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John Hancock Mut. Life Ins. Co. v. Chevillon

January 7, 1931


Appeal from the District Court of the United States for the Southern Division of the Southern District of Illinois; Louis Fitz-Henry, Judge.

Author: Alschuler

Before ALSCHULER and EVANS, Circuit Judges, and LINDLEY, District Judge.

ALSCHULER, Circuit Judge.

The appeal is from a judgment for the face of a life insurance policy issued October 21, 1925. The policy specifies that "In consideration of Representations in the Application herefor, a copy of which is attached hereto, and made a part hereof, and of the premium of two hundred twenty-nine and 20/100 Dollars to be paid on delivery of this policy and of the payment of a like premium on or before the twenty-first day of October in each succeeding year until the premiums for ten full years have been paid or until the prior death of the insured, * * *" appellant insures the life of John C. Chevillon in $10,000 during the term of ten years, payable upon his death within such term to appellee, his brother. Further relevant provisions of the policy appear in the margin.*fn1

In the application for the policy it is specified that the premium payments shall be made semianually, each payment to be $116.90. The first five semiannual payments were made, but the sixth, due April 21, 1928, was not; and on July 13, 1928, the insured died.

On the face of the policy, just before its date and signatures, appears the follwing: "The Rights, Options, and Provisions hereinafter set forth are hereby made a part of this Contract." Nothing of this nature follows on the face of the policy, but on the back of the policy, which is unsigned, there is printed a heading, "Non-Forfeiture Options," under which it is stated:

"After the number of full annual premiums stipulated in the table of values shall have been paid hereon, and if the payment of any subsequent premium or instalment shall be in default more than thirty-one days, then:

"Option A -- Without action on the part of the holder, the policy will be continued for its value in participating paid-up term insurance expiring at the end of the stipulated term of the policy and having a decreasing surrender value in no event less than that required by law."

Then follow options B and C, which depend on election by the insured, and are here immaterial.

There is then a "Table of Non-Forfeiture Values," from which it appears that, under option A, after the payment of premiums for three years, each $1,000 of insurance will have a participating paid-up term insurance value of $46; but no value is assigned on payment of less than three years of premiums.

Upon the failure to pay the second instalment of the third year's premium, no action was taken by either party to the contract. Appellant contends that upon failure to make this payment insured lost all rights under the policy, except to the extent specified in option A, under which appellant, conceding $230 to be due appellee, tendered that sum in discharge of its liability under the policy. It is explained that this amount was fixed because only half of the third year's premium had been paid, and that therefore only half of the paid-up insurance under option A was due.

For appellee it is insisted that what appears on the back of the policy is no part of it because not being "Provisions hereinafter set forth." Considerable of the briefs on both sides is devoted to this proposition, but this question we need not decide, since, by the table of values and the terms of option A, the option is not applicable where less than three years' premiums have been paid.

The policy must then be regarded as though "Option A" were no part of it. We thus have the question of the effect upon the policy of failure to pay in advance the second instalment of the third year's premium. For appellee it is contended that by the terms of the policy the unpaid instalment was not necessarily payable in advance, but might be paid any time during the policy year. We think the clause, "all premiums hereunder are payable in advance, annually, or in regular equivalent semi-annual or quarterly instalments," is susceptible of no other construction than that all stipulated premium payments, whether annual, semiannual, or quarterly, were payable in advance. The granting of grace "for the payment of premiums or the regular instalments thereof," would have little meaning respecting instalment payments unless they become due as specified; and on principle no reason is apparent wherefore an instalment payment should be considered upon any different basis from a yearly payment. In general, insurance premiums are payable in advance, and insurance cannot be required to be carried on credit unless such purpose can be gathered from the contract.

The semiannual payment in question became due under the terms of the policy on April 21, and its nonpayment after the grace period of thirty-one days subjected the policy and the insured to the same consequences as if the defaulted payment had been of an entire annual ...

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