Opinion
No. 38673.
November 1, 1943.
1. INSURANCE: Lapse For Nonpayment of Premiums. No demand for payment of premiums was necessary and the policy lapsed thirty-one days after default.
2. INSURANCE: Loan Interest Clause Not Applicable To Premium Default. The clause in the policy requiring a one month's notice of cancellation for nonpayment of interest when a policy loan equals the cash surrender value has no application to the provisions for lapse without notice for default in payment of a premium.
3. INSURANCE: Usury: Excessive Semi-annual Premium Charge Is Not Usury. Charging a higher proportionate rate for semi-annual premiums as compared with annual premiums did not constitute usury.
Appeal from the Circuit Court of the City of St. Louis. — Hon. David J. Murphy, Judge.
AFFIRMED.
A. Lowell Morris and John P. Griffin for appellant.
(1) The policy in suit is dated December 9, 1931, but it is agreed that it was not delivered to the insured or the premium paid until January 9, 1932; therefore, the insured was entitled to a full year's insurance from January 9, 1932, and the defendant breached its contract by demanding payment of a premium on December 9, 1934, and lapsing the policy within thirty-one days thereafter. Halsey v. American Central Life Ins. Co., 258 Mo. 659, 167 S.W. 951; Howard v. Aetna Life Ins. Co., 346 Mo. 1068, 145 S.W.2d 113; Hampe v. Metropolitan Life Ins. Co., 21 S.W.2d 926; Johnson v. American Central Life Ins. Co., 212 Mo. App. 290, 249 S.W. 115; Newman v. John Hancock Mutual Life Ins. Co., 7 S.W.2d 1015. (2) After the defendant breached its contract by demanding payment of the premium by the insured on December 9, 1934, and the lapsing of the policy within the days of grace, the insured did not have to tender the premium to keep the policy in force, as the same would have been a futile act, because the defendant would have compelled the insured to apply for reinstatement of the policy according to its terms and undergo a physical examination as to his insurability. Newman v. John Hancock Mutual Life Ins. Co., 216 Mo. App. 180, 257 S.W. 190; Newman v. John Hancock Mutual Life Ins. Co., 7 S.W.2d 1015; Smith v. Means, 170 Mo. App. 158, 155 S.W. 454; Bellis v. Modern Woodmen of America, 49 S.W.2d 1059; Spencer v. Security Benefit Assn., 297 S.W. 989; 3 Couch, sec. 637 A, p. 2058. (3) The insured had a right to treat the contract as breached and his beneficiary has the same right to proceed to treat the contract as in force, and sue for the benefits. Palmer v. Mutual Life Ins. Co., 121 Minn. 395, 141 N.W. 518. (4) The face of the policy is $6,000, although it is stated therein that the commuted value of it is $5,557, therefore, it is ambiguous to say the least, and the court will have to construe it favorably to the plaintiff, namely, on the basis of $6,000. Henderson v. Mass. Bonding Ins. Co., 337 Mo. 1, 84 S.W.2d 922. (5) The loan and interest on the policy was $328, and the premium was paid thereon for three years, and the table in the policy shows that the cash or loan value of the policy, after the premiums were paid for three (3) years, at the end of the third year was $59 per $1,000 and, therefore, the cash or loan value of the policy was $354 and not $328 as contended by the defendant. Therefore, the defendant had no right to cancel and forfeit the policy until the loan and interest equalled the cash or loan value of the policy, and then only "after one month's notice shall have been mailed by the company to the last known address of the insured, and of the assignee of record, if any." McDonnell v. Hawkeye Life Ins. Co., 64 S.W.2d 748; Crabtree v. Bankers Life Ins. Co., 128 S.W.2d 1089. (6) It is agreed that the annual premium of the policy was $215.67, and the insured elected to pay the premium semiannually and the defendant charged him $112.20, which would include interest in the sum of $8.73. In other words, the insured paid the semiannual premium claimed by the defendant to be due on December 9th of each year, leaving $107.83 due to be paid at the end of six months, and the interest on this sum at the legal rate of 6 per cent per annum would be $3.23, and the defendant charged him at the rate of 16.4 per cent or $8.73, and, therefore, this overcharge of interest is void, and the plaintiff is entitled to credit on the loan for said amount. The defendant is not entitled to any more consideration than any other money lender, and all it has a right to collect for the forbearance of money is interest. Emig v. Mutual Benefit Life Ins. Co., 127 Ky. 588, 106 S.W. 230; New York Life Ins. Co. v. Curry, 115 Ky. 100, 72 S.W. 736. (7) The collection of the above interest is usurious and void, and in determining whether it is usurious, the court will disregard the form and look only to the substance of the transaction. Securities Inv. Co. v. Rottweiler, 7 S.W.2d 484; R.S. 1939, secs. 3229, 3231. (8) By charging usurious interest the lien of defendant on the cash value of the policy became void, and it had no right to enforce it against the reserve, or cash value of the policy. This left the entire reserve intact to be used to carry the policy as extended or term insurance and the defendant had only a personal claim against the insured. R.S. 1939, sec. 3231; Western Storage Warehouse Co. v. Glasner, 169 Mo. 38, 68 S.W. 917; Securities Inv. Co. v. Rottweiler, 7 S.W.2d 484; Bahl v. Miles, 6 S.W.2d 661. (9) The policy provides that in the event of the default in the payment of the premium after two years, if the insured does not elect to take one of the other options it is carried as extended term insurance.
