Opinion
No. 32085.
October 19, 1936. Suggestion of Error Overruled November 30, 1936.
1. COURTS.
Decision of Supreme Court, which had existed for ten years during which time thousands of life policies, over which it was controlling, had been issued and accepted, would not be reversed merely on showing that it was unsound, in absence of showing that it was mischievous in operation or effect.
2. INSURANCE.
Where insured had never surrendered policy, and there was no physical, actual surrender of policy, provision for surrender charge of not more than one and one-half per cent. of face of life policy was not enforceable so as to reduce cash surrender value to amount insufficient to keep policy in force to time of insured's death, since surrender charge was not fixed and definite, and hence permitted insurer to discriminate between policyholders of same class as forbidden by statute (Code 1930, sec. 5171).
3. INSURANCE.
State having constitutional right to regulate business of insurance had right to provide what kind and character of insurance contracts could be made.
McGOWEN and COOK, JJ., dissenting.
APPEAL from the circuit court of Hinds county. HON. DEWITT C. ENOCHS, Special Judge.
Louis H. Cooke, General Counsel for New York Life Ins. Co., of New York, and Watkins Eager, of Jackson, for appellant.
Under the express, unambiguous provisions of the policy sued upon, on default in payment of a premium only the cash surrender value of the policy, that is to say the reserve under the policy less a surrender charge, after deducting any indebtedness on the policy, was available for the purchase of temporary extended insurance.
Payne v. Minnesota Mutual Life Ins. Co., 191 S.W. 695, 195 Mo. App. 512; Berry v. Lamar Life Ins. Co., 142 So. 445, 165 Miss. 405; 13 C.J., pp. 532, 561, 770-771; 22 C.J., Evidence, p. 1203; 32 C.J. 1159; Couch on Insurance, p. 363; Fuller v. Metropolitan Life Ins. Co., 37 Fed. 163; Hattiesburg Plumbing Co. v. Carmichael, 31 So. 536, 80 Miss. 66.
This court held the Blaylock policy ambiguous. The present policy is free from ambiguity.
New York Life Ins. Co. v. Blaylock, 144 Miss. 541, 110 So. 432; Lamar Life Ins. Co. v. Minor, 154 So. 542, 170 Miss. 223.
The authorities are unanimous that, under policies containing the same or substantially the same provisions as are found in the policy contract sued on, the insured, upon default in the policy, is only entitled to such extended insurance as the cash surrender value, to-wit, the hypothetical reserve less the surrender charge, will purchase.
Williams v. Union Central Life Ins. Co., 291 U.S. 169, 78 L.Ed. 711; Carter v. Mutual Benefit Life Ins. Co., 161 So. 446; Erickson v. Equitable Life, 258 N.W. 736; Intersouthern Life Ins. Co. v. Zerrell, 58 F.2d 135; Bene v. New York Life Ins. Co., 87 S.W.2d 979; Moss v. Aetna Life Ins. Co., 73 F.2d 339; Atlantic Life Ins. Co. v. Pharr, 59 F.2d 1025; Darby v. Equitable Life Assur. Society, 79 So. 329; Neal v. Columbian Mutual Life Ins. Society, 138 So. 353, 161 Miss. 814; Fidelity Mut. Ins. Co. v. Oliver, 71 So. 302, 111 Miss. 133; New York Life Ins. Co. v. Ware, 171 Miss. 341, 157 So. 359.
To hold that appellant could not deduct a surrender charge under one option but could under another would cause the policy to violate section 5171, Miss. 1930 Code.
Section 5171, Mississippi 1930 Code; Jancey v. Batesville Tel. Co., 11 Ann. Cas. 135; Neal v. Columbian Mut. Life Ins. Society, 138 So. 353, 161 Miss. 814; Metropolitan Life Ins. Co. v. Lillard, 248 P. 841.
The New York statute should certainly be persuasive.
Section 88, New York Law; Lavender v. Volunteer State Life Ins. Co., 157 So. 101, 171 Miss. 169.
The right of the insured to participate in the appellant's reserve must be determined by the laws of the State of New York. The judgment of the court below, appealed from in this case, was in contravention of the laws of the State of New York and therefore violated Section 1, Article IV of the Constitution of the United States known as the Full Faith and Credit Clause thereof.
Section 1, Article IV, Constitution of the United States; Supreme Council v. Green, 59 L.Ed. 1089, 237 U.S. 531, L.R.A. 1916A, 771; Modern Woodmen of America v. Mizer, 69 L.Ed. 783, 267 U.S. 544, 41 A.L.R. 1384; Equitable Life Assurance Society v. Weil, 103 Miss. 186, 60 So. 133.
Dividends payable under the policy were not proportionable but were only apportionable or payable annually upon the anniversary date, provided the policy was then in force.
