NAYLOR v. ILLINOIS BANKERS LIFE ASSURANCE CO

Citation Codes

Equivalent Citations

citation codes

Docket Number

No. 4-5703

Attorney(S)

Byron Bogard and Milton McLees, for appellant. L. W. Melburg and Rose, Loughborough, Dobyns House, for appellee.

Judges

HUMPHREYS, J.

See more information ...

Smart Summary

Factual and Procedural Background

This case arises from appellant's suit against appellee to recover $1,068.04 paid as premiums on a life insurance policy issued in 1921 and later assumed by appellee. The policy was forfeited by appellee for failure to pay the premium due April 1, 1938. Appellant mailed a check on April 27, 1938, to pay the premium, which appellee received on April 29, 1938, and accepted with a conditional receipt. The check was dishonored due to insufficient funds. Appellant subsequently sent a money order and a cashier's check to cover the premium, both of which appellee rejected because the policy had lapsed. The trial court directed a verdict for appellee, dismissing appellant's complaint, and appellant appealed.

Legal Issues Presented

Whether appellee’s conditional acceptance of appellant’s check constituted payment of the insurance premium.
Whether appellee was justified in forfeiting the insurance policy due to nonpayment of the premium within the grace period.
Whether appellant was entitled to recover premiums paid after the policy lapsed.

Arguments of the Parties

Appellant's Arguments

Appellant contended that appellee accepted the check as cash payment of the premium and treated it as such.
Appellee accepted checks conditionally and for collection only, but appellee breached this custom by failing to handle the check properly, causing it to be dishonored.
Appellee was estopped from declaring a forfeiture because of its mishandling of the check.
Appellant argued that rejection of the subsequent money order and cashier’s check was wrongful.

Appellee's Arguments

Appellee denied accepting the check as payment, stating acceptance was conditional upon payment when presented to the drawee bank.
Appellee notified appellant of the check’s dishonor and policy lapse due to nonpayment of premium within the grace period.
The policy terms rendered it null and void upon failure to pay premiums on time.
Appellee rejected the money order and cashier’s check because they were tendered after the policy had lapsed.
Appellee offered reinstatement conditioned on payment of all premiums and proof of insurability, which appellant declined.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
National Life Co. v. Brennecke, 195 Ark. 1088, 115 S.W.2d 855	Acceptance of check as conditional payment requiring actual payment upon presentation to be effective.	The court held that the receipt issued by appellee was a conditional acceptance of the check, not an absolute payment, consistent with this precedent.
Hare v. Illinois Bankers Life Assurance Co., 199 Ark. 27, 132 S.W.2d 824	A worthless check accepted conditionally does not obligate the insurer to accept subsequent cashier’s check tendered after the grace period.	The court applied this principle to uphold appellee’s rejection of cashier’s check tendered after policy lapse.

Court's Reasoning and Analysis

The court analyzed the language of the receipt issued by appellee upon receiving appellant’s check, which explicitly conditioned acceptance on the check being paid when presented to the drawee bank. The check was dishonored due to insufficient funds, and thus under the terms of the policy and receipt, the premium was not paid within the grace period. The court relied on precedent establishing that a conditional acceptance of a check does not constitute payment unless the check is honored. Furthermore, the court noted that appellee properly notified appellant of the policy lapse and offered reinstatement subject to proof of insurability and payment of back premiums, which appellant declined. The court found no dispute in the facts and concluded that appellee was justified in forfeiting the policy and rejecting subsequent payments tendered after lapse. Accordingly, the trial court’s directed verdict for appellee was affirmed.

Holding and Implications

Affirmed.

The court affirmed the judgment dismissing appellant’s complaint and holding that the insurance policy was rightfully forfeited due to nonpayment of the premium within the grace period. The conditional acceptance of a check that was dishonored did not constitute payment. The decision directly affects the parties by upholding the forfeiture and denying recovery of premiums but does not establish new precedent beyond reaffirming existing principles regarding conditional acceptance of payment and policy lapse.

Show full summary ...

NAYLOR v. ILLINOIS BANKERS LIFE ASSURANCE COMPANY.

1. INSURANCE — PAYMENT OF PREMIUMS — CONDITIONAL ACCEPTANCE OF CHECKS. — Appellee's receipt issued on receiving appellant's check in payment of the premium on his insurance policy reading "and this receipt operates as such only in case the check is paid when presented, and if not so paid this receipt is void and of no effect" showed on its face that it was accepted on condition that it be paid when presented to the drawee bank, and was not received and accepted by appellee in payment of the premiums. 2. APPEAL AND ERROR. — There was no error in dismissing appellant's complaint in an action to recover premiums paid on an insurance policy where appellant's check sent to appellee for the amount of the premium was not paid because of "insufficient funds" and a money order was sent for the amount of the premiums, but after the policy had lapsed for nonpayment thereof.

HUMPHREYS, J.

