On appeal from the Superior Court, Appellate Division, whose opinion is reported at 195 N.J. Super. 478 (1984).
For Affirmance -- Chief Justice Wilentz and Justices Handler, Pollock, O'Hern, Garibaldi and Stein. For reversal and remandment -- Justice Clifford. The opinion of the Court was delivered by Garibaldi, J. Clifford, J., dissenting.
The issue in this appeal is whether a life insurance policy was in effect at the time of the insured's death. Plaintiff June H. Meier was the owner and a beneficiary of a life insurance policy insuring the life of her husband, Frank. The policy was issued by defendant-appellant New Jersey Life Insurance Company (NJL). Prior to Frank Meier's death, June Meier had attempted to surrender the policy. We must determine whether her attempts succeeded. Specifically, we must decide whether the policy was cancelled through NJL's failure to apply the policy's automatic premium loan provision (APL), through the surrender of the policy, or through the termination of the policy by mutual consent.
The trial court granted summary judgment in favor of plaintiffs-beneficiaries for the face amount of the policy and pre-judgment
interest.*fn1 A majority of the Appellate Division affirmed the trial court's judgment. Because of the dissent in the Appellate Division, defendant pursuant to Rule 2:2-1(a)(2) appealed as a matter of right to this Court. We affirm the judgment of the Appellate Division.*fn2
In 1977 NJL issued two life insurance policies, No. 133624, the policy at issue, and No. 13331, each in the amount of $250,000, on the life of Frank Meier. These policies originally were owned by Mr. Meier but ownership was transferred to Mrs. Meier as trustee under a trust agreement dated November 25, 1978.
As trustee, Mrs. Meier was the substantial beneficiary of both policies.*fn3 Premium payments on each of these policies were due quarterly (February 11, May 11, August 11, and November 11). In each policy Frank Meier elected the automatic-premium-loan provision. The APL provision provides that if the insured misses a premium, NJL automatically pays the amount due out of the loan or cash value of the policy. In general, APL provisions are used to avoid policy defaults.
Until August 1980, Mr. Meier paid the premiums on both policies on time. Sometime in August 1980, however, Mr. Meier's insurance consultants advised him to replace the two NJL policies with policies of another company that had an equal face amount but a lower cost. Mr. Meier followed this advice and purchased two other life insurance policies.*fn4 Subsequently, Mr. Meier made no further premium payments to NJL on either policy.*fn5 NJL applied the APL provision in Policy No. 133624, the policy at issue, to pay the August 11, 1980, and December 11, 1980, premium payments. The next quarterly premium was due on February 11, 1981, and the end of the thirty-day grace period to pay this premium was March 14, 1981. There was sufficient cash value in the policy to use the APL to pay it.
Sometime in March 1981 June Meier, as the designated owner of the policy, commenced steps to surrender it for its cash value. On March 11, 1981, NJL received a notice from an
insurance agent, Sanford Feingold, dated March 9, 1981, which read: "Please be advised that the above captioned policy has been surrendered." In response to this message, NJL sent Mrs. Meier the following letter on March 13, 1981:
We regret to hear that you wish to terminate your policy. Industry studies of the reasons why people give up policies point to the following causes:
1. The policyholder does not fully understand the valuable economic "tool" represented by the policy.
2. Temporarily, premium payments cannot be made because of unemployment, unusual medical expenses or some other economic set back.
3. The policy was originally "oversold".
4. A change in insurance needs.
The reaction of terminating a policy because of any of the above reasons is a costly one, and can be avoided by a careful reevaluation of the reasons why the policy was originally purchased and perhaps, adjusting the policy to suit ones [sic] current needs.
If after due consideration, you still wish to surrender your policy, please complete the enclosed cash surrender form and return it to our office with the policy itself. Upon receipt we will release the cash value to you promptly. (Emphasis added.)
Mrs. Meier returned the executed cash surrender form to NJL. The surrender form, which was back-dated to March 10, was actually executed by Mrs. Meier on March 24. NJL received it on March 26, 1981. The form reads as follows:
I HEREBY REQUEST THAT THE CASH SURRENDER VALUE OF POLICY NUMBER 133624, WHICH WAS ISSUED ON THE LIFE OF Frank Meier, BE PAID TO ME.
I CERTIFY THAT I AM LEGALLY COMPETENT TO EXECUTE THIS INSTRUMENT, THAT THIS CONTRACT IS NOT NOW ASSIGNED TO ANY PERSON OTHER THAN THE UNDERSIGNED, THAT NO PROCEEDINGS IN BANKRUPTCY OR INSOLVENCY INVOLVING THE UNDERSIGNED ARE NOW PENDING.
I DO HEREBY RELEASE, SURRENDER, CANCEL, FULLY DISCHARGE AND TERMINATE SAID CONTRACT AT Denville, New Jersey, THIS 10 DAY OF MARCH, 1981. (CITY) (STATE) (Emphasis added.)
On March 27, 1981, NJL acknowledged receipt of the "request to surrender," but asked that Mrs. Meier also return the policy. "As per contract provisions and as requested by recent letter, the policy itself must be returned prior to release of
surrender values." NJL also sent Mrs. Meier a Lost Policy Agreement in the event that she could not locate the policy.
NJL sent another letter on April 9, 1981, to Frank Meier, which said, "Please advise us when we may expect to receive a reply to the letter specified above, a copy of which is enclosed." This statement referred to the NJL letter of March 27, 1981.
