The Franklin Life Ins. Co. v. Tharpe

The main question involved in this case has given this writer very great concern. It is indeed a close and difficult question.

In the report of the Special Master, which was in all respects confirmed by the Chancellor, it is said:

"Where a policy of life insurance contains a Disability Benefit clause which provides that `if the insured * * * after the issuance of the policy and the payment of at least one full annual premium thereon and before a default in the payment of any subsequent payment shall become totally and permanently disabled by bodily injury or by disease so that he is and will continue to be for life totally and permanently prevented thereby from the performance of any work or the transaction of any business for compensation or profit, and shall furnish proof satisfactory to the company of such disability, the company agrees to waive further payment of premiums under said policy, such agreement to become operative only after endorsement of the same has been made on said policy by the Company, is the receipt by the insurer of such proof of such total and permanent disability a condition precedent to the insurer's liability under the disability clause, or is the waiver self-operating in effect, so that the total and permanent disability of the insured, without more, will operate to keep the policy in force indefinitely, precluding the insurer from defeating a recovery thereon on the ground of non-payment of premiums? (For the reasons noted below the Master is of the opinion that the giving of such notice is not a condition precedent to insurer's liability.)

"As yet, as revealed by a rather exhaustive review of numerous authorities, it appears that our Supreme Court has not been called upon to settle this question. Other State Courts of last resort have answered it, pro and con, time and time again, and a like conflict of opinion prevails in Federal decisions, as is illustrated in the case of Peoria Life Insurance Company v. Bergholm, 50 F.2d, where the Circuit Court of Appeals for the Fifth Circuit, in reversing a judgment for plaintiff rendered in the U.S. District Court for the Northern District of Texas, in discussing the requirement of proof as a condition precedent, speaking through Walker, Circuit Judge, had this to say:

"`Without a compliance with the prescribed requirements, the appellant would be deprived of a stipulated-for opportunity of being informed whether an authorized excuse for a failure to pay premiums within the time allowed did or did not exist before that time expired, and of determining, within a reasonable time after the receipt by it in accordance with that provision of proof that the insured is totally and permanently disabled, whether that proof is or is not satisfactory.'

"Upon certiorari granted because of a supposed conflict with the case of Minnesota Mutual Life Insurance Company v. Marshall (29 F. [2d] 977) the Supreme Court of the United States reviewed the Bergholm case, and in an opinion delivered by Mr. Justice SUTHERLAND in effect affirmed the decision in the Marshall case in the following language:

"`The petitioners, nevertheless, contend that this is enough to bring into effect the promise of the company to pay the premiums which became due after the disability began.' In support of this contention, Minnesota Mut. L. Ins. Co. v. Marshall, supra, is cited. The pertinent provisions of the policy there, however, differ from those found in the policy here under consideration. There the policy provided that if the insured, while the policy is in force and before default in payment of premiums, `shall become totally and permanently disabled * * * and shall furnish satisfactory proof thereof, the Company will waive the payment of premiums thereafter becoming due.' The Court held that the waiver took effect at the time of the disability, and did not depend upon the time when proof thereof was furnished.

"We do not need to controvert this construction of the words quoted, or question the soundness of the view of the Court that the existence of the disability before the premium became in arrears, standing alone, was enough to create the waiver. In that view, the obligation to furnish proof was no part of the condition precedent to the waiver; but such proof might be furnished within a reasonable time thereafter. Here the obligation of the company does not rest upon the existence of the disability; but it is the receipt by the company of proof of the disability which is definitely made a condition precedent to an assumption by it of payment of the premiums becoming due afterthe receipt of such proof. The provision to that effect is wholly free from the ambiguity which the Court thought existed in the Marshall policy. Compare Brams v. New York L. Ins. Co., 299 Pa. 11, 12, 148 A. 855. It is true that where the terms of a policy are of doubtful meaning, that construction most favorable to the insured will be adopted. Mutual L. Ins. Co. v. Hurni Packing Co., 263 U.S. 167, 174, 68 L. Ed. 235, 238, 31 A.L.R. 102, 44 S. Ct. 90; Stipcich v. Metropolitan L. Ins. Co.,277 U.S. 311, 322, 72 L. Ed. 895, 900, 48 S. Ct. 512. This canon of construction is both reasonable and just, since the words of the policy are chosen by the insurance company; but it furnishes no warrant for avoiding hard consequences by importing into a contract an ambiguity which otherwise would not exist, or, under the guise of construction, by forcing from plain words unusual and unnatural meanings."

(See Bergholm v. Peoria Life Insurance Company, 284 U.S. 489;76 L. Ed. 416.)

