Opinion
No. 169387.
1946-04-6
JOHN HANCOCK MUT. LIFE INS. CO. v. DRESSEL.
Vorys, Sater, Seymour & Pease, of Columbus, for plaintiff. High S. Jenkins, Atty. Gen., and Ralph Klapp, Asst. Atty. Gen., of Columbus, for defendant.
Action by the John Hancock Mutual Life Insurance Company against Walter Dressel, Superintendent of Insurance, to enjoin defendant from disapproving a form of group life insurance policy.
Temporary injunction made permanent.Vorys, Sater, Seymour & Pease, of Columbus, for plaintiff. High S. Jenkins, Atty. Gen., and Ralph Klapp, Asst. Atty. Gen., of Columbus, for defendant.
REYNOLDS, Judge.
Plaintiff in this action seeks to enjoin defendant from disapproving a certain form of Life Insurance policy, known as a Group Insurance Policy, and which form of policy has heretofore been approved by the State Insurance Department on or about the 26th of October, 1942.
The basis for the threatened disapproval is the following provisions of the policy form under consideration.
‘Grace Period. If the employer has not prior to the due date of any current premium given written notice that this policy is to be discontinued, a grace period of thirty-one days, without interest, during which this policy shall remain in force, will be granted to the employer for the payment of premiums after the initial premium.
‘If any premium be not paid before the expiration of the days of grace this policy shall thereupon be discontinued, and all insurance hereunder terminated, except as otherwise provided, but the employer shall, nevertheless, be liable to the company for the payment of all premiums there unpaid, together with the premiums for the days of grace. If however, written notice is given by the employer to the company, during the grace period, that the policy is to be discontinued, then the employer shall be liable to the company for the payment of a pro rata premium for the period commencing with the date on which the last premium became due and ending with the date of receipt of such written notice by the company.’
It is the contention of the defendant that the policy form in question is not drawn in compliance with the provisions of Section 9420, General Code, which provides as follows:
‘No policy of life insurance in form other than as provided in sections 9412 to 9417, both inclusive, shall be issued or delivered in this state or be issued by a life insurance company organized under the laws of this state unless the same shall contain the following provisions:
‘* * * (2) A provision for a grace of one month for the payment of every premium after the first, which may be subject to an interest charge, during which month the insurance shall continue in force, which provision may contain a stipulation that if the insured shall die during the month of grace the over-due premium will be deducted in any settlement under the policy.’ (Italics ours.)
This statute was enacted in 1908 and for the obvious purpose of preventing a cancellation of an insurance policy for nonpayment of premium without granting the insured a short period of grace, in which to make the payment and thus avoid the loss of his policy, and the investment he already had as a result of prior payments. At that time ‘group insurance’ as later developed was unknown.
Subsequently it began to be written and was governed by the then existing statutes so far as applicable.
In 1935 the Legislature of Ohio enacted a special statute, covering group life insurance, defining same, providing for authorization by a public employee of deduction from salary for the payment of premiums, policy restrictions, designating the employer as the policy holder, and exempting the proceeds from attachment. This statute is now known as Sections 9426-1, 9426-1a, 9426-2, 9426-3 and 9426-4, General Code.
It is the contention of the defendant that the provisions of Section 9420, General Code, above quoted, and providing for a grace period during which the policy continues in force is still applicable and must be contained, in all policies of group insurance, while plaintiff contends that such a requirement is not mandatory, both because the legislature has provided in Section 9426-2, General Code, what the policy must contain, and because it is inconsistent with the specific requirements and the general principle of group insurance.
Counsel seem in disagreement as to the issue in the case, plaintiff contending that it is whether the insurer and employer can terminate the insurance as of a date certain, without the consent of the employe, and defendant contending that the issue is as to whether the policy form in question is in conformity with the statutory requirements. For the determination of the case it is unimportant which view is followed, as the decision of the court in the last analysis will settle either or both.
Defendant relies principally on the case of Hinkler v. Equitable Life Assurance Society, 61 Ohio App. 140, 22 N.E.2d 451; the syllabi of which are as follows:
(1) ‘The beneficiary of a group life insurance policy has a vested interest there-under, and the insurer and holder of the policy can not cancel the policy during the time for which the premiums have been paid, including the grace period, without the consent of the beneficiary.’
(2) ‘Where such group life insurance policy is terminable for non payment of premiums, the policy is in force for the grace period of thirty-one days after the last payment made, as provided by the insurance contract and required by Section 9420, General Code, and if the insured dies within the grace period, the beneficiary can recover the value of the policy less the amount of the premiums due for that period.’
It is to be noted that the policy in question in that case was issued prior to the enactment of the Group Life Insurance statutes, and that it contained the provisions required by Section 9420, General Code, and was necessarily governed thereby.
This decision is contrary to the general rule, as was pointed out in an article in the Yale Law Review, a copy of which is attached to defendant's brief, and is, therein criticized. As ‘the reviewer’ pointed out, the same conclusion could have been reached, by holding that Hinkler the employee, was actually a party to the contract of insurance, and therefore his rights under the contract could not be precluded without his consent.
