Opinion
No. 33698.
May 8, 1939. Suggestion of Error Overruled June 12, 1939.
INSURANCE.
Bill of complaint of insured against insurer to recover for fraud after denial of liability for cash surrender value of life policy on theory that insurer had assigned its business in Mississippi, and had fraudulently induced insured to continue payment of her premiums to assignee which became insolvent stated a cause of action.
APPEAL from the Hinds county court; HON. A.H. LONGINO, Judge.
Ray Spivey, of Canton, for appellant.
The bill shows on its face that on or about January 1, 1927, the liability of the Century Life Insurance Company was substituted for that of appellant, and that appellee acquiesced in and accepted said substitution of liability, and that appellant was thereby released from liability by reason of such novation of its contract with appellee.
32 C.J. 1034 and 1035; Watson v. National Life Trust Co. et al., 189 Fed. 872, 111 C.C.A. 134; In re: Times Life Assurance Guarantee Co., L.R., 5 C.H. 381; American Blakeslee Mfg. Co. v. Martin Bros., 91 So. 6, 128 Miss. 302; Rea v. Underwood, 152 So. 272, 168 Miss. 799.
The bill shows on its face that appellee's alleged cause of action is barred by our six year Statute of Limitations.
Sections 2292 and 2312, Mississippi Code of 1930; Central Trust Co. v. Meridian Lt. Ry. Co., 63 So. 575, 106 Miss. 431, 51 L.R.A. (N.S.) 151; Johnson v. Crisler, 125 So. 724, 156 Miss. 266; Jones v. Rogers, 38 So. 742, 85 Miss. 802; Hudson v. Kimbrough, 20 So. 885, 74 Miss. 341; Dunn v. Dent, 153 So. 798, 169 Miss. 574; Thornton v. City of Natchez, 41 So. 498, 88 Miss. 1.
The bill shows on its face that if appellee has any cause of action whatever against appellant, that such cause of action has not accrued, and that this action is prematurely brought.
Sections 374, 526 and 527, Mississippi Code of 1930; North American Life Insurance Company v. Smith, 172 So. 135, 178 Miss. 238.
On the face of the bill, no recovery can be had on the alleged guaranty of appellant.
Section 526, Mississippi Code of 1930; Palmetto Fire Ins. Co. v. Allen, 105 So. 769, 141 Miss. 681.
The allegations of the bill are fatally inconsistent and contradictory.
Griffith's Chan. Prac. 177.
Stirling Stirling, of Jackson, for appellees.
Reinsurance is likened by the authorities to sale of mortgaged real estate, where the purchaser without co-operation of the mortgagee, assumes the debt as part of the purchase price, without even the knowledge of the mortgagee, who is ignorant of the sale, and then the mortgagee can sue either his original debtor (the mortgagor and former owner) or the purchaser who assumed the debt, who is called and considered the surety, and purchaser could of course send mortgagee assumption slip or notification without affecting rights.
American Insurance Union v. Woodward, 48 A.L.R. 102; U.S. Fire Insurance Company v. Smith, 164 So. 70, 231 Ala. 169; So. Fire Ins. Co. v. Hand Jordan Co., 112 Miss. 565, 73 So. 578; Peoples Savings Bank v. Jordan, 76 So. 44 or 444.
Where one company assumes all the obligations of the other and the contracts of the former company, i.e., the insurance contracts, the reinsuring company gives the policy-holder right to sue both companies.
Whitney v. American Insurance Co., 59 P. 897, 127 Cal. 464; Bonds v. Heckler Fire Ins. Co., 45 A.S.R. 438.
The failure to pay premiums is complained of, but the bill alleges that premiums were paid up to and including 1933, and if true the statute has not run since 1933, and even if premiums had not been paid since 1927, when the nefarious deal was put over, the undiscovered fraud would have prevented the statute from running against complainant, especially under the provisions of the policy creating reciprocal duties and obligations, namely agreements to give extended insurance, paid up insurance, prorate the profits, and surplus, etc., all of which agreements constituted and created express trusts, which postponed the running of the statute. When the reinsuring company failed, it was but a natural consequence that the policy holders discontinued remitting to it, the receiver was not authorized to receive further premiums, and the whole proceeding was involved in inextricable legal tangle. If the company had not failed and the original company, the N.C. Mutual Life Insurance Co., had not indulged in anticipatory breach of contract, the plaintiff would probably have been still paying premiums. Our friends overlook the difference between simple fraud, if it could such, violation of implied and violation of express trusts and the different degrees of candor, truthfulness, and faithfulness involved in each.
