Citation Codes

Equivalent Citations

citation codes

Case Number

On Appeal from the Court of Appeal of New Zealand

Advocates

Massey and Co.
Shaen Roscoe
Berridge
Burn
H.S. Preston
W.F. Hamilton
Northcote
P.O. Lawrence

Judges

Parmoor
Sumner
Parker Of Waddington
Justice Lords Dunedin

Acts

SECTION 64 INSURANCE ACT

See more information ...

Smart Summary

Judgment Summary — Lord Dunedin

Factual and Procedural Background

The appeal concerned the effect of Sections 63 and 64 of the Life Insurance Act, 1908 (New Zealand), on an endowment policy issued by the appellants (the society) to the respondent. The parties waived any arguments based on their conduct.

The policy was an endowment policy by which, in return for half-yearly premiums of 20 pounds 12 shillings 6 pence for twenty-five years, the society agreed to pay 1,000 pounds to the respondent's executors if death occurred before expiry, and 1,000 pounds to the respondent if she survived the twenty-five years. The policy incorporated a set of conditions, including condition VII titled "Loans and Surrender Values," which described loans on the policy after three years and provided alternative settlements (paid-up endowment, cash surrender value, or paid-up term policy) according to a table in the policy.

The respondent paid premiums for five years and then ceased payment. She claimed, under the policy terms, that she was entitled to a paid-up endowment of 200 (as stated in the policy table for five years' premiums). The appellants did not dispute that this followed from the contractual wording, but contended that, in view of Section 64 of the 1908 Act, they could not fulfil that contractual promise and must treat the policy as continuing as an endowment policy for 1,000 until the cash value of 107 (as shown in the table) was eaten up by subsequent unpaid premiums in accordance with Section 63; after that there would be no further obligation.

The respondent instituted an originating summons under the Declaratory Judgments Act, 1908 posing five questions. The Court of Appeal (by a majority of four to one) upheld the respondent's contention and found her entitled to the paid-up endowment of 200. The matter came before Their Lordships to determine the proper effect and interpretation of Section 64 of the Insurance Act of 1908 on the policy.

Legal Issues Presented

What is the effect of Sections 63 and 64 of the Life Insurance Act, 1908, on the particular endowment policy issued by the appellants to the respondent?
Whether the policy had a "surrender value" within the meaning of Section 64 (i.e., a cash surrender value which could be compared in money with premiums in arrear), such that non-payment of premiums would not render the policy void while arrears did not exceed that surrender value.
Whether the parties could, by contract, exclude or waive the protection afforded by Section 64 (i.e., whether the section is subject to private contract).

Arguments of the Parties

Respondent's Arguments

The respondent relied on the express terms of the policy, which, after five years' premiums, automatically granted a paid-up endowment of 200 when premiums were not further paid. She claimed entitlement to that paid-up endowment in accordance with the contractual provision (condition VII and the table).

Appellants' Arguments

The appellants accepted that the contractual wording, if construed alone, entitled the respondent to a paid-up endowment of 200. However, they invoked Section 64 of the Life Insurance Act, 1908, arguing that because of that statutory provision they could not fulfil the contractual promise. They contended that the policy must be treated as continuing as a full endowment policy for 1,000 until the cash surrender value of 107 (as shown in the table) had been exhausted by premiums falling due but unpaid, in accordance with Section 63, after which no further obligation would remain.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Equitable Life Assurance Society of the United States v. Bogie, 3 C.L.R. 878 (High Court of Australia)	Referenced as an authority dealing with similar issues about surrender values and lapse provisions in life insurance policies; relevant dicta on consequences of lapse/non-payment.	The court distinguished the Bogie case on its facts, noting special circumstances there which were sufficient to dispose of it. Their Lordships considered the policy in Bogie to be essentially different, because in that policy, if the assured failed to apply, he might have lost everything. In view of the factual differences and the absence of argument on hypotheticals, Their Lordships declined to express an opinion on how Bogie would have been decided absent those special facts.

Court's Reasoning and Analysis

The court's analysis focused on the correct meaning and effect of Section 64 of the Insurance Act, 1908, and the interaction of that section with the policy terms (condition VII and the schedule of values).

