Howley v. Scranton Life Ins. Co. , 357 Pa. 243 ( 1947 )

The policy of life insurance on which the present action is brought was issued on August 28, 1934. It provided for the annual payment of a premium of $217.39, but this was subsequently changed to payment in semi-annual instalments. The policy further provided that "If any premium or instalment thereof be not paid before the end of the period of grace, then this Policy shall immediately cease and becomevoid, and all premiums previously paid shall be forfeited to the Company, except as provided in this Policy." The period of grace referred to was for 31 days "during which time the Policy will remain in force."

Plaintiff failed to pay the instalment of premium due August 28, 1940. He had borrowed on the policy and an instalment of interest on his loan note also became due at that time but it likewise was not paid. On September 20 the Company wrote to plaintiff reminding him that the period of grace would expire September 28 and urging him to give the matter his prompt attention. He failed to respond to this warning, with the result that on September 28, both the premium and the interest on the loan note remaining unpaid, the policy, by its express terms, ceased and became void. It does not appear that the Company immediately notified plaintiff to that effect, but when an insured fails to pay a premium and the policy thereby ceases the company is under no obligation to give notice of forfeiture: Brams v. New York Life Insurance Co., 299 Pa. 11,148 A. 855. The policy in the present case provided for such notice only where forfeiture depended on plaintiff's failure to repay a loan or the interest thereon, not where it automatically resulted from a default in the payment of premiums.

On October 4 plaintiff visited the Company's office and of his own accord — realizing that the policy was no longer in effect — he signed an application for its reinstatement, expressly admitting therein that the policy had lapsed. He furnished a "Certificate of Health" in which he was asked the question: "Are you now in sound health?" His answer was "Yes". To the question: "Have you been ill or consulted a physician orphysicians during the past five years?" his answer was "No".

On October 8 the Company notified plaintiff that in addition to his Health Certificate it desired a medical health certificate from Dr. T. J. McDonnell; to obtain this it would have been necessary for him to appear before that doctor for examination. He paid no attention to this letter. On October 23 the Company repeated its request. He again ignored it. On November 1 the Company advised him that on receiving a certificate from Doctor McDonnell it would give his application for reinstatement prompt attention. He once more failed to respond. Finally, on November 11, the Company wrote to him that, since the policy was in default by reason of non-payment of the semi-annual premium and interest due August 28, "the available cash surrender value has been used to pay the outstanding loan, and the policy has automatically surrendered". Even then the Company held out to him a life-line for it added: "If you are not interested in restoring thiscase, kindly return the policy to us."

It need scarcely be stated, so far as this conditional request of the Company to return the policy is concerned, that the mere fact of its possession by either party had no bearing whatever on plaintiff's rights thereunder, for if it was not of any further force and effect its retention by plaintiff would not have been of any advantage to him; on the other hand, his handing over of the policy would not in itself defeat any rights to which he might be entitled in accordance with its provisions. On November 19 plaintiff returned the policy "for the purpose of automatic surrender". At the same time the Company paid him a dividend of $6.91, to which payment he was admittedly entitled.¹

The Company no doubt filed the policy in its "dead" files, for it had every reason to suppose that the case was ended. Nothing occurred for nearly two and a half years. On April 12, 1943 plaintiff's counsel wrote to the Company a letter in which, for the first time, it was represented that plaintiff had been totally and permanently disabled since January, 1939, more than four years before. The purpose of this claim was to take advantage of the rider on the policy which provided that "If, while this policy is in full force and effect and not otherwise, proof satisfactory to the Company shall have been furnished by or on behalf of the Insured . . . that . . . he has become and still is totally disabled . . . then and in such case, the Company shall . . . undertake: To waive thenceforth . . . all premiums of said Policy during such permanent total disability; and in case there shall have been delay in making claim for this relief, to waive, or refund if paid, the premium or instalments thereof, if any, which may have become due during the period of six months preceding the receipt . . . of such proof of permanent total disability".

The majority opinion interprets these clauses to mean that plaintiff could delay the making of a claim for disability even to a time after the policy was, according to its terms, no longer in force and effect. Let us assume, without discussing the point, that this construction is correct, and that, regardless of whether or not the policy had ceased, plaintiff had six months after default in which to furnish proof of disability. This would have extended the time for that purpose until February 28, 1941. But he did not furnish proof within that period, nor, as has already been stated, until more than two years thereafter. According to the majority opinion this additional delay is excused because the Company notified plaintiff on November 11, 1940, that "the policy has automatically surrendered," and it is said that by so doing plaintiff was falsely led to believe that the policy was void. But what are the facts? (1) Plaintiff himself had already recognized that the policy was not in force, for he expressly so stated in the "Certificate of Health" which he gave to the Company on October 4, 1940; it is obvious, therefore, that the letter of November 11 was not the cause of his believing that the policy had expired.² (2) So far from the statement in the Company's letter of November 11 being false, it was in fact wholly true, because the policy had ceased according to its express terms. The most that can be said is that, notwithstanding the termination of the policy, plaintiff still had until February 28, 1941, to prove that he had become totally disabled while the policy was still in force. Thus, by way of analogy, if a policy of fire insurance were to extend from July 1, 1946, to July 1, 1947, and it provided that the insured must give notice of a fire within ten days after it occurred, and a fire did occur on June 27, 1947, it is obvious that the policy would nevertheless expire, in accordance with its terms, on July 1, 1947, although the insured would still have until July 7, 1947, to give notice of the previous loss. So, in the present case, plaintiff's policy automatically became void on September 28, 1940, by reason of his default in the payment of the premium due August 28; the only right which he retained thereafter was to furnish a belated proof, up to February 28, 1941, of a permanent total disability that may have occurred prior to September 28, 1940; that right he would have, not because the policy remained inforce, but in spite of the fact that it had ceased. Upon such proof being made the Company, in performance of its undertaking, would waive payment of the premium and thereby restore the policy to the status of an effective obligation. How then was the Company guilty of any misrepresentation? After plaintiff had defaulted in the payment of the premium how was it in error in asserting that the policy had lapsed? How could it have imagined that plaintiff had become totally and permanently disabled when, so far from announcing that fact, he had given the Company a certificate in which he categorically asserted that he was then in sound health and had not been ill or consulted a physician during the preceding five years? How could the Company anticipate that more than two years later plaintiff would repudiate the certificate which he had thus voluntarily given and make a belated claim on a policy which had long since become void by reason of his own acts both of commission and omission? If the majority opinion properly represents the law plaintiff could furnish his proof of disability at the expiration of ten or twenty years with the same impunity, from a legal point of view, as at the expiration of the two or more years which he did in fact permit to elapse.

On the whole it seems to me that to give judicial sanction to a claim such as this is to make it impossible for any insurance company ever to know when its liability under a policy is at an end and whether, therefore, it is meeting the requirements of the statutory law in regard to its compulsory reserves.

In my opinion the decree of the court below should be affirmed.

Mr. Justice ALLEN M. STEARNE concurs in this dissenting opinion.

¹ It is said in the majority opinion that "he turned the policy over to defendant, without any consideration whatsoever." If the policy had ceased, what consideration should the Company have paid for the mere return of the paper on which the policy was written?

² Plaintiff testified to a telephone conversation he had with an agent of the Company in which he was told that the policy had become void, but this conversation also was in November, — at least a month after the "Certificate of Health" was given on October 4.