Rocky Mount Savings & Trust Co. v. Ætna Life Insurance, 199 N.C. 465 (1930)

Sept. 24, 1930 · Supreme Court of North Carolina

199 N.C. 465

ROCKY MOUNT SAVINGS AND TRUST COMPANY et al. v. ÆTNA LIFE INSURANCE COMPANY.

(Filed 24 September, 1930.)

1. Insurance E d — Where no definite time is set within which insurer is to act on application for reinstatement, it must act within reasonable time.

Where no definite time is fixed by a policy of fife insurance in which the insurer is to act upon the insured’s application for reinstatement of the policy, upon a forfeiture of the policy for nonpayment of premiums and the insured’s applying for reinstatement of the policy according to its provisions, it is the duty of the insurer to pass upon the application for reinstatement within a reasonable time, not arbitrarily, but upon reasonable grounds in the exercise of reasonable prudence and diligence.

2. Same — Whether insurer failed to act on application for reinstatement within reasonable time is held a question for jury in this case.

A provision in a policy of life insurance whereby the insurer agrees to reinstate the policy after it has become forfeited for nonpayment of premiums upon certain conditions, gives a substantial right to the insured, and where the insured makes application for reinstatement to' the general agent of the insurer who issues a conditional receipt for the amount required for reinstatement upon the back of which the insured is advised that if he fails to hear from the insurer within sixty days “notify the company at the home office”: Held,, there is no definite time fixed within which the insurer is to act upon the application for reinstatement, and where the insurer has not acted thereon sixty-two days after the application, upon the death of the insured and demand by the beneficiary for payment of the policy an issue of fact is raised for the determination of the jury as to whether the insurer failed to act thereon within a reasonable time.

3. Insurance •/ b — Forfeiture of insurance contracts are not favored but forfeiture will be enforced if plainly incurred.

• In construing a contract of life insurance the law will avoid a forfeiture for nonpayment of premiums when this can be done by reasonable construction, but a forfeiture will be enforced if plainly incurred by the terms of the policy unless there is an express or implied waiver by the insurer.

4. Insurance K c — Failure of insurer to act on application for reinstatement within reasonable time operates as waiver of forfeiture.

Where an application for reinstatement of a policy of insurance' has been made according to the provisions of the policy, it is the duty of the insurer to act thereon within a reasonable time, and where it fails to so act it will be held to have waived the right to declare the policy forfeited, and under the facts of this case the question of whether the insurer failed to act within a reasonable time is for the determination of the jury.

Civil action-, before Gowper, Special Judge, at March Special Term, 1930, of Nash.

The plaintiffs are the administrators of the estate of Theodore N. Ross, deceased. The evidence tended to show that on 1 July, 1925, defendant issued to T. N. Ross, deceased, a policy of life insurance in the sum of $2,000, said policy being No. 515135. On 1 July, 1927, a premium on said policy fell due. The policy provided a grace of 31 days for the payment of premiums. Within the grace period the policyholder paid $10 upon the premium and received an extension agreement extending the time of payment of premium to 1 November, 1927. He failed to pay on 1 November, 1927, in accordance with the terms of the extension agreement. On 7 November, 1927, the policyholder received a letter from the general agent of defendant calling his attention to the fact that his policy had lapsed, and also to the further fact that the policyholder could submit his request for reinstatement. The letter contained the following clause: “If you are not prepared to- pay the full amount of the premium of $26.72, we will be glad to accept a partial payment of $10 and extend the balance of the premium if you will sign enclosed extension note partially filled out. Please have revival form properly executed and return to us with extension note signed when we will ask the company to .reinstate your policy and extend the balance of the premium for you.”

