Covers recent laws on credit life, accident, and health insurance and on life insurance

Taylor, Robert L.

English

UW Law Digital Commons (University of Washington)

Washington Law Review Volume 36 Number 3 Washington Legislation—1961 9-1-1961 Insurance Robert L. Taylor University of Washington School of Law Follow this and additional works at: https://digitalcommons.law.uw.edu/wlr  Part of the Insurance Law Commons Recommended Citation Robert L. Taylor, Washington Legislation, Insurance, 36 Wash. L. Rev. & St. B.J. 292 (1961). Available at: https://digitalcommons.law.uw.edu/wlr/vol36/iss3/5 This Washington Legislation is brought to you for free and open access by the Law Reviews and Journals at UW Law Digital Commons. It has been accepted for inclusion in Washington Law Review by an authorized editor of UW Law Digital Commons. For more information, please contact cnyberg@uw.edu. WASHINGTON LAW REVIEWstated articles permitted by the law of its domicile rather than originalarticles and amendments thereto as previously required.The statute undoubtedly will prove to be very convenient and aneffective time saver.Shareholders' Consent in Lieu of Meeting. Chapter 1601 permitseffective shareholder action to be taken by unanimous written consentin all situations in which the law previously required a meeting andformal vote. Anyone acquainted with the practice in closely-held cor-porations is aware that a formal meeting is often useless and frequentlyfictional. The statute validates what, in effect at least, has been a gen-eral practice.The statute probably is not broad enough to make a meeting un-necessary where the shareholders are divided but the result is inevita-ble. In such a case, the minority shareholders may wish to record anobjection but will recognize the futility of attempting to persuade themajority at a meeting. The statute as drawn, however, refers to "con-sent" and this relates to "action ... taken." The statute also gives thesame effect to the consent as to "unanimous vote." Thus, while itmight have been possible to have drawn a statute broadly enough topermit majority action while preserving minority dissent, the statute iscast more narrowly.The statute does not apply to meetings of directors. While suchmeetings are also likely to be informal or fictional in closely-held cor-porations, the same freedom could be dangerous if the directors are notcollectively the owners of all of the shares. If they do own all of theshares the statute could realistically cover director action, but in itspresent form it does not do so.J. GORDON GOSEINSURANCECredit Life, Accident and Health Insurance. Chapter 219' of the1961 session laws is new. It relates to the regulation of credit life in-surance and credit accident and health insurance and becomes a partof the Insurance Code of Washington.It has long been recognized that a creditor has an insurable interestin the life of his debtor.' RCW 48.18.030(3) (b) defines "insurableI Wash. Sess. Laws 1961, ch. 160.' Wash. Sess. Laws 1961, ch. 219.2 See Connecticut Mut. Life Ins. Co. v. Luchs, 108 U.S. 498, 505 (1883) ; Warnock[VOL. 36WASHINGTON LEGISLATION-1961interest" as including, "a lawful and substantial economic interest inhaving the life, health or bodily safety of the individual insured con-tinue, as distinguished from an interest which would arise only by, orwould be enhanced in value by, the death, disablement or injury ofthe individual insured." Under this provision, a creditor would clearlyhave an insurable interest in the life of his debtor in Washington. Thechief difficulty appears to be in determining what relation the amountof insurance shall bear to the amount of the debt. Some courts haveadopted the test that the amount of insurance must be reasonablyproportionate to the amount of the debt.' Other courts merely statethat a creditor has an insurable interest in the life of his debtor tothe extent of the debt." However, this will not indemnify the creditorto the extent that he has paid premiums and interest.5 Since a lifeinsurance policy is not a contract of indemnity, the creditor-beneficiarymay ordinarily collect the full proceeds of the policy where the credi-tor himself takes out the policy, even though the debt has been partially.or fully paid or the amount of insurance exceeds the amount of thedebt. The mere fact that a debtor-creditor relationship exists betweenthe parties does not give the debtor the right to any of the proceeds.6Where the creditor takes out the policy, he usually must obtain theconsent of the debtor whose life is insured.7 In Washington the consentof the debtor whose life is insured by the creditor would be requiredby RCW 48.18.060.It is also well settled that a person has a right to insure his own lifeand may designate that the money be paid to any person whom he mayv. Davis, 104 U.S. 775, 779 (1881) ; Butterworth v. Mississippi Valley Trust Co., 362Mo. 133, 240 S.W2d 676 (1951) ; Equitable Life Assur. Soc'y v. Hazlewood, 75 Tex.338, 12 S.W. 621 (1889) ; Burnett v. Amicable Life Ins. Co., 195 S.W.2d 237 (Tex.Civ. App. 1946); PATERsoN, EssExneAxs op INsuRANcF LAw 175 (2d ed. 1957);VANcE, INSURANcE 200 (3d ed. 1951).3 See Watson v. Massachusetts Mut. Life Ins. Co., 140 F.2d 673 (D.C. Cir. 1943);PATTERSON, op. cit. supra note 2, at 175; VANCE, op. cit. supra note 2, at 201. .4 See Metcalf v. Montgomery, 229 Ala. 156, 155 So. 582 (1934) ; Progressive LifeIns. Co. v. Bohannon, 74 Ga. App. 617, 40 S.E2d 564 (1946) ; Shaw v. M. Livingston& Co., 293 Ky. 575, 169 S.W.2d 612 (1943) ; Pittsburgh Underwriters v. Mutual LifeIns. Co., 149 Pa. Super. 554, 27 A.2d 278 (1942) ; Albrent v. Spencer, 3 Wis2d 273,88 N.W.2d 333 (1958).5 See Equitable Life Assur. Soc'y v. Hazlewood, 75 Tex. 338, 12 S.W. 621 (1889);VANCE, op. cit. supra note 2, at 200.6 See Alperstein v. National City Bank, 103 N.Y.S.2d 930 (1951) ; Prudential Ins.Co. of America v. Tutalo, 55 RI. 160, 178 Atl. 859 (1935).7 See Watson v. Massachusetts Mut. Life Ins. Co., 140 F2d 673 (D.C. Cir. 1943);VANCE, op. cit. supra note 2, § 34.8 "No life or disability insurance contract upon an individual, except a contract ofgroup life insurance or of group or blanket disability insurance as defined in this code,shall be made or effectuated unless at the time of the making of the contract the indi-vidual insured, being of competent legal capacity to contract, in writing applies there-fore or consents thereto, except in the following cases:....19611WASHINGTON LAW REVIEWdesire, whether or not the beneficiary or assignee named has an in-surable interest in the life of the insured.9 Thus a debtor could takeout an insurance policy on his own life in any amount and make itpayable to his creditor or it could be assigned as security for the debt.1"In such case any surplus remaining after payment of the debt fromthe proceeds of the policy must ordinarily be paid over to the con-tingent beneficiary or to the personal representative of the deceaseddebtor."The new act applies to all life insurance and all accident and healthinsurance issued in connection with loans or other credit transactions.It is not applicable where an individual policy is issued in connectionwith a loan or credit transaction which extends beyond five years, orwhere insurance is issued in an isolated transaction not related to anagreement or plan for insuring debtors of a creditor.. The act provides that credit life insurance and credit accident andhealth insurance issued in connection with a specific loan or othercredit transaction must be issued in the following forms:9 However, if a person takes out insurance on his own life and makes the policypayable to or assigns it to another who takes the initiative in the transaction and paysthe premiums, the policy may be held invalid as a wagering transaction. Thomas v.Connecticut Mut. Life Ins. Co., 124 Kan. 159, 257 Pac. 727 (1927) ; Bromley's Adm'rv. Washington Life Ins. Co., 122 Ky. 402, 92 S.W. 17 (1906). See also Warnock v.Davis, 104 U.S. 775 (1881) ; Amick v. Butler, 111 Ind. 578, 12 N.E. 518 (1887);Elmore v. Life Ins. Co., 187 S.C. 504, 198 S.E. 5 (1938); VANCE, op. cit. supra note 2,at 768. But cf., Grigsby v. Russell, 222 U.S. 149 (1911) ; Cares v. Franklin Life Ins.Co., 81 F.2d 800 (5th Cir. 1936) ; Butterworth v. Mississippi Valley Trust Co., 362Mo. 133, 240 S.W.2d 676 (1951).10 Ducros v. Commissioner, 272 F.2d 49 (6th Cir. 1959); Aetna Life Ins. Co. v.Patton, 176 F. Supp. 368 (S.D. Ill. 1959) ; Theus v. Bankers Health & Life Ins. Co.,216 Ga. 377, 116 S.E.2d 573 (1960) ; Levas v. Metropolitan Life Ins. Co., 175 Wash.159, 26 P.2d 1032 (1933) ; Buckner v. Ridgely Protective Ass'n, 131 Wash. 174, 229Pac. 313 (1924) ; PArTERSON, op. cit. supra note 2, at 166; VANCE, op. cit. supra note 2,at 188. RCW 48.18.030 provides, "(1) Any individual of competent legal capacity mayprocure or effect an insurance contract upon his own life or body for the benefit ofany person....11 People's Life Ins. Co. v. Whiteside, 94 F.2d 409 (5th Cir. 