Lyons, Joseph C.

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Washington University Law Review Volume 9 Issue 3 January 1924 Vested Interest of Beneficiary in Insurance Policy—Death in Common Disaster Joseph C. Lyons Washington University School of Law Follow this and additional works at: https://openscholarship.wustl.edu/law_lawreview  Part of the Law Commons Recommended Citation Joseph C. Lyons, Vested Interest of Beneficiary in Insurance Policy—Death in Common Disaster, 9 ST. LOUIS L. REV. 230 (1924). Available at: https://openscholarship.wustl.edu/law_lawreview/vol9/iss3/6 This Note is brought to you for free and open access by the Law School at Washington University Open Scholarship. It has been accepted for inclusion in Washington University Law Review by an authorized administrator of Washington University Open Scholarship. For more information, please contact digital@wumail.wustl.edu. ST. LOUIS LAW REVIEWVESTED INTEREST OF BENEFICIARY IN INSURANCEPOLICY-DEATH IN COMMON DISASTER.It is no doubt true, that the beneficiary in a contract ofinsurance takes a vested interest when that beneficiary hasan insurable interest and is unconditionally named-that is,death is the one condition that makes it payable to thebeneficiary absolutely. The authorities well established thisrule.' But when there is some condition added to the riglitof the beneficiary to take, beside the major condition ofdeath, the right of the beneficiary to take a vested interestoften times becomes one of difficulty. As where both par-ties were killed in a common disaster and there is no evi-dence that either survived the other, when survivorship wasthe condition which was to determine the rights of theparties.The case that presents exactly such a state of facts wasdecided in Missouri in 1902.2 That case has been widelycited as supporting the rule that a beneficiary takes the vestedinterest in contracts of insurance when the usual relationsexist between the parties. On examination of authorities onelearns that there have been but few cases both in Englandand the United States, that present exactly the same point fordecision, and of the ones that do so present the points for de-cision, the majority have decided against the point on whichthe Kacer case was determined.3 This case does reaffirm thedoctrine that a beneficiary takes a vested interest at the in-ception of the contract relation and cannot be deprived ofthat interest without consent when such beneficiary has aninsurable interest. But it goes a little further than thissettled principle, and holds that where the beneficiary is to1. 25 Cyc. 889.2. 169 Mo. 301.3. 141 App. Div. (N. Y.) 478.Washington University Open ScholarshipVESTED INTEREST OF BENEFICIARY IN INSURANCE POLICY 231take only on condition that she survive the insured-andthey both die in a common disaster-no evidence that eithersurvived the other-such beneficiary takes a vested interest,and the indemnity is to be paid to the legal representativesof the beneficiary and not the representatives of the insured.And it is on this holding that the conflict of authority hasgrown up.The facts of the Kacer case 4 are shortly these: A bill ofinterpleader in equity to determine the right to eight thou-sand dollars, the proceeds of two insurance policies on thelife of Harry C. Yocum, and paid into court by the U. S.Casualty Co. The interpleaders are, respectively, by thelegal representatives of Harry C. Yocum, the assured, andhis daughter, the beneficiary.Harry C. Yocum, with his daughter, Miss FlorenceYocum, and other friends left New Orleans in a privateyacht to make a trip over the Gulf of Mexico. They werenever heard of again until bodies of the parties were laterfound on a small island in the Gulf. There was no evidenceas to how the accident occurred.The accident policies provided that the proceeds shouldbe paid to Miss Florence Yocum, if surviving, if not, to thelegal representatives of the assured, Harry C. Yocum.The insured, Harry C. Yocum, and the beneficiary, Flor-ence Yocum, both perished in this calamity and there isno evidence that either survived the other. The establishedEnglish and American Doctrine 5 is, that in such cases thereis no presumption that either survived the other (as in theRoman Civil Law6) but that both perished at the same in-stant. Therefore the rights to the indemnity of the policydepends on the interpretation of the contract at the time ofits making; that is, what was the intention of the parties,4. 169 Mo. 301.5. 1 Greenleaf, Evidence Sec. 30.6. 