In consequence of said letter tbe polieybolder filed an application for reinstatement, dated 8 November, 1927. Tbe application for reinstatement showed that tbe insured bad suffered from an attack of gastritis since the'policy bad been issued, but that tbe attack was slight and that be was in sound health. Tbe general agent recommended unreservedly tbe reinstatement of tbe policy. Tbe request for extension was as follows: “Request for extension: Policy N-515135. Tbe iEtna Life Insurance Company is hereby requested in consideration of tbe payment of ten dollars ($10) under above numbered policy on tbe life of T. N. Ross to extend tbe time to 60 days 19., for tbe payment with interest of tbe premium on said policy which fell due., 19. I agree that if tbe premium with interest is not paid in full within said extended period, said policy shall immediately lapse and become void except for any value to which it was entitled when said premium fell due. Tbeo. N. Ross (insured or beneficiary).” Thereupon, tbe agent issued to tbe insured the following receipt: “Form 257-Gf. No. 107230. Binding receipt for payment of premium. Received of Theodore N. Ross tbe sum of ten dollars on account of unpaid premiums with interest for reinstatement of insurance for two thousand dollars on tbe life of Theodore N. Ross under Policy No. 515135 issued by tbe iEtna Life Insurance Company, said reinstatement to be effective from this date provided the company shall be satisfied that on this date tbe applicant is eligible for reinstatement of tbe policy as a risk of tbe same class as when tbe policy was issued under its rules for reinstatement. If tbe company declines to reinstate tbe policy as requested, tbe consideration received will be returned on surrender of this receipt. Dated at Raleigh, N. C., this 8th day of November, 1927. W. F. 'Upshaw, Agent.” (See reverse side.) Tbe reverse side reads as follows: “Notice. — If you do not bear from tbe company in relation to reinstatement of policy within sixty days, notify the company at its home office at Hartford, Conn. This is a temporary receipt only. If tbe application for reinstatement is approved, a regular receipt signed by an executive officer of tbe company and countersigned by the agent will be given.”

Tbe insured died on 27 December, 1927, and up to tbe time of bis death bad not beard from tbe company as to whether it had decided to reinstate.

Subsequently tbe administrator of tbe deceased made demand upon tbe company for tbe payment of said policy, and on 10 January, 1928, tbe company offered to return the money and declined to recognize liability upon said policy. Paragraph 9 of tbe policy provides as follows: “How policy may be reinstated: "Within five years after default in any premium payment, if this policy has not been surrendered, it may be reinstated upon evidence of insurability satisfactory to tbe company and by payment of arrears of premiums with interest at tbe rate of six per cent per annum, and by payment or reinstatement of whatever indebtedness to tbe company existed hereon at tbe date of default with interest from that date.”

Vaughan & Yarborough and Gooley & Bone for plaintiffs.

Murray Allen for defendant.

BbogdeN, J.

Tbe determinative question of law is whether the forfeiture resulting from failure to pay the premium was waived by the defendant company.

The time for the payment of the premium due 1 July, 1927, was duly extended until 1 November of that year. The insured failed to pay the premium on 1 November, and, therefore, by virtue of the express terms of the contract, his policy lapsed subject, however, to the conditions of revival or reinstatement contained in paragraph 9 of said policy.

The defendant insists upon forfeiture. A long line of decisions in this Court and the uniform ruling of other courts throughout the country have established an axiom that the law abhors a forfeiture. Nevertheless, forfeitures are usually creatures of contract, and if plainly incurred, there is no sound reason why the courts should refuse to enforce them in the absence of express or implied waiver. This idea was expressed by Chief Justice Clark in Hay v. Association, 143 N. C., 256, when he wrote: “It is always sad when one who has made payments on his policy deprives his family of expected protection by failure to pay at a critical time. But insurance is a business proposition, and no company could survive if the insured could default while in good health, but retain a right to pay up when impaired health gives warning. . . . It is the insured’s own fault when he does not make a payment as he contracted.”

