1044- __NEW_ YORK -LIFE INSURANCE V. -Sthv y . - - {-18S NEW YORK LIFE INSURANCE COMPANY V. SHINTLKY. -4-3397 • _Opinion delivered March 12 1934. INSURANCE—FORFEITURE ' OF POLICY.—COntraCts Of insurance, whether of .life or fire insurance, will be construed to avoid a , forfeiture if possible. ' 2. INSURANCE—FORFEITURE_ FOR DEFAULT IN INTEREST.—A policy providing for a forfeiture for default in.payrnent' of interest on a loan Will not entitle t}ie insurer to declare a . forfeiture for nonpaYment . of intere§t not due . until -the , next policy year. Appeal from Randolph Circuit Court ; John L. Bled-soe, Judge; affirmed.. • Lonise H. Cooke,.W.: J: Schoonover and Rose, Hem-ingway, : Cantrell & Loughborough, for apiiellant W. A. Jackson and George 31. Booth, for appellee. MEHAFFY„ J: This action was begun by appellee in the Randolph Cirenit Court, against the appellant, to recover on an insurance policy issued April 20, 1909, for $2,000. The , -annual premium was $64.74, running for-twenty years. The policy was issued -by appellant to Nicie J. shivley, wife of the appellee, and _ the appellee was the beneficiary. The premiums -bad all -been paid, and it was a paid-up . policy. The last premium was April 20,4929. The . insured died .on December 26, 1932. . - Appellant, in its ansWer, admits -that the policy came paid up in April,. 1929, brit that • it . was charged with a:loan, and the appellant alleges that on September 24, 19324 the total debt, including interest, equaled the
ARK.] NEW YORK LIFE INSURANCE CO. I). SHIrLE Y. '1045 cash surrender value of. the policy, and that on that date appellant notifieg ,the insured that the policy would become void withOut further notice if no payment onaccount of the indebtedness waS made before the expiration of one month after the mailing of the notice. . No further payment was made on account of the indebtedness, and appellant alleged that, according to the Aerms of , the loan agreement, the policy had lapsed, and become void on October 23, 1932, .and that at the , time of insured death the policy was not in force. There were several loans made on the policy, the'first One being for $120, and the loan agreement ' provided that interest on this loan at the rate of 5 per cent, per annum from date to the anniversary of the policy=fShould be paid, and should be paid annually thereafter on each anniversary of the polley. Tbe agreement further provided thati ii interest was not paid on the date when due, it should be added To , the principalf . and bear- intereSt at the same rate. It was further providedin the loan 'agree: merit that the sum so . advdnced shall beCome drie and-payable either, (a) if there is default in . the payMent'Of any premium on said policy, in which event the sum sO due and payable with interest should be deducted in the Manner provided in said policy, and §aid indebtedness''-thereupon be deemed fully paid. The agreement frirther provided that, whenever the total indebtedness tO the cOmpany on said policy,' however -evidenced, shall eCinal . its cash surrender valne;then, in the event of- failure to pay interest thereon, said company shall mail to th'e last known address of the insured, and of the assignee _of rec.- WA at the home offiCe of the company, if any, a notice that the total indebtedness to the company on, said f•olicy equals its cash surrender value,'and thereupon said policy shall, one month -after the mailing ef-'said :notice by the company, and Without any other or -further . notiCe or action of any kind036 void 'and of no effect, unleSS said defaulted interest : =Shall be paid within said thie Month. after the mailink OV N' Said notice, and whenever said'pOlicy so becomes void' and'of no effect,' all 'of said indebtedness to the company , shall be fully paid and satisfied.