1938) ; Bosma v. Evans,96 Colo. 504, 44 P.2d 511 (1935) ; VANCE, op. cit. supra note 2, at 738. In Dunn v.Second Nat'l Bank, 131 Tex. 198, 113 S.W.2d 165, 169 (1938), the court stated: "acreditor named as a beneficiary in a policy of life insurance may after the death of theinsured collect the amount due according to the terms of the policy, but he may retainfor himself only the amount of the debt due at the death of the insured, together withany such amount as he may have paid to preserve the policy. The remainder will begiven to the estate of the insured." However, the intent of the parties in the transactionmay lead to a different result. In Fehr v. Cawthon, 293 Fed. 152 (6th Cir. 1923), itwas held that the creditor was entitled to the full proceeds of policies of $10,000, onthe death of the insured debtor, although the amount of the debt remaining was onlyabout $2,000. The creditor had suggested that the insurance be taken out by the debtorand he had paid the initial and first annual premiums when the insured debtor died.The insured may make his creditor the absolute beneficiary though the amount of thepolicy exceeds the amount of the debt. In such case the creditor-beneficiary's right toproceeds of the policy upon death of the insured is not limited to the amount of the debtplus interest. See Forster v. Franklin Life Ins. Co., 135 Colo. 383, 311 P.2d 700 (1957)Chapman v. Scott, 234 S.C. 469, 109 S.E.2d 1 (1959).[VOL. 36WASHINGTON LRGISLATION-1961(1) Individual policies of life insurance issued to debtors on the termplan;(2) Individual policies of accident and health insurance issued todebtors on a term plan, or disability benefit provisions in individualpolicies of credit life insurance;(3) Group policies of life insurance issued to creditors providing insur-ance upon the lives of debtors on the termi plan ;12(4) Group policies of accident and health insurance issued to creditorson a term plan insuring debtors, or disability benefit provisions ingroup life insurance policies to provide such coverage.1 3Credit life insurance is limited initially to the amount of the debtto be repaid and the amount of a group life insurance policy is limitedto the amount of the debt to be repaid in installments to the creditor,with a maximum of ten thousand dollars. In any event, the debt to berepaid under the contract may not extend longer than five years. Inthe case of credit accident and health insurance the total amount ofperiodic indemnity payments may not exceed the total of the periodicscheduled installments to be paid on the debt; nor shall such periodicindemnity payments be greater than the debt divided by the numberof periodic installments.Such insurance shall commence when the debtor becomes obligatedon his debt to the creditor, except in the case of a group policy coveringexisting obligations where the insurance shall commence on the effectivedate of the policy. The insurance shall terminate not more than fifteendays beyond the maturity date of the debt. Upon discharge of the debtby renewal or refinancing the existing insurance must be terminatedbefore any new insurance is issued in connection with such renewalor refinancing.At the time when the indebtedness is incurred an individual policymust be issued and delivered to the debtor in connection with all creditlife insurance and all credit accident and health insurance and a cer-tificate of insurance must be issued and delivered in the case of groupinsurance. This policy or group certificate must indicate the name andhome office of the insurer, the name and identity of the debtor, theamount of premium payment, a description of the coverage and anyexceptions, restrictions and limitations. It shall provide that the12 RCW 4824.040 provides: "The lives of a group of individuals may be insuredunder a policy issued to a creditor ... to insure debtors of the creditor...." This isnow subject to the provisions of the new act relating to credit life insurance and creditaccident and health insurance, as well as to the requirements stated in the section.See Wash. Sess. Laws 1961, ch. 194, § 9, amending RCW 48.24.040.18 Wash. Sess. Laws 1961, ch. 219, § 4.19611WASHINGTON LAW REVIEWbenefits are to be paid to the creditor to reduce or extinguish the debtand any excess remaining is to be paid to the beneficiary named by thedebtor or to the debtor's estate. In lieu of an individual policy orgroup certificate a copy of the application or notice of the proposedinsurance, signed by the debtor and providing