12 N.Y.2d 367 (1963)

An insurer’s attempted rescission of a life insurance policy without notice to the assignee is void, and the insurer cannot then claim a lapse in coverage due to non-payment of premiums when it also failed to notify the assignee of premiums due.

Summary

This case concerns the rights of a trust and its remaindermen against an insurer after the insurer attempted to rescind a life insurance policy assigned to the trust, without notifying the trustee. The insurer then claimed the policy lapsed due to non-payment of premiums. The New York Court of Appeals held that the insurer’s rescission was void due to the lack of notice to the trustee, and the insurer could not claim the policy lapsed because it also failed to notify the trustee of the premiums due. The insurer’s actions prevented the trustee from keeping the policy in force.

Facts

Bruce Preston obtained a life insurance policy from Equitable and subsequently assigned it to himself and William Schrauth as trustees of a trust established by his mother’s will. The trust’s income was payable to Preston, with the corpus to be transferred to him if he survived 10 years after the testatrix’s death; otherwise, it would go to other remaindermen. Preston had embezzled trust funds, and the policy assignment was intended to secure repayment. Equitable acknowledged the assignment. Equitable later served Preston alone with a notice of rescission based on alleged misrepresentations in his application, tendering back the premiums paid. Preston initially refused but later acquiesced, and Equitable refunded the premiums without notifying Schrauth, falsely claiming the policy was lost based on Preston’s affidavit. Schrauth, unaware of the rescission or the non-payment of premiums, filed a claim after Preston’s death.

Procedural History

Schrauth, as trustee, brought a claim against Equitable in an accounting proceeding in Surrogate’s Court. The Surrogate initially ruled in favor of the trustee, finding the rescission void. On reargument, Equitable argued the policy had lapsed for non-payment of premiums. The Surrogate again ruled for the trustee. The Appellate Division reversed, holding that the policy had lapsed regardless of the rescission’s validity because of failure to pay the premium.

Issue(s)

Whether an insurer can claim a life insurance policy has lapsed for non-payment of premiums when the insurer attempted to rescind the policy without notice to the assignee, and also failed to provide the assignee with notice of the premiums due?

Holding

No, because the insurer’s attempted rescission without notice to the assignee was void, and the insurer cannot rely on a default in premium payments when its own actions (the attempted rescission and failure to provide notice of premiums due) contributed to the non-payment.

Court’s Reasoning

The court reasoned that Equitable’s attempt to rescind the policy without notifying Schrauth, the assignee, was a breach of its obligation. The court emphasized that forfeiture for non-payment of premiums is disfavored and will not be enforced absent a clear intention. The court found that the insurer’s actions caused the non-payment. The court rejected the Appellate Division’s speculation that a valid rescission would have occurred even with notice to Schrauth. The court stated that Schrauth could have resisted the rescission or pursued Preston’s liability further, had he received notice. The court cited Whitehead v. New York Life Ins. Co., noting that an insurance company cannot “depend upon a default to which its own wrongful act contributed, and but for which a lapse might not have occurred.” The court also cited Dulberg v. Equitable Life Assur. Soc., reiterating the principle that “he who prevents a thing being done cannot avail himself of the non-performance he has occasioned.” The court emphasized that Equitable considered the policy dead based on grounds unrelated to premium defaults. It concluded that Schrauth was entitled to notice of both the rescission and the premiums due, and Equitable’s failure to provide either could not be excused by speculating about what Schrauth might have done had he received proper notice. The Court specifically quotes Ruckenstein v. Metropolitan Life Ins. Co., stating “It cannot then claim a lapse for non-payment of premiums” when the company is aware of the attempt to cut off the rights of the beneficiary-owner.