Blumberg v. United Benefit Life Insurance

Horney, J., delivered the opinion of the Court. When the United Benefit Life Insurance Company (the insurer), of Omaha, Nebraska, refused to pay Jane Blumberg (the beneficiary) the amount she claimed was due her under the policy of insurance issued by the insurer on the life of Preston Blumberg (the insured), who was the deceased husband of the beneficiary, she brought suit against the insurer in the Superior Court of Baltimore City. The court, sitting without a jury, entered a judgment in favor of the insurer for costs, and the beneficiary appealed. The policy, which was issued May 12, 1949, had a face value of $2500 and provided for a quarter-annual premium of $16.63, payable on the date of issue and each quarter ⁶³ thereafter.

The premiums were paid regularly until August 12, 1955, when the insured secured a loan on the policy, and thereafter paid the premiums regularly until February 12, 1956. When the premium due on that date was not paid at the end of the grace period, the insurer advanced the premium under the automatic premium loan provision in the policy. The next quarterly premium became due on May 12, 1956. This also was not paid.

Since the remaining cash value of the policy on that date was only $4.74, it was impossible for the insurer to advance another premium. Instead, the insurer, in accordance with the terms of the policy, used the $4.74 to purchase $2250 of extended term insurance for a ninety-two day period. The insured died on September 2, 1956. The beneficiary contends the ninety-two day period began on June 13, 1956, which was the end of the thirty-one day grace period.

The insurer contends the ninety-two day period began on May 12, 1956, which was the date on which the premium was due. If the beneficiary’s contention is correct, the extended term insurance would not have expired until September 13, 1956, and she would be entitled to the proceeds of the policy. On the other hand, if the insurer is correct, the extended term insurance expired on August 12, 1956, and the beneficiary would be entitled to nothing. The sole question then is: On what date did the ninety-two day extended term insurance begin to run?

Since a decision depends upon an interpretation of the language used in the insurance contract, we set forth below the pertinent provisions of the policy: “Clause 2—Manner of Payment—* * * The payment of any premium or installment thereof shall not maintain the policy in force beyond the due date of the next premium or installment, except as provided herein.” h= * * “Clause 4—Grace Period—A grace period of thirty-one days will be granted for the payment of every premium or installment thereof after the first, ⁶⁴ during which time this policy shall remain in force; provided, however, that if death occurs within the grace period, the premium or installment due during such grace period will be deducted from the amount payable.” :|= * t- “Clause 21—Options—After premiums have been paid for the number of years for which a cash value is first shown in Table C, the Insured may, upon default in the payment of a premium or within sixty days after the due date of a premium in default, select one of the following options: * * * “Third Option—Extended Insurance—The policy may be continued as extended term insurance for the face amount less the amount of any indebtedness and for such period from the due date of the premium in default as the cash value less indebtedness will purchase as a net single premium for term insurance at the then attained age of the Insured according to the mortality table and rate of interest specified below. “Automatic Option—If no option has been selected within sixty days after the due date of a premium in default the extended insurance option shall be automatically effective from said due date” (Emphasis added.) Thus the policy provided two safeguards for an unwary insured. First there was a grace period of thirty-one days during which the insurance remained in force. During the grace period the insured could still pay premiums without a forfeiture of the policy. However, the new term started from the due date, and if the insured died during the grace period the premium or installment due during such period would be deducted from the amount payable under the policy.

The other safeguard consists of extended term insurance which merely means that the cash value of the policy, less indebtedness, is applied to continue the policy in force for ⁶⁵ such further term