Appeal by defendant from the Superior Court of Cook county;
the Hon. DONALD S. McKINLEY, Judge, presiding. Heard in the
second division of this court for the first district at the
October term, 1949. Decree and judgment reversed without
remandment. Opinion filed March 14, 1950. Released for
publication April 3, 1950.
MR. PRESIDING JUSTICE FRIEND DELIVERED THE OPINION OF THE COURT.
Gregory Kurgan, a minor, by Antonina Wijas, his next friend, filed a complaint in chancery for the reformation of an insurance policy issued by defendant, the Prudential Insurance Company of America, on the life of his mother, Estelle Kurgan, who died February 14, 1945, and to recover the face amount of the policy of $4,188. The insured's husband, who was plaintiff's father, was designated beneficiary in the policy, and was made a party defendant, but no order or judgment was sought or obtained against him, and he does not join in this appeal. At the close of plaintiff's case, defendant made a motion for a finding in its favor, or in the alternative, to dismiss the complaint for want of equity, which was denied, and after evidence had been adduced on behalf of defendant, the chancellor, sitting without a jury, decreed that the policy be reformed so as to show a change of beneficiary from Walter Kurgan to the plaintiff; that the portion of the policy which designated Walter Kurgan as the beneficiary be set aside; and that judgment as at common law be entered for plaintiff in the sum of $5,019.12, representing the face amount of the policy, plus interest from the date of death of insured, and costs of the proceeding. The defendant insurance company appeals.
There is substantially no dispute as to the essential facts. Policy No. 12 681 173, with endowment and life insurance features, was issued to Estelle Kurgan November 21, 1943. It provided for dividends, loans, disabilities and accidental-death benefits, in return for monthly premiums payable for ten years or until prior death. The face amount of $4,188 was to be payable to the insured if living on November 13, 1953, or in the event of her prior death, to Walter Kurgan, her husband.
Under the general provisions of the policy appears the following: "Change of Beneficiary. The Beneficiary under this Policy may from time to time be changed, upon proper written request while this Policy is in force and the submission of such written request to the Home Office, but such change shall become operative only if this Policy has been received at the Home Office and endorsed by the Company. After such endorsement has been made, the change shall take effect and any interest of any previous Beneficiary shall cease as of the date of such written request whether or not the Insured is living at the time of such endorsement, but without prejudice to the Company on account of any payment made by it prior to such endorsement. . . ."
Application for the policy was made in two parts. In part 1, Estelle Kurgan reserved the right "at any time without the consent and to the exclusion of any beneficiary . . . to change the beneficiary. . . ." In part 2, she agreed that "(1) the matter contained in Parts 1 and 2 of this application shall become a part of the policy hereby applied for; (2) no agent has power in behalf of the Company to . . . bind the Company by making any promise or representation or by giving or receiving any information; [and] (3) my acceptance . . . of any policy issued on this application shall constitute an approval of the provisions contained in such policy. . . ."
John C. Cholewa, a special agent employed in the Chicago office of the defendant, procured Estelle Kurgan's application. His authority was limited to the solicitation of business for the company, to submitting applications to the examiner in defendant's Chicago office for forwarding to the home office, and to collecting the first premiums on the policies he sold.
When the policy was issued, the insured placed it in a cabinet drawer in her home, where it remained until after her death. In October or November of 1944, she became hospitalized. After her return from the hospital she contemplated changing the beneficiary in her policy, but took no affirmative steps toward that end. Subsequently, about the first week in January 1945, she returned to the hospital, and a day or two later she told her sister, Adele Wartell, that she wanted to make her son the beneficiary of her policy. While in the hospital she was visited regularly by her husband, Walter Kurgan, and by other relatives. On January 15, 1945, her parents, Stanley and Antonina Wijas, accompanied by John Cholewa, went to see her at the hospital. Cholewa brought three blank "request-for-change-in-beneficiary" forms which she read and signed. None of the requests were completely filled out; two contained only the name of Gregory Kurgan as primary beneficiary, without designating his relationship to the insured, and no other information whatsoever, and on these two forms her signature was witnessed by Cholewa and her mother, Antonina Wijas. Both of these requests bear date January 13, 1945. On the third form, also bearing the same date, no beneficiary was indicated and insured's signature was witnessed by Cholewa alone. The blanks were actually signed on January 15, and Cholewa took the forms with him that day when he left the hospital. He is no longer employed by defendant, resides in California, and was not a witness at the trial.