Frank Meier died on April 13, 1981. In an internal memorandum, dated May 6, 1981, Joseph Fiore, and NJL Claims Manager, wrote the following:
Claim may be made for the full face amount of this policy ($250,000). This policy was paid to 2/81 and had sufficient value to process an APL. However, the policy holder requested surrender of the policy which caused the policy to be placed on RPU. The insured died before surrender was effective. (Emphasis added.)
According to another NJL document, this policy was placed on reduced paid-up status (RPU) on May 8, 1981, but made effective from February 1981.
The policy was never found. June Meier executed a Lost Policy Agreement on October 30, 1981, in conjunction with her claim for the face amount of the policy. NJL took the position that Policy No. 133624 had been placed on RPU status and in December 1983 tendered checks to Mrs. Meier and Nordling equal to the RPU value. NJL never sent Mrs. Meier a letter advising her that this first policy had been placed on reduced paid-up status, as it had done with respect to her second Policy, No. 13331.*fn6 This litigation followed.
Both the trial court and the Appellate Division held that prior to the insured's death the policy had not lapsed for nonpayment of the premium, nor had it been surrendered or terminated by mutual consent. The dissenting judge in the Appellate Division did not reach the issue of whether the policy was surrendered or terminated; he concluded that the policy had lapsed for nonpayment of premiums because based upon the communications
it received, NJL properly did not apply the APL to the February 11, 1980, premium payment. We disagree.
In determining whether prior to the insured's death the policy had lapsed for nonpayment of premiums, we must look first to the language of the insurance contract. Policy No. 133264 provides:
AUTOMATIC PREMIUM LOAN -- If requested in the application for this policy or by written request filed at the Home Office before the end of the grace period, any premium due and remaining unpaid will be paid automatically by a premium loan and will be subject to the Loan Provisions of this policy. If the loan value is not sufficient to pay the entire amount of the premium due, the semi-annual or quarterly premium shall be paid automatically. If the loan value is not sufficient to pay the quarterly premium, no automatic premium loan shall be made and the premium shall remain in default. This provision may be made ineffective at any time upon proper written request made to the Company at its Home Office. (Emphasis added.)
It is undisputed that Frank Meier chose the APL provision; that a premium was due February 11, 1981; that the end of the grace period was March 14, 1981; and that there was sufficient cash value in the policy to pay the February 11 premium. Further, if the premium had been paid, unless otherwise terminated or surrendered, the policy would have remianed in effect on the date of the insured's death.
NJL agrees that it had an obligation to apply the APL provision to pay the February 11 premium.*fn7 However, because
of the communications that it received -- first the note from the insurance agent, Sanford Feingold, on March 11, 1981, and then the executed cash surrender form from Mrs. Meier on March 26, 1981 -- it argues that the owner effectively revoked the APL provision.
The policy provides that an APL provision "may be made ineffective at any time upon proper written request made to the company at its Home Office." There is no further explanation of what constitutes proper written request. The party asserting that the policy is cancelled has the burden of proof. Joslin v. Hudson Cas. Ins. Co., 8 N.J.Misc. 195, 197 (1930) (burden on the defendant insurance company to prove that it had issued a policy to the plaintiff and that plaintiff had cancelled it); Dill v. Lumbermen's Mut. Ins. Co., 213 S.C. 593, 50 S.E. 2d 923, 926 (1948); 45 C.J.S. Insurance § 461 (1946).
The cryptic Feingold message ("Please be advised that the above captioned policy has been surrendered.") is insufficient to meet this burden. No proof was offered that Feingold was the insured's agent. An insurance agent's authority is determined by his rank and the scope of subject matter entrusted to him. 4 G. Couch, Couch on Insurance 2d para. 26A:66 (rev.ed.1984). In fact, while the record is unclear, it appears that Feingold was a general agent for NJL and, at most, merely a soliciting agent for Meier. Soliciting agents are authorized only to solicit and receive applications, accept premiums, and deliver policies. They have no authority, express or implied, to waive provisions of a contract. 4 G. Couch, supra, at § 26A:71. Moreover, there is no evidence as to who authorized Feingold to advise the company that the policy was surrendered.
A potentially more difficult question is whether Mrs. Meier's cash-surrender form constituted sufficient notice to NJL to
revoke the APL. Although the surrender form was dated March 10, it was not mailed until March 24 and not received by NJL until March 26, twelve days after the expiration of the grace period.
NJL relies on the fact that as a matter of internal procedure, it did not process APL's until fifteen days after the expiration of the grace period.*fn8 However, an insurer cannot use to its own advantage its failure to pay a premium under an APL provision on time. Haut v. Franklin Life Ins. Co., 242 A.2d 440 (Pa.1968). An insured cannot be penalized for an insurance company's internal procedures.
N.J.S.A. 17B:25-3 grants insureds the opportunity to pay their premiums with a low rate of interest within thirty days after the premiums are due. If the insured pays the premium within the grace period, the insurance company will not consider the policy to be in default. As one court has pointed out correctly under similar circumstances, "it would seem . . . reasonable for the policy owner to expect that the APL would 'automatically' pay a 'premium due and remaining unpaid,' as required by the policy within the grace period." Pack v. Progressive Life Ins. Co., 239 Mo.App. 1, 187 S.W. 2d 501 (1945) (the existence of an APL kept a policy in full force and effect at the time of the insured's death despite the insured's failure to pay the premium.)
In Board of Trustees of Unitarian Church v. Nationwide Ins. Co., 88 N.J. Super. 136, 140 (App.Div.1965), the defendant insurance company argued that one of the reasons that the life insurance policy at issue was in default was because of an overdue premium. The Appellate Division in an opinion written by Judge (later Justice) Sullivan found ...