There is a further distinction between the facts of that case and those of the instant case and that is that there was no provision for the termination of the contract of insurance by agreement, as there is here, so that regarding the employee as a party to the contract in its inception, there would seem to be not reason why he would not be bound by its terms relative to the power of the employer to terminate the contract at the end of any term for which the premium has been paid or during the period of 31 days provided as a grace period for paying the premiums and renewing the insurance.
The court's decision in holding that Mrs. Hinkler, the beneficiary under the two certificatesissued to Hinkler based on the group policy, had a vested interest, so that the group policy could not be terminated without her consent, is clearly against the well established rule laid down in many cases, that where the insured reserved the right to change the beneficiary, as was the fact there, the interest of the beneficiary does not vest until the death of the insured. This, however, is not important or material to the decision in this case.
Defendant also relies on the case of Spencer v. Cleveland Athletic Association which is a Municipal Court case, and reported in 32 Ohio N.P., N.S., 369 the second syllabus of which is as follows: ‘An insurance company insuring a number of employees under a group policy issued to the employer, with individual certificates issued to each employee, can not by provision in the individual policies or by subsequent contract with the employer, avoid the requirement of Section 9417, General Code, that a grace period of one month be granted for the payment of every premium after the first, during which month the insurance shall continue in force.’ (Italics ours.)
This case involved a policy of insurance, governed by the laws in effect before the enactment of the Group Insurance statute and is of little or no assistance in the instant case. Further the court seemed to place some emphasis on the fact that after the contract was entered into between employer and employee, the insurer could not by ‘subsequent contract with the employer avoid the requirements of Section 9417, General Code.’
Section 9417, in no event could have been applicable, as the insurance was not a standard form policy for a single life, but was insurance covered by Section 9420, General Code. This is perhaps of no importance or significance other than demonstrating that the court had not carefully considered the difference between ordinary life insurance and group insurance, but had assumed that they were both the same.
There is the further fact to be noted that in the policy form here under consideration there is an express provision covering the termination of the contract by the employer.
In the case of John Hancock Mut. Life Ins. Co. v. Gwinn Milling Co., 24 O.L.A. 315, the syllabus is as follows: ‘A group policy containing a grace clause granting a grace of 31 days without interest during which this policy shall remain in force and an option allowing renewal upon payment of the premium within the grace period, remains in force after the death of a certificate holder within the grace period and may be enforced by the company as assignee of the beneficiary, where the company did not expressly refuse to pay the premium due, nor authorize or mutually agree with the company to cancel it, until after the death, and consented to deduction of the unpaid premiums from the amount due.’
It is apparent that had there been an actual termination of the contract, either by express refusal to pay the premium or by mutual agreement the decision of the court would have been different. The policy there involved was issued in 1925 and contained the provision as to the grace period etc. as required by Section 9420, General Code. It would seem therefore to logically follow that if under such a state of facts, the contract of insurance could have been terminated so as to make inoperative the grace period during which the insurance should remain in effect, that under the new law governing group insurance, the policy itself may contain the express provisions to the same effect.
In the case of Davis v. Metropolitan Life Insurance Co., 161 Tenn. 655, 32 S.W.2d 1034, where the employer, having contracted with the defendant company for group insurance on its employees, which contract had a provision for a ‘grace of thirty-one dyas * * * for the payment of every premium after the first, during which period the insurance shall continue in force,’ cancelled the policy prior to the time fixed for the payment of a premium, the Supreme Court of Tennessee held that:
‘Insurance, if canceled as of approaching date to which premium has been paid, terminates on such date.
* * *
‘It must be borne in mind that this grace provision does not contemplate free insurance. The grace is allowed in order that the insured may have this extension of opportunity within which to pay another premium and thus avoid forfeiture for non payment on the date fixed for payment. But the contemplation is that the charge accruing as compensation for a continuance of the liability obligation will ultimately be paid. This, of course, involves a mutual expectation that the policy contract is to be continued in force as between the parties, at least throughout the period of grace. For example, in this case the premiums were payable monthly in advance and the monthly premium charge is for that service; that is, the carrying of the risk for that month.
‘If by a mutual agreement, or upon notice duly given by the insured, the contract of insurance between the parties is cancelled as of an approaching date, to which date the premium has been theretofore paid, the contract terminates as of that date, and all obligations as between the parties, on the one hand, to pay further premiums, and, on the other, to incur extension of liability, are at an end.’
This decision is cited with approval in the following cases: Austin v. Metropolitan Life Insurance Co., La.App., 142 So. 337;Kimbal v. Travelers Insurance Co., 151 Fla. 786, 10 So.2d 728 and Miller v. Travelers Insurance Co., 143 Pa.Super. 270, 17 A.2d 907.
In Johnson v. Metropolitan Life Insurance Company, 52 Ga.App. 759, 184 S.E. 392 the court held that: ‘Where group life policy had been canceled by mutual agreement of employer and insurer, the contracting parties, at end of period for which premiums had been paid, 31 days' grace period provision held inoperative and not to extend policy so as to cover employee dying within 31 days after cancellation.’
