experience to the age of the insured and the amount of insurance involved. The result represents an absolutely accurate computation on that basis. No one could reasonably construe this statement to be a guaranty as to the future earnings of the company.

The third statement or summary submitted by the defendants reads as follows:

“ SUMMABY.

“ Present Insurance Condition:

“ Insurance..............

“ Cash..................

Net Annual Cost

$50,000 00 None

“ Total to your estate....................... $50,000 00 $1,150 75*

“ Improved Insurance Condition:

“Insurance................................ $50,000 00

“ Cash received.............................. 10,870 00

“ Total to your estate....................... $60,870 00 $422 30 f

“ * Double Indemnity & Disability on $25,000 only.

“ f Includes Double Indemnity for accidental death.

“ Includes waiver of premium for disability prior to age 60.”

The seventh alleged misrepresentation is the statement appearing in the summary, “ Double Indemnity & Disability on $25,000 only.” The accuracy of this statement is not challenged. It is claimed, however, that there was a suppression of the fact that the existing policies paid an income of $2,500 a year for life under the double indemnity and disability clause. Since the statement in which this representation appears was intended to be nothing more than a summary of the policies and since the existence of the disability clause was directly called to the attention of the insured, there was no necessity of including in a “ summary ” a detailed statement of all the incidents of the double indemnity granted by the policies then in the possession of the insured, the provisions of which were known by him.

The eighth misrepresentation is that the words “ Net Annual Cost ” at the end of the summary implied that the amounts stated opposite the two insurance companies were payable for the same length, of time. That any one could possibly understand that a twenty-payment life policy with only ten more payments due would require the payment of premiums for the same period of time as a straight life policy is inconceivable.

These alleged misrepresentations taken as a whole reflect nothing but a hypercritical examination of these statements undertaken in the hope that in a multitude of trivial criticisms might be found enough substance to support the charge made against these defendants. They are wholly insufficient to support the charge of misrepresentation or to indicate any criminal intent on the part of the defendants.

The judgment should be reversed, the information dismissed and the appellants discharged.

Finch, P. J., and McAvoy, J., concur; Martin and O’Malley, JJ., dissent.