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McGowan v. Prudential Insurance Co.

filed: January 30, 1967.

MCGOWAN
v.
PRUDENTIAL INSURANCE COMPANY OF AMERICA, APPELLANT



Smith, Freedman and Seitz, Circuit Judges.

Author: Seitz

SEITZ, Circuit Judge.

This is a diversity action governed by Pennsylvania law. Plaintiff-widow is the beneficiary of a life insurance policy issued by the defendant Prudential Insurance Company of America to her husband on July 11, 1956. Upon her husband's death the defendant paid the face value but refused to pay the accidental death and optional family income benefits because of a default in premium payments. Plaintiff obtained a jury verdict for such benefits on the submitted issue that defendant was estopped from raising the fact of non-payment. Defendant appeals.

Plaintiff and the insured knew defendant's agent Charles Wenk ("Wenk") as a neighbor when they lived in Chicago and he had successfully solicited policies from them. The policy in dispute was obtained through Wenk after the insured and plaintiff had moved to Pittsburgh.

The policy here involved is in the face amount of $10,000 with an accidental death benefit rider and an optional family income rider. These two riders are payable only if the stipulated premium payments are kept current. It did not have an automatic premium loan provision but it did have a loan value. When the policy was originally issued the premiums were payable annually. For the first two years (1956 and 1957) they were so paid through the Chicago agency of defendant where Wenk was employed.

On July 30, 1958, at the insured's written request, the premium payments were changed to a monthly basis, which came to $30.10. Each year thereafter the insured was issued a premium payment coupon book containing a separate coupon for each monthly payment which was to be mailed to the Pittsburgh Agency office of the defendant. Each coupon in the book recited, inter alia, as follows: "See inside back cover as to effect of failure to pay premiums". The provision referred to provided for a default after a 31 day grace period. The policy had a similar provision. For our purposes, it may be said that a default abrogated the accidental death and family income benefits of the policy.

Premiums were paid regularly on a monthly basis until April of 1961 when the insured changed his employment with resultant financial difficulties and premium defaults. On June 7, 1961, the insured paid the past due premiums and the policy was reinstated upon his application through defendant's Pittsburgh office.

When on July 11, 1961 the monthly payment came due, the plaintiff contacted Wenk in Chicago to see if the policy could be kept in force without payment of the premium. On July 18, 1961 Wenk wrote plaintiff a letter first discussing the other policies and then stating:

"On policy No. 29 128 710 on Charlie, send me that policy too. I think I can swing it so that I can keep the stuff in force without your having to pay an additional premium, or in fact, any money for the next year."

Apparently plaintiff sent Wenk the policy and Wenk submitted to Prudential an application to have an automatic premium loan provision endorsed upon the policy. On August 1, 1961, and apparently before defendant acted on the insured's application, Wenk wrote plaintiff as follows:

"Enclosed is the first contract on Kevin which we have corrected. Each policy now has the automatic loan provision included, and if you miss a premium payment, the Company will merely borrow your cash equity to make the payment. The other contracts will follow shortly.

"I am putting automatic premium loan on all of them and then when you and Charlie are in better financial shape, we will try and pay up the difference. I know you are worried about Charlie's life insurance and you can rest assured that I will make certain they will be kept on the books during your rough period of financial adjustment.

"Listen old pal, don't worry about money because I am glad to send you anything you need in the interim. That's what friends are for. * * *"

Shortly thereafter Wenk learned that since the premiums on the policy in issue were payable monthly, the automatic premium loan endorsement could not be added. He testified that he had not theretofore been aware of the change from the annual premium payments to the monthly ...


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