This suit was brought by appellant against appellee on September 15, 1938, in the circuit court of Pulaski county, Second Division, to recover $1,068.04 paid by appellant as premium on a life insurance policy No. 120611, which was issued to him by the Illinois Bankers Life Association on March 15, 1921, which policy was later assumed by the Illinois Bankers Life Assurance Company, the appellee herein, which policy was wrongfully forfeited by appellee for failure to pay the premium due April 1, 1938. Appellant alleged that on April 27, 1938, he mailed appellee a check drawn on the Peoples National Bank of Little Rock, drawn by R. C. Naylor as manager of the Capitol Rewinding Co., and indorsed by appellant to appellee in payment of the premium due April 1, 1938; that appellee received said check at its home office April 29, 1938, and immediately accepted the same in lieu of cash and treated the same as cash in payment of the premium; that appellee accepted checks "conditionally and for collection only," but, in violation of such custom on which appellant relied, failed to so handle said check and by its own act in failing so to do prevented the same from being paid and was estopped to declare a forfeiture of the policy; that on May 11, 1938, appellee notified appellant said check had not been paid and that the policy had lapsed; that appellant immediately forwarded a U.S. Post Office Money Order to cover said check, the same being rejected; that appellant on July 25, 1938, forwarded a cashier's check to cover such premium which appellee likewise rejected; that appellee wrongfully canceled the contract of insurance and appellant is entitled to recover as damages the premiums he had paid.

Appellee filed an answer denying that it accepted the check in lieu of cash as premium payment, but stating that it accepted the check on condition that it would be treated as a cash payment if paid when presented to the drawee bank, and admitting that it notified appellant that said check had not been paid by drawee bank and that policy had lapsed as of April 1, 1938, because the premium was not paid when due, and admitting that the money order sent to take up the check which had not been paid was rejected by it because not tendered in time for payment of premium and admitting that it rejected the cashier's check in July, 1938, for the reason that the policy had lapsed under its terms for failure to pay the premium due April 1, 1938. For further answer, appellee stated that a failure to pay premiums rendered the policy null and void under the terms thereof and that, although the policy permitted an insured to pay the premium due within a grace period of thirty days, same was not paid. Appellee also stated by way of answer that it mailed appellant a notice of the premium due April 1, 1938, as follows:

"Remittance by check, bank draft or money order will be considered payment of any amount due, provided such check, draft or money order is actually paid to the company on presentation in due course of business; and the issuance of a receipt for such check, draft or money order shall not constitute a waiver of this provision."

The answer further asserted that upon receipt of check mailed by appellant within the grace period same was duly deposited for collection, but was returned to appellee May 11, unpaid because of "insufficient funds"; that when the check was received to cover the premium due April 1, 1938, it mailed a receipt to appellant as follows: "On account of the universal use of checks we are glad to accommodate our members by receiving such from them, but it must be understood that the check is received not in payment of the premiums, but conditionally and for collection only, and this receipt operates as such only in case the check is paid when presented, and if not so paid the check is void and of no effect;" that under the provisions of the policy appellant further stated that when the payee bank refused to pay the check and returned same to it the policy lapsed, and it rightfully declared same forfeited and that it offered under the terms of the policy to reinstate appellant upon the payment of all premiums and evidence furnished to it of insurability of appellant, but that appellant declined to furnish such proof.

The cause was submitted upon the pleadings and testimony introduced by the parties at the conclusion of which the court directed a verdict for appellee upon which the court rendered judgment that appellant have and recover nothing from appellee upon his complaint and that appellant pay the costs, over the objections and exceptions of appellant.

An appeal has been duly prosecuted to this court from the verdict and judgment rendered in the cause.

There is practically no dispute in the evidence. It shows that under the policy the premiums might be paid within thirty days after they should become due or, succinctly stated, that the insured might have thirty days, grace in which to pay the premium which was due April 1, 1938; that on April 27, 1938, he mailed a check to appellee which it received on April 29, 1938, and upon the receipt thereof mailed to appellant the following receipt: "On account of the universal use of checks we are glad to accommodate our members by receiving such from them, but it must be understood that the check is received not in payment of the premiums but conditionally and for collection only, and this receipt operates as such only in case the check is paid when presented, and if not so paid this check is void and of no effect." It appears from the record that when the check was presented to the drawee bank payment was refused because of "insufficient funds" to pay same. The check was returned to appellee and upon the receipt thereof it immediately notified appellant that the policy had lapsed under the provisions thereof and suggested to appellant that he make application to be reinstated and sent forms for that purpose calling his attention to the fact that he must produce evidence of insurability and that he must pay back premiums before he could be reinstated. Appellant declined to make such proof.

We think the receipt on its face was notice to appellant that the check was accepted on condition that it be paid when presented to the drawee bank, and was not received and accepted by appellee in payment of the premium. This court said in the case of National Life Co., v. Brennecke, 195 Ark. 1088, 115 S.W.2d 855 that: "The company could have advised the insured that the check was accepted conditionally, that is, for collection only; but it did not do so. If it had advised the insured that the check was being accepted in payment only on the condition of its being honored when presented for payment, then, of course, the premium could not have been regarded as paid. On the contrary, as stated, it issued its regular receipt, advising the insured that the premium had been paid within the time prescribed by the policy."

The receipt issued to appellant by appellee when the check was received is practically the language of this court quoted above, and it must, therefore, be treated as a conditional acceptance of the check in payment and not as an absolute payment of the premium due April 1, 1938, within the grace period. This court decided in the case of Hare v. Illinois Bankers Life Assurance Co., 199 Ark. 27, 132 S.W.2d 824, that (quoting syllabus 3):

"Where the insured sent a worthless check in payment of quarterly premium, and the company accepted such check and sent a conditional receipt informing the insured that the acknowledgment was void unless the check should be paid on presentation, held that the company was not bound to accept a cashier's check in substitution of the dishonored check, the cashier's check having been received at the home office approximately two weeks after the period of grace had expired."

We have concluded that the court correctly directed the jury to return a verdict for appellee under the undisputed facts in this record and for that reason the judgment is affirmed.