Appeal from judgment of Court of Common Pleas of Allegheny County, July T., 1963, No. 1812, in case of Caroline C. Haut v. The Franklin Life Insurance Company.
Paul A. Manion, with him Reed, Smith, Shaw & McClay, for appellant.
Carl Brandt, with him J. Howard Womsley, and Brandt, Riester, Brandt & Malone, for appellee.
Bell, C. J., Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Eagen. Dissenting Opinion by Mr. Justice Cohen.
This is an appeal by the Franklin Life Insurance Company (Company) from a judgment entered against it on a jury verdict in favor of Caroline C. Haut in the amount of $12,490. The dispute involves the proper construction of a policy of life insurance and the proper actuarial computations under that policy.
Raymond C. Haut (Haut) purchased from the Company a life insurance policy with a principal sum of $10,000. The policy called for premium payments for twenty years with the first policy year beginning on June 24, 1959. Pursuant to an election offered by the Company, Haut decided to pay premiums monthly. It is agreed by all that the monthly premium required to be paid was $45.80 and that each premium payment, to be made on the 24th of each month, was to cover the period beginning on the date payment was due and ending on the 24th day of the following month.
Haut paid the monthly premiums until October 24, 1960, one year and four months after the policy was issued. He did not pay the premium due on that date. However, the policy contained an automatic premium loan provision which stated as follows: " Automatic Premium Loan : If proper written request for the operation of this provision has been received at the Home Office of the Company before default in payment of any premium or within the grace period, any premium due on this Policy remaining unpaid on the last day of grace for payment of same will be advanced by the Company, provided the cash value of this Policy at the end of the period which such premium would cover exceeds the total indebtedness to the Company hereon by an amount sufficient to pay such premium with interest thereon. The amount of such advanced premium with interest thereon at the rate of 5% per annum to the next succeeding anniversary of this Policy shall constitute a loan against this Policy and thereafter such loan shall bear interest at the rate of 5% per annum payable in advance. If such interest is not paid when due it shall be added to such loan and bear interest at the same rate. If the cash value of this Policy at the end of any period for which a premium is due and unpaid does not exceed the total indebtedness hereon
by an amount sufficient to pay such premium with interest thereon, then such due and unpaid premium shall not be advanced as a loan but the provisions of this Policy entitled 'Non-Forfeiture' shall apply. The Company shall have a prior lien on this Policy and its proceeds for any loans made hereunder together with interest thereon. At any time before default in payment of premium, the payment of premiums in cash to the Company may be resumed in accordance with the provisions of this Policy. The request for the operation of this provision may be revoked at any time by proper written request to the Company at its Home Office, provided, however, that such revocation shall not affect any loan which may have been previously made hereunder."
Haut had requested operation of this provision; and the Company having determined that there would be sufficient cash value in the policy on November 24, 1960 (the last day of the period which the premium would cover) to cover the resulting indebtedness to the Company, advanced the monthly premium.
On November 24, 1960, Haut again failed to pay the monthly premium then due. The Company determined that there would not be sufficient cash value on December 24, 1960, to cover the advance of this November 24th premium and, in accordance with the above-quoted provision, applied the nonforfeiture provisions of the policy. The remaining cash value was used to purchase paid-up extended term insurance for the principal amount of the policy. It is agreed, if the Company's computations are correct, that this insurance expired on April 8, 1961.
Raymond Haut died on April 13, 1961. His widow (plaintiff), primary beneficiary under the policy, brought this suit to recover the face amount of the policy plus interest from the date of death. According to plaintiff, a correct computation of the remaining
cash value at the time of default would have resulted in there being sufficient cash value to purchase paid-up extended term insurance through April 14, 1961, one day after Haut's death. It is agreed that if plaintiff's computations are correct, this would be the expiration date.
The problem thus centers upon certain computations of cash value. Before reviewing the varying contentions of the parties, however, other provisions of the policy which bear upon the problem must be mentioned.
First, the policy contained a somewhat unusual feature referred to as a "guaranteed coupons" benefit. This feature of the policy provided an additional policy benefit in accordance with the following provision:
"While this Policy is kept in force by the payment of premiums in cash the Insured may select one of the following options: Option A. Surrender any matured coupon to the Company on any premium due date in reduction of the premium then due; or Option B. Surrender any matured coupon to the Company for its cash value; or Option C. Surrender any coupon to the Company within thirty-one days after its maturity for a participating paid-up addition to this Policy in accordance with the schedule of coupons attached hereto.
"Unused matured coupons, unless previously applied in accordance with the Non-Forfeiture Provision hereof, shall be accumulated prior to the end of the twentieth policy year at 3% per annum compound interest for each full year after due dates thereof. Such accumulated amount shall be payable in cash on surrender of such coupons to the Company or, in the event of the death of the Insured, said amount shall be payable to the Beneficiary or Beneficiaries hereunder.
