Garner v. Germania Life Insurance — 18 N.Y. St. Rep. 263

Majority

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Anna Garner, App’lt, v. Germania Life Insurance Co., Resp’t.^[1]

(Court of Appeals,

Filed October 2, 1888.)

Headnote

1. Insurance (life)—Policy made with person as trustee—Eight of CESTUI QUE TRUST TO CONTINUE PAYING POLICY.

The defendant company issued a policy of insurance on the life of one John Lindemann. The contract was made with him as trustee for his children. The policy described the premiums as paid by him “in trust for his children,” naming them, and it covenanted in terms to pay the sum assured to the three children or to their guardians upon the deatn of their father. Held, that every premium paid by him continued to be an act as trustee and agent for the children. That he could not shake off that character and its duties without their assent except in one way. That he might omit or refuse to pay a maturing premium and so suffer the policy to lapse, but the children were at liberty to pay it though he refused, and if they did the contract would remain valid as at first. That the children had a vested interest in the policy increasing in value yearly with every payment of additional premium.

2. Same—Policy—When does not lapse—When a new policy a continuation of OLD.

The premium had been paid for fifteen years, but the premium due September 24, 1879, was not paid on that day, but on the 28th of that month the trustee surrendered the policy to the company and took out a new one calling for the same annual premiums but payable to his second wife as the sole beneficiary. There was no new examination, the substituted policy bore the number of the one cancelled; it was for the same amount, etc. The first premium was paid in part by a dividend earned by the older policy. Held, that the old policy did not lapse at all. That the

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failure to pay the premium of 1878 was waived by the company in issuing the new policy. That was in all respects a continuation and renewal of the old policy, altered only by the substitution of a new beneficiary.

8. Same—When the tbust executed.

The trust had been to a large extent executed. What the insured had-done for the benefit of the assured he could not undo without their assent, nor take from them what was already theirs and destroy the trust so far as-executed.

Appeal from a judgment of the general term of the-court of common pleas affirming a judgment entered upon the dismissal of the complaint at the trial of the action, the exceptions ordered to be heard in the first instance at-the general term.

The facts are sufficiently stated in the opinion.

Otto Horwitz, for app’lt; Mr. Dulon, for resp’t.

The contract of the insurance company, by its express terms, was made with John Lindemann as trustee for his children, Johanna, Emilie and Anna. The appli cation was made by him in that character and not in his individual right. Under the requirement, at the end of the application, “signature of applicant, ” he signed explicitly as trustee; under the direction, “signature of person whose life is to be insured,” he signed as an individual. The policy described the premium as paid by him “in trust for his children,” naming them; and it covenanted in terms to pay the sum assured to the three children or to their guardians upon the death of their father. The contract, therefore, was one made with the children through John Lindemann as their trustee. His was the life insured but the contract, was not with him except as trustee for the children and as representing them. He took upon himself this office and duty with the full knowledge and assent of the company on the one hand and the beneficiaries on the other. Every premium paid by him continued to be an act as trustee and agent for the children, and he could not shake off that-character and its duties without their assent except in one way. He might omit or refuse to pay a maturing premium and so suffer the policy to lapse, but the children were at liberty to pay it though he should refuse, and if they did the contract would remain, valid as at first, and suffer no injury or destruction from his refusal to pay, or to further act as his children’s trustee. These children thus had a vested interest in the policy increasing in value yearly with every payment of additional premium. That interest was measured and represented by its surrender value, which was never the property of John Lindemann in any other sense than as the trust property of the children created by his act as trustee. He could not deal with it in contravention of their rights especially with one fully apprised of those rights and

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of his position and duty as trustee. That he kept the policy in his own possession is an immaterial circumstance for that possession was consistent with the trust and in entire accordance with its terms. On the face of the contract he dealt and acted as trustee for the children, and had no personal or individual interest in the policy, and no control over it except in his trust character and capacity.

