The opinion of the court was delivered by: SMITH
See, also, 32 F.Supp. 443.
This is a civil action by Maurice Brown and George Brown, hereinafter referred to as the Beneficiaries, on a policy of insurance, No. 8055587, issued by the New York Life Insurance Company, hereinafter referred to as the Insurer, on the life of Harry Brown, deceased, hereinafter referred to as the Insured. The essential allegations of the respective pleadings may be briefly summarized so as to adequately define the ultimate issue presented for decision. The complaint alleges the issuance of the policy of insurance, the payment of premiums, the death of the Insured, and the due proof of death. These allegations, except the payment of premiums, are admitted. The answer alleges a default in the payment of premiums and the lapse of the policy of insurance by reason thereof. The decision of the court on the ultimate issue makes a consideration of the counterclaim unnecessary.
There has been no proof offered and no question raised as to the place of contract, and it is, therefore, assumed that the contract was consummated in the State of New Jersey; it follows that the laws of this State are determinative of the rights and liabilities of the respective parties. Ruhlin v. New York Life Insurance Co., 304 U.S. 202, 58 S. Ct. 860, 82 L. Ed. 1290.
I. On October 4, 1921 the Insurer issued a policy of insurance, No. 8055587, on the life of the Insured and in the face amount of $ 12,500. The initial premium of $ 215.25 was payable in advance, and all subsequent premiums were payable semi-annually on or before their due date, April 4th and October 4th of each year, or within the period of grace. The initial premium was paid and receipt thereof acknowledged in the policy. All subsequent premiums, as required by the terms of the policy, were paid semi-annually until October 4, 1931, when the default upon which the Insurer relies occurred.
II. There were in force on the life of the Insured, and during the critical period, 1931, two additional policies of insurance, No. 9970050 and No. 9970051, which had been previously issued by the Insurer. The dates of their issuance do not appear and are unimportant in the present suit. The former was in the face amount of $ 10,000, and the premium thereon of $ 425.20 was payable annually on or before the due date, August 29th of each year; the latter was in the face amount of $ 15,000, and the premium thereon of $ 555.50 was likewise payable annually on or before the due date, August 29th of each year.
III. The Insured, prior to September of 1931 (the exact date does not appear and is unimportant), assigned the policies to the First National Bank of Paterson, hereinafter referred to as the Bank, as collateral security for certain loans previously made. It is admitted that the policies were held by the Bank under the assignment during the critical period.
IV. In September of 1931 the Premium Cashier of the Insurer, pursuant to established office practice, transmitted to the Insured a Notice of Dividend (Exhibit D-4) informing him that there was due and payable to him on Policy No. '587 a dividend of $ 223.50. The notice, in addition to informing the Insured of the dividend, requested instructions as to either its payment or its application in reduction of premium. The notice, signed by the Insured and countersigned by the Bank, but without instructions, was returned to the Premium Cashier of the Insurer. The failure of the Insured to give such instructions is significant only because of the events which followed.
V. The premiums due on Policies Nos. '050 and '051 were not paid on or before their due date, August 29, 1931, and thereafter, during the period of grace, September of 1931, the Insured applied to the Insurer for loans on the said policies to pay the premiums then past due. The loans to the full extent of the loan value of the respective policies were granted, but the amounts thereof, because of prior loans, were insufficient to pay the premiums in full. The Insurer, with either the express or implied permission of the Insured, applied the dividends payable on Policy No. '587 to the payment of the premiums due on Policies No. '050 and '051. The said dividends were thus exhausted and the liability of the Insurer therefor ceased. There can be no doubt that both the Insured and the Insurer were fully cognizant of these facts.
VI. At or about the same time, September of 1931, the Insured applied to the Insurer for a loan on Policy No. '587, the policy in suit. This loan, in the full amount of the loan value of the policy, $ 1,962, was granted, and thereafter, on September 23, 1931, under a Policy Loan Agreement (Exhibit D-9), the full amount of the loan, less a prior indebtedness, was advanced to the Insured. The net proceeds of the loan, $ 1,398.95, were paid by check (Exhibit D-12) to the order of the Insured and the Bank. The maximum loan value of this policy was thus exhausted.
VII. On October 30, 1931 the Premium Cashier of the Insurer transmitted to the Insured a duplicate Notice of Dividend (Exhibit D-5) again informing him that there was due and payable to him on Policy No. '587 a dividend of $ 223.50. This notice was accompanied by a letter (Exhibit P-2) in which it was expressly suggested that the premium then past due on the said policy be deducted from the dividend. This notice, signed by the Insured and counter-signed by the Bank, was returned to the Premium Cashier, who, pursuant to the instructions therein contained, applied $ 215.25 of the dividend to the payment of the premium. An Official Premium Receipt (Exhibit P-3) issued to the Insured, and the balance of the dividend, $ 8.25, was paid by check (Exhibit D-14) to the order of the Insured and the Bank.
VIII. The said dividend had been previously applied to the payment of the premiums on Policies Nos. '050 and '051, and its application to the payment of the premium on Policy No. '587 was obviously an error. The Insured, as well as the Insurer, under the facts here existing, was chargeable with knowledge that the dividend was not in fact available, having been previously exhausted in the earlier transaction. The knowledge of one was no greater than that of the other.
IX. On November 24, 1931 the Insurer, having discovered the mistake, advised the Insured of it by letter (Exhibit D-18) and requested a remittance of $ 223.50, the full amount of the dividend. This letter fully informed the Insured that the dividend had been mistakenly applied to the payment of the premium on Policy No. '587 and that the said premium, therefore, remained unpaid. The Insured apparently ignored this letter, and the Insurer by letter dated December 5, 1931 (Exhibit D-19) again advised the Insured of the error and requested a remittance of the dividend. This letter informed the Insured of the non-payment of the premium and requested an immediate payment. It should be noted that the period of grace expired on November 4, 1931.
X. Thereafter, on or about December 18, 1931, the Insured executed and delivered to the Insurer a promissory note (Exhibit D-21), commonly referred to as ...