Empire Life Ins. Co. v. Wier, 68 S.E. 1035; Mutual Fire Ins. Co. v. Miller Lodge, 58 Md. 463; Mutual Life Ins. Co. v. Girard Life Ins. Co., 100 Pa. 172; Mixon v. Sovereign Camp, 125 So. 314; Atlantic Life Ins. Co. v. Bender, 131 S.E. 806; Pacific Mutual Life Ins. Co. v. Turlington, 125 S.E. 658; McDonald v. Mutual Life Ins. Co., 116 N.Y.S. 35; New York Life Ins. Co. v. English, 72 S.W. 58; Metropolitan Ins. Co. v. Lambert, 157 Miss. 759, 128 So. 750; 8 C.J. 411; Guardian v. Richards, Adm., 35 Miss. 540; Lennehay v. Mathews, 20 N.E. 453; Peek v. New York Life Ins. Co., 219 N.W. 487; New York Life Ins. Co. v. Morris, 137 Miss. 101, 102 So. 71; Insurance Co. v. Cameron, 100 Miss. 604.
Even if the dividend should be proportionable, the policy was not in force at the death of the insured for that the dividend, under the terms of the policy, would become a dividend deposit and would increase the amount of extended term insurance.
Williams v. Union Central, 78 L.Ed. 711, 291 U.S. 169; Cason v. Mutual Life, 184 P. 296, 6 A.L.R. 1395.
Under the express, unambiguous provision of the policy here sued upon, on default in payment of a premium only the cash surrender value was available for the purchase of temporary extended insurance.
Lamar Life v. Minor, 154 So. 542; Penn Mutual v. Barnett's Adm., 124 Ky. 266; Prudential Ins. v. Ragan, 212 S.W. 123; Security Life v. Watkins, 224 S.W. 462; Pendleton v. Pan Am. Life, 56 F.2d 935; Kentucky Code, 1915, 1922; 60 C.J. 1182, 1183; Keppel v. Tiffin Savings Bank, 49 L.Ed. 790; Fid. Mut. Life v. Merchants Bank, 71 F.2d 777; 7 R.C.L. 1003; Castleman v. Canal Bank, 171 Miss. 291.
The laws of the state of New York are not only persuasive but are controlling where the question is one of philosophy or equitable right rather than mere construction of the contract itself.
Clark v. Equitable Society, 76 Miss. 22; Supreme Counsel v. Green, 59 L.Ed. 1089.
Appellee was not entitled to any proportionment of any dividend upon default in the payment of a premium at the end of three and three-quarters years.
Green, Hewes May v. Maryland Cas. Co., 159 So. 101.
A contract providing for an option or election within well defined limits is not void for indefiniteness.
Arthur Delapierre Co. v. Chickasaw Lbr. Co., 71 So. 872, 111 Miss. 607; Phillips v. Cornelius, 28 So. 871; James on Option Contracts, sec. 118.
The appellant determined the amount of the surrender charge for each year, beginning with the third, deducted such surrender charge from the reserve under the policy, and stated the amount of cash surrender value in the table of surrender values contained in the policy sued upon.
Appellee's counsel take the position that the values stated in the table of surrender values found in the policy sued upon were minimum values, and seek to apply the rule announced by this court in Lamar Life Ins. Co. v. Minor, 170 Miss. 223, 154 So. 542. The difference between the instant case and the minor case is that in the Minor case, under the peculiar terms of the policy, this court construed the table of guaranteed values to be minimum values; whereas, under the present policy contract, such values are the maximum values to which the insured was entitled. It would do violence to this contract to apply the rule announced in the Minor case to the policy involved in this case. It must be borne in mind that the rule of stare decisis as applied to a previous case is necessarily confined to the facts before the court in that case.
Castleman v. Canal Bank Trust Co., 171 Miss. 291, 156 So. 648; National Surety Co. v. Miller, 155 Miss. 115, 124 So. 251; 15 C.J. 941, par. 332; 7 R.C.L. 1003, 1004; American Freehold Land Mortgage Co. v. Jefferson, 69 Miss. 770, 12 So. 464, 30 Am. St. Rep. 587.
The following authorities dealing with the policies such as involved in this case hold the contract to be free from ambiguity; the cash surrender value, that is to say, the actual reserve, less a surrender charge, less any indebtedness on the policy, constitutes the cash surrender value for the purchase of extended insurance; and under policies such as the one sued upon, the table of values stated in the policy is final and conclusive as between the parties:
Williams v. Union Central Life Ins. Co., 291 U.S. 169, 78 L.Ed. 711; Carter v. Mutual Benefit Life Ins. Co., 161 So. 446; Erickson v. Equitable Life, 258 N.W. 736; Intersouthern Life Ins. Co. v. Zerrell, 58 F.2d 135; Bene v. New York Life Ins. Co., 87 S.W.2d 979; Moss v. Aetna Life Ins. Co., 73 F.2d 339; Atlantic Life Ins. Co. v. Pharr, 59 F.2d 1025; Darby v. Equitable Life Assur. Society, 79 So. 329; Neal v. Columbian Mutual Life Ins. Soc., 138 So. 353, 161 Miss. 814; Fidelity Mut. Life Ins. Co. v. Oliver, 71 So. 302, 111 Miss. 133; New York Life Ins. Co. v. Ware, 171 Miss. 341, 157 So. 359; Pilot Life Ins. Co. v. Owens, 31 F.2d 862; Palmer v. Central Life Ins. Co., 258 N.W. 732; Devitt v. Mutual Life Ins. Co., 22 A.L.R. 1915, 183.
The assured accepted the policy, and is conclusively presumed to have been acquainted with the terms and provisions thereof, and to have assented thereto.
Maryland Cas. Co. v. Adams, 159 Miss. 88, 131 So. 544; New York Life Ins. Co. v. Odom, 56 So. 379, 100 Miss. 219.
The entire litigation has grown out of appellee's contention that unless the policy was surrendered, there could be no deduction of the surrender charge in fixing the amount available for the purchase of extended insurance. Appellee's counsel have never contended anywhere, at any time, in this law suit, that in arriving at the amount of the cash surrender value to be paid upon surrender of the policy, or in arriving at the amount to be used for indorsement for paid up insurance, there was any indefiniteness or uncertainty of any kind in the policy. Upon the other hand, the argument of appellee's counsel has proceeded upon the theory that as to the amount available to be used as cash in taking up the policy or in ascertaining the amount of paid up insurance to be indorsed upon the policy, the surrender charge was properly deductible, and the table of guaranteed values definite, certain and fixed, not the minimum values, but the actual values of the reserve available for the purposes mentioned. We call Your Honors' attention to the fact that, as appears from the cited cases, the entire structure of life insurance is written upon the theory set out and provided in this policy. It was due to the insured that the amount available either for a loan, to be paid in cash, to be used for paid up policy or the amount to be used for purchasing extended insurance, be definitely stated in dollars and cents at the end of each year, beginning with the third year, and this the appellant has done.
What bearing, if any, does the provision of Section 5171, Code of 1930, "nor shall any such company or any agent thereof make any contract of insurance or agreement as to such contracts other than are plainly expressed in the application and policy issued thereon," have thereon? Appellees take the position in their brief that the above section renders void any clause in an insurance contract that is even slightly ambiguous. The position is, of course, untenable. This court has been construing and then enforcing ambiguous clauses in insurance contracts for many years without holding them automatically void. An insurance policy is interpreted by rules of interpretation applicable to other written contracts.
American Life Acc. Ins. Co. v. Nirdlinger, 73 So. 875, 111 Miss. 74.
However, the question is entirely immaterial and academic here. There is no suggestion that the provision as to the amount of the surrender charge is ambiguous. The only possible connection that the statute could have would be in this connection: would the above section prevent an insurance contract from providing for an option or election within well defined limits as to the amount of the surrender charge (ignoring the fact that the election was made and incorporated in a definite table prior to delivery of the policy)? We submit that it does not.
The position of appellant is, first, that the above section deals only with rebates or discriminations; that this prohibition of the statute only applies to extraneous separate agreements having the effect of causing a discrimination. That that was the purpose of the legislature in enacting the section is, we believe, clearly pointed out in Rideout v. Mars, 54 So. 801. The general rule is well established that in jurisdictions requiring by constitutional provision the expression of the subject of the act in the title thereof, the title is part of the act to be considered in construing it; that the act cannot be extended by construction beyond the scope of its title.
59 C.J. 1005.
That a statute must be construed as a whole, each part thereof being construed with a view to the purpose and intent and meaning of the section as a whole.
59 C.J. 993, 1011.
Second: That if this part of the section is broader than the rest of the section and can be invoked where there is not involved any rebate or discrimination, that it merely prohibits a separate agreement; merely provides that "no other contract not expressed in the application or policy could be made."
Rideout v. Mars, 54 So. 801; 1 Couch on Insurance, sec. 138.
Statutes are construed with reference to common law and words used in a statute are presumed to be employed in their settled common law sense.
59 C.J. 1039.
We respectfully submit that this statute has no bearing on the present case.
Alexander Satterfield, of Jackson, for appellees.
The surrender charge in this case is properly twelve dollars per thousand.
In the argument counsel stated that the contention of the defendant is that while a certain formula is utilized to arrive at the surrender charge at the end of the third year, and the same formula is utilized to arrive at the surrounder charge at the end of the fourth year, and is utilized on all other policies, that nevertheless the defendant has the right to vary such calculation when a policy has been in force for three and a fraction years. In other words, that the surrender charge is twelve dollars at the end of the third year and twelve dollars at the end of the fourth year, but if a policyholder allows his policy to lapse between the third and fourth years, the surrender charge shall be twelve dollars and seventy-five cents.
The defendant here attempts to discriminate against policyholders whose policies lapsed between the third and fourth year. If it were not for our statute this still would be improper, but section 5171 of the Code of 1930 definitely decides this issue. Under the terms of this statute the company has no right or authority to discriminate against policyholders, whose contracts lapsed between the third and fourth year, as against policyholders whose contracts lapsed at the end of the third year and at the end of the fourth year.
We are interested in the case here in the actual surrender charge made by the company at the end of the third and fourth years, and the proper surrender charge to be made by them at the end of three and three-quarters years under Section 5171 of the Code of 1930, and not in the legal or contractual minimums and maximums.
To our mind there could be no more flagrant illustration of discrimination than an attempt by the company to vary the surrender charge so that the policy will expire either two or five days prior to the death of the insured by fixing it either sixty-three dollars and seventy-five cents or sixty-four dollars and forty cents or sixty-five dollars and sixty cents, as they attempt to do.
Breland case, 117 Miss. 479, 78 So. 362.
Can the surrender charge be deducted from the full reserve in arriving at the sum, which under the Mississippi law, shall be used in purchasing extended insurance after default? The amount involved in this case is of no moment to the New York Life Insurance Company, its primary purpose is to break down and overrule the Blaylock case, which has been the law in Mississippi for many years and reaffirmed in unmistakable terms, and is the controlling rule of law involved herein.
Since the rendition of the Blaylock decision, our Mississippi Supreme Court has again had before it the question of the validity of the deduction of a surrender charge. This case is Lamar Life Ins. Co. v. Minor, decided May 7, 1934, 154 So. 542.
The Blaylock case followed by the Minor case in Mississippi will continue to be binding as a precedent upon our State Supreme Court until the Legislature should see fit to afford the insurance companies relief which they now seek so vigorously to obtain by overruling the decision in the Blaylock case.
Pendleton v. Pan American Life, 56 F.2d 935.
Regardless of what other courts may have held, our Mississippi Supreme Court has held that under the rule of strict construction, a surrender charge must be interpreted as a surrender charge, and when the insured makes no election of benefits after lapse and the policy is extended on term insurance, there is no surrender, and the full reserve shall thus be utilized.
New York Life Ins. Co. v. Blaylock, 144 Miss. 541, 110 So. 432.
Regardless of the computations of appellant the Blaylock case by eliminating the surrender charge requires an affirmance of the court below.
The appellant has of necessity been compelled to resort to abstruse mathematics in order to evade the plain holding in the Blaylock case. Such laborious computations argue for the appellee in that, first they see and fear the handwriting in the Blaylock case, and second, they thereby create a complexity and uncertainty which must be construed more strictly against the appellant.
While recognizing the distinction between stare decisis and res adjudicata, we believe that this case is one in which the principles underlying the latter doctrine may be applied. For, indeed, we are dealing not only with a similar point of law, but with the identical appellant and contract which were considered in the Blaylock case. The contract except for some minor typographical arrangements, is identical with the one now before this court. We would, therefore, not be inconsistent in invoking the principles both res adjudicata, and of the "law of the case," since the reasoning behind these principles applies here.
Lumber Co. v. Harrison County, 89 Miss. 448, 42 So. 290.
In the case of Forest Product Mfg. Co. v. Buckley, 107 Miss. 897, 66 So. 279, this court further emphasized the holding in the foregoing case to the effect that the rare exception to the application of the rule of stare decisis is found only when the former opinion is not only manifestly wrong, but mischievous.
It is interesting and important to note that a contract once construed creates a rule of property, and requires the court to adhere to its decision even though the court in a subsequent case would have held otherwise as an original proposition.
Robertson v. Puffer Mfg. Co., 122 Miss. 890, 73 So. 894.
Appellant is in the position here of asking this court to abandon its own decisions and adopt the decisions of other courts. The contract in the instant case, as well as in the Blaylock case, is a Mississippi contract. When the appellee's intestate contracted with the appellant here, judgment had already been rendered in the trial court in favor of Blaylock against this same appellant on the same contract. The appellant knew that its contract had been construed contrary to its present contention, and wrote its contract with the appellee with such constructive, if not actual, notice.
Although there may be opinions from other states which would seem to be in conflict with the Blaylock case and Minor v. Lamar Life Insurance Company, this court would confess a lack of authority and judgment if it yielded to such opinions, especially when construing a Mississippi contract.
New York Life Insurance Co. v. Ware, 157 So. 894; Magee v. Moorehead, 123 So. 881; Anderson Tully v. Goodin, 163 So. 536.
The laws of the State of New York are neither persuasive, nor do they have any bearing on the case, and the judgment is not violative of section 1, Article IV of the Constitution of the United States.
Section 5131, Code of 1930; Fidelity Mutual Life Ins. Co. v. Miazza, 93 Miss. 18, 46 So. 817; Stuyvesant Ins. Co. v. Motor Sales Co., 135 Miss. 585, 99 So. 575; New York Life Ins. Co. v. Cravens, 44 L.Ed. 1116; New York Life Ins. Co. v. Dodge, 62 L.Ed. 773; Aetna Life Ins. Co. v. Duncan, 69 L.Ed. 343; Clark v. Equitable Life Ins. Soc., 76 Miss. 22.
Three-fourths of the dividend apportioned for 1930 should have been allowed in calculating the extended term insurance.
We uphold the use of the three-fourths of the dividend for the year ending June 1, 1930, under the general principle which has been often recognized and reaffirmed by the Supreme Court of Mississippi that an insurance company must use funds belonging to the insured to continue the policy in force.
National Life Ins. Co. v. Sparrow, 118 So. 195; Mutual Life Ins. Co. v. Breland, 78 So. 362, L.R.A. 1918D 1009; Prudential Ins. Co. v. Ragen, 212 S.W. 123; Clark v. New York Life Ins. Co., 85 S.E. 594; First Texas Prudential Ins. Co. v. Sorley, 272 S.W. 351; Mutual Life Ins. Co. v. Henley, 188 S.W. 829; Halliday v. Equitable Life Ins. Soc., 47 A.L.R. 446; Finley v. Mass. Mutual Life, 134 So. 399; Kincaid v. New York Life Ins. Co., 66 F.2d 268; New York Life Ins. Co. v. Baker, 44 S.W.2d 292; Williams v. Union Central Life Ins. Co., 78 L.Ed. 71, 92 A.L.R. 693; Mickleson v. Equitable Life Assur. Soc., 251 N.W. 1; Atlantic Life Ins. Co. v. Pharr, 59 F.2d 1024; Union Central Life Ins. Co. v. Caldwell, 58 S.W. 355; Timmerman v. Bankers' Reserve Life Co., 63 S.W.2d 687.
In construing ambiguous provision as to surrender charge, the policy must be construed most strongly against the insurance company.
Page on Contracts (2 Ed.), page 3553, sec. 2054.
One purpose of section 5171 of the Code of 1930 is to prevent insurance companies from profiting by uncertain, indefinite and ambiguous terms inserted in a contract by such company.
Sovereign Camp, W.O.W. v. Farmer, 116 Miss. 626, 77 So. 655; National Life Ins. Co. v. Prather, 153 So. 881.
The policy contains no statement of a contractual surrender charge nor method whereby a contractual surrender charge may be ascertained, neither is any option granted the company or the insured to fix such charge.
Carter v. Mutual Benefit Life Ins. Co., 161 So. 446.
Any clause of a contract which is uncertain and indefinite so that the intention of the parties themselves, as to the amount or quantity, cannot be ascertained from the written instrument itself, is void for uncertainty.
Page on Contracts (2 Ed.), page 138; Williston on Contracts, pages 119-131; Restatement of the Law of Contracts, par. 32; 6 R.C.L. 643; Corthell v. Summit Thread Co., 92 A.L.R. 1931, 1936; Southwest Pipe Line Co. v. Empire Natural Gas Co., 64 A.L.R. 1229; Buckmaster v. Consumer's Ice Co., 5 Daly (N.Y.) 313; Hubbard v. Turner Dept. Store Co., 278 S.W. 1060; United Press Co. v. New York Press Co., 53 L.R.A. 288, 164 N.Y. 406.
The defendant in the case at bar claims that the amount of the surrender charge is left to its discretion, and, therefore, that although such amount may not be definitely fixed in the contract it is still a valid provision. This contention has been advanced repeatedly before the court and has been consistently repudiated on the ground that there must be a meeting of the minds of the contracting parties as to the terms of the contract, and that where one party has the right to fix an amount or price at anywhere from nothing to a maximum, the contract is so vague and indefinite as to be unenforceable.
Varney v. Ditmars, 111 N.E. 822; Aircraft Corp. v. Varney, 282 Fed. 608; Arundel Realty Co. v. Maryland Elec. R. Co., 38 L.R.A. (N.S.) 157, 81 A. 787; Price v. Wiesner, 31 L.R.A. (N.S.) 927, 111 P. 439.
The fact that the amount involved or price of the commodity is left to the discretion of the purchaser will render the contract void, although there is a limit placed upon the exercise of such discretion.
Brooks v. Federal Security Co., 57 A.L.R. 745, 22 F.2d 884; Ingram-Day Lbr. Co. v. Rodgers, 105 Miss. 254, 62 So. 230.