What he undertook to do was to destroy the trust by substituting a new and different beneficiary. The policy was issued in September of 1863, and for fifteen years the premiums had been paid. There was no covenant on the part of the company to pay a surrender value, but that value, nevertheless, existed, and what it was sufficiently appeared ■when the new negotiations began. The premium due September 24,1878, was not paid on that day, but on the twenty-eighth of that month, the trustee surrendered the policy to that company and took out a new one, calling for the same annual premiums but payable to his second wife as the sole beneficiary. There was no new examination, the substituted policy bore the number of the one cancelled, it was for the same amount; it called for the same annual premium; and stated the same age of the applicant’s life as thirty-nine years, adding as explanation the words “ in 1863/’ The first premium was paid in part at least by a dividend earned by the older policy, and the new one was made possible by the appropriation to it, and the absorption by it of the surrender value of the old policy. What that amount was is indicated by the acknowledgment in the new policy of the receipt by the company, not only' of the premium, but of the further sum of fourteen hundred and twenty-nine dollars and forty-four cents “to be paid on delivery of this policy by Louise Lindemann, wife of John Linemann.” She paid it simply by the cancellation of the old policy, and the transfer of its surrender value to the company, in reduction of the annual premiums, and by the process took away that amount frpm the original beneficiaries, and appropriated it to her own use. This was accomplished by the joint act of John Lindemann, the trustee for the children and the company liable for the insurance.

It is justified first upon the ground that by the failure to pay the premium of 1878, the old policy lapsed, and all rights under it were ended and destroyed. John Lindemann, it is argued, was under no obligation to continue the payment of premiums and so preserve the validity of the policy; his contributions were voluntary, pure gifts, and without consideration, and involved no duty to continue them beyond his wish and convenience, and when he refused further payments, he simply did, as he hada right to do, and was guilty of no wrong to the children by suffering the policy to lapse.

All that is quite true, except that after notifying the

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beneficiaries of the trust, which he had voluntarily constituted for their benefit, and acting upon it until it had become valuable to them, good faith required that he should not end the trust without notice to them and an opportunity to preserve it, if they should be so disposed, unless it be true that they had no interest or rights in the trust property whatever. But the difficulty with this argument is that the old policy did not lapse at all. The failure to pay the premium of 1878, if there was such failure, was; waived by the company in issuing the new policy. That was in all respects a continuation and renewal of the old policy, altered only by the substitution of a new beneficiary. Substantially that was determined in Barry v. Brune, 71 N. Y., 261 . It is suggested that the facts in that case were that the lapse of the cancelled policy was arranged beforehand by collusion with the insurance company, while here the lapse occurred as a fact without the pre-existing knowledge or assent of the insurer; and it is urged that the latter’s good faith should end in a different, ruling. But good faith cannot be asserted of one who aids in the diversion of a known trust fund from its lawful owners to the possession and benefit of another; and the fact of waiver is not changed by the motive, good or bad, of the insurer. The- ■ issue of the new policy in continuation of the old one, and in preservation of all the essential rights of the latter, distinguishes this case from Whitehead v. N. Y. Life Ins. Co. ( 102 N. Y., 143 ; 1 N. Y. State Rep., 344; so far as the question of waiver is concerned, for there no new policy was issued at all, and the gratuity paid to obtain possession of the lapsed policy was consistent with a constant and continued assertion of its invalidity.

But the defendant, in this case, takes still another ground. Assuming that by the policy, John Lindemann, contracted, as trustee for the children, it is insisted that the trust was-revocable at the option of the trustee, and was so far executory as to be capable of revocation. But I think it is a mistake to assume that the trust was wholly executory. It-had been, to a large extent, executed. Every payment of premium for fifteen years had steadily added to the value of the policy as the property of the beneficiaries. The day of final payment grew nearer and the burden of premiums-decreased steadily in number. Each payment made added to the surrender value and fully executed the gift to the extent of that value. What the insured had done for the-benefit of the assured he could not undo without their assent, nor take from them what was already theirs, and destroy the trust so far as executed. The question here does not reach the inquiry, what might be the rule in a case where the insured contracted in his own name, though for the ul

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tímate benefit of others, for here he contracted explicitly as trastee, and so far as the trust was executed, neither he alone nor he and the insurer together, could wrest from the beneficiaries the product of the trust, and divert it into other channels.

These views of the case differ from those taken by the general term, and require that the judgment should be reversed and a new trial granted, costs to abide the event.

All concur.