Estelle Kurgan left the hospital February 8, six days before her death, and stayed with her parents at their home until she died on February 14, 1945. On February 13, 1945, Cholewa mailed the applications back to the insured at the hospital, with a letter, purported to have been lost before trial, in which he stated that insured would be required to produce the policy in order to effect a change of beneficiary. The envelope, containing the applications and letter, was readdressed and forwarded by mail to the Kurgan home, where it was picked up by William Wroble, Kurgan's brother-in-law, and brought to Kurgan in the forenoon of February 14. Kurgan had gone over to visit his wife in the late morning of that day, and upon his return to his mother's home, where he was then staying inasmuch as he was sick himself, he found the envelope, which he opened that afternoon, and someone read him the contents of the letter. He testified that because of her sick and weakened condition, the letter was not shown to Estelle Kurgan, and she died later that day.
On February 15, 1945, Walter Kurgan executed a proof-of-death form which was witnessed by Cholewa and submitted to defendant. Thereafter, on February 20, Marion Kogut, one of plaintiff's attorneys, sent a registered letter to defendant at its home office, claiming that plaintiff was entitled to the proceeds of the policy. Defendant received the letter, but made no reply.
February 16, 1945, defendant was served with garnishment summons issued out of the circuit court of Cook county in case No. 44-C-6687, entitled "Walter Kurgan, for use etc. v. Prudential Insurance Company of America, a corporation," to which it filed answer admitting having in its possession proceeds due Walter Kurgan under the policy insuring his wife. April 4, 1945, judgment was entered against defendant, and the following day a check, payable to Kurgan in the amount of $4,108, the face amount of the policy less unpaid premiums amounting to $80, was issued by defendant. Kurgan authorized defendant's attorneys to pay his judgment creditors from the proceeds of that check, and he received the balance, for which, on April 10, 1945, he released defendant from all further obligations to him under the policy. The instant suit was filed some two weeks later, on April 26, 1945.
Plaintiff argues and seeks to have us infer that the insured "was unable to produce the insurance policy for endorsement because it was in the possession of her husband, who refused to surrender it. . . ." However, it was not controverted that the policy, at all times between the date of its delivery to Estelle Kurgan and her death, was kept continuously in her home in the same cabinet drawer where it had been placed by the insured when she first received it. Kurgan testified that no one ever asked him to get the policy for his wife, and there is nothing to explain why she could not have given the key to someone else to enter the house for the purpose of securing the policy for her.
It is conceded that the method prescribed by the policy for changing a beneficiary was not followed; neither the blanks which the insured signed at the hospital, nor any request for change of beneficiary, was ever communicated to the home office. The policy was never sent to the home office of the insurance company for endorsement, and of course no endorsement was made.
[1-3] Plaintiff presented his case, and seeks affirmance, on the theory, which the chancellor adopted, that the insured did everything within her power to comply with the provisions of the policy prescribing the method to be followed for effecting a change of beneficiaries, and that since there was a substantial compliance, as his counsel contend, equity should regard the attempted change as having been effected during insured's lifetime. As against this theory, there is the question whether substantial compliance may be considered as controlling, or be considered at all, in a situation where the undisputed evidence discloses that the method prescribed for a change of beneficiary was not followed and where defendant never waived its right to strict compliance. This entails a consideration of certain established principles of insurance law, which, as stated in Hintz v. Hintz, 78 F.2d 432, "are so well settled that their statement hardly needs the support of judicial citations." It is fundamental, the court held, that "In the absence of a reservation in the insurance policy authorizing a change in beneficiaries no right of change exists. 14 R.C.L. `Insurance,' page 1387." The original beneficiary has a vested right in the proceeds of the policy of which he cannot be divested so long as the policy remains in force, except with his consent; but where the insured has reserved by contract the right to change beneficiaries, the original beneficiary has a mere contingent right to the proceeds, and if the insured dies without having exercised his right in accordance with the methods prescribed by the policy, the rights of the original beneficiary become vested. It is also well settled, as pointed out in the Hintz decision, that "Where the right to change beneficiaries is reserved, the language of the reservation clause must determine the extent of the right." Inherent in these rules is the necessity for protecting the insurer from paying the proceeds to a claimant other than the original beneficiary, and for this reason courts have recognized the right of the insurer to insist on strict compliance with the terms of the policy in changing beneficiaries. In the instant case the policy provisions are clear and unambiguous. Similar provisions were held valid and proper in the recent case of Young v. American Standard Life Ins. Co., 398 Ill. 565.
In the majority of the reported cases involving a determination of the rightful beneficiary, the insurance company filed an interpleader, brought the proceeds of the policy into court, and asked the court to adjudicate the rights of the contesting claimants; and of course this is the common practice where rival claimants are involved. In such instances, the insurer waives strict compliance with the provisions of the policy; but its right to insist on strict compliance is both expressly and inherently recognized in the following decisions which hold that where the insurer has waived strict compliance, substantial compliance will effect a change of beneficiary. Sun Life Assur. Co. of Canada v. Williams, 284 Ill. App. 222; O'Donnell v. Travelers Ins. Co., ...