Opinion
No. 20700.
October 12, 1932.
Kahin Carmody, of Seattle, Wash., for plaintiffs.
Eggerman Rosling, of Seattle, Wash., for defendant.
Action by Oscar J. Davies and wife against the Sun Life Assurance Company of Canada. On plaintiffs' motion to remand the cause to the state court.
Motion denied on one point and assigned for further hearing on other grounds.
This action is one brought in the state court by plaintiffs, citizens of the state of Washington, to recover $21,500 from the defendant, a corporation organized under the laws of the Dominion of Canada.
The suit is one upon a $5,000 policy of insurance providing, as alleged in the complaint, that if the plaintiff Oscar J. Davies should furnish due proof to the defendant company at any time after the first premium had been paid and before default in any subsequent premium that he had become totally and permanently disabled by bodily injury or disease while such policy was in full force and effect and before the anniversary of the policy on which the assured's age at nearest birthday was 60 years, the defendant company would pay for the assured the subsequent premiums as they should become due during the period of disability and further would, on receipt at its head office of said proof of disability, pay to plaintiff a monthly income of 1 per cent. of the face amount of the policy, that is, a monthly income of $50.
The complaint also alleges that the first premium on the policy was paid at the time of making application for the insurance, May 30, 1930. It is further alleged that the policy provided:
"* * * Notwithstanding proof of disability may have been accepted by the Company as satisfactory, the assured shall, at any time thereafter as required by the Company, but not oftener than once a year after such disability has continued for two full years, furnish due proof of the continuance of such disability. If the assured shall fail to furnish such proof or if he shall so far recover as to be able to engage in any gainful occupation, then all premiums thereafter falling due must be paid by the assured as originally provided in the policy and no further income payments shall be made.
"Disability shall be deemed to be total within the meaning hereof whenever the assured becomes so disabled by bodily injury or disease that he is prevented thereby from performing any work for compensation or profit or from following any gainful occupation, and under this provision such total disability shall be presumed to be permanent when it is present and has existed continuously for not less than three months. Without prejudice to any other cause of disability, the entire and irrecoverable loss of the sight of both eyes, or the severance of both entire hands, or both entire feet, or one entire hand and one entire foot shall be considered as total and permanent disability within the meaning hereof. * * *"
The complaint further alleges:
"V. That in October of the year, 1931, plaintiff, Oscar J. Davies, became totally and permanently disabled by bodily injury or disease; that at said time said policy was in full force and that at the time plaintiff, Oscar J. Davies, was 40 years of age; that prior to the month of January, 1932, plaintiff, Oscar J. Davies, made application to the defendant company for the disability benefits provided by his policy and during the month of January, 1932, furnished the defendant company with due proof that he had become totally and permanently disabled; that at the time when such proof was furnished the first annual premium of $191.33 and the second annual premium in the same amount had been paid and no other premium was yet due.
"VI. That from October, 1931, up to the present time, plaintiff, Oscar J. Davies, has been totally and permanently disabled; that although said proof of disability was handed to the defendant company's agent in Wenatchee, Washington, in January, 1932, and received at the head office of the defendant company in Montreal in January, 1932, the defendant company did not make a $50.00 monthly payment to plaintiff, Oscar J. Davies, on February 1, 1932, and has made no payment in any amount whatsoever since that date; that the defendant company has wholly failed, refused and neglected to pay for the assured the premium which became due on May 30, 1932; that in spite of frequent demands for payment of said monthly income, the defendant company has wholly failed, refused and neglected to make said monthly payments, and through its duly authorized agents has notified plaintiffs and their agents that it will not make said monthly payments in accordance with the provisions of said Policy No. 1219076 and has totally breached, rejected and repudiated its said contract of insurance with plaintiff, Oscar J. Davies, all without just cause.
"VII. That plaintiff Oscar J. Davies is now 41 years of age and has a life expectancy of 27.5 years; that during the remainder of his life he will continue to be totally disabled and prevented from performing any work for compensation or profit, or from following any gainful occupation; that $50.00 a month for 27.5 years amounts to $16,500.
"That because plaintiff, Oscar J. Davies, is now totally and permanently disabled, he is not now an insurable risk and is not able to take out a policy of insurance payable in a lump sum upon his death.
"That by reason of the breach, rejection and repudiation of its policy No. 1219076, by defendant company, plaintiffs have been damaged in the sum of $21,500.00.
"Wherefore, plaintiffs pray for judgment against the defendant in the sum of $21,500, together with their costs and disbursements herein to be taxed, and such other and further relief as to the Court may seem proper. * * *"
Plaintiffs move to remand the cause to the state court upon the following grounds:
"1. Because this action does not really and substantially involve a dispute or controversy properly within the jurisdiction of this court.
"2. Because said cause was improperly and unlawfully removed from said Superior Court to this court.
"3. Because the defendant waived and is estopped from asserting any rights it may have had to remove this cause from said Superior Court to this court by reason of the fact that it filed in said Superior Court a notice of general appearance, a copy of which has been served upon the attorneys for the plaintiffs.
"4. For other reasons apparent upon the face of the record."
Upon the hearing of the motion it was suggested by the court that its presentation be limited to the question of whether the amount involved was sufficient to give this court jurisdiction.
Plaintiffs cite: Roehm v. Horst, 178 U.S. 1, 20 S. Ct. 780, 44 L. Ed. 953; Federal Life Insurance Co. v. Rascoe (C.C.A.) 12 F.2d 693; Proceedings of the Annual Convention of the International Association of Insurance Counsel, 1931, page 54; Ætna Life Insurance Co. v. Geher (C.C.A.) 50 F.2d 657; Ætna Life Insurance Co. v. Phifer (1923) 160 Ark. 98, 254 S.W. 335; Milburn v. Royal Union Mutual Life Insurance Co. (1921) 209 Mo. App. 228, 234 S.W. 378; Hancock v. New York Life Insurance Co. (1872) Fed. Cas. No. 6011; Pierce v. Tennessee Coal, Iron R. Co. (1899) 173 U.S. 1, 19 S. Ct. 335, 43 L. Ed. 591.
Defendant cites: 7 Couch on Insurance, § 1870; Wash. Life Ins. Co. v. Lovejoy (Tex.Civ.App. 1912) 149 S.W. 398; Grand Lodge Brotherhood of Railroad Trainmen v. Martin (Tex.Civ.App. 1919) 218 S.W. 40; Glover v. Bankers' Health Life Insurance Company (1923) 30 Ga. App. 308, 117 S.E. 665; Alabama Gold Life Ins. Co. v. Garmany, 74 Ga. 51; Industrial Life Health Ins. Co. v. Thomas (1931) 43 Ga. App. 679, 159 S.E. 885; Strauss v. Mutual Reserve Fund Life Ass'n, 126 N.C. 971, 36 S.E. 352, 54 L.R.A. 605, 83 Am. St. Rep. 699; Supreme Council Amer. Legion of Honor v. Jordan (1903) 117 Ga. 808, 45 S.E. 33; Scott v. Mutual Reserve Fund Life Ins. Ass'n, 137 N.C. 515, 50 S.E. 221; Gwaltney v. Provident Sav. Life Assur. Soc., 132 N.C. 925, 44 S.E. 659; American Life Ins. Co. v. McAden, 109 Pa. 399, 1 A. 256; Kerns v. Prudential Ins. Co., 11 Pa. Super. 209; Gaskill v. Pittsburgh Life Trust Co. (1918) 261 Pa. 546, 104 A. 775; Union Central Life Ins. Co. v. Pottker, 33 Ohio St. 459, 31 Am. Rep. 555; Kelly v. Security Mutual Life Ins. Co., 186 N.Y. 16, 78 N.E. 584, 9 Ann. Cas. 661; Porter v. Supreme Council, 183 Mass. 326, 67 N.E. 238; Kelly v. Security Mutual Life Ins. Co., 186 N.Y. 16, 78 N.E. 584, 9 Ann. Cas. 661; 19 Amer. Eng. Cyc. of Law (2d Ed.) page 98; Federal Life Ins. Co. v. Rascoe (C.C.A.) 12 F.2d 693; Roehm v. Horst, 178 U.S. 1, 20 S. Ct. 780, 44 L. Ed. 953; Ætna Life Ins. Co. v. Geher (C.C.A.) 50 F.2d 657; Pierce v. Tenn. Coal, Iron R.R. Co., 173 U.S. 1, 19 S. Ct. 335, 43 L. Ed. 591.
