Prudential Insurance v. Brock

Life Insurance; Discretion as to Payment; Beneficiary; Fraud; Notice of Will. 1. Rights conferred upon a life insurance company by the terms of the policy to make selection of the person equitably entitled to receive the proceeds of the policy cannot be limited by the designation of a beneficiary. 2. A life insurance company is not estopped from making distributions and payment, under the terms of the policy, to the person equitably entitled to the proceeds thereof, by having notice of the existence of a will and the designation therein of an executrix. (Citing American Secur. é T. Go. v. Prudential Ins. Go. 16 App. D. C. 319.) 3. Fraud of a life insurance company which can defeat a settlement of a policy with a person .whom the company finds equitably entitled to the fund, under authority given therefor, by the terms of the policy» must consist of some act not left to the company's discretion, such as the payment of only a portion of the amount due, or payment to a stranger not included in one of the classes of persons who may be equitably entitled to the proceeds under the terms of the policy. 4. Where an insurance company in good faith finds a person equitably entitled to the fund, who belongs to one of the classes specifically mentioned for that purpose in the policy, and makes payment accordingly, the decision is final, and not subject to review by the court; since to reverse it would be equivalent to making a new contract for the parties.

Note.- — On right of insurance company, in making payment of proceeds of life policy, to rely on clause giving company option as to payee, and making receipt conclusive evidence of payment to proper person, see note in 20 L.R.A. (N.S.) 928.