Argued orally by W.H. Watkins, Sr., and Mrs. Elizabeth Hulen, for appellant, and by James Alexander and John Satterfield, for appellee.
Appellees brought this action in the circuit court of Hinds county against appellant to recover the face value of a life insurance policy of five thousand dollars, issued by appellant on the life of Byron B. Boling, deceased. The trial resulted in a judgment in appellees' favor for the amount sued for. From that judgment appellant prosecutes this appeal.
At the time of the death of the insured, the policy had been in force more than three and less than nine years. The insured had defaulted in the payment of premiums and had secured a loan on the policy. The policy contained, among others, this provision: "(c) Cash Surrender Value — If the Policy shall not have been indorsed for Participating Paid-up Insurance, the Insured, within three months after such default, but not later, may surrender this Policy and all claims thereunder and receive its Cash Surrender Value as at date of default less any indebtedness hereon. The Cash Surrender Value shall be the reserve on the face of Policy at date of default, omitting fractions of a dollar per thousand of insurance, and the reserve on any outstanding dividend additions and any outstanding dividend deposits, and less a surrender charge for the third to the ninth years, inclusive, of not more than one and one-half per cent of the face of the Policy. The reserve shall be computed on the basis of the American Table of Mortality and interest at 3 per cent."
The policy had not been surrendered. The questions involved grow out of the provision that in fixing the cash surrender value appellant had the right to deduct therefrom a surrender charge "of not more than one and one-half per cent of the face of the policy." Appellant deducted the maximum of one and one-half per cent; the cash surrender value was thereby reduced to an amount insufficient to keep the policy in force up to the time of the death of the insured. If such deduction had not been made it would have been in force. The precise question is whether or not that provision of the policy is valid and enforceable.
Appellant's evidence showed that this deduction was provided for the following purposes: (1) Repaying acquisition expenses if the policy had not become self-sustaining; (2) paying the costs incident to the physical surrender and cancellation of the policy and issuance of a paid-up policy; and (3) a penalty imposed to prevent a policyholder from withdrawing from the company. It is left entirely to the insurer to determine, without agreement with the insured, whether the policy is self-sustaining, and what the acquisition expenses are, and the amount of penalty to be imposed to prevent the policyholder from withdrawing from the company.
Unless New York Life Insurance Company v. Blaylock, 144 Miss. 541, 110 So. 432, is overruled, the judgment must be affirmed. Appellant argues that the decision of that case is not only contrary to the authorities in this country, but is unsound and ought to be overruled. Even if we regarded the Blaylock decision as unsound, we would be obliged to go further before overruling it and hold that it is mischievous in its operation or effect; because that case has stood in our books as the law for ten years. During this time thousands upon thousands of policies of life insurance have been issued and accepted. To overrule that case would make in a material respect a different contract out of all those thousands of policies as compared with what they were when they were issued and accepted. We do not agree that that decision is unsound, and will now undertake to give some reasons therefor that were not given in the Blaylock Case. Although not mentioned in the Blaylock Case, section 5171 of the Code of 1930 has an important bearing on this case. That statute is in this language: "No life insurance company doing business in Mississippi shall make any distinction or discrimination in favor of individuals of the same class and equal expectation of life in the amount of payments of premiums or rates charged for policies of life or endowment insurance, or in the dividends or other benefits payable thereon, or in any of the terms and conditions of the contract it makes, nor shall any such company or any agent thereof make any contract of insurance or agreement as to such contracts other than are plainly expressed in the application and policy issued thereon; nor shall such company or agent pay or allow as inducements to insurance any rebate of premium payable on the policy or any special favor or advantage in the dividends or other benefits to accrue thereon, or any valuable consideration or inducement whatever not specified in the policy contract of insurance. Whenever it shall appear to the satisfaction of the commissioner, after a hearing before him upon notice that any company, officer, agent, subagent, broker or solicitor has violated any provision of this section, he shall revoke the license of any such company or person to transact business in this state, and no other license shall be issued to any such company or person within one year after such revocation. Provided, however, that nothing in this section shall prevent a company which transacts industrial life insurance on a weekly payment plan from returning to policyholders who have made a premium payment for a period of at least one year the percentage of premium which the company would otherwise have paid for the weekly collection of such premium, nor shall this section be construed to prevent the taking of a bona fide obligation, with legal interest, in payment of any premium."
It should be borne in mind that under the Constitution the state has the undoubted right to regulate the business of insurance; it has the right to provide the kind and character of insurance contracts that may be made. State v. Alley, 96 Miss. 720, 51 So. 467; General Accident Assurance Co. v. Walker, 99 Miss. 404, 55 So. 51.