In the case at bar the plaintiffs rely upon the contention that the policy was reinstated, and that the defendant had waived the forfeiture. The methods by which the payment of premiums as contracted may be waived are discussed and applied in Foscue v. Ins. Co., 196 N. C., 139, 144 S. E., 689. The principles of waiver are well settled, but the application of those principles to particular states of fact frequently engender difficulty. In this case, the policy in section 9 thereof conferred upon the policyholder the right to reinstatement upon failure to pay premium. This right is a substantial property right and by the terms of the contract must be exercised (a) within five years; (b) upon evidence of insurability satisfactory to the company and payment of arrears of premium, etc. The insured filed an application for reinstatement within five years and undertook to furnish evidence of insura-bility. Tbe company bad tbe right to pass upon tbe question of insura-bility and tbe evidence thereof submitted by tbe insured. Of course, it was tbe duty of tbe company to pass upon tbe insurability in tbe exercise of ordinary care and not to decline tbe application of tbe plaintiff for reinstatement upon any arbitrary ground not founded on reason or tbe exercise of reasonable prudence and diligence, because tbe policy itself created and recognized tbe right of reinstatement after default in tbe payment of a premium. Tbe insured on or about 8 November, executed tbe request for extension which is referred to in tbe evidence as an extension note. An examination of tbe instrument, however, discloses that it was not a note but a request for an extension of time for 60 days to pay tbe premium, and tbe further agreement that if tbe premium with interest was not paid within said extended period that tbe policy would immediately lapse and become void. On tbe same date, to wit, 8 November, 1927, tbe general agent of tbe company issued a temporary receipt containing tbe following notice on tbe reverse side thereof: “If you do not bear from tbe company in relation to reinstatement of policy within 60 days, notify tbe company at its home office at Hartford, Conn. This is a temporary receipt only. If tbe application for reinstatement is approved, a regular receipt signed by an executive officer of tbe company and countersigned by tbe agent will be given.” Tbe defendant retained this receipt and took no action whatever with reference to tbe application of tbe insured for reinstatement until 10 January, 1928, thus covering a period of 62 days.

Tbe plaintiffs contend that tbe failure to act upon tbe application for a period of 62 days was an unreasonable lapse of time from which a waiver may be inferred.

Manifestly, it was tbe duty of tbe defendant to pass upon tbe application for reinstatement with reasonable promptness and diligence under all tbe circumstances as they existed at tbe time. If parties agree upon a period of time in which an act is to be performed, and such period of time is reasonable upon its face, then tbe parties must abide tbe terms of tbe agreement. If no time for tbe performance of an obligation is agreed upon by tbe parties, then tbe law prescribes that the act must be performed within a reasonable time. Reasonable time is generally conceived to be a mixed question of law and fact. “If, from tbe admitted facts, tbe court can draw tbe conclusion as to whether tbe time is reasonable or unreasonable by applying to them a legal principle or a rule of law, then tbe question is one of law. But if different inferences may be drawn, or tbe circumstances are numerous and complicated, and such that a definite legal rule cannot be applied to them, then tbe matter should be submitted to tbe jury. It is only when tbe facts are undisputed and different inferences cannot be reasonably drawn from them, that the question ever becomes one of law.” Claus v. Lee, 140 N. C., 552, 53 S. E., 433; Blalock v. Clark, 133 N. C., 306, 45 S. E., 642; Blalock v. Clark, 137 N. C., 140, 49 S. E., 88.

The notice, on the back or reverse side of the receipt referred to, does not undertake to fix a definite time when the company will pass upon the application. The notice in effect merely states that if the applicant or insured does not hear from the company within 60 days, he is at liberty to notify the home office. Hence no time was fixed by the company for determining the insurability of plaintiff’s intestate, and his resultant right of reinstatement. Therefore, the principle of reasonable time for action by the company upon the application is applicable. The final and determinative inquiry, then, is whether the defendant acted within a reasonable time under all the facts and circumstances surrounding the parties when the application for reinstatement was filed.

If it did, the forfeiture was complete and no recovery is permissible. If it did not, the forfeiture is deemed to be waived.

Whether the defendant so acted, creates an issue of fact for a jury.

Reversed.