Northwestern Mut. Life Ins. Co.

Not overruled or negatively treated on appealinfoCoverage
Court of Appeals of the State of New YorkJun 17, 1910
199 N.Y. 188 (N.Y. 1910)
199 N.Y. 18892 N.E. 440

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Argued May 10, 1910

Decided June 17, 1910

James McCormick Mitchell for appellant.

Lincoln A. Groat and George H. Noyes for respondent.


This action is brought to reform a policy of insurance issued by the respondent to the appellant so as to make it conform to an alleged special contract for insurance issued to the appellant by the respondent's agent prior to said policy, and set forth in the foregoing statement of facts. The policy was issued on what was denominated the semi-tontine plan. In addition to providing for straight life insurance, it amongst other things gave the insured the right at the expiration of the tontine dividend period of fifteen years, to withdraw in cash the accumulated surplus apportioned by the company to the policy. It provided that such share in the surplus should be fixed according to the company's usage, and this meant that its amount would be contingent on the experience and profits of the company during such period of accumulation. The specific complaint against the policy is that it does thus make appellant's share in the surplus at the end of the tontine period which had arrived before this action was commenced, contingent and much less than the amount of such surplus as it is claimed it was guaranteed and fixed in said "special contract," and the particular reformation which appellant desires is that this contingency as to the amount of his share in the surplus shall be eliminated, and that the absolute sum claimed to be fixed by the "special contract" shall be incorporated into the policy.

The trial court found that there were no grounds entitling appellant to the relief sought by him, and this court agrees with that conclusion.

As appears, plaintiff's claim for relief rests on the "contract" delivered to him before the policy was issued. If that paper issued by respondent's agent was not binding on it as a final expression of the rights of the parties, or if it did not in fact guarantee and fix appellant's share in the surplus at a certain sum, or if after it was issued, whatever its original force and effect, appellant nullified it by applying for a policy of insurance such as he in fact received and kept for many years without any complaint, then this action cannot be maintained.

This "special contract" was issued by one of respondent's agents in the course of negotiations between him and appellant relating to the latter's taking out life insurance. It is claimed by the respondent, and has been found in effect, that this paper was simply a statement designed to be explanatory of what appellant could secure from respondent in the way of life insurance and was not intended to be a contract, and that the agent had no authority to make any special contract of insurance. While to my mind it seems clear that this paper was simply part and parcel of a series of negotiations designed finally to lead up to the policy of insurance, and was not intended to be any final contract, still, inasmuch as it was prepared on a blank furnished by the company and had the heading "Special Contract," I shall assume that its issue by the agent was authorized, and that it was binding on the company according to its true force and meaning. This leads, first, to a consideration of the paper and to the determination whether it does guarantee a fixed sum in the surplus.

As has already been stated, the paper by its terms treated of insurance, "15 Payment Life; 15 Year semi-Tontine." This meant straight life insurance with a tontine feature, and under the latter, as provided by the paper, the insured at the termination of the accumulative period of fifteen years had the right to select any one of three options of settlement, of which only two are material. The first one entitled him to a "Reserve" of $21,215.70 and a "Surplus" figured at $25,810.80, which is the item in dispute. It was, however, significantly stated in this paper, "Reserve guaranteed and amount stated in policy. Surplus guaranteed, amount estimated, based on past experience." The third option, which is the one appellant seeks to take advantage of, read, "Paid-up policy for $30,000.00 and cash $25,810.80, with annual dividend during life on the paid-up policy under 2nd and 3rd options." Thus it will be noted that while that option states the item of cash, and which constitutes the share in the surplus, simply at a fixed sum of $25,810.80, those figures are the same figures and constitute the same item which had already been referred to in the first option as the item of surplus and in which option it had been distinctly stated that while some surplus was guaranteed, the amount was "estimated, based on past experience." While it doubtless would have been more complete and perfect if in stating this third option and referring to the cash or tontine plan therein provided for it had again been stated that this sum was estimated and based on experience, still the identity of this sum with the surplus item of the same amount stated in the first option was obvious and as it had been stated in such first option that the sum was estimated there could be no misunderstanding of this fact when such item was again given in the third option. I think this is plain on the face of the paper and that appellant who is found to have understood the nature of a tontine policy and which as one of its underlying principles involves the uncertainty of a given share in the surplus until the end of a fixed period, never could have understood otherwise than that this amount was estimated and uncertain rather than definite and fixed. Certainly there is no opportunity for any actual doubt about this because the finding is and the evidence clearly shows that the agent discussed with him fully the nature of a tontine policy and made it clear that his share in any surplus was contingent on the experience and profits of the company during the accumulative period. Appellant was not unused to these questions for at this time he had already been carrying for years with this same respondent a policy which involved the tontine element. This contract, it is true, also contained the clause, "the third option will secure a paid-up policy for $30,000.00, which will draw large annual cash dividends together with $25,810.80 in cash," but what has already been said in reference to the prior statement in said paper of said third option applies to this clause.