Fordyce, White, Mayne, Williams Hartman and R.E. LaDriere for respondent; Harry Cole Bates of counsel.
(1) The amount of insurance is $5557 and not $6000, as claimed by the plaintiff; therefore, the loan value is $328. Kapralian v. Central Life Ins. Co. of Ill., 267 N.W. 598, 276 Mich. 85; State ex rel. Clark v. Becker, 73 S.W.2d 769, 335 Mo. 785; Adams v. Ohio Natl. Life Ins. Co., 105 S.W.2d 64, 231 Mo. App. 881; Columbian Natl. Life Ins. Co. v. Griffith, 73 F.2d 244. (2) There was not sufficient difference between the cash value at the end of three years on $6000 of insurance and the cash value on $5557, to keep the policy for either of these amounts in force to the date of death of the insured. Heuring v. Central States Life Ins. Co., 120 S.W.2d 176; McQueeny v. Natl. Fidelity Life Ins. Co., 166 S.W.2d 461. (3) There was no forfeiture of the insurance on the theory that the loan and interest exceeded the cash value, but the policy simply lapsed for nonpayment of the premium which was due and there was no value to keep any insurance in force. Vail v. Midland Life Ins. Co., 108 S.W.2d 147; Rick v. John Hancock Mutual Life Ins. Co., 93 S.W.2d 1126, 230 Mo. App. 1084; Gibson v. Kansas City Life Ins. Co., 136 S.W.2d 131; McDonnell v. Hawkeye Life Ins. Co., 64 S.W.2d 748; Crabtree v. Bankers Life Ins. Co., 128 S.W.2d 1089; Dougherty v. Mutual Life Ins. Co. of N.Y., 44 S.W.2d 206; Coons v. Home Life Ins. Co. of New York, 13 N.E.2d 482; Palmer v. Central Life Assur. Society of United States, 258 N.W. 932, 193 Minn. 306; Neighbors v. Union Central Life Ins. Co., 69 S.W.2d 618, 17 Tenn. App. 612; Boring v. Kentucky Home Mut. Life Ins. Co., 7 So.2d 587; Brisbay v. Prudential Ins. Co. of America, 89 S.W.2d 642, 262 Ky. 161; General American Life Ins. Co. v. Brown, 56 P.2d 809; Merz v. Prudential Ins. Co. of America, 57 P.2d 747; Strong v. Hercules Life Ins. Co., 280 N.W. 55, 284 Mich. 573; Smith v. John Hancock Mut. Life Ins. Co., 114 S.W.2d 15 (Ark.), l.c. 17; Penn Mutual Life Ins. Co. v. Fiquett, 155 So. 703, 229 Ala. 203; Toole v. Natl. Life Ins. Co. of United States of America, 14 P.2d 468, 169 Wn. 627; Phillips v. Prudential Ins. Co. of America, 8 N.E.2d 450, 54 Ohio App. 554; Columbus Mut. Life Ins. Co. v. Hines, 129 Ohio St. 472, 196 N.E. 158; Moss v. Aetna Life Ins. Co., 73 F.2d 339; Hawthorne v. Bankers Life Co., 63 F.2d 971; Mayers v. Mass. Mutual Life Ins. Co., 11 F. Supp. 80; Shira v. New York Life Ins. Co., 15 F. Supp. 259; Pacific Mut. Life Ins. Co. v. Davin, 5 F.2d 481. (4) There was no overcharge or unauthorized interest in selling the insured an insurance policy for a premium proportionately larger on a semi-annual than on an annual basis. Sec. 3232, R.S. 1939; Benz v. Powell, 93 S.W.2d 877, 338 Mo. 1032; Goldman v. Indemnity Ins. Co., 72 S.W.2d 866; Kelly v. United Mutual Ins. Assn., 112 S.W.2d 929; Henry v. First Natl. Bank, 115 S.W.2d 121, 232 Mo. App. 1071; 3 Couch, Cyclopedia of Insurance, sec. 623, p. 1996; Worthington v. Charter Oak Ins. Co., 41 Conn. 372, 19 Am. Rep. 495; Noble v. Southern States Ins. Co., 157 Ky. 46, 162 S.W. 528; Serabian v. Metropolitan Life Ins. Co., 17 S.W.2d 646; Prange v. International Life Ins. Co., 46 S.W.2d 523; Mutual Life Ins. Co. v. Hill, 193 U.S. 511; Atkinson v. Metropolitan, 234 Mo. App. 357, 131 S.W.2d 349.
