Knickerbocker Life Insurance Company v. Pendleton/Opinion of the Court

The court instructed the jury, in substance and effect, that the insurance company, having accepted the draft or bill of Dr. Pendleton on his factors for the premium due on the policy, was in duty bound to pursue all the steps necessary to enable it to recover against him as drawer of said draft or bill, regarded as a bill of exchange under the law merchant — amongst which steps one was that of protesting the bill for non-acceptance, and another, that of protesting it for non payment. The court held that, whilst it was not necessary that the draft should have been presented for acceptance before maturity, yet that, having been so presented, and acceptance refused, the defendants ought to have had it regularly protested, and notice of dishonor given to the drawer. The court further held, that if the draft was presented for payment, and not paid, the defendants were bound to have had it regularly protested for non-payment. True, it was conceded, that the defendants might be excused from the performance of these duties if it were shown that the drawer had no funds in the hands of his factors, and had no reasonable expectation that his draft could be accepted. But, unless this excuse could be established, the doctrine of the charge was, that the defendants must have complied with all the before-mentioned formalities incident to commercial paper, in order to entitle them to the benefit of the condition for avoiding the policy.

As the drawer of the bill in this case was really interested in the policy on behalf of his children, we do not concur in the view taken by the court below, that a forfeiture of the policy required, on the part of the insurance company, as holders of the bill, the same diligence, and performance of the same acts, as were required of them to make the drawer liable upon it. For the latter purpose a regular protest for non-acceptance, or non-payment, or a proper excuse for omitting them, such as want of funds in the hands of the drawees, was undoubtedly necessary; for, according to the general law prevailing in this country, the draft was a foreign bill of exchange, being drawn by a person resident in one state upon persons resident in another. Buckner v. Finley, 2 Pet. 589; Dickins v. Beal, 10 Pet. 572, 579; Story, Bills, §§ 23, 465; 1 Daniel, Neg. Inst. pp. 7, 8, § 7. But whether the policy would not be forfeited without any such protest, or excuse for non-protest, is a different question, depending upon the contract of the parties. This contract was expressed on the face of the draft itself, which contained a statement that it was given for premium on policy No. 2,346, followed by this condition: 'which policy shall become void if this draft is not paid at maturity.' This was the condition, and the only condition on which the policy was to become void. The primary condition expressed in the policy itself, of forfeiture for non-payment of the premium on the day it became due, was waived by the receipt of the draft, and the consequent extension of the time thereby. The renewal receipt given when the draft was received was absolute, it is true, acknowledging the receipt of the premium, and declaring the policy continued in force for another year. But this receipt is explained by the actual transaction, the mode of payment being shown to be the making and delivery of the draft in question, having in it the condition above expressed, which condition was in exact accordance with the secondary condition contained in the policy, namely, 'failure to pay at maturity any note, obligation, or indebtedness (other than the annual credit or loan) for premium or interest hereon, shall then and thereafter cause this policy to be void, without notice to any party or parties interested herein.'

We think it clear, therefore, that, notwithstanding the renewal receipt, the condition expressed in the draft was binding on the insured. As we have shown, that condition was that the policy should become void if the draft was not paid at maturity. The draft, being without grace, matured on the fourteenth of October, 1871. If not paid on that day the policy was forfeited, unless it was the usage of the New Orleans banks to grant days of grace even when they were waived, of which there was some evidence on the trial. In such case the forfeiture would take place, if the draft were not paid on the seventeenth of October. Of course, it must be presented for payment on the one day or the other, for the drawees could not pay it unless it was presented, for they would not know where to find it. But supposing it to have been presented for payment, and payment refused by the drawees, then the condition of forfeiture was complete. Protest and notice of non-payment might be further necessary to hold the drawer, if the insurance company desired to hold him; but they were not necessary to the forfeiture. That occurred when non-payment at maturity or presentation occurred. The drawer, Pendleton, who took entire charge of the policy for his children, put its existence on the condition of payment of the draft at maturity; and it was his business, as agent or guardian of his children, to see that the draft was thus paid; that the requisite funds were in the hands of the drawees, or that they would pay it whether in funds or not. Such, we think, was the clear purport of the condition, and, as the court below took a different view, holding that the insurance company was bound not only to present the draft for payment, but to have it protested for non-payment before a forfeiture of the policy would ensue, the judgment must be reversed. What might have been the result had the bill of a stranger been taken in payment of the premium, is a different question which we are not now called upon to decide. It may be that in such a case the company would have been required to take all the steps necessary to fix the liability of all the parties to the bill.