Therefore, it seems to me that on this proposition the appellant did not establish his case; that the contract did not on its face purport by guaranteeing a fixed amount of surplus to overthrow the very fundamental principle of tontine insurance that a policyholder at the end of his period should get a cash payment dependent on what had happened during that period to and concerning other associated policyholders, but rather expressed his share to be estimated and dependent on such contingencies, and, therefore, there was no variance between it and the policy in this respect.

But if we should view this paper otherwise, and should conclude that it apparently provided for a fixed share of surplus, of course appellant had the right in taking out his policy to treat the latter as his final contract and to waive or eliminate this fixed provision and accept the rights ordinarily given to the holder of a tontine policy, and this in my judgment is what he did do.

After this preliminary paper was delivered to him, as if in full appreciation that it still remained for him to deal directly with the company concerning his policy of insurance, he made a formal application in writing addressed to the company for such insurance. The court has found that "at the time he signed and delivered * * * his said application for insurance * * * he understood that he would, if his application for insurance * * * was approved by the defendant company, receive from it a written policy of insurance which in itself would embody and contain each and all of the terms and conditions of his contract for insurance with the defendant." This, of course, is obvious. It might almost be said as a matter of law that when the appellant made formal and complete application for a policy of insurance, he knew that if his application resulted in anything it would be a policy defining his rights with the company. This application amongst other things enumerated the form of the policy which was to be issued. It described the kind of policy — "Amount $30,000.00. Kind 15 P.L. 15 Yr. S.T." These initials and abbreviations stood for the terms written out in full in the so-called "special contract," "Fifteen Payment Life and Fifteen Year semi-Tontine." He, therefore, knew that he was applying for a policy which involved the tontine principle. The court has found and the evidence shows that he fully understood that under the fundamental principles of tontine insurance his share of the surplus to be paid at the end of the accumulative period must be uncertain and fixed only by the experiences and profits of the company during that period. This was the natural and ordinary meaning of the policy which he described in his application. Any other feature in such policy such as the guaranty of some specific sum as is now claimed would not only be unusual but would be a violation of the very theory of the insurance which he was seeking. Certainly, if he was applying for such an unusual form of policy as he now claims to have been entitled to, he should have used appropriate terms. Under the specific provision in his application that "no statements, representations or information made or given by or to the person soliciting or taking this application for a policy, or to any other person, shall be binding on the Company, or in any manner affect its rights, unless such statements, representations or information be reduced to writing, and presented to the officers of the Company at the Home Office in this application," ordinary prudence if not an absolute duty required that some reference should be made to his so-called "special contract" if relied upon as determinative of his rights and of the form of policy to which he was entitled, but none was ever made. In no form or manner did he say to the company to which he recognized he must apply, as he did, that he claimed to be entitled to a special provision concerning this item of surplus. Not having done this, but having made application for a policy such as he accepted and retained and of the form of which he cannot under the circumstances plead ignorance ( Avery v. Equitable Life Assur. Socy. 117 N.Y. 451, 459), he strongly confirms the respondent's claim that the so-called "special contract" was understood not to be more than a prospectus or preliminary statement, and he certainly deprives himself, as found by the court, of the right to plead that in receiving what he freely and voluntarily asked for as the binding expression of the relations between him and the insurance company he was deceived or misled because it did not conform to some prior instrument.