This case was heard and determined by the St. Louis Court of Appeals [170 S.W.2d 101] and transferred here because of the dissent of one of the judges of that court. We determine the case as though the appeal had properly come here in the first instance. [Mo. Const., Art. 6, Amendment of 1884, sec. 6.]
The suit is to recover five monthly payments aggregating $500.00, less a loan of $328.00, claimed to be due on a policy of insurance issued by respondent [defendant] on the life of Omar G. Robb with appellant [plaintiff] as beneficiary. On a trial by the court without a jury, on an agreed statement of facts, judgment was for defendant and plaintiff appealed.
The policy was dated December 9, 1931, and delivered to insured on January 9, 1932, at which time the first semiannual premium was paid. By the policy respondent promised to pay to insured, if living on December 9, 1968, or to the beneficiary upon due proof of prior death of the insured, the sum of $100.00, and thereafter the monthly sum of $100.00 until the total sum of $6,000.00 should be paid. On the face of the policy it was stated: "The commuted value of all the above payments is $5,557.00, herein called the amount of insurance". The policy provided for an annual premium of $215.67, but before it was delivered, at request of insured, the premiums were changed to a semiannual basis of $112.20. A table in the policy shows a cash or loan value at the end of the third year of $59.00 for each $1,000.00 of the amount of insurance. It was provided that upon default in the payment of any premium the policy would not be extended beyond a period of thirty-one days, but insured would [833] have the options of taking (a) the cash surrender value, (b) paid up participating endowment insurance, (c) paid up nonparticipating term insurance. If none of the options were exercised within three months after default, the insurance would automatically be extended under option (c) for such period as the cash surrender value, less any indebtedness, would purchase. Provision was made for policy loans and when such a loan with interest should equal the cash surrender value and insured failed to pay the interest due, the policy would become void, after one month's notice mailed to insured.
It was stipulated in the agreed statement that the premium due on December 9, 1934, (as claimed by respondent) or on January 9, 1935, (as claimed by appellant) was never paid and the policy thereby lapsed; that at the date of lapse there was a loan on the policy for $328.00; that insured died on September 13, 1935; that the application for the policy stated that the company would incur no liability until the policy was delivered, accepted, and the first premium paid.
Appellant makes the point, citing many cases, that the policy although dated December 9th did not become effective until its delivery on January 9th; that there was no default in the payment of premium until January 9, 1935; that respondent breached its contract by demanding payment of a premium on December 9, 1934, and lapsing the policy thirty-one days thereafter; and that this breach by respondent relieved insured of paying or tendering the premium to keep the policy in force.
The trouble with this contention is that there is nothing in the record to show that respondent demanded payment of a premium on December 9th, or lapsed the policy thirty-one days thereafter. Respondent took no positive action to lapse the policy and none was necessary under its terms. The agreed statement of facts expressly states that the policy lapsed for nonpayment of premium and it is immaterial whether the lapse took place thirty-one days after December 9th or thirty-one days after January 9th.
