Lovell v. St. Louis Mut. Life Ins. Co.
111 U.S. 264 (1884)

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U.S. Supreme Court

Lovell v. St. Louis Mut. Life Ins. Co., 111 U.S. 264 (1884)

Lovell v. St. Louis Mutual Life Insurance Company

Submitted March 14, 1854

Decided April 14, 1884

111 U.S. 264

Syllabus

A policy of life insurance containing a provision that a default in payment of premiums shall not work a forfeiture, but that the sum insured shall then be reduced and commuted to the annual premiums paid, confers the right on the assured to convert the policy at any time, by notice to the insurer, into a paid-up policy for the amount of premiums paid.

The neglect to pay a premium on a policy of life insurance will not work a forfeiture of the policy if the neglect was caused by a representation made in good faith but without authority by an agent of the insurer that it would be converted by his principal into a paid-up policy on the basis of the premiums already paid in.

On the termination of its business by a life insurance company and the transfer of its assets and policies to another company, each policyholder may, if he desires, terminate his policy and maintain an action to recover from the assets such sum as he may be equitably entitled to.

In such case, the measure of damages will be the amount of premiums paid less the value of the insurance of which he enjoyed the benefit.

When one party to an executory contract prevents the performance of it or puts it out of his own power to perform it, the other party may regard it as terminated and demand whatever damages he has sustained thereby. United States v. Behan,110 U. S. 339, cited and affirmed.

This case was commenced by a bill in chancery filed by the appellants, Lovell and wife, citizens of Tennessee, against the St. Louis Mutual Life Insurance Company and the St. Louis Life Insurance Company, for relief in relation to a certain policy of insurance issued by the former company through an agent at Nashville, Tennessee, to Lovell on his own life for the sum of $5,000, for the benefit of his wife, and to be paid to her on his death. The policy was dated the 24th of April, 1868, and stipulated for the payment of an annual premium of $162.14, payable (in the words of the instrument) as follows:

"An annual premium note of $53, and a semiannual cash premium of $54.57 on the 24th days of April and October, the

Page 111 U. S. 265

first one of said notes, and the first semiannual cash premium, commencing with the date of this policy."

There was a condition in the policy that if, after the payment of the first three annual premiums, a default should be made in the payment of the annual premiums thereafter to become due, then (in the words of the condition)

"such default shall not work a forfeiture of this policy, but the sum of five thousand dollars, the amount insured, shall be then commuted or reduced to the sum of the annual premiums paid."

After setting out the policy the bill states the following facts. The premiums called for by the policy were all paid down to and including the 24th of April, 1873; a new premium note being given at the end of each year, and any dividends due to the insured being credited thereon, the company being a mutual one. At or shortly after the last payment, which was made to one Foote, agent of the company at Louisville, Kentucky, the agency at Nashville having been discontinued, Lovell made known to Foote his desire to receive a paid-up policy for what he was entitled to, and a return of his premium note; he and the agent agreeing, as had also been represented by the agent at Nashville, on the issuing of the policy, that all the money he had paid by way of premiums (amounting to $822, less the amount of his outstanding note) would be credited to him, and that he could have a paid-up policy for such amount, as that money, under the regulations of the company, would entitle him to if he had paid it all at once for a paid-up policy. With this view and understanding he surrendered his policy to the agent, to be transmitted to the home office at St. Louis, and exchanged for a paid-up policy in its stead. Lovell being engaged in steamboating on the Mississippi, gave the matter no further thought, supposing that it would be all right. But after some time he was surprised at receiving notice to pay the interest on his note, and on going to his home he found that, instead of a paid-up policy, the original policy had been returned, with an endorsement on the margin in the words and figures following:

"In default of payment of renewal premium due 24th October, 1873, this policy is commuted and reduced to eight hundred and

Page 111 U. S. 266

twentytwo dollars, on condition that the interest on outstanding premium notes is paid annually in advance."

"M. A. CAMPBELL, Assignee"

The complainant, Lovell, went to the agent at Louisville and protested against the course of the company, and insisted that he was to have received a paid-up policy and a return of his note; but the agent told him that since the agreement made with him for a paid-up policy the St. Louis Mutual Life Insurance Company had sold out to the Mound City Life Insurance Company (whose name was afterwards changed to the St. Louis Life Insurance Company), and that such a thing as issuing to him a paid-up policy, or even restoring or reinstating his policy, was wholly outside of the contract with the Mound City company, and that the policy was now forfeited.

