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O'brien v. General American Life Ins. Co.





Appeal by plaintiffs from the Circuit Court of Cook county; the Hon. PAUL WILLIAMS, Judge, presiding. Heard in the second division of this court for the first district at the June term, 1951. Judgment affirmed. Opinion filed December 18, 1951. Rehearing denied January 5, 1952. Released for publication January 22, 1952.


Rehearing denied January 5, 1952

Plaintiffs sue for a balance of approximately $2,300 on a claim for total disability under a clause in an insurance policy issued by the Missouri State Life Insurance Co. to Frank J. O'Brien who became totally and permanently disabled May 17, 1945 and died December 5, 1946. The court directed a verdict for defendant. Judgment was entered and plaintiffs appealed. There is no issue of fact in this case. The sole question is the proper interpretation of the contract on the basis of pertinent facts not in dispute.

The policy was issued February 27, 1926 and after providing for payment of $25,000 on the death of insured, contained a provision entitled "Total and Permanent Disability," whereby the company agreed to pay to insured a disability income of $250 per month "if the insured becomes totally and permanently disabled before age sixty. . . ."

The Missouri State Life Insurance Company having become insolvent, appropriate legal proceedings were instituted and the company was taken in charge by the Superintendent of the Insurance Department of the State of Missouri. He negotiated and finally entered into a contract called Purchase Agreement with the General American Life Insurance Company, whereby the latter purchased the assets and business of the old company. This contract contained the following provision:

"All payments of installment disability benefits and monthly income disability benefits . . . shall be reduced in a sum equal to 50% thereof."

The contract in pamphlet form, together with a letter dated September 8, 1933 from the president of the Insurance Company, which letter made up the first page of the pamphlet, was duly received by the insured. The third paragraph of this letter contained this language:

"We propose to carry on this business with just as little change and interruption as possible. Claims matured at the date of the Purchase Agreement will be paid promptly and in full. Policies of Group Insurance, both Life and Accident and Health and all forms of Accident and Health Insurance will remain in force according to their terms, without change in rates or benefits by reason of the Purchase Agreement. Annuities on which payments have matured will be continued without disturbance."

On October 23, 1933 the Superintendent of Insurance wrote the insured a letter which enclosed a copy of the order of the circuit court of the City of St. Louis, Missouri, relative to the disposition of claims against the Missouri State Life Insurance Company. It referred to the Purchase Agreement and stated "should policyholders be desirous of discontinuing their policies, they can file claims on such policies." In other words, if the insured did not desire to accept the new company and continue his policy on the basis of the Purchase Agreement as approved by the court, he was fully advised on his right to file his claim. The letter also contained the following paragraphs which referred to the contract as that submitted and approved by the court:

"At the time the purchase agreement was submitted to the Court, men of ability, and of the highest integrity, leaders in the insurance world, testified before the court that the contract submitted and approved by the court, was actuarially sound, fair and equitable, and that policyholders and creditors of Missouri State Life would be better protected under the purchase agreement than they would through the liquidation of the assets of the company.

"The primary purpose of life insurance is the prompt payment of death claims. Under this purchase agreement, the General American Life agrees, during the period of fifteen years, that in the event of death, it will pay the face of the policy, less possible lien interest, under the terms and conditions of the policy."

It concluded by advising the insured that if the Department of Insurance of the State of Missouri could be of any further assistance it would be a pleasure to hear from him, or if he preferred, he could take the matter up with the Insurance Department of his own State. Shortly thereafter insured received a Certificate of Assumption which stated that the insurer agreed to carry out the obligations of the Missouri State Life Insurance Company, subject to the provisions of the Purchase Agreement. It contained a notation that the certificate was to be attached to the policy, together with a copy of the Purchase Agreement previously sent.

The insured thereafter made his payments of premiums to the General American Life Insurance Co. He became disabled May 17, 1945 and made a claim for disability payment, which was approved for $125 per month instead of $250 as provided in the original policy. A stipulation was entered into, however, by which his acceptance of payments at the rate of $125 per month should not prejudice his claim to the larger disability benefits and his right to bring suit therefor. After his death on December 5, 1946 his estate was closed and the claim assigned to his heirs and next of kin, plaintiffs herein.

It is plaintiffs' contention that although the contract between the Superintendent of Insurance and the General American Life Insurance Company clearly provided for a reduction in disability payments from $250 to $125 per month, the letter in question should be considered a part of the contract and interpreted as meaning that the Insurance Company would pay the full amount ...

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