First National Bank of Laurel v. Johnson, 171 So. 11, 177 Miss. 634; W.O.W. v. Penn, 161 So. 681, 173 Miss. 93; Boyd v. Applewhite, 84 So. 16, 121 Miss. 879; Odd Fellows Ben. Association v. Smith, 161 So. 115, 172 Miss. 860; Mutual Res. Life Ins. Co. v. Ferrnebach, 144 Fed. 342-345, 7 L.R.A. (N.S.) 1163, 199 S.E. 122; 48 A.L.R. 111-116-119; Lovell v. St. Louis Mut. Life Ins., 111 U.S. 264, 28 L.Ed. 423; 32 C.J., page 1264, par. 464; Hand Jordan Co. v. Fire Insurance Co., 112 Miss. 565, 73 So. 578; Barnes v. Fire Insurance Co., 56 Minn. 38, 57 N.W. 314, 45 Am. State Rep. 438; Johnson v. Phenix Ins. Co., 66 Wis. 50, 57 Am. Rep. 249; Livermore v. Johnson, 27 Miss. 284; Buckner and Stanton v. Calcote, 28 Miss. 432; Edwards v. Gibbs, 39 Miss. 166.
This is a case of confidential relations, a case where the insurance company and its officers owed a continuing duty, it was the custodian of the share of the profits to which this plaintiff was entitled, the share in the surplus which should have been prorated to his policy, his paid up insurance, and it was its and their duty to conserve all the assets of the company for him and other policy-holders. It is practically conceded in all the cases where such relations and obligations exist the Statute of Limitations does not run at all, or at most it runs only from the time the fraud was actually discovered, especially where there was active fraud, misrepresentation, etc. The case of Lundy v. Hazlett, 147 Miss. 813, is exactly in point.
Buckner v. Calcote, 28 Miss. 432; State v. Furlong, 60 Miss. 839; Carrier v. R.R. Co., 6 L.R.A. 799; American Bonding Co. v. Fourth Nat. Bank, 91 So. 480; 17 R.C.L. 859; Croendall v. Westrate, Ann. Cas. 1914B 906; 37 C.J. 975; Madole v. Miller, 119 A. 829; 37 C.J. 972; Waugh v. Gas. Co., L.R.A. 1917B 1253; Rosenthal v. Walker, 28 L.Ed. 397; Mathews v. Mathews, 6 So. 201, 66 Miss. 239; 25 Cyc. 1016; Kelly v. Wagner, 61 Miss. 299; Union Mortgage Co. v. Peters, 72 Miss. 1058, 18 So. 497; Hyman v. Bank, 71 So. 598; Barnett v. Nichols, 56 Miss. 622; Dayhood v. Neely, 99 So. 440, 135 Miss. 14.
Whether or not any person has exercised due diligence in any instance must be determined from the peculiar facts and circumstances of each case. This is elemental and well settled.
Steck v. Colorado Fuel Iron Co., 25 L.R.A. 67; Rosenthal v. Walker, 28 L.Ed. 399; 17 R.C.L. 859; Parham v. Randolph, 4 How. 435, 35 Am. Dec. 403; Loverin v. Kuhne, 33 A.L.R. 852; Mead v. Bunn, 32 N.Y. 275; Norris v. Hay, 149 Cal. 695, 87 P. 380; Yeates v. Pryor, 11 Ark. 58; Buckner v. Calcote, 28 Miss. 432; State v. Furlong, 60 Miss. 839; 17 R.C.L. 859; 37 C.J. 97-977, 978.
The very nature of the Mutual Insurance Company involves the participation of the policy-holder in the profits and surplus and all earnings, if it were not so then as a condition to organization and operation company would have to show substantial capital and surplus whereas mutual company is not required to have capital; the old line company with capital belongs to the stockholders, the mutual company belongs to the policy-holders.