Although not decisive of the question here involved, the cases of Cole v. State, 91 Miss. 628, 45 So. 11, and Rideout v. Mars, 99 Miss. 199, 54 So. 801, 35 L.R.A. (N.S.) 485, Ann. Cas. 1913d 770, throw light thereon. They both turned upon the construction of the above statute. In the Cole Case the court held that the statute was violated by a stipulation in the policy for the return to the insured of an annual income, however small, during a designated time, although such obligation purported to be based on a valuable consideration. The facts in the Rideout Case were substantially as follows: The deceased, J.H. Rideout, was agent for the Union Central Life Insurance Company; he sold Mars a twenty-five thousand dollar policy in his company, which recited that the first premium of nine hundred fifty dollars was paid, as a matter of fact only three hundred dollars of it was paid; under the contract between the agent and the company that was its share, the balance of it was his; he gave Mars his share of the premium in order to induce him to take the insurance, his idea was that in effecting such a large policy his interest as insurance agent would be promoted; the agent died, his administrator brought suit against Mars for the unpaid premium. Construing this statute the court held that the administrator was entitled to recover; that the agreement was illegal because contrary to the public policy declared by the statute.
The statute not only prohibits unfair discriminations and practices being expressly provided for in the policy, but in addition a fair interpretation of it prohibits any provision so indefinite and uncertain as to allow such discriminations and practices. The provision in question is of the latter character. A fixed per cent. of the face value of the policy is not to be deducted in ascertaining its cash surrender value, but "not more than one and one-half per cent." Within that maximum the insurer is given the right to fix the amount to be deducted.
It is inconceivable that in carrying out the cash surrender value provision of the policy one policy would require any more labor, clerical or otherwise, than any other policy. Where the policy is not surrendered the cash surrender value constitutes premium and keeps the policy in force a certain length of time, based on the amount of such premium. Under the provision in question the insurer could fix, to a certain extent, the amount of such premium; it could deduct therefrom as a surrender charge any amount from one and one-half per cent. of the face of the policy down to nothing. To that extent the cost of the policy to the insured is left entirely in the discretion of the insurer. The insurer could arbitrarily discriminate between policyholders of the same class. To illustrate: Two risks in the same class, one has a one thousand dollar policy, another has a one hundred thousand dollar policy; on the death of each of them the cash surrender value of his policy, without the deduction of the one and one-half per cent., would have kept it in force, while the deduction would have resulted in neither of them being in force; the insurer does not deduct it as to the one thousand dollar policy, but does as to the one hundred thousand dollar policy; the result, of course, is that the latter is not paid and the former is. That precise discrimination could be made under this policy. Such unfair practices are prohibited by the statute. The premium must be plainly written in the face of the policy. In its last analysis this cash surrender charge is simply a part of the cost of the insurance — premium.
The decisions of the courts of other states to the contrary are not controlling but only persuasive. If they are unsound they are not to be followed.
Affirmed.
With considerable doubt and hesitation, I concur in the opinion of my affirming associates that the Blaylock Case should not be overruled, and that the clause of the policy in question violates section 5171 of the Code.
One of the appellant's contentions, not discussed in the main opinion, is that the decision in the Blaylock Case was based solely on the face of the policy, and that here the evidence discloses that the term "less a surrender charge" is a technical one peculiar to the life insurance business and is recognized therein as not requiring a physical surrender of the policy; consequently, the Blaylock Case should not control. The consideration of this question is unnecessary, for should the appellant's contention be correct, nevertheless, under section 5171, Code 1930, as here construed, the judgment of the court below must be affirmed.
In filing this dissent I shall undertake to avoid an argument in extenso but shall content myself with a statement of the conclusions I have reached.
The main opinion, in effect, holds that the surrender charge of not more than one and one-half per cent. of the face of the policy, provided for in the policy, is not enforceable in this state for two reasons: (1) Because there was no physical, actual surrender of the policy by the insured, as held to be necessary in the case of New York Life Insurance Company v. Blaylock, 144 Miss. 541, 110 So. 432, 433; and (2) without reference to the Blaylock Case, this surrender charge cannot be deducted because it permits the insurer to discriminate between policyholders of the same class, and this is in violation of section 5171, Code of 1930. The effect of the holding of the main opinion is that, because the surrender charge is not fixed and definite, it cannot be deducted in any event. If the insured elects to take the cash and actually surrenders the policy, this charge may not be deducted, and, likewise, if the insured desires to purchase paid-up insurance.