Concerning the measure of damages for the wrongful refusal of an insurance company to carry out its contract of insurance it has been said (7 Couch on Insurance, § 1870):
"Sec. 1870. Wrongful Breach or Termination of Contract by Insurer. Although there is no doubt that the wrongful refusal of an insurance company to carry out its contract of insurance gives a right of action to the injured party for the damages sustained by reason of such breach or repudiation of the contract, there does seem to be an irreconcilable conflict of authority as to the amount of recovery, or measure of damages, for the wrongful cancelation, repudiation, or termination of the contract of insurance by the insurer. In fact, there are well established rules or lines of authority which are in direct conflict, as well as divers variations from such rules. Under the rule, which is sometimes spoken of as the majority rule, the insured may recover as damages the amount of premiums paid, or premiums and interest, where there has been a wrongful repudiation of the contract by the insurer, and the insured has elected to rescind the contract, rather than have it enforced. Support for this rule is found in those cases which hold that the insured may recover premiums and interest without deduction for the risk while carried, as well as in those which permit a recovery of premiums and interest, without considering a deduction for the benefit derived by the insured during the time that the policy was in force; also, in those cases which have held that the insured was entitled to recover the amount paid, without deduction, and in which it is uncertain whether interest was included, (cited to support the text: Henderson v. Supreme Council, A.L.H. (C.C.) 120 F. 585; Supreme Council, A.L.H. v. Black, 59 C.C.A. 414, 123 F. 650, affirming (C.C.) 120 F. 580, certiorari denied in 191 U.S. 568, 48 L. Ed. 305, 24 S. Ct. 841) and in those which, without considering the question of deduction for the risk carried, have reached a similar conclusion. (cited to support the text: Michaelsen v. Security M.L. Ins. Co., 83 C.C.A. 334, 154 F. 356, 12 Ann. Cas. 37, writ of certiorari denied in 207 U.S. 588, 52 L. Ed. 353, 28 S. Ct. 255.) It has been said that the rule which denies deductions on account of intermediate benefits derived from the protection had during the existence of the policy rests upon the well-established principle that a party to an entire contract, who has partially performed it, cannot, upon subsequently abandoning it without fault upon the part of the other party, or his consent thereto, receive credit for the part performed. Another rule, and the one which has the support of the United States Supreme Court, is that the measure of damages for wrongful termination of a contract of insurance is the value of the policy at the date of the breach of contract, with interest, and less any obligations due, (cited to support the text: Lovell v. St. Louis M.L. Ins. Co., 111 U.S. 264, 28 L. Ed. 423, 4 S. Ct. 390; New York L. Ins. Co. v. Statham, 93 U.S. 24, 23 L. Ed. 789; 19 Am. Rep. 512 [note]; Mutual R.F. Life Asso. v. Ferrenbach [C.C.A.] 144 F. 342 [7 L.R.A. (N.S.) 1163]; Capital City Ben. Soc. v. Travers [ 55 App. D.C. 214], 4 F.2d 290) which, it has been said, is the difference between the amount paid and the cost of carrying the risk, or the amount of the policy, less the cost of carrying it to maturity, had it remained in force, with all amounts valued as of the date of the cancelation. (cited to support the text: Mutual R.F. Life Asso. v. Ferrenbach, supra; Ferrenbach v. Mutual R.F. Life Asso. [C.C.A.] 121 F. 945, writ of certiorari denied in 191 U.S. 569, 48 L. Ed. 306, 24 S. Ct. 842.) In Arkansas, a denial of liability on an accident policy justifies the insured, not in default, in treating the contract as breached, and suing for gross damages, the measure of which is the amount insurer would have been required to pay him under the contract, if it had not breached it, reduced to its present value. Still another rule is that the measure of damages is the cost of similar insurance as of the date of the breach; that is, the cost of replacement on the same terms in another sound company, at the rate the insured would have had to pay as of the date of wrongful termination of the original policy. According to a North Carolina decision, if a policy is wrongfully canceled, a recovery may be had by insured for premiums paid, with interest, in a civil action against insurer for money had and received to his use, or upon the implied promise to save him harmless, the amount of damages being the sum necessary to enable him to obtain another policy. And in the case of a wrongful cancelation of a life insurance policy when the insured's condition is such that he cannot reinsure, the measure of damages is the present value of the principal sum for which the policy was written, reduced by the amount of the premiums that the insured must pay. (Italics the court's.)
