Case One of Two
288 Ky. 750
Court of Appeals of Kentucky.
Dec. 19, 1941.
ACTION: Reversed.

Appeal from Circuit Court, Knox County; Flem D. Sampson, Judge.
Action by Nora Tye against the Metropolitan Life Insurance Company on a life insurance policy.
From a judgment for plaintiff, defendant appeals.

SIMS, Commissioner.
On May 26, 1926, the Metropolitan Life Insurance Company, hereinafter referred to as the Company, issued a policy for $1,000 on the life of Arthur Tye, in which his wife, Nora, was named as beneficiary. The semi-annual premiums of $16.46 were payable on May 26th and Nov. 26th. At the time the policy was issued, Tye and his wife were living together and resided in Chicago. About one year thereafter they separated but were never divorced, and she subsequently returned to her home in Barbourville, Ky., where she was residing at the time of Arthur's death on April 4, 1938.

The policy gave the insured the right to change the beneficiary but this privilege was never exercised. The record shows Nora paid all of the first premium with the exception of $6, which was paid by her husband, and it appears that she paid all subsequent premiums and retained possession of the policy. There is a provision in the policy that after it had been in force for three years the Company would lend the owner (insured) or the assignee of record, if any, an amount not greater than the cash surrender value and accept the policy as sole security therefor.

It contained the further provision that after premiums for three full years have been paid, the owner or assignee, upon written request filed with the Company at its home office with the presentation of the policy for legal surrender within three months after the due date of any premium in default, shall be entitled to one of three options: (a) Cash surrender value; (b) paid- up whole life insurance; (c) paid-up term insurance. In the event the owner or assignee does not avail himself of one of the foregoing options within the three months specified, the Company would continue the policy as paid-up whole life insurance.

In 1932, Nora obtained from the Company a loan of $16.45 to pay a premium thereon. Again in 1935, she obtained a second loan sufficient to pay a premium and to repay the first loan. Officials of the Company testified these loans were made against Company rules and the terms of the policy, which provided that loans would be made only to the insured, or the assignee of record, but it made the loans to Nora only because the whereabouts of the insured were unknown. In July, 1937, Nora's request for a third loan was refused and the Company's agent informed her that her husband, who had been located, was objecting thereto.

On Dec. 1, 1937, she again applied to the Company for a loan. Some correspondence passed between the Company and Arthur Tye, with which Nora was made familiar by the local agent of the Company. It appears that Arthur objected to this loan and informed the Company he desired to surrender the policy for its cash value. The policy had been forwarded to the Company with Nora's loan application dated Dec. 1, 1937. She registered an objection to her husband surrendering the policy and the Company, returned the policy to her in February, 1938, and continued it as paid-up whole life insurance in the sum of $262, which was the amount of such insurance the cash surrender value would purchase after deducting the amount of the loan theretofore made.

After the insured's death on April 4, 1938, Nora as beneficiary brought this action to recover the face of the policy, $1,000, less the amount of the loan. The answer offered to confess judgment for $262 with $1.31 interest due thereon. The jury found for her in the sum of $1,000 less $37.98, and from the judgment entered on the verdict the Company appeals.

The Company argues that it was entitled to a peremptory instruction because: 1. Nora (a revocable beneficiary) obtained no vested interest in the policy by the payment of the premiums; 2. by making the 1932 and 1935 loans, the Company did not become estopped from refusing to make a loan in 1937; 3. the policy provided for paid-up whole life insurance upon the insured's failure to elect within three months after default of premium which of the three options he would exercise, and having failed to do so, the Company under the policy could continue the same for paid-up whole life insurance.

Appellee contends that the judgment should be affirmed on three grounds: 1. The Company could not forfeit the policy for non-payment of premium, since the cash surrender value was sufficient to pay the premium in default; 2. having made her two loans on the policy it was estopped to deny her the third loan; 3. section 654, Ky.Stats., gave her a vested interest in the policy.

