
    MARTHA J. POPE, Respondent, v. NEW YORK LIFE INSURANCE COMPANY, Appellant.
    Springfield Court of Appeals,
    January 28, 1916.
    1. INSURANCE: Life Insurance: Failure to Make Premium Payments: Statutes. Under the rule for determining the net amount to be applied in purchasing temporary insurance in case of failure to pay premiums on a life insurance policy, only notes or other evidence of indebtedness given on account of past premium payments shall be deducted from three-fourths of the net value of the policy. [Citing Sec. 7897, R. S. 1899; Sec. 6746, R. S. 1909.]
    2. -: -: Default in Payment of Premiums: Statutes. Where the indebtedness of the insured to the insurer arose on account of a loan made for any other purpose than the payment of past premiums, it cannot be used to diminish the value of the policy going to purchase temporary insurance. [Citing above sections.]
    3. -: -: Extended Insurance. Where money is borrowed by the insured from the insurer in advance of the premium being due and used in paying such premium, such indebtedness is for past premium payments and in case of default in later premiums is to be deducted from the net premium available to purchase temporary insurance under section 7897, Revised Statutes, 1899, the term “past premium payments” having reference to the time of default and not to the time of making the loan.
    4. -: Life Insurance Policies: Failure to Pay Premiums: Policy Stipulations. Notwithstanding it may be stipulated in a life insurance policy that such policy is incontestable and though there may be no express provision of forfeiture therein contained, yet where the payment of the amount of the policy is conditioned on the payment of the premiums when due, such payments become conditions precedent and the stipulation of incontestability does not apply to failure to pay premiums.
    
      Appeal from Phelps Circuit Court. — Hon L. B. Wood-side, Judge.
    Reversed.
    
      J ones, Hooker, Haú>es & Angert and James H. McIntosh for appellant.
    
      Lorts & Bruer and James J. O’Donohoe for respondent.
   STURGIS, J. —

This is an action on a policy 'of insurance on the life of plaintiff’s husband, she being the beneficiary. The cause of action, is bottomed on the non-forfeiture statute- of this State providing for temporary insurance in case of failure to pay premiums, being section 1987, Revised Statutes 1899, now amended section 9646 Revised Statutes 1909. The policy is dated February 27, 1902. The payment of the amount, $6500 in one sum or $10,000 in deferred annual payments, at the death of the insured is conditioned on the payment of the annual premium of $584.60. The first two annual premiums were paid in cash. Four more were paid in whole or in part out of successive loans made by the defendant to the insured. Default was made in the payment of the premiums due February 27,1908, and no premium was paid thereafter. The insured died January 25, 1909, and this suit was brought September 30, 1914. The plaintiff recovered and defendant appeals.

The petition is based on the fact that this policy is a Missouri contract governed by the non-forfeiture statute above mentioned; that at the time of default in the payment of premiums, three-fourths of the net value of the policy, computed as therein provided, was sufficient when applied as a single premium to purchase temporary insurance to continue the policy in force for a period beyond the insured’s death. The defendant concedes this to be true, provided no deductions are to be made from such three-fourths of the net value because of “notes or other evidence of indebtedness due the company on account of past premium payments on said policy” as provided by said statute. The petition concedes that at the time of default in paying the premium there was an indebtedness due the company amounting to $1830 evidenced by a loan agreement signed by the insured and the beneficiary, and plaintiff offers to deduct this amount, together with the one unpaid premium and interest, from the amount of $6500 alleged to be due on the policy. The defendant, by its answer asserts that of the amount of the loan evidenced by this loan agreement the sum of $1392.49 represents “indebtedness due the company” evidence of which, to-wit: the loan agreement, was given “on account of past premium payments on said policy”, and therefore by the terms of the statute is to be deducted from the three-fourths of the net value of the policy before such sum can be applied to the purchase of temporary insurance, and that the amount to be deducted being practically equal to the three-fourths of the net value, nothing was left to purchase temporary insurance,' and the policy lapsed. The plaintiff concedes that such would be the result if such deduction is made, but denies that such evidence of indebtedness was given on account of past premium payments on said policy.