"The conflict of authority also extends to breach of contracts of mutual benefit societies, the measure of damages in some cases being regarded as the value of the policy at the time of the breach, while in others it is the dues or assessments paid, with interest, and in still others no recovery is allowed. Thus, it has been held that the measure of damages is the value of the policy at the time of the breach. (cited to support the text: Mutual R.F. Life Asso. v. Ferrenbach [C.C.A.] 144 F. 342 [7 L.R.A. (N.S.) 1163].) And where insured dies subsequent to a wrongful cancelation, the measure of damages is the value of the policy, which is the amount of the benefit specified therein, together with interest from the date of cancelation, less the unpaid assessments due at that time. (cited to support the text: Capital City Ben. Soc. v. Travers [ 55 App. D.C. 214], 4 F.2d 290.) Other authorities support the rule that the measure of damages for breach of a contract of mutual benefit insurance is the amount of assessments and dues paid. (cited to support the text: Supreme Council, A.L.H. v. Black, supra, affirming [C.C.] 120 F. 580 and certiorari denied in 191 U.S. 568 [ 24 S. Ct. 841, 48 L. Ed. 305]; Michaelsen v. Security M.L. Ins. Co. [C.C.A.] 154 F. 356, certiorari denied in 207 U.S. 588 [ 28 S. Ct. 255, 52 L. Ed. 353]; Supreme Council, A.L.H. v. Daix [C.C.A.] 130 F. 101, affirming [C.C.] 127 F. 374; Lippincott v. Supreme Council, A.L.H. [C.C.] 130 F. 483, reversed on other grounds in [C.C.A.] 134 F. 824 [69 L.R.A. 803]; McAlarney v. Supreme Council, A.L.H. [C.C.] 131 F. 538, reversed on other grounds in [C.C.A.] 135 F. 72.) It is also held that, where a member is illegally expelled from a mutual benefit association, credit will not be allowed as against the recovery of premiums paid for the insurance carried, while the contract was in force. Then again, it is held that under certain circumstances no recovery can be had, as, for example, where there are no live assets or reserve fund, or the recovery, if allowed, would necessarily come out of reserve funds held in trust for the members. * * *"
To what extent the asserted conflict in the decisions may be reconciled it is not now necessary to consider, nor is it necessary for the court to now determine the rule as to the measure of damages that should be applied for enough appears to show that the right to damages in excess of $3,000 is not beyond controversy — that such claim is not merely colorable and to show that the jurisdictional amount is therefore in controversy. That such is the case was pointed out by the Circuit Court of Appeals for the 8th Circuit in Washington County, Nebraska v. Williams, 111 F. 801. In that case the suit was upon certain bonds issued by a county. The county levied taxes raising money for the payment of the bonds for twenty-eight years at the end of which time, acting by its board of supervisors, it refused to pay further interest on the obligation and denied liability. The Court of Appeals, in considering the point here in question, said, at page 810 of 111 F.:
"* * * Three other questions are presented by the records, which remain to be considered. The first of these is whether the holders of the obligations in suit at the time the actions were brought could rightfully demand judgment against the county for the full amount of the several obligations and accrued interest. The second is whether the lower court had jurisdiction of the law case, in the event that the last question is answered in the negative. * * *
"The trial court held, and in the law case rendered its judgment upon the theory, that the refusal of the county on September 14, 1899, to levy further taxes for the purpose of making payments on the obligations in suit, rendered the entire amount of the acknowledged indebtedness immediately payable, notwithstanding the agreement that it should be paid only in annual installments, each installment to be such a sum as might be realized by an annual levy of one mill on the dollar. In so deciding, the trial judge seems to have applied a doctrine which has been applied frequently in actions for the breach of a certain class of contracts, but, in our judgment, is not applicable to a case like the one in hand. The doctrine in question, as stated by the supreme court in Roehm v. Horst, 178 U.S. 1, 20 S. Ct. 780, 44 L. Ed. 953, is, in substance, that where one party to an agreement which is mutually executory, before the time for performance on his part arrives, gives notice that he will not perform it, the opposite party is at liberty to consider himself absolved from all obligations to perform the agreement, and