essentially the sameinformation, may be delivered to the debtor. However, upon acceptanceof the insurance by the insurer and within thirty days from the date theindebtedness is incurred, the insurer must deliver the policy or groupcertificate to the debtor.The policies, certificates of insurance, notices of proposed insurance,applications for insurance, any endorsements or riders and schedulesof premium rates must be filed with the insurance commissioner andapproved by him before they may be used."The debtor may have the option of furnishing the required insurancein connection with any credit transaction by means of his existing in-surance policies or he may procure and furnish the required coveragethrough any insurer authorized to transact insurance business withinthe state.The act is not intended to amend or repeal any provision of chapter31.08 RCW, known as the "Small Loan Act."Life Insurance. Several amendments in the Washington InsuranceCode have been made by chapter 194.1 The changes in the standardvaluation law with regard to mortality tables and disability tables arenot enumerated here.2 The life insurance nonforfeiture law has beenamended by including provisions as to the adjusted premiums for anypolicy providing term insurance benefits by rider or supplementalpolicy.,A new section' provides for insuring the lives of a group of individ-uals under a policy issued to a credit union as the policyholder. Eligiblemembers of such credit union may be insured for the benefit of personsother than the credit union or its officials. The members eligible forsuch insurance must be all of the members of the credit union, or all ofthe members with the exception of those not insurable to the satisfac-tion of the insurer or all of those members of any class or classes as14 See RCW 48.18.100-110. In addition, the form will be disapproved if the benefitsare not reasonable in relation to the premium.1 Wash. Sess. Laws 1961, ch. 194.2 Wash. Sess. Laws 1961, ch. 194, § 3.3 Wash. Sess. Laws 1961, ch. 194, § 7.4 Wash. Sess. Laws 1961, ch. 194, § 8.[ VOL. 36WASHINGTON LEGISLATION-1961determined by conditions with relation to their age and/or membershipin the credit union. The policy premium must be paid either whollyfrom the credit union's funds, or partially from such funds with theremaining portion to be paid by the members for their insurance. Theentire premium may not be procured from funds contributed by theindividual members. There must be at least twenty-five members in-sured at the date of issue of the policy and the amount of insurance ofany member must not exceed the amount of his total shares and de-posits, with a maximum of two thousand dollars.RCW 48.24.040 has been amended by the deletion of two subsec-tions relating to the insurance of debtor groups. These subsectionsformerly provided that the amount of insurance on the life of a debtormust not exceed the amount owed by him which was repayable ininstallments to his creditor over a period of not more than five years,with a maximum of ten thousand dollars;I also, that the insurancemust be payable to the policyholder with such payment extinguishingthe unpaid indebtedness of the debtor to the extent of the payment.'ROBERT L. TAYLORJUDICIAL ADMINISTRATIONYour attention is directed to four laws and one proposed constitu-tional amendment which came out of the 1961 session of the Wash-ington Legislature.1. Chapter 421 amends RCW 2.24.010 by eliminating the require-ment that court commissioners must reside at the county seat. Thischange, a Judicial Council proposal, will make it possible to appointcourt commissioners to serve in population centers other than thecounty seat, such as Kennewick or Richland in Benton County, orAberdeen or Hoqulam in Grays Harbor County. If implemented, thisdevice will eliminate the necessity for and the expense of trips to thecounty seat with respect to matters which can be handled locally bythe court commissioner.22. Court rule 41.04W(b),' as amended 9 September 1959, was pro-mulgated as a means of eliminating dead and dormant superior courtcases in which nothing had happened for over a year. The rule failed5 "Arash. Sess. Laws 1961, ch. 194, § 9. See also Wash. Sess. Laws 1961, ch. 219, § 6."Wash. Sess. Laws 1961, ch. 194, § 9(5). See also Wash. Sess. Laws 1961, ch. 219,§ 9(2).'Wash. Sess. Laws 1961, ch. 42.2 For powers of court commissioners, see RCW 2.24.040-050.aWAsH. R. P. P. P. 41.04W(b).19611

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