The Supreme Court in Smith v. Insurance Co., 173 Mo. 329, 72 S. W. 935, followed by the courts of appeals in Paschedag v. Insurance Co., 155 Mo. App. 185, 134 S. W. 102, and Gillen v. Ins. Co., 178 Mo. App. 89, 161 S.W. 667, has established the law to be that under the rule for determining the net amount to be applied in purchasing temporary insurance in case of failure to pay premiums on a life insurance policy, only notes or other evidence of indebtedness given on account of past premium payments shall be deducted from three-fourths of the net value of the policy computed according to the statutory rule. The statute before amended is held to be restrictive in permitting the amount to be applied in the purchase of temporary insurance to be diminished by reason of then existing indebtedness of the insured to the company and limited such deductions to the indebtedness arising on account of past premium payments. If the indebtedness is a loan made for any other purpose it cannot be used to diminish the net value of the policy going to "purchase temporary insurance.

The battle, therefore, is waged here to have determined whether sufficient of the insured’s conceded indebtedness to the company, evidenced by this loan agreement, to consume the three-fourths of the net value of the policy was given on account of past premium payments on this policy. On this point the evidence shows that after the payment of two premiums in cash, four successive loans were made by defendant to the insured, in connection with the payment of the premium for the years 1904 to 1907 inclusive; that each succeeding loan was in reality an increase of the preceding one, and a consolidation of such preceding loan, which was then cancelled, and the increase into one obligation. The third annual premium becoming due February 27, 1904, the first loan was applied for on February 20, 1904 in the sum of $820, which was applied as follows: $584.60 to pay the annual premium due February 27, 1904, $40.90 to pay advance interest, and $194.50 paid to the insured. The application for this loan was forwarded from St. Louis to defendant at New York, with directions to apply the loan in the manner stated. This loan agreement bears date of February 29, 1904. When the fourth annual premium became due, February 27, 1905, the insured paid $354.85 in cash, leaving a balance due of $229.75. Application was made for the second loan on March 15, 1905', in the sum of $1105, which was disbursed as follows: $229.75' as part payment of the annual premium due February 27,1905, $55.25 for interest on such loan, and $820 to pay the prior loan. When the fifth annual premium became due, February 27, 1906, the insured paid $292.60 in cash, leaving a balance of $292 for which the insured gave his note due November 27, 1906. Application for the third loan was made on this last date for the sum of $1456, and was disbursed as follows: $292 to pay the note given in part payment of the annual premium due February 27, 1906, $8.92 for interest, $1105 to pay the outstanding loan and $51.08 was paid to the insured. When the sixth annual premium became due February 27, 1907, the insured paid $302.10 in cash leaving a balance due of $282.50. The application for the fourth loan was made on the 27th day of March, 1907, for $1830, and was disbursed as follows: $282.50 to pay the balance of the premium' due February 27, 1907, $91.50 to pay interest, and the balance $1456 to pay the previous loan. .In this connection the plaintiff in her argument concedes that of the second loan $229.75 was applied as part payment on a past premium; that of the third loan $292 was applied to discharge the note given in part payment of a past premium and that of the fourth loan $282.50 was applied in part payment of a past premium.

It is apparent, therefore, that if there was, at the time of default, an evidence of indebtedness given on account of past premium payments representing this premium for 1904 then there was sufficient of such indebtedness to be deducted from the three-fourths of the net value of the policy as would practically consume such fund and leave nothing to purchase temporary insurance. The parties here differ as to the construction of that clause of section 1897, Revised Statutes 1899, supra, providing that the net value of the policy “when the premium becomes due and unpaid” shall be calculated according to the rule specified, “and after deducting from three-fourths of such net value any notes or other evidence of indebtedness given on account of past premium payments on said policy,” such net value shall be applied to the purchase of temporary insurance. The defendant insists that the statute speaks as of the time of the lapse and means that the indebtedness to be deducted is such as then represents fast premium payments, while the. plaintiff says the term “past premium payments” has reference to the giving of the notes or other evidence of indebtedness and that the premium payment must be past due when the obligation evidencing the same is executed.

