Opinion
No. 71-2781.
December 21, 1972.
Nikolaus Albrecht (argued), Portland, Or., for plaintiffs-appellants.
James H. Clarke (argued), James C. Dezendorf, of McColloch, Dezendorf, Spears Lubersky, Portland, Or., for defendant-appellee.
Appeal from the United States District Court for the District of Oregon.
Appellants, as the beneficiaries of a fifty thousand dollar insurance policy on the life of their father Vernon C. Bauge, challenge the district court's determination that the policy lapsed for nonpayment of premiums prior to the death of the insured. They make no contention that the premiums were paid beyond the date of the purported lapse, but argue rather that provision 12 of the policy required thirty days notice of the pending lapse as a prerequisite to its effectiveness. They argue in the alternative that, if no notice was required by the policy, appellee was estopped from lapsing the policy without notice by its course of dealings with the insured.
The relevant provisions of the contract are reproduced in the appendix to this opinion.
Although the primary dispute concerns the interpretation of the written provisions of the insurance contract, the scope of review in this court is limited to a determination of whether the district court's decision was clearly erroneous. United States v. Ironworkers Local 86, 443 F.2d 544 (9th Cir. 1971), cert. denied 404 U.S. 984, 92 S.Ct. 447, 30 L.Ed.2d 367 (1971); Lundgren v. Freeman, 307 F.2d 104 (9th Cir. 1962). We conclude that it was not.
The policy in question was issued originally to North Powder Pine, Inc., as both policy owner and beneficiary. Bauge, the insured, was an officer and stockholder in the corporation. Under provision 4 of the policy, premiums were payable in advance commencing on the tenth day of October, 1958, and on the tenth day of each sixth month thereafter during the life of the insured.
On December 10, 1966, the corporation received a loan from appellee secured by the cash value of the policy pursuant to the terms of provision 13. The interest on this loan which fell due on October 10, 1968, was not paid and therefore was added to the principal of the interest-bearing loan, also pursuant to provision 13. The premium due on this date, furthermore, was not paid by the policy owner when due nor within the thirty-one day grace period permitted for premium payments by provision 4. However, since sometime prior thereto the insured had invoked provision 14 of the policy in writing, the amount of the premium was loaned automatically by appellee in payment of the premium, and the policy was charged with an additional indebtedness in the amount of the premium, secured, as was the existing indebtedness, by the cash value of the policy. On March 17, 1969, the beneficiary of the policy was changed to the appellants.
By October 10, 1969, loans and unpaid interest added up to such a high percentage of gross cash value that an additional automatic premium loan in the amount of a semi-annual premium would have resulted in total indebtedness in excess of cash value at the next premium due date. Under provision 14, therefore, premiums became due on a monthly basis. The net cash value which remained available to secure policy loans was sufficient to provide automatic premium payments for four months. When a monthly premium became due on February 10, 1970, and a loan for such amount would have resulted at the next monthly premium due date in an excess of total indebtedness over cash value, the premium was not paid. Instead, provision 14 automatically effected a loan in the exact amount which could be secured by the remaining net cash value for the purchase of a nonparticipating extended term policy which expired on February 22, 1970. Since the monthly premium due on the whole life policy on February 10 was paid neither directly by the policy owner nor indirectly by the appellee through a premium loan under provision 14, the coverage terminated for nonpayment of premiums under provision 4 at the close of the grace period, i.e. thirty-one days after February 10, subject to any prior notice requirement in provision 12. Appellee notified the policy owner on May 27, 1970, that the policy had lapsed. Bauge died the following August.
The principal issue raised by the parties is whether the "except as otherwise provided" language in provision 4 was intended to invoke paragraph 12 as an exception to the general rule, set out in provision 4, of forfeiture for non-payment of premiums. Appellee cites numerous cases holding that similar notice provisions do not apply to such forfeitures. None of these cases is precisely on point. We find it unnecessary, however, to resolve this issue since even a finding of applicability affords appellants no basis for relief.
The crucial question under provision 12 is whether the policy indebtedness ever exceeded the cash value. Unless it did, no notice was required. Our discussion above regarding the mechanics of automatic premium loans should make it clear that anytime provision 14 has been invoked and continues in effect, as it did here, indebtedness can never exceed cash value. Simply stated, under provision 14 a premium is not charged as an indebtedness unless it is paid through a premium loan, and no such loan will ever be made where the policy indebtedness at the next premium due date would exceed cash value. The frequency of premium due dates changes from semi-annually to monthly, and eventually a non-participating extended term policy for a period of less than a month is purchased. The result is that indebtedness ultimately equals cash value but never exceeds it. Provision 12, therefore, did not require notice.
The use of the term "aggregate indebtedness" in provision 12 as opposed to "total indebtedness" in provision 14 does inject some ambiguity into the policy. Appellants do not argue, however, that this ambiguity affords them any basis for relief.
We also have considered appellants' alternative argument that appellee is estopped from asserting any lapse of the policy by its course of dealings with the insured and have found it to be without merit.
Affirmed.