"In the Marshall case, supra, the Disability Benefit clause was strikingly similar in wording, and a great many of the material facts were likewise similar to the proven facts in this cause.

"As was stated in the Marshall case: `It is a familiar rule of construction that where contracts of insurance are prepared by the Insurer and there is doubt as to the meanings of their provisions, it will be construed most favorably to the insured'; and, quoting again: `Forfeitures are not favored'; the rule is that if policies of insurance contain inconsistent provisions or are so framed as to be fairly open to construction, that view should be adopted, if possible, which will sustain rather than forfeit the contract. * * * However much the legal mind may differ as to the meaning of these provisions, the ordinary layman would construe them to mean that, in the event he became disabled before his premium fell due, his insurance would be continued until his disability was removed or until his death. The right of the insured to have his premium discontinued during disability is one that he has paid for. To make its operation depend upon the time of proof of disability, and not upon the time of disability itself * * * rendered the provision of the policy under consideration inoperative and the right of no value. A construction making the disability benefits to begin as of the time of proof might be all right, where such benefits are sought while the insured is living, but a disability provision such as the one to be construed here, where the disability occurs near the due date of the premium and continues until death, is made worthless by holding the proof of disability and not the disability itself makes it operative. Such a construction is harsh and unreasonable and ought not to be adopted if the language used is susceptible of one more favorable to the insured.'"

"As before intimated, the law as quoted from the foregoing opinion has been upheld by Supreme Court decisions in Arkansas, Nebraska, North Carolina, South Carolina, Virginia, Kentucky, Missouri, Tennessee, Texas and Washington. On the other hand, many State Courts of last resort have denied relief under similar circumstances. The Master being of the opinion that the law as laid down in the Marshall case, supra, should be applicable to the facts and circumstances surrounding this case, therefore further finds that the equities in this cause are with the plaintiff; * * *"

Since this report was filed in the court below and decree was rendered in this case there has appeared in the Federal reports a very strong opinion by Judge Louis W. Strum rendered while acting as one of the Judges of the United States District Court of Appeals, Fifth Circuit, which dealt with a policy of Life Insurance issued by this same company, the Franklin Life Insurance Company, embracing a disability benefit rider identical to the disability benefit rider involved in this case. The case referred to is Chambers v. Franklin Life Insurance Company, 80 F.2d 339. This is a very strong opinion and reaches a different conclusion from that reached by the Special Master and the Chancellor in the case at bar. The facts of the two cases are quite similar except in one vital respect, which distinguishes that case in that regard from the case now before us. As in this case, so in the Chambers case, the suit was brought by the wife of the deceased husband to recover upon a policy in which she was named as the beneficiary. It was a Texas case and was instituted by a petition filed by Mrs. Chambers, to which demurrers were sustained, and she appealed, with the result that the order of the trial court sustaining the demurrers was affirmed. In the course of the opinion Judge Strum observed that:

"Petitioner does not allege that she was unaware of the existence of the policy."

In the instant case the plaintiff wife was unaware of the existence of the policy until shortly before her claim was brought to the attention of the company, and was therefore excusable from herself furnishing proof of total and permanent disability of her husband up to the time that she discovered the existence of the policy. After such discovery she acted promptly. It appears also that her discovery of the existence of the policy was accidental and that before such discovery she had neither knowledge nor notice of any sort, nor anything to put her upon inquiry, as to its existence.

In the opinion of Mr. Justice Strum it is said:

"The gist of this disability clause is that if the insured becomes totally and permanently disabled, and shall furnish satisfactory proof thereof to the company, the company will waive further premiums. Any ambiguity existent at that point as to whether proof of disability is a condition precedent to the waiver of premiums is dispelled by the quoted phrase which follows immediately, and in the same sentence, that the agreement to waive further premiums becomes operative, only after indorsement of the same on the policy by the company. That phrase definitely fixes the time when the agreement to waive further premiums becomes `operative.' It would be incongruous and unnatural to hold that the parties intended that the company would indorse on the policy an agreement to waive further premiums, and that such agreement should become operative, before proof of such disability, which is the basis of such indorsement, is submitted. Without the last clause, there might be room for doubt, which would be resolved against the company; but giving the language and structure of the whole disability clause a natural and unstrained meaning, no room for doubt remains. No question is here presented as to the consequences of an arbitrary or wrongful refusal of the company to indorse the policy after due proof furnished. We hold the effect of the clause in question to be that the furnishing of proof of disability is a condition precedent to the waiver of premiums, and that a failure to comply therewith necessarily defeats a recovery, unless performance is waived or excused. Bergholm v. Peoria Life Ins. Co.,284 U.S. 489, 52 S. Ct. 230, 76 L. Ed. 416; Orr v. Mutual Life Ins. Co. (C.C.A.) 64 F.2d 561; Avery v. New York Life Ins. Co. (C.C.A.)67 F.2d 442.

"Whether or not insured's alleged inability to furnish proof, by reason of his mental and physical condition, relieves him from the ordinary consequences of failure to perform a condition precedent, is a question upon which there is an array of divergent authority.

"See Mutual Life Ins. Co. v. Johnson, 293 U.S. 335,55 S. Ct. 154, 79 L. Ed. 398; Pfeiffer v. Missouri State Life Ins. Co.,174 Ark. 783, 297 S.W. 847, 54 A.L.R. 600, and note. Again, we are without a controlling Texas decision."

After reviewing the facts in the Chambers case Judge Strum, speaking for the Circuit Court of Appeals, reached the conclusion that:

"In these circumstances it cannot be said that insured's alleged condition rendered impossible the furnishing of proof, at least by others in interest who now claim the benefit of the policy, if insured was unable to personally do so."

In the instant case, the only other person in interest, besides the insured, was the wife, appellee here, whose failure to furnish proof should in my opinion be excused, because, as above stated, it was clearly shown that she was totally unaware of the existence of the policy until its accidental discovery several years after her husband's death, whereupon she promptly took the matter up with the company and in due time after the company's denial of liability, attempted by suit to establish her rights thereto.

Now as to the insured himself, the question, which it seems to me is the main question of fact in the case, was whether the evidence showed that the mental and physical condition of the insured was such as would excuse performance by him with regard to furnishing to the company proof of his total disability. This question was determined by the court below in favor of the plaintiff, appellee here, and under our well established rule this determination should not be set aside on appeal unless it was clearly erroneous. We cannot say that this conclusion of the chancellor from the evidence was clearly erroneous.

Prior to the expiration of the grace period within which the second annual premium should have been paid, and in the early part of February, 1924, the insured, a young man of twenty-five, with a wife and young son to support, contracted a severe cold which incapacitated him from performing his duties as an automobile salesman and after several weeks, during which he was confined to his bed, a physician was called in, who, after making X-ray and other examinations, advised his wife that the insured had "galloping consumption" and advised that he be taken to a higher climate. The doctor found that he had pulmonary tuberculosis in both lobes of the lungs. The insured took this diagnosis very seriously and feared that he was a doomed man, and from there on until the date of his death he waged a losing battle to regain his health, being taken from one health resort to another in Georgia, Colorado, and North Carolina, his physical and mental condition in the meantime progressively growing worse. He died in Asheville, North Carolina, in March of 1926, about two years after he first became ill. Throughout this period he had severe hemorrhages and night sweats, and became very melancholy, and believed he was going to die. He made no will, nor was he able to attend to any other private business. He also developed tuberculosis of the throat in Colorado and when he went to Hillcroft Sanitarium in North Carolina he had lost his voice completely. Indeed, it appears that the insured was a desperately ill man from the first and though normally of a cheerful disposition, he became very despondent and melancholy, rapidly lost weight and was reduced to a mere skeleton when he died. After her husband became ill his wife went to work for the Western Union Company in Miami in order to support herself and their minor child. The two insurance policies, one in favor of the wife and the other in favor of the child, were the only insurance Tharpe left. The insured never told his wife about the insurance and the subject was never discussed during his illness. As was stated in the Marshall case, supra, the ordinary layman would be very apt to construe such a provision in the policy, as the one here involved, to mean that, in the event he became disabled before his premium fell due, his insurance would be continued until his disability was removed or until his death. His right to have the premiums discontinued during disability was one that he had contracted for and paid for. To make this right depend upon the time of proof of disability and not upon the time of the disability itself, under circumstances such as are shown by this record, would render the provision of the policy above referred to inoperative in this and in similar cases, and the right of no value. The record in this case does not show that the Insurance Company ever called the attention of the insured to the fact that he was delinquent in the payment of premiums, or that the company considered the policy canceled by reason of such non-payment. I think, therefore, that this case falls within the reasoning in the case of Minnesota Mutual Life Insurance Co. v. Marshall,29 F.2d 977, which doctrine was recognized as applicable in a certain class of cases by the Supreme Court of the United States in Bergholm v. Peoria Life Insurance Company, supra, both of which cases are cited in the Master's report in this case. As persuasive authority, see also Gulf Life Ins. C. v. Stossel, decided June 30, 1937, and reported in 175 So. 804.

For these reasons, as well as for those advanced by Mr. Justice CHAPMAN in his opinion, I think that this Court would not be justified in disturbing the conclusion reached by the chancellor on either the facts or the law of this case. Therefore, in my opinion, the decree of the court below should be affirmed.