I am of the opinion that the Blaylock Case, supra, should be overruled, for the reason that the construction placed upon the contract there under consideration is in opposition to the judicial opinion of the country. In the Blaylock Case we said, with reference to a surrender charge:
"We have been unable to find any decision of the question, counsel cite none, and we are therefore left to construe the provisions of the policy from the language used; and after a careful consideration of the proposition we are convinced that the $15 `surrender charge' cannot be collected by the insurance company, because, as we see it, there was no actual surrender of the policy, but the default in the payment of the premium amounted to a mere lapse of the policy, and under the said clause (b) the insurance was automatically extended, or `the insurance was continued as provided in option (b),' as expressed by the provisions of the policy mentioned, the insured having failed to elect to come under clause (a) or clause (c); therefore no `surrender charge' could be collected from the amount due the insured on the policy at the time of the lapse, because there was no surrender of the policy.
"We do not understand the provisions of the policy to mean that the $15 `surrender charge' could be retained by the company where the policy merely lapsed, and clause (b) extending the insurance automatically applied. It seems clear to us that this `surrender charge' can be collected by the company only where the policy is surrendered for cash, as provided in clause (a) or where the insured elects, clause (c), which latter question we do not decide, but the surrender charge cannot be retained where the insurance is continued under clause (b) as it was in the case before us."
Let it be noted that in the Blaylock Case the contract specifically fixed a graduated charge in dollars and cents as the amount of the surrender charge based on the time the policy had remained in force.
On this clause, as to surrender charges in contracts substantially identical with the one before us, the authorities are nearly unanimous that upon the default in the policy the extended insurance, if any, is to be paid for from the cash surrender value less the surrender charge. Carter v. Mutual Benefit Life Ins. Company, 230 Ala. 389, 161 So. 446; Erickson v. Equitable Life Assur. Society, 193 Minn. 269, 258 N.W. 736; Inter-Southern Life Ins. Co. v. Zerrell (C.C.A. 8th), 58 F.2d 135; Bene v. New York Life Ins. Co., 191 Ark. 714, 87 S.W.2d 979; Moss v. AEtna Life Ins. Co. (C.C.A. 6th), 73 F.2d 339; Atlantic Life Ins. Co. v. Pharr (C.C.A. 6th), 59 F.2d 1024; Darby v. Equitable Life Assur. Society, 143 La. 757, 79 So. 329.
I cannot understand that section 5171, Code of 1930, has any application to the contract under consideration here. I think the parties had a perfect right to make this contract, and that in the long run it was designed to favor the insured. As the statute has been construed in this case, it will operate to force the insurance companies to fix an arbitrary amount as a surrender charge high enough to protect them and the other policyholders who are interested from loss by reason of the lapse of the policy or the surrender of it in any of the modes set out in the contract. In the last analysis the purpose of the charge is to make available to the insured a certain amount of cash if he desires to surrender the policy, or with which to buy additional paid-up insurance, or, if the insured does not exercise those options, then for the company to automatically extend the insurance. To my way of thinking, to require the insurance companies to deduct the same amount from a policy which has been in force eight years as it would from one which has been in force four years would be unfair and inequitable, and I do not think the statute ever contemplated the many features of insurance contracts which must be left to calculation.
If the insurer cannot deduct the surrender charge in the contingency here involved, when the amount thereof is fixed for the particular year as in the Blaylock Case, because the insured does not physically surrender the policy, and if, as now decided, the amount of that charge must be definitely fixed in the contract, then the items of expense and loss to the company involved in the surrender charge would in the future be taken care of by the insurer as a deduction originally from the reserve. It is idle to say that it is fair that this charge should be as much in a case where the policy has lapsed after the ninth year as it is after the fourth year. Insurance companies can only earn reserves by keeping policies of insurance in force, and when they lapse, by securing others to pay premiums at immense costs to replace the lapsed policies. In my judgment, the next step would be to apply this statute and say that the person who has paid his premiums for a time exceeding ten years had an unjust discrimination in his favor, if no deduction for surrender charge was made, as against the man who had only paid premiums for four years and was required to pay the surrender charge, and that the amount must be fixed in the contract, or section 5171, Code of 1930, would eliminate the charge. Such a construction of this statute would lead to a destruction of the very basis of these beneficent provisions of insurance contracts which aid those who are so unfortunate as not to be able to pay the premiums on their policies. The mandate of the statute is only to require that all the benefits to accrue thereon shall be plainly set forth in the contract. As illustrated above, according to the main opinion, a man who has paid premiums on his policy ten or more years, so far as class is concerned, is in the same position as the man who has paid only four years. In my opinion, in applying this statute the classification is by the year.
I do not think the many statutes which have been passed in the several states on this subject can be said to be unfair and unjust or discriminatory, as, for instance, article 4732, Revised Civil Statutes of Texas of 1925, wherein a sum not more than two and one-half per cent. of the amount insured by the policy may be deducted. That clause of the statute is the same as that contained in the contract in the case at bar. The calculation of the surrender charge is essential to the ascertainment of the cash surrender value and these calculations are not within the condemnation of our statute.
Cook, J., joins in this dissent.