It seems to us that defendant’s construction is the obvious and reasonable one. The fundamental intent underlying this statutory provision seems to be that, instead of forfeiting to the insurer the entire accumulated reserve on a policy in case of default, a fair amount, three-fourths thereof, should inure to the benefit of the insured by way of purchasing temporary insurance, provided the premiums from which the reserve is derived have been actually paid to the company; but if it be found at the time of default that such premiums have not been actually paid but are yet owing to the company as shown by some evidence of indebtedness given on account thereof, then such indebtedness should be deducted therefrom. If the insured has already had the benefit of all or a portion of the reserve in the payment of his past premium, then it is manifestly unfair to again use such reserve in purchasing further insurance.- It is clearly shown that the premium due February 27, 1904, was paid, not in cash, but by the use of the reserve on this policy loaned to the insured for that purpose, and the loan agreement evidenced such past premium payment. It ought to make no difference that as a prudent business man the insured sought to and did make arrangements to pay his premium in this way in advance of the date it was due, when the loan applied for was for such purpose and the premium was actually paid by the insured executing an obligation on account thereof. ■ Such obligation thereafter was an evidence of debt given on account of past premium payments. The insurer took the insured’s obligation in payment of this premium and such obligation was an evidence of debt given on account of the past premium payment. Of course each renewal of such obligation or consolidation of same with another loan for the same or a different purpose does not change the character of the indebtedness or prevent such consolidated obligation being evidence of indebtedness pro tanto on account of past premium payments.

The plaintiff’s construction of this statute is a strained and narrow one, against the purpose and intent thereof, and would require the insured, in order to make an evidence of indebtedness one for past premium payments, to let his policy lapse, unless days of grace are given to make premium payments, so as to make the premiums past due when the evidence of indebtedness is given therefor, and thereby run the risk of having his policy reinstated, if at all, on more or less onerous conditions. The trial court found, however, and the facts so show:, that while the insured applied for this loan before the premium was due, the loan was made February 27,1904, on the day such premium was due, and the loan agreement bears date of February 29, 1904, so that in fact the loan agreement was when given on account of a then past due premium payment on this policy.

The present construction of this statute is in accord with what the court said in Smith v. Ins. Co., 173 Mo. 329, 72 S. W. 935, and Rose v. Ins. Co., 165 Mo. App. 646, 148 S. W. 181, although as plaintiff claims, such cases may be distinguished from the present case, and therefore might not be binding upon us. In the Smith case the court speaks of the assured borrowing by agreement thirty per cent of the premium each year and paying the balance in cash. Therefore, the assured borrowed tbe whole amount of one premium. “This transaction,” says the court, “brought the amount of the assured’s indebtedness for loans on account of past premiums up to $915.10'. Then on May 8, 1896, the assured applied to the company for a loan of cash and the company agreed to lend him $672.10', out of which it would deduct interest on the previous loan up to December 10, 1896, interest on the increased loan up to the same date, and the premium due December 10,1896, leaving $485.14 to be delivered to the assured in cash, all of which was done. This raised the amount of the indebtedness of the assured to the company to $1587.20, which up to the date of the failure to pay the premium was by interest increased to $1634.92. This includes the $485.14 cash loaned the assured.” The court therefore carefully distinguishes the amounts which were borrowed for the purpose and were actually applied to the payment of premiums from the amounts borrowed for other purposes and in effect holds that such former amounts are properly deducted from the three-fourths of the net reserve before applying the same to purchase temporary insurance.

An argument is made that because the policy is stipulated to be “incontestable” and there is no express provision of forfeiture therein, that such policy continued in force whether premiums were paid or not and without regard to the non-forfeiture laws in this state, and that defendant’s only right is to deduct the unpaid loan and premiums from the amount of the policy. The case was not prosecuted or tried on any. such theory, and besides where, as here, the payment of the amount of the policy is conditioned on the paymiÉit of premiums when due, then such payments become conditions precedent and the stipulation of incontestability does not apply to failure to pay premiums. [Metropolitan Life Ins. Co. v. Walton, 25 Ohio C. C. 587; Thompson v. Fidelity-Mutual Ins. Co. (Tenn.) 92 S. W. 1098, 6 L. R. A. (N. S.) 1039; Jackson v. Mutual Life Ins. Co., 186 Fed. 447, 450.]

The question of our'jurisdiction of this appeal because of defendant’s having raised the question of the constitutionality of non-forfeiture statute supra, is disposed of in the case of Mun v. Insurance Co., decided at this term. The result is that the plaintiff is not entitled to recover and the judgment will be reversed.

Robertson, P. J., and Farrington J., concur.  