It may be regarded as a subject for adverse criticism that the company labeled as a "special contract" that which it now claims was only a prospectus or preliminary statement. Apparently the company was willing to appeal to the vanity and sense of thrift of each proposed customer by giving an appearance of "special" importance to what was as a matter of fact general and common to every one who desired it. This method of puffing doubtless is not to be commended, nor is it in all probability confined to sellers of life insurance. What may seem to us to be a violation of some rule of ethics, however, does not become a basis for equitable relief in such a case as this unless it has been made the means of some substantial fraud or deception, and that has not happened here. Appellant was not entirely inexperienced and unsophisticated in life insurance matters. He had had dealings with the respondent in connection with a prior similar policy, and, as already pointed out, he must be assumed to have understood that if he had obtained a preliminary contract guaranteeing at a fixed sum his share in the surplus, that contract was not in accordance with the general principles of tontine insurance nor in accordance with the policy for which he was making formal application.

Further, while appellant alleges that he was ignorant of the terms of his policy for eleven years after he had accepted it, and during which period he was paying upwards of $2,000 a year by way of premiums, it is conceded that at the expiration of that period he learned fully of its terms and provisions, and knew that, on his present claims, he had been defrauded and was entitled to institute this action for the reformation of the policy. He did not, however, do this for nearly four years. Instead, he waited until the completion of the accumulative period had demonstrated what his share of the surplus would be on the contingent plan adopted by the company in its policy, and the thought quite forcibly intrudes itself on the mind that he had become sufficiently reconciled to the idea of tontine speculation so that he was willing at least to delay proper assertion of his legal rights until it should have become apparent whether the uncertain profits to which he might be entitled under the policy might not after all be greater and more advantageous for him than the fixed sum to which he claims to have been entitled under the so-called special contract, and it thus become undesirable to attempt to enforce the latter. In view of his apparent ability and willingness thus to take a comprehensive and practical survey of the situation and select therefrom a course designed to keep within his reach two contradictory theories of his rights for four years and until later events should show which was the more advantageous, it is difficult to believe that appellant was misled by any terms of flattering exaggeration into a misunderstanding of the real nature of the "special" contract or into believing that it survived the application for and receipt of a formal policy of insurance which, according to common knowledge, would set forth all of his rights in great detail. It is equally difficult to avoid recalling what was said in the Avery Case ( supra) under somewhat similar circumstances: "The fact of the acceptance and retention of the policy during that period of time, (the fifteen-year accumulative period) without taking any steps for a reformation, deprives the case of equitable features and seriously assails the good faith of the plaintiff in (his) her present attempt to charge the defendant with a liability, inconsistent with the terms of its contract." (p. 461).

The judgment should be affirmed, with costs.

I dissent from the decision about to be made, deeming the judgments below to be erroneous for the following reasons:

1. If the so-called special contract was in fact a contract there can be no doubt as to the agent's power to enter into a contract with the plaintiff in accordance with its terms. The instrument was a printed form given by the defendant to its agents for delivery to persons soliciting insurance, the only blanks being the name of the person to whom it was to be delivered, the amount of insurance sought and the amounts payable under the options mentioned in the instrument. At the end was printed the defendant's name with a blank for the name of the particular agent who might execute it. In this case the agent did nothing except that which the defendant expressly authorized him to do by furnishing him the blank form. The finding of lack of authority on the part of the agent was, therefore, erroneous.

2. The character of the instrument. On its face the instrument purports not only to be a contract but a special contract with a particular individual. If the defendant intended the paper as a mere prospectus it should have been so denominated, but to call it a contract if not intended as such was to practice deception and a fraud on those with whom the defendant's agents might deal. The form of the instrument, leaving a blank to be signed by the particular agent who might deliver it, also tended to show that the instrument was one imposing obligations on the defendant. Besides this, though the blank form was printed it was printed to imitate typewriting, thus conveying to any one who might negotiate with the defendant's agents the belief that this, so far from being a general prospectus, was an exceptional contract especially prepared for him. To allow the defendant to now repudiate its character would permit it to profit by its own fraud. When the plaintiff accepted this instrument and delivered to the agent the premium a valid contract between the parties was created subject to the implied qualification that the plaintiff should satisfactorily pass the medical examination. The plaintiff would not be at liberty to recall the premium without the consent of the defendant and, equally, the defendant was obliged to issue insurance to him on the conditions specified in the written contract. Such preliminary agreements for insurance are valid and enforceable. ( Train v. Holland Purchase Ins. Co., 62 N.Y. 598. )