_ 1046 NEW YORK LIFE INSURANCE CO. v. SHIN T LEV. - [188 The policy provided that, when the total indebtedness -to the company on said policy should equal its cash surrender value, then, in the event of failure to pay interest thereon, said company shall mail to the last known address of the insured a notice that the total indebtedness to the company equals its cash Surrender value, and thereupon said policy shall, one month after mailing said notice, be void. The policy doeslot require that •he insured shall receive the notice, but it does require that the notice be mailed to the last known address of the insured. We think, however, that it was unimportant whether notice was given or not, because, unless the indebtedness equaled the cash surrender value of the policy, there was no forfeiture. The company made several.loans on this policy, and, when it would make a new loan, , it would -always deduct the amount of the former loan and interest from the . amount advanced as a loan on the policy. In all instances, also, where a loan was made, tiler? was a policy loan agreement. The last loan was made on May 21, 1931, and was not due until May 21,, 1932, and in April, 1932, the interest of $46.44 was added to the principal, Making the total indebtedness $1,086.44.. • The appellant's witnesses teStify, and the record shows, that the interest for 1932 was added to the loan thereby extended until 1933. There was no promise to pay, and no obligation to ply either principal- or interest until May, 1933 ; but, in order to show that the indebtedness equals the cash surrender value of the policy, appellant calculates the interest accrued, although not due until May, 1933; The only_question in this case therefore is whether, in order to declare a forfeiture of the policy, the appellant will be permitted to calculate the interest that is not due, and will not be due for several months, and add this to the principal, so as to make the indebtedness equal to the cash surrender value. We do not think this should be permitted, nor do we think it was the intention of the parties. The interest-not yet due should not be available to increase the amount of the indebtedness so as to forfeit the policy. The policy itself , increased in value annually, although such increase was not
ARK.] NEW YORK LIFE INSURANCE CO. v. SHIVLEY. 1047 available . to the insured until the beginning of the next policy year, and the interest accrued, but not due, should not be available to. the insurance company to increase the- indebtedness so as . to declare a forfeiture. There is some argument made about failure to pay defaulted:interest. There was no defaulted,interest, and there was no interest due until the following Alay. "It is a general principle that forfeitures are not favored in law, and nowhere is this more applicable than in the construction of insurance contracts (Palatine Ins. - Co. v. Ewing, 924-1 ed. 111, 34 C. C. A. 230). A construction of a policy resulting in a forfeiture will not be adopted except to give effect to the obvious intention of the parties: 1 1 ! * Nor, will provisions for the forfeiture in ;policies ainstirance be extended beyond the. mischief intended to be met thereby. Contracts of insurance, whether of life or fire insurance, will therefore be construed so as to avoid a forfeiture if possible:" 2 Cooley's Briefs on Insurance, 991 ; Maloney iv. Maryland Cas. Co.; 1113 Ark.. 174, 167, S. ,NA T 845 . ; Pfeiffer v. Mo. State Life Ins. Co., 174 Ark. 783, 297 S.N. 847. , The policy: in. this ,case provides that it shall be incontestable after one year from its date, except for the nonpayment of premiums . There were, of course, no pre,- miums due, because this policy was paid up. Of course, if interest is calculated up. to the time the company gave the notice, the indebtedness would equal the - cash surrender value of the policy--; but, in order to arrive at this result, interest.that is not due must be added to the indebtedness, and We do not think there was any more intention of adding interest due in the future than -there was in calculating the increased value of the policy, which_ would not be available until the beginning of the next policy year. Under the terms of the policy, of course, there was no increase until the beginning of the next year. But there was no intereSt due Oft indebtedness until the next policy year: ' In vol. 2 of ' dooley's Briefs on Insurance, 994 and 995, the rule is stated as follows :. "In accord with these principles, it is recognized as the settled doctrine that a
policy of insuranee must _be liberally -construed in.favor of the insured, so as -not to 'defeat, Without necessity, his claim to the indemnity, which, in making the Insurance, it was his object to Sectire . ; and, when the words are with: out evidence susceptible or two interpretations,:that which will suStain his claim and cover the loss mnst in prefe-ence be adopted." In construing the contract most strongly against the insurance company, as we Must do, • we think it clear that the company did not have the right to declare a forfeiture at the time it did. 'This view is strengthened by the statements in the policy and in the policy loan agreement; in both it is Stated that the interest • is *payable annually, and it is alsO stated . in the policy loan agreement that the policy becomes void unless the defaulted interest shall •be paid, etc.. We think that defaulted interest means interest that is o not paid at the time it is due adcording to the contract, and, According -Le the contract,.this interest was not due until the end of the yolicY year. • • The-judgment of the circuit court is affirmed.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.