Hearing on an appeal by tbe defendant from a judgment .of tbe Supreme Court of tbe District of Columbia in an action on insurance policies. Tlie Court in the opinion stated the facts as follows: This appeal is from a judgment of the supreme court of the District of Columbia in favor of appellee, Mary E. Brock, executrix of the estate of Margaret Brown, deceased, plaintiff below, and against the Prudential Insurance Company of America, for the amount due on two insurance policies of the “industrial” class insuring the life of one Margaret Brown. One of the policies, for the sum of $168, dated November 27, 1905, was taken out by the insured’s mother in the name of Margaret Cole, the insured being under age and unmarried. She was married to John Brown on February 15, 1906. The mother paid the premiums on this policy until the marriage of the insured, when the husband assumed the obligations, and thereafter paid the premiums. The premiums on the other policy, dated May 4, 1908, for the sum of $55, were paid by the husband. The insured lived with her husband in Pittsburg, Pennsylvania, until February 14, 1914, when she came to Washington, where she died about three months later, May 16, 1914. Shortly thereafter, the husband, John Brown, made the necessary proofs of death, accompanied with a statement that he would pay the funeral expenses, and, on June 10, 1914, was paid $240.-08, the full amount due on the two policies. Plaintiff, an aunt of the insured, as executrix of her estate, brought suit, alleging as ground for recovery that defendant company, by the terms of the policy, was obligated to pay the proceeds thereof to the legal representatives of the deceased. To the declaration defendant pleaded non assumpsit and nil debit, and interposed a special plea based upon the provisions of the policies. By the express terms of the policies, defendant company was required to pay the proceeds thereof “unto the executors, administrators, or assigns of the person named as the insured in this policy, unless settlement shall be made as provided in article 2d under the head of ‘Provisions,’ ” which provisions are referred to and made a part of the contract. Article 2d, known as the “facility payment” clause, is as follows : “The company may make any payment provided for in this policy to any relative by blood or connection by marriage of the insured, or to any other person appearing to said company to be equitably entitled to the same by reason of having incurred expense in any way on behalf of the insured; for his or her burial or for any other purpose; and the production by the company of a receipt signed by any or either of said persons, or of other sufficient proof of such payment to any or either of them, shall be conclusive evidence that such benefits have been paid to the person or persons entitled thereto, and that all claims under this policy have been fully satisfied.” Issue was joined on defendant’s pleas; but thereafter, by leave of court, and over defendant’s objection, plaintiff withdrew her joinder to defendant’s third plea and filed a special replication, alleging that payment was made to John Brown in bad faith, that he was not equitably entitled to the proceeds, and that payment had been made in fraud of the rights of 'plaintiff. Trial was had, and the case was submitted to the jury on the question of fraud, resulting in a verdict and judgment for plaintiff. The errors assigned go to the single question of the refusal of the court, as matter of law, to instruct a verdict for defendant. Had the defendant company a right to pay the money due-on the policies to John Brown, the husband of the insured? (a) The contract is clear and free from ambiguity and doubt. It is an agreement on the part of the insurer to pay to the executors, administrators, or assigns of the insured, tmless settlement should be made as provided in article 2d of the provisions of said policies. The promise to pay to the executors, administrators, or assigns of the insured is not absolute, but conditional. This provision, known as the “facility of payment” .clause, gives to the company the option to select from the classes named therein the person to whom it will make payment. The provision does not present a novel question in insurance law, but on the contrary the identical provision, and similar provisions in industrial policies, have been construed and sustained by this court and a number of the State courts. It has been held that the provision does not contravene any law and is not void as against public policy. American Secur. & T. Co. v. Prudential Ins. Co. 16 App. 1). C. 318; Bradley v. Prudential Ins. Co. 187 Mass. 226; Thomas v. Prudential Ins. Co. 148 Pa. 594; Metropolitan L. Ins. Co. v. Schaffer, 50 N. J. L. 72; Sheridan v. Prudential Ins. Co. 230 111. 33; Pfaff v. Prudential Ins. Co. 141 Pa. 562; Brennan v. Prudential Ins. Co. 170 Pa. 488; Ferretti v. Prudential Ins. Co. 97 N. Y. Supp. 1007; Met. L. Ins. Co. v. Nelson, LRA. 1916E, 457, and note to case; Thompson v. Prudentwl Ins. Go. 104 N. Y. Supp. 259; Thomas v. Prudential Ins. Go. 158 Ind. 462; Metropolitan L. Ins. Co. v. O’Farrell, 64 Kan. 278. (b) The purpose of these clauses has been expressly held to be for the protection of the insurer in making quick payments without the cost, expense, and delay of administration proceedings in order to collect the same. Wokel y. Belslcy, 65 N. Y. Supp. 817; Wachtel v. Harrison, 145 N. Y. Supp. 982; Buoff y. John Hancock Mut. L. Ins. Co. 83 N. Y. Supp. 758; Ferretli v. Prudential Ins. Go. 97 N. Y. Supp. 1007. (e) As stated above, the promise to pay the executors, administrators, or assigns of the insured is conditional, and not absolute. It is only on failure of the insurer to exercise the option given to it under the “facility of payment” clause that the right to the proceeds of the policy becomes absolute. Am. See. & Tr. Go. v. Prud. Ins. Go. supra; Prud. Ins. Go. v. Godfrey, 75 N. J. Eq. 484; Thomas v. Prudential Ins. Go. 148 Pa. 594; Thomas v. Prudential Ins. Go. 158 Ind. 462. (d) The submission to the jury by the court below of the question of the equitable right of the insured’s husband to the proceeds of said policies seems to have been based upon the' authority of the case of Am. Sec. & Tr. Go. v. Prud. Ins. Go. supra; Shea v. U. S. Ind. Ins. Go. 48 N. Y. Supp. 548. (e) The designation of a beneficiary, either by written notice to the company or by insured’s last will and testament, does not and cannot change the terms of the contract. The rights of such beneficiary would be subject to the conditions of article 2d of the policy as to payment. .Met. L. Ins. Co. v. O’Farrell, 64 Kan. 278. American Secu-r. & T. Co. v. Pru. L. Ins. Co. 16 App. D. C. 318; Thompson v. Pru,. Life Ins. Co. 104 N. Y. Supp. 259; Brennan v. Pru. Life Ins. Co. 170 Pa. 488; Leivis v. Metropolitan L. Ins. Co. 178 Mass. 52; Millard v. Brayton, HI Mass. 533; Pru,. Life Ins. Co. v. Godfrey, 72 Atl. 456; Del. L. & W. B. Co. v. Converse, 139 U. S. 469; Hepburn v. Diibois, 12 Pet. 345; Nash v. Milford, 33 App. D. C. 42; Morgan v. Adams, 29 App. D. C. 98; AEtna Life Ins. Co. v. Ward, 140 XT. S. 76.