"Subject to the provisions of Policy No. 1842675 and upon the payment of 2nd annual premium in full and not otherwise,
"The Franklin Life Insurance Company will pay to the order of the Insured under said Policy $59.60 or upon written request of the Insured within thirty-one days after said date will apply said sum to the purchase of a paid-up life addition of $160.00."
Second, the cash value provision of the policy was as follows: " Basis of Cash Value : The cash value at the end of any policy year is computed as the excess of the then present value of the life insurance benefits (including unmatured coupons) provided by this Policy, assuming all death claims payable at the end of the policy year of death, over the then present value of an annual amount for the remaining period during which premiums are payable under this Policy, all on the basis of the Commissioners 1941 Standard Ordinary Mortality Table with interest at the rate of 3% per annum, which annual amount is equal to the net level premium applicable to this Policy on said basis, multiplied by the non-forfeiture factor which is set forth in the Table of Non-Forfeiture Factors below. Such excess shall be increased by the present value of any coupon and dividend additions and any coupon and dividend accumulations and shall be decreased by any indebtedness to the Company hereon. If such cash value exceeds the net single premium required to provide paid-up insurance for the principal sum insured, the excess of such cash value shall be paid to the Insured. The net value of any coupon and dividend additions shall be not less than the amount used to purchase such additions. The life insurance benefits specified herein shall not include (a) any provision for total and permanent disability or for additional benefits, if any, for death by accidental means, or,
(b) any decreasing term insurance benefits provided by a rider attached to and forming a part of this Policy."
Finally, the following provision setting forth the basis for loan and nonforfeiture values is pertinent: " Explanation of Table of Non-Forfeiture and Loan Values : The values shown in the Table of Non-Forfeiture and Loan Values hereof are for completed policy years and are computed on the assumption that the policy has been in force and premiums duly paid for the number of years stated, and that there are no paid-up additions or coupon and dividend accumulations credited to this Policy and that there is no indebtedness to the Company hereof. The tabular amounts of paid-up and extended insurance are equal in value to the corresponding cash values. If the premiums on this Policy shall be paid other than annually, due allowance will be made in computing cash and non-forfeiture values for that portion of the policy year for which premiums shall have been paid. If this Policy continues beyond the last policy year for which values are shown in such table, values for such years shall be computed on the same basis as above provided and will be furnished upon request. The cash surrender values and paid-up nonforfeiture benefits available under this Policy are not less than the minimum values and benefits required by or pursuant to any applicable statute of the State in which the policy is delivered."
Both parties agree that it is initially necessary to determine the cash value of the policy at the time of default (November 24, 1960). Also, both agree that the cash value at the end of the first year of the policy (June 24, 1960) per $1,000 principal sum was minus nine dollars and five cents ( -- $9.05) and that to find the cash value on November 24, 1960, it is necessary to determine the cash value at the end of the second year and interpolate. They disagree, however,
as to the proper cash value at the end of the second year.
The meaning of "cash value" here is not imprecise. The standard nonforfeiture provision of "The Insurance Company Law of 1921", Act of May 17, 1921, P. L. 682, § 410A, as amended, 40 P.S. § 510.1, states: "(b) Any cash surrender value available under the policy . . . shall be an amount not less than the excess, if any, of the present value on such anniversary of the future guaranteed benefits, which would have been provided for by the policy, including any existing paid-up additions, if there had been no default over the sum of (A): the then present value of the adjusted premiums as defined in subsection (d) corresponding to premiums which would have fallen due on and after such anniversary; and (B) the amount of any indebtedness to the company on the policy. . . .
"(e) Any cash surrender value and any paid-up non-forfeiture benefit, available under the policy in the event of default in a premium payment due at any time other than on the policy anniversary, shall be calculated with allowance for the lapse of time and the payment of fractional premiums beyond the beginning of the policy year in which the default occurs. . . ."
In accordance with these requirements and the "Basis of Cash Value" provision of the policy, the Company computed the cash value of the policy at the end of the second year as follows:
1. Add present value of future guaran-
a. Present value of unmatured
b. Present value of return pre-
c. Present value of whole life
Total present value of all
2. Less present value of adjusted pre-
3. Cash value on June 24, 1961 214.60
The Company then made the required interpolation as follows:
1. Cash value on June 24, 1961 214.60
2. Less cash value on June 24, 1960 ($-- 90.50)
3. Increase in cash value for year 305.10
4. Increase in cash value for 5 months
? (5/12ths times $305.10) 127.13
5. Cash value on November 24, 1960
($-- 90.50 plus $127.13) 36.63
To this figure the Company added the amount of $24.83, representing its determination of the November 24, 1960, value to be given to the first of the guaranteed coupons (i.e., the coupon's matured value of $59.60 times 5/12ths).*fn2 The total value of the policy on November 24, 1960, therefore was the thus obtained sum of $61.46 (which it rounded out to $61.50) less the indebtedness to the Company for the payment by it of the October 24, 1960, premium ($45.80) and for one month's ...