The bill charges that after the original policy was surrendered for exchange as aforesaid, without the knowledge or consent of complainant, the St. Louis Mutual Life Insurance Company sold and transferred its entire assets, name, good will, etc., to the Mound City Life Insurance Company, before any interest had accrued on his premium note. The complainant insists that he has been guilty of no default that ought to work a forfeiture of his policy; and that the money paid by him on his policy should be refunded to him, with interest, and that his outstanding note should be delivered up to be cancelled. The bill further states that there is in the hands of William Morrow, Treasurer of the State of Tennessee, $20,000 of state bonds, held as the property of the insurance company, under the laws of Tennessee, as indemnity against loss to citizens of Tennessee on life policies such as that of complainant; he therefore prays for an attachment and an injunction to hold said fund subject to the orders of the court until the claim of the complainant is satisfied. The bill concludes with a prayer for general relief.

An attachment and injunction were issued as prayed, and the defendants appeared and answered the bill.

The answer does not question the material averments of the bill, and admits that the affairs of the St. Louis Mutual Life

Page 111 U. S. 267

Insurance Company having become greatly embarrassed, on the 7th of October, 1873, the superintendent of the Insurance Department of the State of Missouri filed in the Circuit Court of St. Louis County a petition setting forth that the company was insolvent, and praying for an injunction against its carrying on the business further, and that such injunction was issued, and that in due course the court pronounced the company insolvent, and restrained it from reinsuring its risks without the order and consent of the court. What further took place in reference to the affairs of the company is shown by the following extracts from the joint answer of the two companies -- that is to say:

"In the progress of said matter, said Frank P. Blair, superintendent as aforesaid, on December 13, 1873, filed his motion in said cause, praying said court to order said company to reinsure all the risks held by it in the Mound City Life Insurance Company upon the terms set forth in said motion, and allow him to dismiss his suit as aforesaid. Said terms were that said St. Louis Mutual Life Insurance Company should transfer to said Mound City Life Insurance Company all of its assets, real, personal, or mixed, wheresoever situated, and that in consideration of said transfer said Mound City Life Insurance Company, whose name was afterwards changed to the St. Louis Life Insurance Company, should reinsure all risks of said St. Louis Mutual Life Insurance Company, and assume all its liabilities and should for these purposes increase its capital stock to the sum of $1,000,000, such increase to be secured and paid according to the laws of the state of Missouri, and to the satisfaction of said superintendent. Said motion was duly considered by said court, and was ultimately granted."

"* * * *"

"No policyholder of said St. Louis Mutual Life Insurance Company and no stockholder therein appeared in opposition thereto, or made any objections, and said arrangement was accordingly fully consummated and carried out according to the terms of said motion."

"And said St. Louis Life Insurance Company in good faith undertook, and is now undertaking, so to carry out said arrangement, and to perform all the terms and conditions, covenants,

Page 111 U. S. 268

promises, and agreements thereof. All the stockholders of the said St. Louis Mutual Life Insurance Company have, in good faith, accepted the said transfer and reinsurance under the order of said court, and a very large majority of its policyholders, towit, more than 8,000, have surrendered their policies in it, and accepted policies in lieu from the St. Louis Life Insurance Company, which is, moreover, by the terms of its contract with the St. Louis Mutual Life Insurance Company so approved as aforesaid, directly liable on any and all policies issued by said last-mentioned company to the same extent as itself would have been."

"* * * *"

"Said contract was made, and said transfer and assumption of liabilities executed, and said increase of capital stock made, on or before January 17, 1874."

Lovell, being sworn as a witness in the cause, fully verified all the allegations of the bill, and there was no conflicting evidence. He showed that when he surrendered his policy, to be exchanged for a paid-up policy, in April, 1873, it was with the distinct understanding, both of himself and the agent of the company, that he was entitled to and would receive a paid-up policy for an amount which the aggregate sum of premiums paid, less the premium note would purchase if paid, as a single premium, and would also receive his premium note; and that the company kept his policy from the time of its surrender in April until after October, and after the company had become insolvent, and had been put under injunction, without giving him any notice that he would not receive what he supposed himself entitled to.

The cause came on to be heard before the circuit judge and district judge, holding the circuit court of the United States for the Middle District of Tennessee, and, the judges differing in opinion upon the questions arising in the case, in accordance with the opinion of the circuit judge, the bill of complaint was dismissed, and the following questions were certified for the opinion of this court, towit:

"1st. Whether, during the lifetime of complainant, James W.

Page 111 U. S. 269

Lovell, any suit is maintainable upon the policy of life insurance set forth in the record in this case."

"2d. Whether the insolvency of the St. Louis Mutual Life Insurance Company and its contract of reinsurance of December, 1873, with the Mound City Life Insurance Company, accompanied by the transfer, of the assets of the former to the latter company, as set forth in the record of this case, operated to confer upon complainants, or either of them, any right of action or suit against the St. Louis Mutual Life Insurance Company, or against the St. Louis Life Insurance Company."

"3d. Whether, if so, complainants can maintain this suit upon this record apart from the other policyholders of said St. Louis Mutual Life Insurance Company, whose policies were in force at the time of said reinsurance transaction, and who, equally with complainants, dissented therefrom."

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