The appellant seems to hold the theory that the provision lapsing the policy for default in the payment of premiums must be construed in connection with another provision authorizing the respondent to cancel the policy for default in the payment of interest, on one month's notice, when a policy loan equals the cash surrender value; and, therefore, that the policy in the instant case did not lapse because no notice was given under the loan provision. That theory is directly contrary to the holding in the well considered opinion of the St. Louis Court of Appeals in Rick v. Ins. Co., 230 Mo. App. 1084, 93 S.W.2d 1126. The two provisions are separate and distinct, not inconsistent, and both should be given effect. Under the policy, upon default in the payment of the premium and the expiration of the ensuing period of grace, the policy lapsed without any notice to the insured, and that was true regardless of whether or not there was an existing policy loan. Upon lapse for nonpayment of premium, if the policy then had any surrender value, the insured was entitled to select one of the three options above noted and, as he failed to make such selection within the time required, the policy would be extended as nonparticipating term insurance for such time as the surrender value, if any, would purchase. It is agreed that the policy loan amounted to $328.00 at the date the policy lapsed. Respondent contends that the surrender value was also $328.00 at the date of the lapse, and, therefore, after deducting the loan nothing was left for the purchase of extended insurance. This contention is based on the assumption that the face amount of insurance is $5,557.00. The table of guaranteed values showing $59.00 per one thousand as the surrender value at the date of lapse. However, appellant claims that the face amount of insurance is $6,000.00 and the surrender value $354.00, leaving $26.00, after deducting the loan, to purchase extended insurance. Even if appellant is correct in claiming that the amount of insurance was $6,000.00, which we need not decide, the sum of $26.00 would have purchased extended insurance for not more than four months according to the table of values contained in the policy, and appellant makes no claim that this table is less favorable to the insured than the statutory method of calculating extended insurance. Indeed, appellant does not claim that $26.00 would have purchased extended insurance to the death of insured. As we understand it, appellant claims that the surrender value exceeded the loan indebtedness and accordingly respondent had no right to cancel the policy under the loan provision. As we have already pointed out, [834] this contention of appellant is based on a false premise, for the policy was not canceled under the loan provision; it lapsed for nonpayment of premium.
Finally, appellant makes the following contention:
"It is agreed that the annual premium of the policy was $215.67, and the insured elected to pay the premium semiannually and the defendant charged him $112.20, which would include interest in the sum of $8.73. In other words, the insured paid the semiannual premium claimed by the defendant to be due on December 9th of each year, leaving $107.83 due to be paid at the end of six months, and the interest on this sum at the legal rate of 6 per cent per annum would be $3.23, and the defendant charged him at the rate of 16.4 per cent or $8.73, and, therefore, this over-charge of interest is void, and the plaintiff is entitled to credit on the loan for said amount".
Appellant further says that by charging usurious interest the lien of respondent on the cash surrender value became void and left the entire reserve to be applied to the purchase of extended insurance.
Appellant does not charge that the policy loan which respondent made to insured was tainted with usury. Indeed, the record fails to show what rate of interest was charged on the policy loan. Appellant's claim of usury relates only to the amount of premiums charged. No case has been cited and we have been unable to find one wherein it is held that an excessive charge for insurance premiums constitutes usury. Appellant cites two Kentucky cases, Emig v. Mut. Life Ins. Co., 106 S.W. l.c. 233, and N.Y. Life Ins. Co. v. Curry, 72 S.W. l.c. 738, which hold that, as to policy loans, insurance companies must be treated in the same manner as other money lenders so far as questions of usury are concerned. That holding is sound, but is without application here. Appellant cites the case of Continental Casualty Co. v. Monarch Transfer Co. (Mo. App.), 23 S.W.2d 209, holding that acceptance of a policy, indemnifying insured for loss or liability from the acts of his employees for one year, obligated the insured to pay the premium. That holding was based on an entirely different contract from the one now being considered. The policy in this case constituted a contract whereby, in consideration of a down payment and on condition of the payment of specified sums for a certain number of years or until the prior death of the insured, the respondent agreed to pay to insured or to his beneficiary a certain sum of money in monthly installments. It was not a contract of insurance for one year with privilege of renewal from year to year by paying premiums, but a continuous, indivisible contract. [29 Am. Juris., p. 205, sec. 189; Insurance, 14 R.C.L., p. 957, sec. 129.] To create usury there must be a loan, express or implied. [Quinn v. Van Raalte, 276 Mo. 71, l.c. 104, 205 S.W. 59.] The issuance of a life insurance policy is not a sale, although it is often so called, but neither is it a loan to the insured of one or all the premiums which may thereafter become due, whether annually or otherwise. When this policy was issued and a semiannual premium collected, it could not have been known how long insured would live or whether any future premium would ever become due. Payment of premiums was necessary to keep the insurance in force, but the future premiums did not constitute debts. The insured entered into no agreement to pay them and he had the right to discontinue payment at any time without incurring personal liability. [Insurance, 29 Am. Juris., p. 327, sec. 377.]
We know of no reason to prevent an insurance company, so long as it does not run afoul of a valid regulation or statute as to rates, from making a greater difference than the permissible rate of interest between semiannual and annual premiums. Such charges do not constitute usury.
The judgment is affirmed. All concur.