The opinion of the court was delivered by: WORTENDYKE
Upon return of plaintiff's notice of motion to settle the form of an order for judgment upon this Court's opinion filed February 7, 1961, defendant Massachusetts Mutual Life Insurance Company (Mass. Mutual) sought and obtained leave to reargue the question of its liability to the plaintiff upon the judgment proposed. The matter was accordingly reargued, and briefs have been submitted and considered.
Mass. Mutual contends as follows:
1. No tax liens attached to Wilson's interest in the life insurance policies prior to the insurer's actual receipt of notice of the lien on February 2, 1950.
2. The proposed order should specify the amount of the tax liens claimed.
3. The cash surrender value of each policy is properly diminishable through operation of the automatic premium loan provisions thereof, until entry of judgment in this action.
Mass. Mutual life insurance policies here involved are No. 1,468,657 (herein referred to as '657), issued March 7, 1942, in the amount of $ 10,000, and No. 1,615,476 (herein referred to as '476), issued September 24, 1946, in the amount of $ 20,000. Anthony J. J. A. Wilson (taxpayer, sometimes also referred to as insured) is named as insured in each policy, to whom is reserved the right to successively change the beneficiary.
On November 21, 1946 the insured elected to avail himself of the 'automatic premium loan' provision of each policy, which required the insurer to 'automatically loan the amount required to pay' the premium then in default or its unpaid balance, and to 'charge the same as indebtedness against the policy bearing interest * * * provided that the policy be sufficient security for such loan'; i.e. 'if the amount of the existing indebtedness on the policy plus the amount of the proposed loan, with interest * * * does not exceed the cash value of the policy * * *. * * * Failure to repay a loan, or to pay interest thereon, shall not avoid the policy until such time as the total indebtedness thereon, including accruing interest, shall equal or exceed the then cash value of the policy * * *.' Each policy also provides: 'While any premium loan, made automatically or otherwise, is outstanding, dividends as they become due and payable shall be used to reduce such loan.'
As pointed out in this Court's opinion of February 7, 1961 (191 F.Supp. 69), the jury found that Anthony Wilson was the owner of these policies on June 6, 1947, upon which date the plaintiff's tax lien attached to his property right in the cash surrender value of each of such policies. See infra.
I have also determined that by virtue of this Court's personal jurisdiction over the taxpayer-insured, the insurer and the beneficiary in this action, compliance with the necessary conditions precedent to the accrual of a cash surrender value under each of the Mass. Mutual policies may be compelled by this Court's judgment. United States v. Metropolitan Life Insurance Co., 4 Cir., 1958, 256 F.2d 17.
The cash surrender value of policy '657 was $ 1,110.84 as of June 6, 1947, but policy '476 did not acquire a cash surrender value until the end of the second policy year, September 1948, in accordance with the terms of the policy. Commencing June 7, 1953 in the case of policy '657, and December 24, 1950 in the case of policy '476, and thereafter upon each policy anniversary, premium loans were made by the insurer to the taxpayer in settlement of the insured's successive premium liabilities under each policy. Although insured gave notice to the insurer of his election to avail himself of the automatic premium loan provisions of each policy on November 21, 1946, he made subsequent payments on each until the election became effective with the payments made as noted above. By making such payments and utilizing the premium loan provisions of the policies, the cash surrender value of each policy has successively increased. However, Mass. Mutual claims it is entitled to offset the amounts of its successive premium loans, with interest thereon, against the accrued cash surrender value of each policy.
What was the taxpayer's property interest in the cash surrender value of the Mass. Mutual policies as such value accrued upon each? He had the right, but at his own election and upon compliance with the requirements of the policy provisions relating thereto, to obtain payment from the insurer of the cash surrender value of each policy. In order to obtain such cash surrender value, insured was required to (1) file with the insurer notice of election to take that value; (2) secure the written consent of the beneficiary; and (3) tender the policy to the insurer for cancellation.
Mass. Mutual argues that until a judgment is entered compelling the taxpayer to elect to avail himself ot the cash surrender value of each of the policies, and to surrender each of the policies to the insurer, the beneficiary to consent thereto, and the insurer to pay over to the plaintiff the cash surrender value of each policy, no cash surrender value on either could be distrained under the statute, and no property right of the insured can be deemed to have come into existence until such a judgment is entered. The insurer further argues that no tax lien in behalf of the plaintiff could attach to the cash surrender value of either policy until a property right in the cash surrender value of the policy accrued to the taxpayer.
In United States v. Penn Mutual Life Insurance Co., 3 Cir., 1942, 130 F.2d 495, 497, 142 A.L.R. 888, the Third Circuit Court of Appeals had this to say respecting the interest of a living insured in the cash surrender value of an insurance policy upon his life: