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New England Mut. Life Ins. Co. v. Olin.

July 15, 1940


Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division; Robert C. Ballzell, Judge.

Author: Kerner

Before EVANS, SPARKS, and KERNER, Circuit Judges.

KERNER, Circuit Judge.

This case involves an insurance policy on the life of Walter G. Olin, deceased. The plaintiff is the New England Mutual Life Insurance Company of boston, Massachusetts, and the defendant is Martha H. Olin as administratrix of the estate of Walter G. Olin (beneficiary under the policy). In its complaint the plaintiff sought a judgment declaring that the policy had lapsed and terminated before the insured's death. In her counterclaim to the complaint the defendant sought a coercive judgment for the face amount of the policy less indebtedness thereon, claiming that extended insurance available at the lapsing of the policy continued the insurer's liability thereafter until a date beyond the insured's death. The District Court rendered judgment for the plaintiff - for the plaintiff on the complaint and against the defendant on the counterclaim - and from this judgment the defendant appealed.

The plaintiff is a Massachusetts corporation and does business in Indiana, operating an office at Indianapolis through a general agent. In September of 1922 this general agent visited Walter G. Olin, resident of Indianapolis, and his solicitation resulted in Olin executing a written application for an insurance policy. The application recited that " the insurance applied for shall not take effect unless and until this application is approved by the Company and the first premium is paid while I am in good health." In this connection, to the question in the application reading "Have you paid the first premium on the policy hereby applied for?" Olin answered "No."

The application was taken by the general agent on September 26, 1922 and then was sent by him to the Boston home office. At the same time the general agent forwarded money from his own funds sufficient to pay the first premium in advance. On September 29, 1922 the application was approved and accepted by the home office, and a policy for $10,000 made payable to the insured's estate was signed and issued by the plaintiff. The policy recited that the company "has signed and delivered this contract at Boston * * * this twenty-ninth day of September." This policy was mailed to the general agent at Indianapolis on October 2 and he in turn on October 5 turned it over to Olin. At the same time the insured paid the first annual premium of $317 to the general agent.

The policy provided that upon payment of the second annual premium and each year thereafter, any surplus made by the company "shall * * *, at the option of the Holder of the Policy, be * * * applied in reduction of premiums." The policy also contained an option for automatic premium loans which provided that after the payment of two annual premiums and upon the assignment to the company of the policy, "the Company will, until otherwise directed by the Insured, charge against the Policy as a premium loan, at six per cent interest, the amount of any premium (less the share of surplus apportioned thereto) which may thereafter become due and remain unpaid at the expiration of the period of grace; provided the cash value of the Policy and dividend additions, less any indebtedness to the Company hereon, including interest, shall equal or exceed the amount of such loan."

In his application the insured directed that the annual share of surplus be applied to reduce premiums. On October 30, 1926 the insured signed a "premium loan agreement" at Indianapolis which "hereby requested" the company to charge any due and unpaid premium against the policy as long as "the entire indebtedness on the Policy, with interest, shall not exceed the cash value," and which assigned as security all the "right, title and interest in and to said Policy." This signed "premium loan agreement" was delivered to the general agent whi in turn transmitted it to the home office at Boston. Thereafter from time to time the plaintiff made automatic loans for payment of premiums maturing on the policy, including the annual premium due on September 29, 1930. The aggregate of these premium loans, including interest to February 27, 1931, was $1,258.71.

The policy also contained an option for cash loans which provided that "At any time after three full annual premiums have been paid * * * the Holder hereof, * * * shall be entitled to a loan from the Company, on the sole security hereof, at six per cent interest, of a sum which * * * shall be equal to * * * the cash value of the Policy and of all dividend additions hereto * * * less any indebtedness to the Company hereon * * * . Failure to repay the loan, or to pay the interest thereon when due, shall not avoid the Policy while the total indebtedness hereon is less than the cash value."

About February 11, 1931 correspondence between the general agent at Indianapolis and the insured indicated that the insured was contemplating the surrender of his policy for its cash surrender value, but that the general agent advised him to borrow the policy's loan value (almost equal to the cash surrender value) which would enable him to keep his policy active at least until September 29, 1931. The insured followed this advice and on February 27, 1931 he signed and executed a "Policy Loan Agreement" which invoked the loan option clause of the policy above described. This "Policy Loan Agreement" stated that "Default in the payment of the loan shall be deemed to occur at the time when such total indebtedness and unpaid interest equal the loan value" and "It is agreed that * * * this contract * * * is made in the Commonwealth of Massachusetts and is to be governed and construed by the laws of said Commonwealth."

The loan agreement was executed and mailed to the general agent in Indianapolis who in turn mailed it to the Boston home office where it was received and approved. It evidenced a loan in the amount of $1,520 at 6% interest. From the loan of $1,520 was deducted the prior indebtedness on the policy (Premium Loans and interest thereon) amounting to $1,258.71 which left a balance of $261.29, the sum forwarded to the insured. On September 15, 1931 interest in the amount of $48.64 accrued on the policy loan and was added to the loan indebtedness, so that as of September 15, 1931 the total indebtedness chargeable against the policy amounted to $1,568.64.

Until September 29, 1931 nine premium payments had been made on the policy: $1,170 had been paid in cash and $1,683 had been paid by the use of automatic premium loans and the application of dividends (distributive shares of surplus) to the reduction of premiums. On September 1, 1931 the insured received a notice from the company which disclosed that the 1931 premium of $317 would accrue September 29 and that on that date he would have available as surplus credit an amount of $95.50. On September 3, 1931 the insured wrote to the general agent and enclosed in his letter the notice above described plus three notes aggregating $93. The general agent replied that "there will be a cash payment due of $128.50 on September 29th, 1931 [95.50 surplus credit, $93 notes, and $128.50 cash].This may be paid any time between now and October 29th, 1931. We will hold the notes awaiting receipt of cash payment." The insured failed to make the cash payment of $128.50, and the 1931 premium remained unpaid throughout the period of grace expiring October 30, 1931.

The policy provided that the premium of $317 was due on or before September 29 of every year and that the policy would lapse for failure to pay any such premium "when due or during the period of grace." On September 29, 1931 the 1931 premium of $317 matured. On that date there was a surplus credit of $95.50 in favor of the insured, the cash or loan value of the policy was $1,577.60, and the total indebtedness chargeable against the policy was $1,568.64 (or $1,572.30, if $3.66 interest from September 15, 1931 is added).

On October 30, 1931 the company at its Boston office applied an amount of $143.70*fn1 as a partial payment of the 1931 premium. On November 27, 1931 the general agent wrote to the insured and informed him that the "Boston Office has written us as follows: 'Referring to Policy No. 460435, * * *, we have used the automatic premium loan feature to pay a portion of the 1931 premium in the amount of $143.70 and after deducting the share of surplus of $95.50 makes an automatic loan outstanding of $48.20. This will continue the Insurance in force until March 8, 1932, at which time the Policy will lapse without value.'" In this connection it is to be noted that in his application for insurance the insured requested that the surplus credit (dividends) be applied in reduction of premiums, and that the policy provided the "Company will, unless otherwise directed by the Insured, charge against the Policy as a premium loan * * * the amount of any premium ...

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