Key points of the reasoning:

Section 64 was identified as part of a group of sections headed "Protection of Policies" and designed to protect policyholders. Their Lordships regarded Section 64 as expressing a rule of public policy that cannot be waived by contract; neither assured nor assurer can contract out of it. Consequently, they disagreed with parts of the Court of Appeal's answers to questions 4 and 5 insofar as those answers purported to allow contracting out of the statutory protection.
The court emphasized interpretive limits: when a statute prohibits something that is not in itself unlawful, the words of the prohibition are to be taken as they stand and should not be extended or narrowed by extraneous considerations (i.e., the court should not amplify or restrict the prohibition beyond the statute's language).
The court examined the language of Section 64: it is negative (a prohibition) and operates by preventing a policy from becoming "void by non-payment of premium" so long as premiums and interest in arrear are not in excess of the "surrender value" as declared in answer to the tenth question of the Seventh Schedule. The word "void" was read in a business (commercial) sense common in insurance, not as a technical legal term meaning avoidance ab initio. Thus Section 64 prevents the company being relieved of its liabilities under the policy merely because premiums have not been paid, subject to the surrender-value limitation.
The court interpreted "surrender value" referred to in the Seventh Schedule (tenth question) as meaning the surrender value which the company has contracted to pay; the answer to question ten in the schedule (given periodically) is of a general character but may be used to refer to the particular policy. Importantly, the surrender value in the context of Section 64 must be a cash value, because only money can be compared in terms with the amount due for overdue premiums and interest.
Applying those principles to the facts, the society's periodic answer to question ten (as reported in the lower-court judgment) disclaimed a general agreement to give cash surrender values for Australian policies (with exceptions) and stated that the society agreed in most policies to give paid-up policies if applied for within a reasonable period after lapse, provided three annual premiums had been paid. The policy before the court, however, did not exactly follow that description because the paid-up endowment became due automatically after the required premiums had been paid, without a special application.
The court concluded that Section 64 had no application to the present case because the society had not contracted to pay any cash surrender value under this policy; the contractual covenant was to give a paid-up endowment (a non-cash settlement), not to pay cash to buy off the liability that depends on continuation of premiums. The "loan or cash value" column in the policy table was not a payment to buy off the continuing liability arising from unpaid premiums (i.e., to relieve the society from liability for the 1,000), but rather related to relieving liability under the paid-up endowment. Because Section 64 is conditioned on the existence of a cash surrender value, and no cash surrender value was contracted for, Section 64 did not operate to prevent the automatic paid-up endowment from arising.
The court therefore upheld the majority conclusion of the Court of Appeal that the respondent was entitled to the paid-up endowment of 200 under the policy terms.
On the authority cited (Equitable Life v. Bogie), the court observed that the facts there were different and disposed of that case on its special circumstances; accordingly they declined to apply broad dicta from that case to alter the result here.

Holding and Implications

Core Ruling: Their Lordships declared that the policy in question "had no surrender value within the 6th section of the Act" (as stated in the opinion), and that the protective provisions of the statute (Section 64) cannot be waived by antecedent contract between the parties. With that declaration they directed that the order appealed from be discharged insofar as it answered the third, fourth, and fifth questions in the originating summons. Subject to that declaration and discharge, Their Lordships advised that the appeal should be dismissed and ordered that the appellant pay the respondent the costs of the appeal.

Immediate Consequences:

The Court of Appeal's majority conclusion (that the respondent was entitled to a paid-up endowment of 200 in accordance with the policy) was regarded as correct and was upheld by Their Lordships.
The court made a formal declaration about the absence of a cash surrender value for the purposes of the statutory provision discussed, and that statutory protections cannot be ousted by contract.
The appellants were ordered to pay the costs of the appeal to the respondent.

Broader Implications: The opinion emphasizes that Section 64 is a statutory protection founded on public policy and cannot be contracted out of. It also clarifies that the protection provided by Section 64 depends on the existence of a cash surrender value as declared under the Seventh Schedule (tenth question) — if the insurer has not contracted to pay a cash surrender value, Section 64 will not operate to prevent the contractual consequences (such as an automatic paid-up endowment) that the policy provides. The court distinguished prior authority on its facts rather than adopting broad dicta from that authority.

Disposition: Appeal partly allowed (with the specific declarations and directions described above); the appellant to pay the respondent's costs of the appeal.

Show full summary ...

Equitable Life Assurance Society Of The United States v. Reed

Lord Dunedin :

The only question argued in this appeal was the effect of the 63rd and 64th sections of the Life Insurance Act, 1908, of New Zealand on the policy issued by the appellants to the respondent. Any argument, if such existed, based upon the conduct of the parties was waived.

The policy in question was what is generally known as an endowment policy. In return for the payment of 20 12s. 6d. as a premium paid each half-year for twenty-five years, the appellant agreed to pay to the respondent's executors the sum of 1,000 if death should take place before the expiration of the twenty-five years, and the like sum of 1,000 to the respondent herself if she should survive that period. It is specially set out that the privileges and conditions set out in the third and fourth pages of the instrument shall form part of the contract.