With regard to the other points raised by the plaintiffs in error a few words will suffice.

(1) They contended at the trial, and contend here, that no presentment of the draft was necessary, because Pendleton had no funds in the hands of the drawees. The substance and effect of the charge given by the court on this point was that if Pendleton had a reasonable expectation that the draft would be accepted and paid as if there was an agreement between him and the drawees that they would accept his drafts, or a course of dealing between them, in which the drawees were accustomed to accept his drafts without reference to the state of their mutual accounts, he was entitled to demand and notice, or, according to our view of the principal point in the case, the insurance company was bound to present the draft for payment at its maturity. In this, we think, there was no error. The law is laid down substantially to the same effect in Dickins v. Beal, 10 Pet. 577; and see 2 Daniel, Neg. Inst. § 1074.

(2) The plaintiffs in error contend that as the draft was not accepted by the drawees when presented for acceptance, they were under no obligation to present it for payment at maturity. This would be so in an ordinary case of non-acceptance of a bill, provided it was followed up by protest and notice. But this particular draft or bill had a condition in it that the policy should be void if it were not paid at maturity, and the plaintiffs in error claimed the benefit of this condition. As forfeitures upon condition broken are to be strictly construed, the condition in this case could not be regarded as broken by the non-acceptance of the bill before maturity, but could only be broken by non-payment at maturity. The drawees might not have felt authorized to accept the bill when it was presented; and yet, when it came to maturity, in consequence of further advice from the drawer or other reasons, they might be ready and willing to pay it. The holders of the policy were entitled to this opportunity of obviating a forfeiture. We are of opinion, therefore, that the court below was right in holding that a presentment for payment was necessary, notwithstanding the non-acceptance.

(3) The plaintiffs in error further contend that the charge was erroneous in holding that no formal proof of the death of S. H. Pendleton was necessary in this case. On this point the charge was as follows: 'As to the proof of loss not being filed, it is conceded notice of the death was given. If, when that was done, the agents of the company repudiated all liability, and informed the parties that the policy had lapsed, then no proof of loss was required by them, and the failure to file it cannot alter the case.' We think that there was no error in this instruction. The weight of authority is in favor of the rule that a distinct denial of liability and refusal to pay on the ground that there is no contract, or that there is no liability, is a waiver of the condition requiring proof of the loss or death. It is equivalent to a declaration that they will not pay, though the proof be furnished. Tayloe v. ''Merchants' Fire Ins. Co.'' 9 How. 390, 403; Allegre v. ''Maryland Ins. Co.'' 6 Har. & J. 408; Norwich Co. v. ''Western Mass. Ins. Co. 34 Conn. 561; Thwing v. Great Western Ins. Co.'' 111 Mass. 93, 110; Brink v. ''Hanover Fire Ins. Co.'' 80 N. Y. 108; May, Ins. §§ 468, 469.

The preliminary proof of loss or death required by a policy is intended for the security of the insurers in paying the amount insured. If they refuse to pay at all, and base their refusal upon some distinct ground, without reference to the want or defect of the preliminary proof, the occasion for it ceases, and it will be deemed to be waived. And this can work no prejudice to the insurers, for in an action on the policy the plaintiff would be obliged to prove the death of the person whose life was insured, whether the preliminary proofs were exhibited or not. The judgment of the circuit court is reversed, and the cause remanded, with directions to award a new trial.