"is not a contract of insurance for a single year, with the
privilege of renewal from year to year by paying the annual
premium, but that it is an entire contract for assurance for life,
subject to discontinuance and forfeiture for nonpayment of any of
the stipulated premiums."
But, in the same case, the Court further said:
"In policies of life insurance, time is material and of the
essence of the contract, and nonpayment at the day involves
absolute forfeiture if such be the terms of the contract."
While conceding this to be the rule which would apply if an
action at law were brought upon the policy, the appellant insists
that she is entitled to be relieved in equity against a forfeiture
by reason of the excuses for nonpayment of the premium set out in
the bill, and this contention raises the sole question in this
case.
We cannot accede to the view of the appellant. Where a penalty
or a forfeiture is inserted in a contract merely to secure the
performance or enjoyment of a collateral object, the latter is
considered as the principal intent of the instrument, and the
penalty is deemed only as accessory.
Sloman v. Walter, 1
Bro.Ch. 418;
Sanders v. Pope, 12 Ves.Jr. 282;
Davis v.
West, id. 475;
Skinner v. Dayton, 2 Johns.
(N.Y.) Ch. 526.
But in every such case, the test by which to ascertain whether
relief can or cannot be had in equity is to consider whether
compensation can or cannot be made.
In
Rose v. Rose, Amb. 331, 332, Lord Hardwicke laid
down the rule thus:
"Equity will relieve against all penalties whatsoever; against
nonpayment of money at a day certain; against forfeitures of
copyholds; but they are all cases where the court can do it with
safety to the other party, for if the court cannot put him in as
good condition as if the agreement had been performed, the court
will not relieve."
A life insurance policy usually stipulates first for the payment
of premiums, second for their payment on a day certain,
Page 104 U. S. 91
and third for the forfeiture of the policy in default of
punctual payment. Such are the provisions of the policy which is
the basis of this suit.
Each of these provisions stands on precisely the same footing.
If the payment of the premiums and their payment on the day they
fall due are of the essence of the contract, so is the stipulation
for the release of the company from liability in default of
punctual payment. No compensation can be made a life insurance
company for the general want of punctuality on the part of its
patrons.
It was said in
New York Life Insurance Co. v. Statham,
supra, that
"promptness of payment is essential in the business of life
insurance. All the calculations of the insurance company are based
on the hypothesis of prompt payments. They not only calculate on
the receipt of premiums when due, but upon compounding interest
upon them. It is on this basis that they are enabled to offer
insurance at the favorable rates they do. Forfeiture for nonpayment
is a necessary means of protecting themselves from embarrassment.
Delinquency cannot be tolerated or redeemed except at the option of
the company."
If the assured can neglect payment at maturity and yet suffer no
loss or forfeiture, premiums will not be punctually paid. The
companies must have some efficient means of enforcing punctuality.
Hence their contracts usually provide for the forfeiture of the
policy upon default of prompt payment of the premiums. If they are
not allowed to enforce this forfeiture, they are deprived of the
means which they have reserved by their contract of compelling the
parties insured to meet their engagements. The provision,
therefore, for the release of the company from liability on a
failure of the insured to pay the premiums when due is of the very
essence and substance of the contract of life insurance. To hold
the company to its promise to pay the insurance notwithstanding the
default of the assured in making punctual payment of the premiums
is to destroy the very substance of the contract. This a court of
equity cannot do.
Wheeler v. Connecticut Mutual Life Insurance
Co., 82 N.Y. 543.
See also the opinion of Judge
Gholson in
Robert v. New England Life Insurance Co., 1
Disney (Ohio) 355.
Page 104 U. S. 92
It might as well undertake to release the assured from the
payment of premiums altogether as to relieve him from forfeiture of
his policy in default of punctual payment. The company is as much
entitled to the benefit of one stipulation as the other, because
both are necessary to enable it to keep its own obligations.
In a contract of life insurance, the insurer and assured both
take risks. The insurance company is bound to pay the entire
insurance money even though the party whose life is insured dies
the day after the execution of the policy and after the payment of
but a single premium.
The assured assumes the risk of paying premiums during the life
on which the insurance is taken even though their aggregate amount
should exceed the insurance money. He also takes the risk of the
forfeiture of his policy if the premiums are not paid on the day
they fall due.
The insurance company has the same claim to be relieved in
equity from loss resulting from risks assumed by it as the assured
has from loss consequent on the risks assumed by him.
Neither has any such right.
The bill is therefore based on a misconception of the powers of
a court of equity in such cases.
There is another answer to the case made by the bill. The
engagement of the insurance company was with Caroline Klein, and
not with Frederick W. Klein. It entered into no contract with the
latter. It agreed to pay Caroline Klein the insurance provided she
paid with punctuality the premiums. She was never incapacitated
from making payment. The alleged fact that she had no knowledge of
the existence and terms of the policy does not relieve her default.
If the fact be true, her ignorance resulted from the neglect of her
husband, who, in respect to this contract of insurance, was her
agent, in not informing her about the insurance upon his life and
the terms of the policy. The bill is therefore an effort by her to
obtain relief in equity against the appellee from the consequences
of the carelessness or neglect of her own agent.
We are of opinion that the decree of the circuit court is right,
and should be
Affirmed.