Story Case

Mr. Theodore Towning took out a policy of life insurance, making his mother beneficiary. Mr. Towning was addicted to the drug habit, and on one occasion, when out of money, took the policy to the company, surrendered it, and received $200 therefor. Having satisfied his unnatural craving for the drug, he was filled with remorse and returned to the company and requested that the policy be revived. The company refused. Mr. Towning sought a lawyer, who wrote the company as follows: "Mr. Towning's policy was cancelled without the beneficiary's consent, and as far as his mother is concerned, is still good." Should the insurance company heed this argument?

Ruling Court Case No.l. Schneider Vs. United States Life Insurance Company, Volume 123 New, York Reports, Page 109

The insurance company herein, insured the life of Henry Schneider for the benefit of his wife, the plaintiff in this action. The policy contained the usual stipulation, that in case of non-payment of premiums, the policy would be forfeited. The husband retained possession of the policy and paid the premiums from time to time, and received the notices from the company stating when such premiums were due. Later, he presented to the company a written instrument of release, purporting to be signed by his wife, but forged by himself. Upon the strength of this, the company accepted a surrender of the policy and paid him $575. Some months later, Henry died and for the first time Mrs. Schneider discovered what had been done. She sued upon the policy, contending that, without her consent, the policy could not be surrendered and cancelled. The company contended that, in any event, the policy came to an end, because the premiums had not been paid for six months, prior to the death of Henry Schneider.

Mr. Justice O'Brien said: "The fraudulent surren-der of the policy by the husband before the April premium became due, in no way excused the failure to pay the premiums, unless the company was in some way connected with that fraud, or guilty of some negligent act in regard thereto. There is no proof and no finding that it was." Judgment was given for the company.

Ruling Court Case No. 2. Rieker Vs. Charter Oak Life Insurance Company, Volume 27 Minnesota Reports, Page 193; Volume 38 American Reports, Page 289

Samuel Stanchfield procured a policy from the insurance company herein upon his life; the proceeds of the policy were to be paid to his wife, Elizabeth, or to their children, in case Elizabeth died before he did. Elizabeth died soon after, leaving her husband and one or more children. At this time all premiums required by the company had been paid by Samuel. He married again. He surrendered the first policy and received, instead, a paid up policy, for the benefit of his second wife. This was an action brought by Rieker, after Samuels death, on behalf of the children of the first marriage. It was contended by Rieker that the children of the first marriage had a vested interest in the policy which could not be changed or destroyed by an act of Samuel without their consent.

Mr. Justice Cornell said: "The transaction on the part of Mr. Stanchfield was in the nature of an irrevocable and executed voluntary settlement upon his wife and children of the sum secured to be paid by the policy at his death, conditioned that the same should be paid to her for her benefit should she survive them; but if not, then the same should be paid to his children, or if minors, to their guardian, for their sole use and benefit. Nothing remained to be done on his part to make the intended gift of the policy to the beneficiaries, therein named, complete and effectual as against himself and all mere volunteers claiming under him. In paying for the insurance and procuring the policy to be issued, payable in express terms, upon his death to his said wife, Elizabeth, if then living, and if not, to his children for their sole use and benefit, without any condition or stipulation reserving a right to change or alter any of the terms of the agreement, he did all that could well be done, under the circumstances, in the execution of an intention to vest in his said appointees the entire interest in the policy, and all rights thereunder." The children did have a vested interest. Judgment was given for Rieker.

Ruling Law. Story Case Answer

Since the insurance is upon the life of the person originally insured, any act which would forfeit the policy as to the insured, will forfeit the policy as to the beneficiary. Accordingly, if the insured fails to pay the premiums, the beneficiary will not be able to recover on the policy. The beneficiary must see to it that the premiums are paid. The beneficiary, nevertheless, has a vested interest in the policy, and the company cannot enter any arrangement with the insured to disturb that interest, unless the insured retains the right to change the beneficiary at will.

In the Story Case, there was no question of unpaid premiums. The only question was whether the insured, Mr. Towning, could surrender, without the beneficiary's consent. This could not be done, since this power was not reserved, and the company is at fault for cancelling, without demanding the consent of the beneficiary.