Appeal from the Circuit Court of Cook County; the Hon. WALKER
BUTLER, Judge, presiding. Decree affirmed.
MR. JUSTICE BURMAN DELIVERED THE OPINION OF THE COURT.
The defendant, Mary Schultz, appeals from a Decree approving the Master's Report in favor of defendant, Occidental Life Insurance Company (hereinafter referred to as Occidental), and against the defendant, Mary Schultz. The Master's Report recited that a certain life insurance policy in the amount of $25,000 and written by Occidental on the life of Alvin A. Schultz, the deceased, had lapsed without value prior to the insured's death. Mary Schultz was the beneficiary of the policy.
The action first arose as a Creditor's Complaint filed by the plaintiff, Bank of Lyons, joining the judgment debtor Alvin A. Schultz and inter alia, the appellant and appellee herein as defendants. Defendant Occidental filed, as part of its answer to the Creditor's Complaint, a counterclaim alleging that there were no proceeds due under the policy in question because the insured failed to pay a premium when it became due and the loan value of the policy was insufficient to pay the premium under the automatic loan provision. The issue raised by Occidental's counterclaim and Mary Schultz's answer thereto was referred to a Master and it is the Decree approving his report that is being appealed.
The insurance policy in question was issued on September 12, 1951, on the life of Alvin A. Schultz, the owner of the policy. At the time of the death of Alvin A. Schultz, who was the divorced husband of Mary Schultz, the policy was payable under a beneficiary designation dated August 25, 1954, running to "Mary Schultz, wife of insured, if living. . . ." The right to revoke or change the beneficiary designation was reserved by the insured.
The insurance policy also contained a provision that when any premium remains unpaid after its due date, such due date is the date of default in payment of premium, and that if any premium remains in default after the days of grace, "this policy shall cease subject to the provisions for non-forfeiture contained herein." The premium due on September 12, 1962, was not paid. The policy having lapsed for nonpayment of premium, the policy was then on the "automatic premium loan" which provides in part:
If, before default in payment of any premium satisfactory written request has been filed with the Company, and has not been previously revoked in writing, the Company will, after loans have become available hereunder, charge as a loan against this policy any premium, including the premiums for any supplemental agreements attached thereto, which thereafter becomes due and remains unpaid, provided the entire indebtedness on this policy shall not exceed the cash value.
The automatic premium loan provision provides further that "[s]uch automatic premium loans shall be subject to the terms and conditions stated in the loan provision of this policy." The provision relating to "loan" provides that:
The maximum amount which the Company will loan at any time is the cash value of this policy at the end of the policy year during which application for the loan is made, subject to deduction of any unpaid premium or premiums for the then current policy year and all existing indebtedness hereunder.
The insured was notified in advance of September 12, 1962, that on that date there would be due a total of $486.15 consisting of the annual premium of $387.75 and loan interest of $98.40. This premium was not paid. Mary Schultz testified that the premium notice was received and that the insured was in jail at the time. However, she had authority to open his mail and she opened the premium notice. Mrs. Schultz said that she phoned a Miss Gross, one of Occidental's cashiers, because the insured had previously dealt with this cashier, and asked her if the premium could be paid by loan. Mary Schultz testified that the cashier told her that she would call her back and let her know if it was possible. Shortly thereafter, she stated, she received a communication from Occidental dated December 17, 1962. This letter advised, in part, "that the last premium which was due on your policy was not paid. . . . If you haven't already applied for reinstatement, we will be glad to send you an application. You may use the back of this letter for your reply if you wish." Mrs. Schultz wrote on the reverse side of the notice "Please be advised that this premium should be paid through the automatic loan clause that is in the policy. Trusting that this matter will be taken care of. . . ." Occidental replied on December 28, 1962:
Your reply to our recent lapse letter is appreciated. It is true that both your policies (there was another policy not involved in this appeal) have the automatic premium loan provision. However, this provision can only pay premiums as long as there is cash value. The cash value of Policy No. 3208619, available as of December 12, 1962, was $2,150.00 the amount of loan outstanding. Since there was no further value available for application to the September 12, 1962, annual premium, it was necessary to lapse the contract for nonpayment of the premium due on September 12. . . .
Mary Schultz testified further that in a subsequent phone conversation during the first week of January 1963, she was informed by Miss Gross that it would be arranged that the policy be paid "at which time I marked this on the receipt `paid by loan.'" Mrs. Schultz said that when Alvin Schultz was released from jail in February of 1963 he telephoned Miss Gross in her presence to find out the status of his policy. She heard him say to Miss Gross that two or three hundred ought to take care of it. She said she gave him the money. Mary Schultz said she called Miss Gross again on May 21, 1963, and informed her that the insured had passed away and asked what she should do. "She answered me, the only thing I had to do was turn the policies in and that it would follow a normal procedure with the payments would be made to me as beneficiary on both policies. She never stated that the policies would not be paid. She merely extended her sympathies, that is all I recall."
Esther Gross testified that she had been employed by Occidental during the period in question. She stated that her duties as cashier were to receive premium payments and to take care of loans, surrenders, policy changes and death claims. She said she had no authority to "nor did I ever extend the time of the payment of insurance premiums on policies which had lapsed." She testified further that at no time did she tell Mrs. Schultz that the annual premium on the policy in question was paid by a loan on the other policy issued to Alvin Schultz. She said she did not believe she ever told Mrs. Schultz that the amount of the cash value on the other policy was sufficient to pay the premium due. Miss Gross said that she saw Alvin Schultz in the Occidental office some time after the lapse of the policy and at that time he made no payment on the policy nor did she recall that he sought to reinstate the policy. She also did not recall that she told Mary Schultz that the company would pay the death benefit. On cross-examination she testified that she did not remember having any phone conversations with Mrs. Schultz prior to the insured's death.
Edward Carnal testified that he was the manager of the Chicago agency of Occidental. He said that if a policyholder requests a loan through a regular loan form, the form is sent to the home office. If there is sufficient loan value in the policy, the company goes ahead and makes the requested loan. Mr. Carnal also said that if a policyholder requests, through a loan application, that a loan be made against a certain policy to pay for the premium on a second policy, that presumably the request would be honored if there is sufficient loan value in the first policy.
Darrell Hays, an associate manager of Policy Loan and Surrender Department of Occidental testified that their records showed that the total owned cash value of the policy in issue was $2,050 and that there was a loan against it for $2,050, leaving no cash value. Mr. Hays also testified that the September 12 premium was never paid. He stated that by the terms of the policy it is necessary for a policyholder at the time of the due date of a premium to make a special application for the application of the loan value, if the policy was on the automatic loan provision. Hays said that when Alvin Schultz died in May 1963, their records showed that the policy had lapsed on September 12, 1962, without value, and for that reason Occidental refused to make payment. He said the company, under the automatic premium loan provision, does not make any transfer of loan value from one policy to another automatically. He related various facts and figures about the policy not here contested from which he computed that the cash value from the second policy which the policyholder might have applied for on September 12, 1962, was $147.38. A loan agreement directing the transfer of money, signed by the insured and all interested parties, he ...