U.S. Insurance Co. v. Spinks, 13 L.R.A. (N.S.) 1053; Crawley v. N.W. Life, 108 N.W. 962; Israel v. N. Western Life, 127 N.W. 187; Moore v. Security Trust Life, 168 Fed. 496; Gen'l American Life Ins. Co. v. Roach, 65 P.2d 458.
It will be conceded that the agreement between the two companies set out in the answer is not merely a contract of reinsurance, but also to pay, and assume the payment of losses of parties indemnified by policies issued by the defendant company reinsured. Reinsurance is a mere contract of indemnity, in which an insurer reinsures risks in another company. In such a contract the policy-holders have no concern, are not the parties for whose benefit the contract of reinsurance is made, and they cannot, therefore, sue thereon. But the agreement alleged in this case is not a mere reinsurance of the risks by the reinsurer, but it embraces also an express agreement to assume and pay losses of the policy-holder, and is therefore an agreement upon which he is entitled to maintain an action directly against the reinsurer.
Thorp v. Keokuk Coal Co., 48 N.Y. 257; Klapworth v. Dressler, 78 Am. Dec. 76, 77 note; Mosely v. Insurance Company, 104 Miss. 326.
The North Carolina Mutual Life Ins. Co. repeatedly assured the insured, complainants herein, "they are reinsured" and this language means both companies remained liable and there was no duty, requirement, or incentive to the insured to then protect, object, resist, and bring suit, and there never was until the reinsuring company failed in November, 1933, and thereafter defendant repudiated its contracts and in the liquidation of the Century it leaked out that all the allegations in regard to reserves, payments, collateral, etc., transferred to the Century were false.
Dansby v. Mutual Life Insurance Co., 183 S.E. 521.
Under Section 2957 of the Code of 1930, the statute of limitations would never begin to run until the surety notified the creditor, the policy-holder, to sue the principal debtor and this was never done.
In the case of Callender v. Lamar Life Ins. Co., 182 So. 119, practically every contention made in appellant's brief in regard to the statute of limitations; right to sue for anticipatory breach, without waiting for the policy to mature, and right to claim damages for the breach is discussed and declared and the Court cites Penn case and others for the same effect.
6 Couch, Cyclopedia of Insurance Law, page 5065, par. 1429.
Although strictly and technically speaking there can be no breach of contract until the time for performance arrives, yet if before that time arrives the promisor expressly renounces the contract and declares his intention not to perform it, the promisee may, in most jurisdictions, treat this as a breach, and may at once bring an action for damages. That is, positive notice of an intended breach of a contract to be performed in futuro may be treated as an actual breach.
13 C.J., page 651, par. 725, and page 701, par. 804; Life C. Ins. Co. v. Baker, 107 A.L.R. 1233, 48 A.L.R. 107; Sovereign Camp W.O.W. v. Penn, 173 Miss. 93, 161 So. 681; Atlantic Horse Ins. Co. v. Nero, 66 So. 780, 108 Miss. 321.
It has been frequently held in Mississippi that "where an expression in a pleading is capable of two meanings that will be adopted which will support the pleading rather than the other which will defeat it."
Griffith's Chancery Practice, Sec. 82, page 78; Pender v. Dickson, 27 Miss. 255; Andrews v. Carr, 26 Miss. 578.
It was not necessary for the complainants, appellees here, to continue to pay premiums and tender premiums to either the Century or to the North Carolina Mutual Life Insurance Company, the original insurer, after the failure of the Century Life Insurance Company in 1933 when it went into the hands of a court receiver, as alleged in the bill, for a business in the hands of a receiver could not continue to endeavor to conduct an insurance business and receive premiums as an incident thereto; and the North Carolina Mutual Insurance Company began to refuse to carry out its obligations, and notified such inquirers as appealed to it that it would not carry out its obligations, refused to pay the surrender value, or make loans as provided therein, but indulged in the dangerous and expensive practice of anticipatorily breaching their contracts, and the attention of the court is referred to the case of Dansby v. Mutual Life Ins. Co., 183 S.E. 521. Even though they had discontinued paying the premiums after 1933, this would have carried their policies over until 1934, and they have numerous provisions in the policies for surrender value of insurance after premiums discontinued, provisions for paid up insurance, provisions for increased insurance by application of surplus to the value of the insurance at the time, of an apportionment of profits, etc., all of which were thereafter repudiated by the North Carolina Mutual Life Insurance Company.
