Putnam's Handy Law Book for the Layman

by Albert Sidney Bolles

On the other hand, if the insured has been wronged, the courts furnish relief, and perhaps may set the policy aside. Mistake is a common ground of relief; it must in all cases be clearly proved. And if a policy is susceptible of two constructions, the ambiguity is to be resolved in favor of the insured. As the company framed the policy all of its provisions in its favor are strictly construed. It may be added that the construction which the parties themselves have put upon a contract of life insurance will be generally followed in determining their intention. Again, the entire contract is to be construed together for the purpose of giving effect to each clause and as between general and specific provisions relating to the same matter the specific provisions control.

In determining who is the beneficiary under the terms of a policy of life insurance the courts are governed by the intentions of the parties. They need not be named if they can be otherwise identified, and may be designated in a separate paper prepared for that purpose. The amount named in the policy generally fixes the liability of the company. To obviate the wager feature, the amount of insurance effected for a creditor on the life of his debtor ought to be limited to the amount of the debt with interest and premiums during the expectancy of the life insured.

The risk is presumed to begin from the date of the policy and to continue until the happening of the contingency or time when payment is to be made by the insured. It may be added that words or figures written or printed on the margin of a policy of life insurance, on its back, or on a slip, with reference to the terms and conditions of the contract, constitute a part of it and must be considered in deciding its meaning. But representations made in a prospectus or circular issued by a life insurance company are no part of a contract.

The payment of premiums to a general agent without notice of any limitation of his authority to receive payments will bind the company, but a different rule applies to a special agent. The premiums may be paid by the insured, or the beneficiary, or by the agent of the company whenever he has agreed to pay them for the insuring party. A discount allowed by the company for the punctual payment of premiums belongs not to the agent, but to the insured. Cash is usually paid, though other arrangements also exist for taking notes, that are ultimately paid in cash or from the earnings of the company, and belong to the insured and would be paid to him. In mutual life insurance companies a portion of the premium is often paid in this manner.

A policy of life insurance payable to the insured, or in the event of his death to his personal representatives, may be assigned unless forbidden by statute, therefore a policy payable to the wife of the insured, or another may be assigned by the united act of the insured and the beneficiary. Thus a policy taken out for a wife's benefit is often assigned by her and her husband to his creditors to secure their debts. In some states statutes forbid the assignment of such policies for the benefit of creditors. The written assignment must be delivered to the assignee to be effective. On some occasions assignments have been declared valid where the intention was clearly proved though both the written assignment and the policy remained in the possession of the assignor. An assignee who holds a policy as security is entitled on its payment only to the amount of his claim and advances with interest, including premiums paid to keep the policy alive and thus preserve his security. More generally premiums paid for this purpose are chargeable on the proceeds of the insurance, but a mere volunteer who pays the premiums acquires no lien on the proceeds of the policy when it is paid. Nor can one who ought to pay the premiums give a lien on the policy to another for money advanced by him to pay them; and an assignee who has promised to pay the premiums may be liable should he fail to keep the policy alive.

Contracts of reinsurance are often made by all insurance companies. In some states the reinsuring company becomes liable to an action by the beneficiary named in the original policy. Where the reinsuring company, by agreement, undertakes to reinsure the members of the other company should they execute applications for that purpose, any member who does this is not required to be reexamined or comply with other conditions respecting his age or health.

A policy may be canceled or surrendered by mutual agreement. After the death of the insured the rights of the parties become fixed, and there can be no cancellation. During his lifetime the insured may abandon his contract by refusing to pay the premiums, but an intention to abandon will not be presumed, nor will the taking out of a second policy before his failure to pay the premiums on the other establish an abandonment. If both parties treat the contract as void, neither can revive it without the consent of the other. As the beneficiary has a vested or definite interest in the contract, the insured cannot, by surrendering the policy, cut off the rights of the beneficiary without his or her consent unless permitted to do so by the contract itself.

A surrender or cancellation of a policy may be avoided on the ground of mutual mistake. But the insured cannot seek cancellation on the ground that he thought it was something else when his mistake was simply his own in not reading the release.

A policy may be rescinded whenever fraud has been practiced by either party. Thus, should a greater premium be demanded than that stated in the contract this would be a good reason for rescinding on the part of the part of the insured. Likewise, if he was induced to take out the insurance by the fraud of the company or its agent, unless he has lost his right to rescind through inaction or negligence. Likewise, the company may rescind for fraud practiced by the insured by misrepresentation or other fraudulent acts concerning his age, health, etc. Concealment of facts may and often does operate as a fraud on the company. Says Justice McClain: "If the applicant has answered the questions asked in the application he is justified in assuming that no other information is desired. On the other hand if he wholly fails to answer questions the company waives information as to matters thus asked for by accepting the application without objection. If, however, the applicant purports to answer a question by giving only an incomplete answer, concealing facts which should properly be stated in response to the question, and these concealed facts are material, the policy is voidable." If a material change for the worse in the health of the applicant takes place after the application and medical examination, it is the duty of the applicant to disclose it. The failure to disclose facts of which the applicant is ignorant, or which are immaterial to the risk, is not ground for avoiding the policy.

When a policy is surrendered or canceled by the contract or by statute, the insured may be entitled to the surrender value of his policy. The amount is to be determined by the period for which the policy has to run, the amount of the annual premium, the age of the insured, and the probability of the continuance of his life stated in the usual life tables. The value of an immatured paid-up policy is the unearned premium called the reserve and is to be computed in the same manner as that of a policy on which annual premiums are paid. The beneficiary is entitled to the surrender value as against the insured, as well as the creditors, unless the beneficiary has consented to giving them the preference.