As the policy permitted the insured to change the beneficiary, Nora took no vested interest during the life of the insured but had only an expectancy in the policy. The fact that she paid the premiums, in the absence of an agreement to do so, gave her no vested interest in the policy, nor would it prevent the insured from assigning or surrendering same.

Section 654 Ky.Stats., has no application to the policy before us. That section provides that a policy of life insurance made payable to any married woman shall inure to her separate use and benefit, and that of her children, independent of her husband's creditors. It further provides that a married woman may without the consent of her husband take out insurance on his life and pay the premium thereon, and such policy shall inure to her use and benefit, and that of her children, free from any creditors of her husband or others. Here the policy was not taken out by the wife and no question of her husband's creditors is involved, and Mutual Life Ins. Co. of New York v. Spohn, 170 Ky. 721, 186 S.W. 633, and Conn v. White, 189 Ky. 185, 224 S.W. 764, cited by appellee, have no application.

Nora had no vested interest in the policy and had no right to borrow on it. The policy contract was that loans would be made the insured, or assignee, and it contained no agreement to make loans to the beneficiary. It is apparent the conditions under which it made the loans in 1932 and 1935 differed from those which existed when it refused the loan in 1937. Had the insured appeared in 1932 and 1935 and objected to those loans being made to the beneficiary as he did when she applied for the loan in 1937, it is obvious the Company would not have made them. Nor did the 1932 and 1935 loans estop the Company from refusing the loan in 1937. It is fundamental there can be no estoppel unless one party's conduct has misled the other to his prejudice or induced him to change his position for the worse. Here Nora could not have been mislead because the Company refused her a loan in July 1937, before she applied for a loan in December of that year. Nor was there a detrimental, or any, change on her part by reason of the Company having made her the prior loans.

"If an insurer is indebted to an insured, and has, or should have, in its hands, sufficient funds belonging to and due him, to pay an assessment or a premium when due, it cannot forfeit its policy or certificate for non-payment; rather, it should appropriate such funds to prevent a forfeiture, no matter from what source such funds were derived."

But the cash surrender value of the policy was not a fund under the control or in possession of the Company which it could apply to the payment of the premium. Such fund was controlled by the provisions of the policy, which expressly directed how the Company could apply it. The Company was unauthorized by the policy to use the cash surrender value in the payment of the premium.

The court should have directed a verdict in favor of the appellee for the amount tendered her in the answer of the Company; and should there be another trial and should the evidence be substantially the same as shown in this record, the court will so direct the jury.

The judgment is reversed.

Ky.App. 1941.
157 S.W.2d 274, 288 Ky. 750
Case Two of Two
Metropolitan Life Ins. Co. v. Tye
175 S.W.2d 366
November 12, 1943
295 Ky. 697
ACTION: Reversed.

Appeal from Circuit Court, Knox County; Flem D. Sampson, Judge.
Action by Nora Tye against Metropolitan Life Insurance Company for damages for inducing plaintiff to believe that defendant would make a loan on policy on life of Arthur Tye, and thereby causing plaintiff to allow policy to lapse precluding recovery under policy upon death of insured. Judgment for plaintiff, and defendant appeals.

STANLEY, Commissioner.
The appellee, Nora Tye, paid the premiums on a $1,000 insurance policy on the life of her husband, Arthur Tye, for eleven years, during which time they were separated but not divorced. Because of the nonpayment of premium due November 26, 1937, the policy lapsed. The insured died in April, 1938. Several reasons advanced for the avoidance of the lapse were held unsustainable in Metropolitan Life Insurance Company v. Tye, 288 Ky. 750, 157 S. W.2d 274. Upon a return of the case, the plaintiff amended her petition and sought to recover $1500 as damages. The verdict and judgment were for $1400.

The essentials of the cause of action pleaded and of plaintiff's contentions are disclosed in the primary instruction to the jury submitting the basis upon which a verdict could be returned in her favor. They are that after November 26, 1937, the agents of the Insurance Company wilfully and purposefully misled and deceived the plaintiff by inducing her to believe that the company was able to and would make her a loan on the policy for the payment of the semiannual premium then due when it did not in good faith intend to make such a loan, and thus lulled her into security; that in pursuance of the plan the company withheld the policy until after the expiration of the days of grace in which payment of the premium might have been made; *367 that but for such deceit, misrepresentation and fraud she would have obtained the money elsewhere and paid the premium in time to have kept the policy in force, and that the lapse of the insurance was the result of that fraud and deception.

Disregarding other grounds for a reversal of the judgment, it seems to us the court should have directed a verdict for the defendant, except for $262, for which it had offered to confess judgment, because of the lack of evidence sustaining the charges pleaded.

The plaintiff testified that she did not have the money with which to pay the premium and depended on borrowing it on the policy, the company's local agent said he would get it for her, and she relied upon that statement. On December 1, 1937, she gave him an application or assignment for the purpose of obtaining the loan and delivered the policy to him. She knew it would have to be sent to the home office of the company and that it would take several days. In 1932, and again in 1935, the company had loaned sufficient sums to satisfy the premiums then due, which, as is related in the opinion on the first appeal, was by mistake, since the insured only was entitled to borrow upon the policy. But about six months before this transaction the beneficiary had had her application to borrow $50 rejected because the company could not locate her husband or he refused to agree to the making of the loan to her. When the agent returned the policy about February 1st, which was after the expiration of the grace period, the plaintiff asked him about the matter and he responded that he supposed the application had been "laying in the office." She testified that she could and would have borrowed the money elsewhere with which to pay the premium except for the "conduct of the company." She admits seeing the agent frequently but says she did not talk to him about the delay after she had made the application for the loan.

The evidence of the company is that the plaintiff was told by the agent on December 10th or 12th, which was before the expiration of the grace period, that no loan could be made to her without her husband's consent and she asked the agent to try to get his signature. Her response to this testimony of the agent is merely that she did not remember it. The local agent then requested the home office to make the loan because of the circumstances, since she did not know her husband's whereabouts. She admits that the husband had written her asking what she wanted the money for, but is not certain whether it was on this occasion or when she tried to borrow the $50, a few months before. The company located the insured in Chicago, and on December 23d asked him to sign a loan certificate in order to pay the semiannual premium. He declined and asked to be paid the cash surrender value of the policy. He was advised that the company had refused to make the loan on the application of the beneficiary. The local agent testified that he was seeing Nora every week or so collecting premiums on an industrial policy and told her what he was hearing about the transaction from the company, which was that it could not make the loan without the waiver or consent of her husband. He told her very fully and clearly that the policy would lapse if the premium was not paid and she never offered to pay it. This testimony is not contradicted.

The court has gone far to prevent a forfeiture of an insurance policy for nonpayment or delay in payment of the premium, and holds that an insurance company is estopped to claim a forfeiture if it lulls the insured by any conduct or misrepresentation into believing it would not be or had not lapsed. It appears the plaintiff has tried to bring her case within this law. But the state of facts and the basis of the suit are of a different character.

As was declared in the opinion on the first appeal of this case, there was no obligation upon the company to make loans on the policy to the plaintiff as beneficiary, for she had no vested interest in it nor any right to borrow upon it; and that there was no estoppel against the company for she could not have been misled since she had learned this absence of right by the denial of her application for a loan in the previous July. There was no cause of action for damages because to constitute a tort not only must a duty and right exist but there must be conduct constituting a breach of duty and a violation of a right. Nor can the cause of action be planted on the company's failure to keep a good faith promise made without consideration. It is not deceit, misrepresentation or fraud merely to break a promise. Instead of an absence of good faith, we think the evidence shows the company endeavored to help the beneficiary by locating and trying to get the insured to waive the right, which he alone could do.

As stated, there is no need for us to consider the sufficiency of the amended petition or other grounds urged for a reversal. We are of opinion that the court should have sustained the defendant's motion for a directed verdict.

The judgment is reversed.

Ky.App. 1943.
175 S.W.2d 366, 295 Ky. 697

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