Johnson v. New York Life Insurance Company

This was an action upon a policy of insurance upon the life of Frank C. Johnson, dated December 27, 1890, whereby the defendant insured his life in the sum of $25,000 for the benefit of his executors, administrators, or assigns. This policy was assigned to the plaintiff in 1895, and on September 28, 1896, Johnson died. The annual premium was fixed at $1,060, payable in advance on November 11 of each year. There was the usual provision for forfeiture in case of nonpayment of premiums. The premium was paid on November 11, 1892, but no payments were made thereafter. After Johnson's death, and on February 20, 1897, plaintiff tendered the past-due premiums with interest thereon, which defendant refused to accept, and this action was begun.

The insurance company was incorporated under the laws of the state of New York, the policy was issued in that state, and the application contained an agreement that the contract contained in such policy and in the application should be construed according to the laws of the state of New York,-the place of said contract being agreed to be the home office of the company in the city of New York.

Plaintiff, in reply to the defense of non-payment of premiums, relied upon the statute of 1877 of the state of New York, which we have heretofore had occasion to consider in several cases, and which provided that [chap. 321] 'no life insurance company doing business in the state of New York shall have power to declare forfeited or lapsed any policy hereafter issued or renewed, by reason of nonpayment of any annual premium or interest, or any portion thereof,' except upon a written notice to the insured stating the amount of the premium due on the plicy, the place where it should be paid, and the person to whom the same was payable, with the further proviso that 'no such policy shall in any case be forfeited. . . or lapsed, until the expiration of thirty days after the mailing of such notice.'

There was, however, in the state of New York another statute, commonly known as the net reserve law, giving to holders of life insurance which had been in force three full years the benefit of the net reserve on their lapsed or forfeited policies, by extending the life of the policy beyond the time of the default.

The policy in question contained a stipulation that 'if this policy shall lapse, or become forfeited for the nonpayment of any premium, after there have been paid thereon three full premiums,. . . a paid-up policy will be issued, on demand made, within six months after such lapse with surrender of this policy, under the same conditions as this policy, except as to payment of premiums. . . for such an amount as the net reserve on this policy at the time of lapse, computed by the American table of mortality, and interest at 4 1/2 per cent, after deducting all indebtedness to the company, will purchase as a single premium, at the present published rates of the company, at the age of the insured, at the time of lapse.'

On December 10, 1892, about two years after the policy was issued, Johnson requested the defendant, in writing, to extend to his policy 'the benefits of its accumulation policy.' In reply, the company issued a policy or certificate, extending to his policy the benefits of the accumulation policy plan, and providing that 'after this policy shall have been in force three full years, in case of nonpayment of any premium subsequently due, and upon the payment within thirty days thereafter to the company of any indebtedness to the company on account of this policy: 1, the insurance will be extended for the face amount, as provided in the table below; or, 2, on demand made within six months after such nonpayment of such premium dues with surrender of this policy, paid-up insurance will be issued for the reduced amount provided in said table; or, 3, the policy will be reinstated within the said six months upon payment of the overdue premium, with interest at the rate of 5 per cent per annum, if the insured is shown to the company to be in good health, by a letter from a physician in good standing.' By the 'table' above mentioned it was provided that if the premiums were paid to November 11, 1893, the insurance would be extended to May 11, 1896.

In this connection, the company insisted that the thirty days' notice law of New York had no application to the contract involved, because the policy sued upon was, at the request of the assured, converted into a paid-up policy for a fixed term, which term expired before the assured died.

Construing the certificate which extended to the original policy the benefits of the accumulation policy plan of the company, the supreme court held 'that the clause of the original policy providing for its forfeiture for the nonpayment of premiums was so far modified and changed that upon such failure the policy became a paid-up contract for the amount of the original insurance for a certain and definite time. On demand of the assured within a fixed period after default, he was given certain other options; but in default of such demand the term insurance, as stated, took effect. No such demand was made by Johnson. There was no forfeiture of Johnson's life contract, as appellee insists. By the terms of the agreement which he made, his life contract, upon his default in the payment of the premium due November 11, 1893, 'became transmuted into a paid-up policy for a term ending May 11, 1896. . . . The benefits of that statute' (for thirty days' notice) 'were given only to policies which had lapsed or been forfeited for nonpayment of premium, debt or interest; and the notice had to be given, to effect this forfeiture or fix such lapse. After the default the life contract continued in force until it was determined according to the statute. . . . In the case at bar, under the modified contract, immediately on default in payment of the premium of 1893, the policy became a paid-up contract for a term; and, if the assured had died within such term, plaintiff could recover without payment of the defaulted premiums. Here the life contract did not run beyond the default day. No act of the company was necessary to put the term insurance in force. It went into effect by reason of the contract. . . . Adopting an illustration of the learned trial judge, if Johnson had died on May 10, 1896, plaintiff could have recovered the full face of this policy without any further payment being required of her. . . . The notice is required only when it is sought to declare the contract forfeited or lapsed. Our conclusion is that this was a policy for a term that expired before Johnson's death, and therefore plaintiff has no right of recovery.' 109 Iowa, 708, 50 L. R. A. 99, 78 N. W. 905.

Mr. Constantine J. Smyth for plaintiff in error.

Messrs. James H. McIntosh, George W. Hubbell, and Frederic D. McKenney for defendant in error.

Mr. Justice Brown delivered the opinion of the court: