1. A person who has procured a policy of insurance on his life
cannot assign it to parties who have no insurable interest in his
life.
Cammack v.
Lewis, 15 Wall. 643, cited and approved.
2. The plaintiff's intestate, on procuring an insurance upon his
life, entered into an agreement with a firm whereby the latter was
to pay all fees and assessments payable to the underwriters on the
policy and to receive nine-tenths of the amount due thereon at his
death. Pursuant to the agreement, he executed an assignment of the
policy (
infra, p.
104 U. S. 777), and the firm paid the fees and
assessments. On his death, the firm collected from the underwriters
nine-tenths of the amount due on the policy, and his administrator
sued the firm therefor. The parties to the agreement did not
thereby design to perpetrate a fraud upon anyone.
Held
that the plaintiff was entitled to recover from the firm the moneys
so collected with interest thereon, less the sums advanced by the
firm.
Warnock, the plaintiff, is the administrator of the estate of
Henry L. Crosser, deceased, and a resident of Kentucky. Davis and
the other defendants are partners, under the name of the Scioto
Trust Association, of Portsmouth, Ohio, and reside in that state.
On the 27th of February, 1872, Crosser applied to the Protection
Life Insurance Company of Chicago, a corporation created under the
laws of Illinois, for a policy on his life to the amount of $5,000,
and on the same day entered into the following agreement with the
Scioto Trust Association:
"This agreement, by and between Henry L. Crosser, of the first
part, 27 years old, tanner by occupation, residing at Town of
Springville, County of Greenup, State of Kentucky, and the Scioto
Trust Association, of Portsmouth, Ohio, of the second part,
witnesses: said party of the first part having this day made
application to the Protection Life Insurance Company, of Chicago,
Illinois, for policy on his life, limited to the amount of
$5,000.00, hereby agrees to and with the Scioto Trust Association
that nine-tenths of the amount due and payable on said policy at
the time of the death of the party of the first part shall be the
absolute property of, and be paid by, said Protection Life
Insurance Company to said Scioto Trust Association, and shall be
said party of the first part be assigned and
Page 104 U. S. 776
transferred to said Scioto Trust Association, and the remaining
one-tenth part thereof shall be subject to whatever disposition
said party of the first part shall make thereof in his said
transfer and assignment of said policy; that the policy to be
issued on said application shall be delivered to and forever held
by said Scioto Trust Association, said party of the first part
hereby waiving and releasing and transferring and assigning to said
Scioto Trust Association all his right, title, and interest
whatever in and to said policy, and the moneys due and payable
thereon at the time of his death, save and except the one-tenth
part of such moneys being subject to his disposition as aforesaid;
also to keep the Scioto Trust Association constantly informed
concerning his residence, post office address, and removals; and
further that said party of the first part shall pay to the said
Scioto Trust Association a fee of $6.00 in hand on the execution
and delivery of this agreement, and annual dues of $2.50, to be
paid on the first of July of every year hereafter, and that in
default of such payments the amounts due by him for fees or dues
shall be a lien on and be deducted from his said one-tenth
part."
"In consideration whereof the said Scioto Trust Association, of
the second part, agrees to and with said party of the first part to
keep up and maintain said life insurance at their exclusive
expense, to pay all dues, fees, and assessments due and payable on
said policy, and to keep said party of the first part harmless from
the payment of such fees, dues, and assessments, and to procure the
payment of one-tenth part of the moneys due and payable on said
policy after the death of said party of the first part, when
obtained from and paid by said Protection Life Insurance Company,
to the party or parties entitled thereto, according to the
disposition made thereof by said party of the first part in his
said transfer and assignment of said policy, subject to the
aforesaid lien and deduction."
"It is hereby expressly understood and agreed by and between the
parties hereto that said Scioto Trust Association do not in any
manner obligate themselves to said party of the first part for the
performance by said Protection Life Insurance Company of its
promises or obligations contained in the policy issued on the
application of said party of the first part and herein referred
to."
"Witness our hands, this 27th day of February, A. D. 1872."
"HENRY L. CROSSER."
"THE SCIOTO TRUST ASSOCIATION"
"By A. MCFARLAND,
President"
"GEORGE DAVIS,
Treasurer"
Page 104 U. S. 777
The policy, bearing even date with the agreement, was issued to
Crosser, and on the following day he executed to the association
the following assignment:
"In consideration of the terms and stipulations of a certain
agreement concluded by and between the undersigned and the Scioto
Trust Association, of Portsmouth, Ohio, and for value received, I
hereby waive and release, transfer and assign to said Scioto Trust
Association all my right, title, and interest in and to the within
life insurance policy No. 3247, issued to me by the Protection Life
Insurance Company, of Chicago, Illinois, and all sum or sums of
money due, owing, and recoverable by virtue of said policy, save
and except the one-tenth part of the same, which tenth part, after
deducting therefore the amount, if any, which I may owe to said
Scioto Trust Association for fees or dues, shall be paid to Kate
Crosser, or, in case of her death, to such person or persons as the
law may direct. And I hereby constitute, without power of
revocation on my part, the said Scioto Trust Association my
attorney, with full power in their own name to collect and receipt
for the whole amount due and payable on said policy at the time of
my death, to keep and retain that portion thereof which is the
absolute and exclusive property of said Scioto Trust Association,
to-wit, nine-tenths thereof, and to pay the balance, one-tenth part
thereof, when thus obtained and received from the said Protection
Life Insurance Company, to the party or parties entitled thereto,
after first deducting therefrom, as above directed and stipulated,
the amount, if any, due from me at the time of my death to said
Scioto Trust Association for fees and dues."
"Witness my hand and seal, this 28th day of February, A.D.
1872."
"HENRY L CROSSER [SEAL]"
Crosser died on the 11th of September, 1873, and on the 16th of
May, 1874, the association collected from the company the amount of
the policy, namely, $5,000; one-tenth of which, $500, less certain
sums due under the agreement, was paid to the widow of the
deceased.
The present action is brought to recover the balance, which with
interest exceeds $5,000. The defendants admit the collection of the
money from the insurance company, but, to defeat the action, rely
upon the agreement mentioned, and the assignment of the policy
stipulated in it. The agreement and
Page 104 U. S. 778
assignment are specifically mentioned in the second and third of
the three defenses set up in their answer. The first defense
consists in a general allegation that Crosser assigned, in good
faith and for a valuable consideration, nine-tenths of the policy
to the defendants; that a power of attorney was at the time
executed to them to collect the remaining one-tenth and pay the
same over to his widow; and that after the collection of the amount
they had paid the one-tenth to her and taken her receipt for
it.
The case was tried by the court without the intervention of a
jury. On the trial, the plaintiff gave in evidence the deposition
of the receiver of the insurance company, who produced from the
papers in his custody the policy of insurance, the agreement and
assignment mentioned, the proofs presented to the company of the
death of the insured, and the receipt by the association of the
insurance money. There was no other testimony offered. The court
thereupon found for the defendants, to which finding the plaintiff
excepted. Judgment being entered thereon in their favor, the case
is brought to this Court for review.
MR. JUSTICE FIELD, after stating the facts, delivered the
opinion of the Court, as follows:
As seen from the statement of the case, the evidence before the
court was not conflicting, and it was only necessary to meet the
general allegations of the first defense. All the facts established
by it are admitted in the other defenses. The court could not have
ruled in favor of the defendants without holding that the agreement
between the deceased and the Scioto Trust Association was valid,
and that the assignment transferred to it the right to nine-tenths
of the money collected on the policy. For alleged error in these
particulars the plaintiff asks a reversal of the judgment.
The policy executed on the life of the deceased was a valid
contract, and as such was assignable by the assured to the
association as security for any sums lent to him, or advanced for
the premiums and assessments upon it. But it was not assignable
Page 104 U. S. 779
to the association for any other purpose. The association had no
insurable interest in the life of the deceased, and could not have
taken out a policy in its own name. Such a policy would constitute
what is termed a wager policy, or a mere speculative contract upon
the life of the assured, with a direct interest in its early
termination.
It is not easy to define with precision what will in all cases
constitute an insurable interest so as to take the contract out of
the class of wager policies. It may be stated generally, however,
to be such an interest, arising from the relations of the party
obtaining the insurance, either as creditor of or surety for the
assured, or from the ties of blood or marriage to him, as will
justify a reasonable expectation of advantage or benefit from the
continuance of his life. It is not necessary that the expectation
of advantage or benefit should be always capable of pecuniary
estimation, for a parent has an insurable interest in the life of
his child and a child in the life of his parent, a husband in the
life of his wife, and a wife in the life of her husband. The
natural affection in cases of this kind is considered as more
powerful -- as operating more efficaciously -- to protect the life
of the insured than any other consideration. But in all cases,
there must be a reasonable ground, founded upon the relations of
the parties to each other, either pecuniary or of blood or
affinity, to expect some benefit or advantage from the continuance
of the life of the assured. Otherwise the contract is a mere wager,
by which the party taking the policy is directly interested in the
early death of the assured. Such policies have a tendency to create
a desire for the event. They are therefore, independently of any
statute on the subject, condemned as being against public
policy.
The assignment of a policy to a party not having an insurable
interest is as objectionable as the taking out of a policy in his
name. Nor is its character changed because it is for a portion
merely of the insurance money. To the extent in which the assignee
stipulates for the proceeds of the policy beyond the sums advanced
by him, he stands in the position of one holding a wager policy.
The law might be readily evaded if the policy or an interest in it
could, in consideration of paying the premiums and assessments upon
it, and the promise
Page 104 U. S. 780
to pay upon the death of the assured a portion of its proceeds
to his representatives, be transferred so as to entitle the
assignee to retain the whole insurance money.
The question here presented has arisen, under somewhat different
circumstances, in several of the state courts, and there is a
conflict in their decisions. In
Franklin Life Insurance Company
v. Hazzard, which arose in Indiana, the policy of insurance,
which was for $3,000, contained the usual provision that if the
premiums were not paid at the times specified the policy would be
forfeited. The second premium was not paid, and the assured,
declaring that he had concluded not to keep up the policy, sold it
for twenty dollars to one having no insurable interest, who took an
assignment of it with the consent of the secretary of the insurance
company. The assignee subsequently settled with the company for the
unpaid premium. In a suit upon the policy, the supreme court of the
state held that the assignment was void, stating that all the
objections against the issuing of a policy to one upon the life of
another in whose life he has no insurable interest exist against
holding such a policy be mere purchase and assignment. "In either
case," said the court,
"the holder of such policy is interested in the death, rather
than the life, of the party assured. The law ought to be, and we
think it clearly is, opposed to such speculations in human
life."
41 Ind. 116. The court referred with approval to a decision of
the same purport by the Supreme Court of Massachusetts in
Stevens v. Warren, 101 Mass. 564. There, the question
presented was whether the assignment of a policy by the assured in
his lifetime, without the assent of the insurance company, conveyed
any right in law or equity to the proceeds when due. The court was
unanimously of opinion that it did not, holding that it was
contrary not only to the terms of the contract, but contrary to the
general policy of the law respecting insurance, in that it might
lead to gambling or speculative contracts upon the chances of human
life. The court also referred to provisions sometimes inserted in a
policy expressing that it is for the benefit of another, or is
payable to another than the representatives of the assured, and,
after remarking that the contract in such a case might be
sustained, said
"that the same would
Page 104 U. S. 781
probably be held in the case of an assignment with the assent of
the assurers. But if the assignee has no interest in the life of
the subject which would sustain a policy to himself, the assignment
would take effect only as a designation, by mutual agreement of the
parties, of the person who should be entitled to receive the
proceeds when due, instead of the personal representatives of the
deceased. And if it should appear that the arrangement was a cover
for a speculating risk, contravening the general policy of the law,
it would not be sustained."
Although the agreement between the Trust Association and the
assured was invalid as far as it provided for an absolute transfer
of nine-tenths of the proceeds of the policy upon the conditions
named, it was not of that fraudulent kind with respect to which the
courts regard the parties as alike culpable and refuse to interfere
with the results of their action. No fraud or deception upon anyone
was designed by the agreement, nor did its execution involve any
moral turpitude. It is one which must be treated as creating no
legal right to the proceeds of the policy beyond the sums advanced
upon its security, and the courts will therefore hold the recipient
of the moneys beyond those sums to account to the representatives
of the deceased. It was lawful for the association to advance to
the assured the sums payable to the insurance company on the policy
as they became due. It was also lawful for the assured to assign
the policy as security for their payment. The assignment was only
invalid as a transfer of the proceeds of the policy beyond what was
required to refund those sums, with interest. To hold it valid for
the whole proceeds would be to sanction speculative risks on human
life and encourage the evils for which wager policies are
condemned.
The decisions of the New York Court of Appeals are, we are
aware, opposed to this view. They hold that a valid policy of
insurance effected by a person upon his own life is assignable like
an ordinary chose in action, and that the assignee is entitled upon
the death of the assured to the full sum payable without regard to
the consideration given by him for the assignment, or to his
possession of any insurable interest in the life of the assured.
St. John v. American
Page 104 U. S. 782
Mutual Life Insurance Company, 13 N.Y. 31;
Valton
v. National Loan Fund Life Assurance Company, 20
id.
32. In the opinion in the first case, the court cite
Ashley v.
Ashley, 3 Simons 149, in support of its conclusions; and it
must be admitted that they are sustained by many other
adjudications. But if there be any sound reason for holding a
policy invalid when taken out by a party who has no interest in the
life of the assured, it is difficult to see why that reason is not
as cogent and operative against a party taking an assignment of a
policy upon the life of a person in which he has no interest. The
same ground which invalidates the one should invalidate the other
-- so far, at least, as to restrict the right of the assignee to
the sums actually advanced by him. In the conflict of decisions on
this subject we are free to follow the one which seem more fully in
accord with the general policy of the law against speculative
contracts upon human life.
In this conclusion we are supported by the decision in
Cammack v.
Lewis, 15 Wall. 643. There, a policy of life
insurance for $3,000, procured by a debtor at the suggestion of a
creditor to whom he owed $70, was assigned to the latter to secure
the debt, upon his promise to pay the premiums, and, in case of the
death of the assured, one-third of the proceeds to his widow. On
the death of the assured, the assignee collected the money from the
insurance company and paid to the widow $950 as her proportion
after deducting certain payments made. The widow, as administratrix
of the deceased's estate, subsequently sued for the balance of the
money collected, and recovered judgment. The case being brought to
this Court, it was held that the transaction, so far as the
creditor was concerned, for the excess beyond the debt owing to him
was a wagering policy, and that the creditor, in equity and good
conscience, should hold it only as security for what the debtor
owed him when it was assigned, and for such advances as he might
have afterwards made on account of it, and that the assignment was
valid only to that extent. This decision is in harmony with the
views expressed in this opinion.
The judgment of the court below will therefore be reversed and
the cause remanded with direction to enter a judgment for the
plaintiff for the amount collected from the insurance company,
Page 104 U. S. 783
with interest, after deducting the sum already paid to the
widow, and the several sums advanced by the defendants, and it
is
So ordered.