Callender v. Lamar Life Insurance Company, 182 So. 119.
On March 3, 1923, the appellant issued and delivered unto the appellee a certain endowment life insurance policy in the sum of $1,000 for which the annual premiums were duly paid to the appellant through the year 1926. During the month of December that year, the appellant, desiring to discontinue business in the States of Arkansas, Oklahoma and Mississippi, and to have its contracts of insurance in those states reinsured, entered into a written contract with the Century Life Insurance Company of Little Rock, Arkansas, whereby the latter company agreed to take over and continue in force all contracts of insurance of the appellant in the states above mentioned. Accordingly, the contract between the two companies recited the foregoing facts and that all contracts of insurance hereinbefore referred to were transferred, assigned and delivered unto the said Century Life Insurance Company as of January 1, 1927. Thereupon, the appellant mailed to the appellee a notice in writing to the effect that: "The Century Life Insurance Company of Little Rock, Arkansas, a company with assets of nearly a million dollars, has reinsured all of our company's policies . . . They will carry out every obligation laid down in the contracts, and in order for them to do so we have turned over to them over $300,000.00 which is the reserve on the business." The notice further assured the appellee that she was as amply protected as before and that she need not have any hesitancy in continuing her insurance in force; that the appellant was still interested in seeing that the interest of the policy-holders would be protected in the matter.
Thereafter, the appellee, relying upon the assurances contained in the notice aforesaid, and also upon a letter from the appellant of January 5, 1927 (addressed to its agents in this State, and which is alleged to have been shown to all policy-holders), stating that: "You can depend upon us to see to it that every policy-holder is just as amply protected as before," began to pay her premiums to the assignee company and continued to do so for a period of five years and until said company, by an amendment of its charter, changed its name to the Woodmen Union Life Insurance Company; and to which latter company the premiums were paid during the years 1932 and 1933. This company was insolvent and was placed in the hands of a receiver on November 4, 1933. Thereafter, the appellee failed to pay any further premiums, since the receiver was without authority to collect or receive them so as to keep the insurance in force; and, moreover, the appellant thereupon denied any and all further liability under the contract of insurance.
It was provided by the terms of the policy that "After three full annual premiums shall have been paid, the insured may, within three months after default in payment of any premiums, surrender this policy and have the choice of the following options: (1) Receive its cash surrender value, less any indebtedness to the company thereon . . . (2) Receive paid-up insurance, payable at the same time and on the same conditions as this policy. If no other option is selected, this policy will be continued in force under this option without any action on the part of the insured; or (3) receive extended insurance for an amount equal to the face of the policy . . ."
Appellee elected within the time allowed to receive the cash surrender value of the policy, including any unpaid dividends or other benefits accruing to her as a policy-holder in the appellant mutual company; and all liability having been denied by the appellant as aforesaid, the appellee filed her bill of complaint, alleging that in truth and in fact the appellant had not turned over to the Century Life Insurance Company the $300,000, which it had claimed to have done in its notice to her of January 1, 1927, so as to enable it to carry out the contracts, but that on the contrary the appellant turned over to said assignee company, a year or two after the mailing of said notice, a number of second and third mortgages with no equity, and also some worthless stocks; that the appellant then knew that the assignee company was insolvent; and that wherefore the representations made to the appellee to induce her to continue the payment of her premiums constituted a fraud upon her rights in the premises. The bill of complaint further alleged that the appellee did not discover until 1938 this alleged fraud, although she had been diligent in trying to find out the strength of the Century Life Insurance Company, and as to whether the assurances given her by the appellant were true or false.
A demurrer was interposed by the appellant, which was overruled by the chancellor, and this appeal was granted to settle the controlling principles of law applicable to the case.
We are of the opinion that the bill of complaint states a cause of action for the relief therein prayed for; and that therefore the action of the court below in overruling the demurrer is correct.
Affirmed and remanded.