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WILLIAMS v. UNION CENTRAL LIFE INSURANCE CO.

decided: January 15, 1934.

WILLIAMS
v.
UNION CENTRAL LIFE INSURANCE CO.



CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE FIFTH CIRCUIT.

Hughes, Van Devanter, McReynolds, Brandeis, Sutherland, Butler, Stone, Roberts, Cardozo

Author: Hughes

[ 291 U.S. Page 171]

 MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.

This action was brought by petitioner as beneficiary of a policy of insurance for $10,000 issued July 26, 1927, upon the life of her husband, who died on October 15, 1931. Application for the policy was made and the policy was delivered in the State of Texas. A level premium of $449.10 was payable annually on June 10th, and was paid to and including June 10, 1930. The premium payable on June 10, 1931, was not paid either at that time or within the thirty-one days of grace allowed by the policy.

[ 291 U.S. Page 172]

     The "loan value" or "cash value" of the policy, as shown by the table which the policy set forth, was then $910. Loans against the policy, with interest, amounted to $898.88. The policy was a participating one, and a dividend of $74.80 was declared in favor of the insured on June 10, 1931. If that dividend had been applied in reduction of the amount advanced against the policy or to the purchase of extended insurance, the result would have been to extend the insurance beyond the date of the death of the insured. Petitioner contends that the dividend should have been so applied. Respondent insists that such application would have been contrary to the terms of the policy and that, on the expiration of the period of grace without payment of the premium due, the policy lapsed and the dividend was payable in cash and not otherwise.

Respondent's request for the direction of a verdict was denied and the verdict and judgment went for petitioner. The judgment was reversed by the Circuit Court of Appeals. 65 F.2d 240. This Court granted certiorari.

The policy gave the following options as to the disposition of dividends:

"11. Dividend Options. Dividends may be withdrawn in cash; or applied to the payment of premiums; or left to accumulate with interest at three per cent, increased from surplus interest earnings as apportioned by the Directors, until the maturity of the policy, subject to withdrawal at any time; or applied to the purchase of paid-up participating additions to the policy, convertible into cash at any time for the amount of the original dividends or the reserve of the additions, if larger, but payment may be deferred by the Company ninety days from the date of application therefor."

There is no ambiguity in the terms of these options. They are clear and definite in the terminology of insurance

[ 291 U.S. Page 173]

     and each is to be applied with its distinctive significance. No one of these options provides for the use of a dividend to procure extended insurance; that is, to procure an extension of the term of the insurance from the date to which premiums have been paid, without any further payment. Dividends may be withdrawn in cash or applied to the payment of premiums or left to accumulate with interest subject to withdrawal at any time. The further option to have dividends "applied to the purchase of paid-up participating additions to the policy" is quite distinct from an option to procure extended insurance. A "paid-up addition" to the policy, by the application of a dividend, is the amount added to the face of the policy and purchased by the use of the dividend as a single premium. For such paid-up additions, there must be a legal reserve.

The insured did not exercise any one of the options given by article 11. It appears that he had several other policies issued by the same company, and in addition to the amount advanced by the company he had borrowed certain amounts from the company's agents in Dallas, Texas. These agents, on September 18, 1931, obtained an order on the company, signed by the insured, which directed payment to them of the dividend on the policy in suit together with dividends on other policies. On this order, the dividend here in question was paid to the agents. Petitioner contested the order as having been signed at a time when the insured did not have sufficient mental capacity to understand the transaction. This issue of fact was decided by the jury in favor of petitioner and the Circuit Court of Appeals did not pass upon the sufficiency ...


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