6 St. Louis Law Review, page 1.https://openscholarship.wustl.edu/law_lawreview/vol9/iss3/6ST. LOUIS LAW REVIEWand in whom does the law vest the interest at the inceptionof the contract? And this in turn depends upon the interpre-tation given to the stipulation, "if surviving, if not, to thelegal representatives of the insured," which must be either acondition precedent or a condition subsequent. For it is ob-vious, that if this stipulation is to be regarded as a conditionsubsequent, the interest vested in the beneficiary at the in-ception of the contract, subject to be divested if she did notsurvive her father. But regarding the stipulation as a condi-tion precedent, the interest of the beneficiary did not vestimmediately when the contract relation came into existence,but could only vest when the condition occurred. And itseems that in the absence of proof that the beneficiary didsurvive the insured, the interest would be in the legal repre-sentatives of the insured; "for survivorship is clearly acondition precedent. "7The Kacer case might be distinguished from a greatbody of the cases that involve life insurance policies asdifferent in fact, from accident insurance policies. Thatcase did involve an accident insurance contract. Whilecourts generally have made no distinction between life andaccident policies, there is, in fact, this difference: A lifepolicy depends upon a condition that is sure to happen ac-cording to the natural efflux of time; the contract is to lastuntil death occurs and determines it. And it is reasonableto say, that the interest of the beneficiary, in such a contractshould vest, in the absence of conditions precedent. But inthe case of accident policies, a very different and limitedcontract exists between the parties. Accident insurancepolicies cover a certain period oly and determine absolutelyat the end of that period. They are also dependent upon thecontingency of accident; that is to say, on a condition whichin its very nature is liable not to take effect at all; it willnot, in the course of time, surely happen. The policy in the7. 53 Cen. Law Journal 45.Washington University Open ScholarshipVESTED INTEREST OF BENEFICIARY IN INSURANCE POLICY 233Kacer case with the uncertain condition of accident, andthe superimposed condition, "if surviving, if not, to thelegal representatives," presents a double condition, both ofwhich are in their very nature never liable to happen. Thequestion naturally arises in a reasonable mind, how can itbe said that a contract based on two wholly contingent con-ditions, vest an interest in a beneficiary who is to take onlyon the happening of both? Such decision would seem todestroy the fundamentals on which the law was developed;that is, to base conclusions of law on premises that are notambiguous, and to make things reasonably certain the basisof legal interest. In the law of real property in a leadingcase, 8 Justice Bigelow said: "Gifts or grants of estates infee with limitations upon a condition or event of an uncer-tain or indefinite nature, the limitation over being executoryand depending on a condition or event which may neverhappen, passes no vested interest or estate." The law dealswith such conditions in one way only, by calling them condi-tions precedent.As suggested in Hoffman v. Indemnity Co.,9 the Courtheld that the beneficiary in an accident policy, until thedeath of the insured, has, at most an inchoate and contingentinterest and the insurer cannot recognize her as a party tothe contract having a present interest therein. In the casejust referred to, a condition in an accident policy requiredthe beneficiary to give notice of death of the insured withinten days of the happening of the accident causing the injury.Such a condition was held to be impossible on the groundthat the beneficiary acquired no definite interest in a policyuntil death occurred. That is, the Court held that under anaccident insurance policy the beneficiary took no interestthat would make such party one to the contract, and conse-quently would not hold that condition good. The party was8. 3 Gray 142.9. 56 Mo. App. 30.https://openscholarship.wustl.edu/law_lawreview/vol9/iss3/6ST. LOUIS LAW REVIEWunaffected by the condition because the beneficiary was notconsidered as having an interest in the policy. It is alsosaid: "Where the policy provides that the beneficiary shalltake if surviving, no difficulty should arise in any view ofthe case as survivorship is clearly a condition precedent. "10In the case of Fuller v. Linzee," the policy providedthat "in case the insured should die before the decease ofher husband, the amount of the policy should be payable totheir children." The husband, the wife and their childrenwere lost at sea, and there was no direct evidence as towhich survived the other. The Court held that the interestof the wife in the policy was contingent on her survivingher husband, and that the burden of proof was on her nextof kin to show that she survived. The Court said: "He(the insured) was providing for the disposition of a fund,which was not to exist until after his death, and he madethe provision by designating the persons to whom it was tobe paid, and his obvious intention was that it should be paidto his wife, if she should survive to take it, and to theirchildren if she should not survive. * * * We think uponthe view of the contract already taken, that the wife hadno interest transmissible to her next of kin unless she sur-vived her husband and they cannot maintain their claim."The stipulation in an insurance policy payable to thebeneficiary if surviving, if not, to the legal representativesof the insured, is, for a further reason manifestly a conditionprecedent and not a condition subsequent; the beneficiary isnot to take at all events, as said in Dunn v. New AmsterdamCasualty Co.,12 but only in case he survives the insured.Therefore, the principle is precisely like the case of fraternalor mutual benefit insurance in which it has been uniformlyheld, in this and other jurisdictions, that those claiming un-10. 53 Cent. Law Journal 45.11. 135 Mass. 468.12. 141 App. Div. N. Y. 478.Washington University Open ScholarshipVESTED INTEREST OF BENEFICIARY IN INSURANCE POLICY 235der the beneficiary named must prove survivorship of thebeneficiary." That is to say, the stipulation in an accidentinsurance policy, "if surviving, if not, to the legal represent-atives of the insured," is equivalent to the reservation of theright to change the beneficiary, and in those cases it hasalways been held that the beneficiary takes no vested interest,because of the contingency.In the case of Supreme Council v. Kacer,18 arising fromthe same state of facts and decided in the Missouri Court ofAppeals, the policy contained the right to change the bene-ficiary, or it was interpreted to be equivalent to that right.The by-laws of the organization provided, that in case thbeneficiary died before the insured, the indemnity should bepaid to certain other persons dependent or related. JudgeGoode gives a very lucid and comprehensive opinion inwhich he decides in favor of the legal representatives of theinsured, contra to the U. S. Casualty Co. v. Kacer, supra.If this is to be construed as the reservation of the right tochange the beneficiary, it would seem clearly and logicallyto follow, that the stipulation "if surviving, if not, to thelegal representatives of the insured," is likewise equivalentto the right to change the beneficiary. For the conditionsin each of these policies are not within the discretion of theinsured as to whom should ultimately take, but will de-termine by the course of events.In the case of Dunn v. New Amsterdam Casualty Co.,supra, Julia Dunn procured a policy of accident insurancefrom the New Amsterdam Casualty Co., and one of the pro-visions of the policy was, "the indemnity for loss of life shallbe payable to the beneficiary named in the stub attachedhereto, or in the event of the prior death of such beneficiary,or in the event that no beneficiary is named in the said stubas herein provided, then to the legal representatives of theassured." The sister of the insured was named in the stub13. 96 Mo. App. 93.https://openscholarship.wustl.edu/law_lawreview/vol9/iss3/6ST. LOUIS LAW REVIEWas beneficiary. Both the insured and her sister, who wasthe beneficiary, perished in the accidental burning of thesteamboat General Slocum, and it could not be ascertainedwhich died first. The Court held that the burden of proofwas on the legal representatives of the beneficiary or thoseclaiming under her to establish the survivorship of the bene-ficiary; and that in the absence of such proof the proceedsof the policy should be paid to the legal representatives ofthe insured. -This is directly contra to U. S. Casualty Co. v,Kacer, supra. The New York Court said in the course ofthe opinion: "Phraseology is important only to determine theintention, which in this case was, that the indemnity shouldbe paia to the sister if living, otherwise to the legal repre-sentatives of the assured. And that purpose could not havebeen made more manifest if that language had been em-ployed. The survivorship of the sister, then was a conditionof her taking, and it begs the question to say that she tooka vested interest subject to be divested by her prior death.No doubt the law is that in the absence of the reservationof the right to change a beneficiary that may not be doneby the assured. But the cases on that head have no appli-cation whatever to the question now being considered. Herethe beneficiary named was not to take at all events, but onlyin case she survived the assured. And the case is therefore,in principle precisely like the cases of fraternal or mutualbenefit insurance, in which the right to change the benefi-ciary is expressly reserved, and in which it has been uni-formly held, (as is conceded by the respondent), in this andother jurisdictions, that those claiming under the beneficiarynamed must prove survivorship. * * * By the terms ofthe policy the beneficiary was to take only in case she .sur-vived the insured. We construe the policy in question tomean the same thing. In such a case the burden to