The question arises on the seventh privilege or condition. It is headed "Loans and Surrender Values," and it is in the following terms :-

"VII. Loans and Surrender Values.

"After this policy has been in force three years the society will make loans thereon at five per cent. interest per annum, payable in advance, of the respective amounts stated in the following table, upon the due assignment of this policy to the society as collateral security for such loan.

"This policy shall lapse and together with all premiums paid thereon shall forfeit to the society on the non-payment of any premium when due, except that provided premiums shall have been paid for one of the periods respectively mentioned in the following table, there will be granted, without action on the part of the assured, a paidup endowment for the amount fixed in the said table; for in lieu thereof, at the option of the assured, (1) the cash value fixed in the said table will be paid to said assured upon the due surrender of this policy to the society at any time after its termination; or (2) (provided this policy is surrendered within the days of grace, or, with satisfactory evidence of good health, within one year thereafter) a paid-up term policy for the full amount assured under this policy, and if the assured is living at the expiration of the said term policy, the pure endowment indicated in the table will be paid in cash to the said assured. The paid-up assurance, cash value and paid-up term policy referred to herein, are based on the number of full year's premiums that have been paid, are granted without participation in profits, and are subject to reduction for any indebtedness to the society under this contract. In consideration of the premises it is understood and agreed that all right or claim for non-forfeiture or surrender value other than that provided in this contract is hereby waived and relinquished, whether required by the statutes of any country or State or not."

Then there is added a table of loans and surrender values as follows :- Extended Term Assurance for Face of Policy, from date of Non-payment of Premium.

At the end of. Loan or Cash Values. Paid-up Endowment, granted automatically, unless other Settlement selected. Assurance extended for. Cash (Pure Endowment) payable to Assured, if living, at Expiration of Extended Assurance

Years. s. d. s. d. Years. Months. s. d.

3 47 0 0 120 0 0 7 7

4 74 0 0 160 0 0 12 2

5 107 0 0 200 0 0 16 8

6 131 0 0 240 0 0 19 0 24 0 0

* * * * * *

20 719 0 0 800 0 0 5 0 787 0 0

Table of Loans, and of Surrender Values Either in Cash, Paid-up Endowment, or Extended Assurance, in accordance with the provisions of section vii above.

The respondent paid the stipulated premiums for five years and then ceased to pay. She claims that, in terms of the contract made, that she is entitled to a paid-up endowment of 200. The appellants do not dispute that this is in accordance with the terms of the contract, but say that, their attention having been called to Section 64 of the Act of 1908, they could not fulfil their promise, but were bound to consider the policy as still existing in the form of an endowment policy of 1,000, until the cash value of 107, was eaten up in accordance with Section 63 by the premiums necessarily becoming due, and remaining unpaid, after which no further obligation remained on their part.

An originating summons was taken out by the respondent under the Declaratory Judgments Act, 1908, wherein five questions were put to the Court. Their Lordships will advert to the answers later. For the present it is enough to say that the Court of Appeal, by a majority of four to one, upheld the contention of the respondent, and found her entitled to a paid-up endowment of 200.

The question turns on the meaning and effect of Section 64 of the Insurance Act of 1908. That section is as follows :-

"No policy shall become void by non-payment of premium so long as the premiums and interest in arrear are not in excess of the surrender value as declared by the company issuing the same in the answer of such company given to the tenth question of the Seventh Schedule hereto."

Section 64 is the first of a fasciculus of sections headed "Protection of Policies." The other sections which end with Section 66 are concerned with the protection of policies from the effects of bankruptcy and the securing that the proceeds of a policy at death shall pass to the representatives of the deceased.

Their Lordships have no doubt that this is a section intended to lay down a rule of public policy, and that it is impossible for either an assured or an assurer to contract himself out of it or to waive its effect. They cannot, therefore, agree with the answers given by the majority of the Court to the questions 4 and 5 as put.

Taking then, the section as an injunction which cannot be disregarded, what is its meaning? In all cases where something not ipsa natura unlawful is prohibited by statute, the words of prohibition must be taken as they stand; they must not be amplified in order to meet a supposed evil, or restricted in order to protect a natural freedom. In other words, the evil that was to be checked can only be considered so far as necessary for the interpretation of the words, but roust not be used for an independent determination of the scope of the remedy. Now it will be observed, first, that the, section is in a negative form it prohibits, it does not enjoin. And it cannot, in their Lordships' opinion, by turned into a mandatory section by combining it with the provisions of section 63, as is done in part of the argument used by Mr. Justice Edwards in the Court below.