3. Construction of the contract. The contract was prepared by the defendant and it is elementary law that it should be construed most favorably to the other party. This has been so frequently declared, especially in the case of insurance policies, that a citation of authorities is unnecessary. If we suppose that "Tontine" as applied to life insurance has acquired a definite meaning of such common knowledge that every one taking out insurance is bound to understand its import, it is very certain that the same is not at all true of "semi-Tontine." Tontine as defined by the dictionaries is an annuity of survivorship where the ultimate survivor takes the whole. Of course, this definition cannot apply in full force to insurance, but by its use there is naturally to be implied that survivorship till the end of the tontine period secures advantages. In such case the extent of the advantage secured by a survivorship would be contingent and problematical. The agreement, however, was not for a tontine policy, but for a semi-tontine policy, and a semi-tontine policy the one before us certainly is not, whether the contract be construed in accordance with the defendant's claim or with that of the plaintiff. Three options were reserved by the contract. Under the first the amount payable to the plaintiff was contingent; under the second the amount of the insurance to be issued absolute; the third is the subject of the controversy. Therefore, in reality, the only question in this case is whether the policy promised was one-third tontine or two-thirds tontine, and the plaintiff's construction approximates just as closely to a semi-tontine policy as does that of the defendant. But there are considerations much more controlling than refined distinctions as to the definition of terms. The statement "Surplus guaranteed, amount estimated, based on past experience," is not made applicable to the whole series of options but only to the first, while as to the third the contract concludes: "The third option will secure a paid-up policy for $30,000, which will draw large annual cash dividends, together with $25,810.80 in cash." It is difficult to imagine a more positive affirmation excluding all contingency than that which has been quoted, and it is the settled law that the use of even legal expressions in a policy may be controlled and overcome by the use of inconsistent provisions. ( Fitch v. Am. Pop. Life Ins. Co., 59 N.Y. 557.) Contrasted with the prospectus in the case of Avery v. Equitable Life Assurance Society ( 117 N.Y. 451) that instrument and the one now before us are as far asunder as the poles. That in the Avery case was headed in large type "Tontine Savings Fund" followed immediately over the body of the instrument by the words "Estimated results." The provisions of the prospectus equally clearly show that all the insured would be entitled to at the expiration of the tontine policy was his share of the surplus, not any definite sum. That prospectus may have been optimistic, but it was honest. The same cannot be said of the instrument before us unless the obligation to pay a sum certain was absolute. The suggestion that the plaintiff's claim in some manner infringes upon or impairs the rights of others who may have been insured in his class may be summarily disposed of. The relation between the company and an insured under this form of policy is not that of a trustee and cestui que trust, but merely of debtor and creditor. ( Uhlman v. N.Y. Life Ins. Co., 109 N.Y. 421.) What I have said equally answers the claim, that by the form of the plaintiff's application and the character of the policy he sought, he disposed of his rights under the special contract.

Lastly we are brought to the question of laches or waiver. It is sufficient to say that the trial court made no finding on these matters. Under the circumstances of this case, bearing in mind that the plaintiff had an absolute contract controlling the terms of any policy that might be issued to him, whether he was guilty of laches in failing to examine the terms of his policy was a question of fact in the determination of which conflicting inferences might be drawn. In such case it is settled that this court cannot make findings on conflicting evidence to support a judgment on a theory upon which it was not decided in the courts below ( Armstrong v. Du Bois, 90 N.Y. 95; Clemans v. Supreme Assembly, 131 N.Y. 485; Hollister v. Mott, 132 N.Y. 18), especially now that by constitutional limitations our power is restricted to the determination of questions of law.

I cannot but believe that when the defendant effected this insurance it expected to faithfully live up to its contract, believing that past experience warranted it in entering into unqualified obligations as to the amount payable to the insured, and that, as unfortunately too often occurs, finding that the expectations of the past had not been realized in the present, under stress of supposed necessity it has claimed an interpretation of its contract that under more favorable circumstances it never would have advanced. If, however, I am wrong in giving the defendant credit for original integrity of intention, then I must say that its conduct in effecting this insurance, the various devices and false statements it has adopted to entrap the insured, are inconsistent with honesty to such a degree as to contravene not merely ethical standards but legal obligations.

WERNER, WILLARD BARTLETT and CHASE, JJ., concur with HISCOCK, J.; HAIGHT, J., concurs with CULLEN, Ch. J.

Judgment affirmed, with costs.