provesurvivorship of the beneficiary would rest upon those claim-ing under her, and the fact being unascertainable, the in-Washington University Open ScholarshipVESTED INTEREST OF BENEFICIAlRY IN INSURANCE POLICY 237demnity should go as the parties obviously intended, to therepresentatives of the assured, who take under the policy,not under survivorship."The decision in the case of Hildebrand v. Ames.14 is tothe same effect. In that case Frank Doll took out a policyof life insurance, naming his wife as the beneficiary. Theprovision of the policy was that it should be payable toMinnie Doll, wife of the insured, if living, if not living,then to the insured's executors, administrators, or assigns,Both the insured and the beneficiary were killed in a floodunder such circumstances that it was impossible to determinewhich died first. The Court held that the interest of Mrs.Doll was a contingent interest, and that the burden of proofwas upon the representatives of her estate to prove her sur-vivorship. The following is the language of the Court:"Under the terms of the policy in question, we are of theopinion that Mrs. Doll's interest in the proceeds of the policywas a contingent interest, not transmissible to her heirs, andthat it devolved upon her representatives to show that thecontingency had happened which would entitle her to receivethe proceeds of the policy."In cases of this nature where the insured adds the con-dition of survivorship in a policy, it might be said that theintention was to provide for the support of the beneficiaryso named, after the death of the insured; and he certainlydid not intend that the proceeds should go to the legal rep-resentatives of the beneficiary. 15 His intention was to pro4vide for the support of such beneficiary if living at the timeof his death. But if not living, such provision being unneces-sary, the proceeds of the policy should go to his estate. Assaid in Dunn v. New Amsterdam Casualty Co.,16 "It is oh.vious that the policy in question was not taken out for the14. 27 Tex. Civ. App. 377.15. 187 U. S. 401; 8 H. L 183.16. 141 App. Div. N. Y. 478.https://openscholarship.wustl.edu/law_lawreview/vol9/iss3/6ST. LOUIS LAW REVIEWbenefit of the personal representatives of the beneficiarynamed. They were not in the mind, either of the insured orthe insurer. Upon its face the policy was procured for thebenefit, first, of the assured's sister, second, of the assured'sestate or next of kin."It is a fundamental rule of the law of contracts, that acontract is to be construed so as to give effect to the inten-tion of the parties. In the light of the foregoing decisions,it might be said, that to follow the decision of U. S. CasualtyCo. v. Kacer, would be to defeat the expressed intention andpurpose of the insured when he has added the stipulation,if surviving, if not, to legal representatives. For in manycases it would lead to the distribution of the proceeds of theinsurance to the very persons to whom the insured did notwant to give it. If the insured, in such a policy desired theindemnity to go to the legal representatives of the bene-ficiary, he would not have provided against it, but made thecontract payable to the beneficiary absolutely. It is obviousthat survivorship is a condition precedent, and the criticismof the Missouri case made by the New York Court, 17 isjustified on fundamental principles of law.The marvelous expansion of the insurance business,and the numerous financial aids to which these contracts aremade to extend, should impel courts to construe themstrictly according to the settled principles of law, and whenthere is any ambiguity, always against the insurer. Thisalso has the tendency to make the insurer more cautiousabout stipulations for the benefit of the beneficiary. Forsuch contracts can be more readily used for the great numberof purposes to which they are becoming adapted, if they axeunconditional and have this definite quasi-negotiability.Then the rule, that the beneficiary under an insurancecontract takes a vested interest, is in strict accord with the17. See Note 3.Washington University Open ScholarshipVESTED INTEREST OF BENEFICIARY IN INSURANCE POLICY 239basis on which life and accident policies are growing. Thebeneficiary should take some interest good in law, so when itbecomes necessary to use such interest, it can be dealt within a legal way; that is, have weight enough to alter substan-tive rights. But to hold that the beneficiary takes a vestedinterest under an ambiguous contract would tend to defeatrather than accomplish this end.JOSEPH C. LYONS, '24.https://openscholarship.wustl.edu/law_lawreview/vol9/iss3/6

Vested Interest of Beneficiary in Insurance Policy—Death in Common Disaster

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Vested Interest of Beneficiary in Insurance Policy—Death in Common Disaster

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