Secondly, the only thing struck at is the becoming void of a policy in respect of the non-payment of a premium. This prohibition is universal, i.e., it is equally directed against a special stipulation to that effect and against the common law result in mutual contracts falling within the section when one party fails to perform his part of the bargain or when the liability of one party is expressed to be conditional on the other party performing his part of the bargain. What, then, is the meaning of the term "void"? The word is used in a business sense common in speaking of insurances and not with any legal technicality in the sense of avoidance ab initio. The meaning here is that the Company is not to be relieved from his liabilities under the policy by reason of non-payment of premiums. Any clause in a policy which would have this result would be struck at and made non-effective by the statute. It is, however, next to be observed that the prohibition is not absolute, but is conditioned by the words "so long as the premiums and interest thereon in arrear are not in excess of the surrender value as declared by the company issuing the same in the answer of such company given to the tenth question of the Seventh Schedule hereto." This refers us to the Seventh Schedule to find out in each case what is the surrender value spoken of in Section 64.

The Seventh Schedule is a schedule which, in terms of Section 19 of the Act, an insurance company is bound to fill up every five or ten years, as the case may be, and the scope of it is a general statement of the life insurance and annuity business of the company. Various particulars are required, which it is not necessary to quote, and then comes the tenth question, which is as follows :

''A table of minimum values (if any) allowed for the surrender of policies for the whole term of life, and for endowments and endowment assurances, or a statement of the method pursued in regulating such surrender values, with instances of its application to policies of different standing and taken out at various interval ages, from the youngest to the oldest."

It is obvious that the answer to this question made every five or ten years, as the case may be, must be of a general description, but their Lordships do not doubt that the answer, though made in general terms, may be of such a character as to make it right to refer to the particular policy de quo queritur in order to see the surrender value under it. As to the meaning of the actual expression "surrender value" there can be no doubt. Surrender value in general means that value or consideration which a company has contracted or is prepared to pay at any particular time during the currency of the contract in consideration of being relieved as from that time of the liability dependent on the continuance of premiums paid. Their Lordships are of opinion that the surrender value referred to in the tenth question is the surrender value, if any, which the company has contracted to pay. Looking, however, to the terms of Section 64 the surrender value there referred to must necessarily be a cash value, for no other consideration could be compared in terms of money with the amount due in respect of the overdue premiums.

Turning now to the facts of the present case. The society's answer to question 10 in the schedule is set out in the judgment of Stout, C.J., and need not here be quoted at length. It explains that in respect of Australian policies, with the exception of guaranteed cash value policies.

"the society has not agreed to give cash surrender values, but it agrees in most of its policies ......to give paid up policies if applied for within a reasonable period after the lapse, provided three annual premiums have been paid."

It then goes on to explain the method of calculation as to amount. The policy itself, as will be observed from the terms of condition VII., already quoted, does not exactly follow this description; because the paid-up endowment which becomes due on the failure to pay after three years' premiums have been paid is granted automatically and without special application.

Applying what has been said to the above conditions, their Lordships are of opinion that Section 64 has no application to the present case, because the society does not by the policy contract to pay any cash surrender value. The thing which the society covenants to give is not cash, nor is it to be given in consideration of the assured relieving the society from any liability under the policy : it is a fullypaid endowment to be given if and when the society's obligation to pay 1,000 under the policy has come to an end by reason of the non-payment of premiums. What is called the loan or cash value in the column with that heading is not a payment which the society makes to buy off the liability dependent on the continuance of premius paid, that is already gone, but a payment to get off the liability under the paid-up endowment.

Their Lordships are therefore of opinion that the conclusion of the majority of the Court was correct. In the argument their Lordships' attention was called to the case of Equitable Life Assurance Society of the United States v. Bogie 3 C.L.R. 878, decided in the High Court of Australia. There were special circumstances in that case which were sufficient to dispose of it. As regards the general dicta it is enough to say that the policy in that case was essentially different from the present inasmuch as if the assured failed to apply he might have lost everything, and that in the absence of argument their Lordships do not think it expedient to express any opinion as to what the result in that case would have been if the specialities had been non-existent and it had been necessary to consider that policy in the light of the general remarks which their Lordships have made in this case. In their Lordships' opinion the proper course will be to declare that the policy in question had no surrender value within the 6 th section of the Act, but that the provisions of such section are not capable of being waived by antecedent contract between the parties, and with this declaration to discharge the order appealed from so far as it answers third, fourth, and fifth questions in the summons. Subject to this their Lordships will humbly advise His Majesty that the appeal should be dismissed, the appellant to pay the respondent the costs of the appeal.

Appeal partly allowed.

Equitable Life Assurance Society Of The United States v. Reed

Judgment Summary — Lord Dunedin

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Respondent's Arguments

Appellants' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Equitable Life Assurance Society Of The United States v. Reed

Comments