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Equitable Life Ins. Co. v. Germantown Trust Co.

February 4, 1938

EQUITABLE LIFE INS. CO. OF IOWA
v.
GERMANTOWN TRUST CO.



Appeal from the District Court of the United States for the Eastern District of Pennsylvania; Oliver B. Dickinson, Judge.

Author: Thompson

Before BUFFINGTON and THOMPSON, Circuit Judges, and MARIS, District Judge.

THOMPSON, Circuit Judge.

This is an appeal from a judgment of the District Court for the Eastern District of Pennsylvania. The appellee is the Germantown Trust Company, trustee under an insurance trust agreement of Pratt Thompson. The appellant is the Equitable Life Insurance Company of Iowa. In 1928 the appellant issued a policy insuring the life of Pratt Thompson in the sum of $5,000. Premiums were paid annually until May 6, 1934, when the insured was in default. On June 29, 1934, fifty-three days after default, the insured died. The appellee brought suit to recover the face value of the policy.

The appellant in its affidavit of defense denied that it was liable for the face amount of the policy. It alleged that on June 5, 1934, after the premiums were in default, the insured sent a written request to the appellant's local office for the cash surrender value of the policy and it contended that this amounted to an election under the third option of the nonforfeiture provisions of the policy which are set out in full in the margin.*fn1 The court below held that this defense was not properly pleaded in that the affidavit of defense set out the evidence which the appellant intended to produce and not facts. Thereupon, the appellant, in an amended and substituted affidavit of defense alleged that: " * * * On or about the 5th day of June, 1934, the said insured, Pratt Thompson, executed a written request for the cash surrender value of said policy of life insurance and delivered the same to the office of the general agent for the defendant in Philadelphia, Pennsylvania, notifying the defendant that he desired to elect the option provided for in the non-forfeiture provisions of said policy to surrender the policy and receive the cash value thereof, less any existing indebtedness to the company on account of said policy. That the defendant is unable to set out a copy of said writing because the same has been lost or destroyed, but the said writing contained the request of the insured for the cash surrender value of said policy, as stated above."

The amended and substituted affidavit of defense was likewise deemed inadequate by the court below, which entered judgment for want of a sufficient affidavit of defense.

The question is whether a written request, without more, amounts to an election of one of the options in accordance with the requirements of the policy to be construed. Omitting such portion of the nonforfeiture provisions as are irrelevant to this discussion, they read:

" * * * The insured may, upon written request, * * * elect * * * to have the policy continued as paid-up non-participating insurance of a reduced amount payable in one sum at the same time and under the same conditions as this policy. * * * " Option I.

" * * * The insured may, upon written request, * * * elect * * * to have the policy continued as non-participating paid-up term insurance for the face amount of the policy. * * * " Option II.

" * * * The insured may, upon written request, * * * elect * * * to surrender the policy and with the consent of any assignee and of any beneficiary whose interest is irrevocable, receive the cash value. * * * " Option III.

It will be noted that, whereas in the first two options the only requirement for the exercise of any election is that the insured send a written request, the third option includes, inter alia, the requirement that the insured surrender the policy. The affidavit of defense does not aver the surrender of the policy.

Lipman v. Equitable Life Assur. Soc. of the United States, 4 Cir., 58 F.2d 15 and Pacific States Life Ins. Co. v. Bryce, 10 Cir., 67 F.2d 710, 91 A.L.R. 1446, relied upon by the appellant, are clearly distinguishable because the insured in those cases did, in fact, surrender the policy and do all that was necessary to elect the cash surrender value. In the instant case, under the averments of the pleadings, he did not complete his election because he never surrendered his policy. In our opinion the District Court correctly ruled that the pleadings did not set forth an election.

As an alternative defense the appellant pleaded that if no election was made by the insured within sixty days from the date of default the policy was automatically continued as reduced paid-up insurance under option I. The nonforfeiture provisions contained in this policy are substantially the same as those in Jeske, Adm'x v. Metropolitan Life Ins. Co., 113 Pa.Super. 118, 172 A. 172, where the Pennsylvania appellate court applied the rights granted by the term insurance option. The court below, following the reasoning and conclusions in the Jeske Case, supra, held that the insured had sixty days after default within which to make the election; that the automatic continuance under option I did not take effect until after the expiration of the sixty days; that in the absence of an election and of the automatic continuance under option I the court will apply the option most favorable to the insured or his beneficiary; and that term insurance for the face value ...


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