may sue at once for all damages occasioned by the anticipatory breach, or, if he so elects, may wait for the time of performance to arrive, treating the contract in the meantime as prospectively binding for the exercise of this option. In the case last cited, where the subject was elaborately considered and all of the authorities were reviewed, it was held that the doctrine in question has its limitations; that it is only applicable to contracts that are mutually executory, such as contracts for marriage, for the rendition of services, or for the transportation or the sale and delivery of property; and that it has no application to money contracts, pure and simple, where one party has fully performed his undertaking, and all that remains for the opposite party to do is to pay a certain sum of money at a certain time or times. Roehm v. Horst, 178 U.S. 1, 17-19, 20 S. Ct. 780, 44 L. Ed. 953. See, also, Nichols v. Steel Co., 137 N.Y. 471, 487, 33 N.E. 561. It has never been held, so far as we have been able to discover, that the holder of a promissory note, or other written agreement to pay a sum of money at a designated time, can maintain an action thereon, in advance of its maturity, because the maker thereof has announced his intention not to pay it. Now, the obligations in suit can be regarded in no other light than a contract on the part of the county to pay a given sum of money annually until such time as the amount of its donation to the railroad company, and accrued interest thereon, was fully discharged. It was not stipulated in the agreement evidenced by the obligations that a failure to pay one of the annual installments should render the entire amount of the obligation immediately payable, nor can it be successfully claimed that the notice given by the county that it would make no further payments had that effect. If the plaintiff's view is maintained, that the refusal of the county to pay rendered the entire debt immediately payable, and the obligations are enforced accordingly, the county would be compelled to do that which it never promised to do. Such conduct on the part of the county merely rendered it amenable to an action for such part of the indebtedness as was then due according to the terms of the donation. It results from this view that the trial court erred in the law case in rendering a judgment for the full amount of the five obligations, and the accrued interest, which were sued upon in that case. The recovery should have been limited to such annual installments as were then due.
"Passing to the second question above stated, we observe that it does not follow from the views last expressed that the trial court was without jurisdiction of the law case because the sum recoverable therein was less than $2,000, exclusive of interest and costs. The amount claimed in the declaration or complaint, not the amount of the recovery, is the test of jurisdiction; and the fact that a sum in excess of $2,000, exclusive of interest and costs, was claimed, gave the trial court jurisdiction to render a judgment for a less amount, unless this court is able to find that a demand for a sum in excess of $2,000 was interposed in bad faith, for no other purpose than to give the federal court jurisdiction. Bank of Arapahoe v. David Bradley Co., 19 C.C.A. 206, 72 F. 867, 36 U.S. App. 519. After a careful examination of the records, we fail to discover any evidence which would warrant this court in holding that the plaintiff in the law case demanded a judgment for the full amount of the five obligations by him held, either knowing or believing that he was not entitled to recover the sum claimed, and for the sole purpose of investing the federal court with jurisdiction. Besides, the fact that the learned judge of the trial court sustained the plaintiff's view, and rendered a judgment for the full amount of his claim, should be regarded as sufficient evidence that the claim as made was preferred in good faith, under an honest belief that it was tenable. It follows, therefore, that the contention on the part of the county that the trial court had no jurisdiction of the law case must be overruled."
The motion to remand upon the point herein considered should be denied, but, as it appeared upon the presentation of the motion that the plaintiffs' attorneys were relying upon grounds not here considered, it is ordered that the motion to remand be assigned for further hearing on the 17th day of October, 1932, at 10 o'clock in the forenoon.
No written opinion was handed down at the later hearing on motion to remand.
The clerk is directed to notify the attorneys for the parties of this ruling and order.