In its opinion the court said: ‘While one to whom a certificate is issued under a master or group policy of insurance is entitled to sue thereon in his own name. * * * The instant group or master policy is manifestly and by its express terms an agreement between the insurance company and the employer. Under its terms, the company looked exclusively to the employer for the payment of premiums; and it was the employer who, it was provided, ‘may on due notice to the company at each succeeding anniversary hereof, renew the policy for the term of one year, provided renewal is not declined by virtue of the provision’ relative to the number of employees insured falling below 75 per cent. of those eligible for insurance. Since it was only the employer who could renew it, it likewise follows that it was only the employer who could discontinue the policy, and the fact that the employee was not given notice by the employer that such action would be taken did not operate to keep alive the policy after it had been actually terminated by agreement between the contracting parties. Notice by the employer to the employee of the intended cancellation would have availed nothing, since the employee could not have assumed the position of the employer in continuing the policy in force.'
Were this not true, then the employer could be compelled to pay for a month's insurance which he did not want and which he had expressly terminated, and according to defendant's counsel, there is no possible way for him to avoid this extra expense.
The primary purpose of the grace period, is for the payment of premium and avoiding the lapse of the policy, and the provision that the policy shall remain in effect during that period is secondary and incidental to the primary purpose. If the reason for the extension of time for paying the premium no longer exists the incident depending on it necessarily fails.
Even in individual policies the parties by mutual agreement, such as the surrender of the policy and payment of the surrender value may terminate the contract. Surely no one would argue that it would be effective for 31 days after the term for which the premium had been paid and that in case of death during that period a recovery might be had.
The principle here is the same. Group policies have no cash value, but surely they may be surrendered by the insured,without an enforcement liability for the payment of additional premium extending beyond the time of termination.
By statute, Section 9426-3, General Code, the employer is the policy holder, and as such it follows that he has the right to terminate his contract with the insurer.
Defendant's counsel argue that the provisions of Section 9426-2, paragraph 4, requiring that group policies must contain a provision, granting an employee insured under such a policy, the privilege of securing from the company a standard policy of insurance without proof of insurability, in case of the termination of his employment, which automatically terminates his insurance under the group policy, and the statute further provides that he may exercise this privilege at any time within 31 days shows the intention of the Legislature to extend the grace period to group insurance.
This argument is completely answered by our own Court of Appeals in the case of Young v. General American Life Insurance Co., Ohio App., 41 N.E.2d 895, 897, in which it said: ‘The effect of the grace period is to keep the policy alive, whereas the conversion rights do not keep the policy alive except for the single purpose of conversion, if exercised within the thirtyone day period.’
In the case of Sikorski v. Chrysler, 189-223, decided in the Circuit Court of Wayne County, Michigan, the Court held under virtually the same statutory provisions as these in Ohio, that the Group Insurance statutes were exclusive, and that the statutes in existence at the time of the enactment of the same, no longer applied to Group Insurance.
If we follow the reasoning and decision of that case we must conclude that Group Insurance is regulated exclusively by the act of 1935 and that Section 9420, General Code, does not apply thereto.
In addition to this and other decisions, and the general principal that in enacting a special law governing life insurance covering designated groups, it is but natural to presume that the Legislature encompassed the subject, there is a specific provision in Section 9426-1(2)(c) which clearly indicates that a group policy may be cancellable at the end of any policy year, and that being the case, the provision is Section 9420 relative to a grace period for payment of policy could not apply, as it is entirely inconsistent. This provision reads as follows: ‘The following forms of life insurance are hereby declared to be group life insurance within the meaning of this act: * * * Life insurance covering the members of any labor union. * * * provided that in case the insurance policy is cancellable at the end of any policy year at the option of the insurance company, and provided also that the basis of premium rates may be changed by the insurance company at the beginning of any policy year, all members of a labor union may be insured; * * *.’ (Italics ours.)
It is thus clear that the legislature provided for a specific requirement as to the cancelling of certain kinds of group policies, at the end of any policy year, which is a complete answer to defendant's claim that all group policies are governed by the provision in Section 9420, for a grace period for the payment of premiums. It is axiomatic that if no premium is to be paid, or could be paid, and is not collectible, there can be no grace period within which to do that which can't be done.
It must be borne in mind that in the last analysis group insurance is in effect term insurance. As to any individual covered by such insurance the term ends when he ceases to be an employee of the policy holder, and as to the group the term ends when the policy is cancelled, either for nonpayment of premium, or by agreement of the parties.
See Austin v. Metropolitan Life Insurance Co., La.App., 142 So. 337.
Having reached these conclusions after an extended consideration of the case and the excellent briefs of both parties, and the authorities cited, the court holds that the form of policy in question is in all respects in conformity with the statutory provisions applicable, and that the temporary order enjoining the superintendent of insurance from disapproving the same, should be and hereby is made permanent. An entry may be drawn accordingly, saving such exceptions as may be desired.