Newsome v. Prudential Insurance Co. of America

166 S.E.2d 487 (1969)

4 N.C. App. 161

Judy Grace NEWSOME, Administratrix of the Estate of Francis Rudolph Newsome v. PRUDENTIAL INSURANCE COMPANY OF AMERICA.

No. 68SC226.

Court of Appeals of North Carolina.

April 2, 1969.

*489 Lewis & Rouse, by John B. Lewis, Jr., Farmville, for plaintiff appellant.

Emanuel & Emanuel, by Robert L. Emanuel, Raleigh, for defendant appellee.

PARKER, Judge.

The question presented by this appeal is whether plaintiff is the real party in interest within the meaning of G.S. § 1-57, and as such has the right to maintain this action.

Defendant insurance company contends that since both its insurance policy and the certificate which was issued thereunder expressly provide that payment of the insurance proceeds shall be made to GMAC, referred to as "Creditor" in the policy and as "Policyholder" in the certificate, GMAC is the sole and only party entitled to maintain any action against the defendant on account of the insurance policy involved in this action. We do not agree.

The only insurable interest which GMAC had in the life of plaintiff's intestate was as a creditor. G.S. § 58-195.2 declares credit life insurance to be "insurance on the life of a debtor who may be indebted to any person, firm, or corporation extending credit to said debtor." In this case the insurance was provided under a policy of group life insurance. G.S. § 58-210 provides that no policy of group life insurance shall be delivered in this State unless it conforms to one of the descriptions *490 set forth in that section. G.S. § 58-210(2) provides for issuance of:

"(2) A policy issued to a creditor, who shall be deemed the policyholder, to insure debtors of the creditor, subject to the following requirements: * * * * * * "d. The amount of insurance on the life of any debtor shall at no time exceed the amount owed by him which is repayable in installments to the creditor, or $5,000, whichever is less. "e. The insurance shall be payable to the policyholder. Such payment shall reduce or extinguish the unpaid indebtedness of the debtor to the extent of such payment."

The Group Creditors Insurance Policy No. GL-360 issued by defendant with which we are concerned in this case conformed to the above statutory requirements. Under its provisions the amount of the insurance on the life of plaintiff's intestate was the amount of the unpaid balance remaining to be paid by him at the time of his death under the installment sale agreement which had been purchased by GMAC.

When, following the death of the insured, GMAC elected to effect payment of its debt by repossession of the automobile under the retained title provisions of the conditional sale contract, GMAC thereby relinquished its rights in the proceeds of the policy, at least to the extent its indebtedness had been paid by the repossession. GMAC could not thereafter collect and retain for its own account the proceeds of the life insurance policy here in question. To permit it to do so would violate the long established public policy of this State which prevents one who lacks a legally recognized insurable interest in the life of another from taking out and enforcing for his own benefit a policy of insurance on such other person's life. Wharton v. Home Security Life Insurance Co., 206 N.C. 254, 173 S.E. 338; Slade v. Life & Casualty Insurance Co., 202 N.C. 315, 162 S.E. 734.

Payment of the debt to GMAC and the termination of its insurable interest in the life of its debtor effected thereby did not, however, terminate defendant insurance company's liability under its policy of insurance. That liability had become established at the moment of the insured's death. When, subsequent to that time, GMAC effected payment of its indebtedness by repossessing the automobile and thereby gave up its rights in the proceeds of the policy to the extent of such payment, that policy became one for the benefit of the insured, collectible by his executors or administrators. "The creditor who is named as beneficiary loses all interest in the proceeds of the policy upon payment of the indebtedness and the policy then becomes one for the benefit of the insured, collectible by his executors or administrators." 5 Couch on Insurance 2d, § 29:114, p. 405, citing Peoples Life Insurance Co. v. Whiteside, 5 Cir., 94 F.2d 409. That this is the view followed by most of the jurisdictions in which the point has arisen, see cases collected in Annotation, 115 A.L.R. 741, at page 745.

In GMAC v. Kendrick, 270 Ala. 25, 115 So. 2d 487, the Alabama Supreme Court was concerned with a problem very similar to that presented in the case presently before this Court. In that case the deceased had purchased an automobile under a conditional sale contract and had paid premiums for both life insurance and collision insurance. He was killed by a collision which demolished the automobile. GMAC collected from the life insurance company the full amount of the debt. The purchaser's estate then brought suit in equity against GMAC and against the collision insurer to compel GMAC to pay over to the plaintiff the amount it had received from the collision insurer, or, if it had received nothing under the collision policy, to require GMAC either to enforce the policy or to transfer it to the plaintiff. Both GMAC and the collision insurer demurred. *491 On appeal the Alabama Supreme Court held that the demurrers were properlyoverruled, the Court stating: "(W)here a creditor on a life insurance policy claims the amount due after the death of the insured, the creditor may retain for himself only the amount of the debt due at the time of the death of the insured, together with any such amounts as he may have paid to preserve the policy, holding the proceeds in excess thereof as trustee of the estate of the insured."

In Hatley v. Johnston, 265 N.C. 73, 143 S.E.2d 260, the North Carolina Supreme Court dealt with the identical group life insurance policy with which we are here concerned. In that case Parker, J., (now C. J.) said: "Credit life insurance, as between the creditor and insured debtor, is collateral security. Consequently, payment of the debt with credit life insurance, when the insured authorizes the creditor to procure the policy and pays the premium himself, is payment by the insured debtor, just as payment with any collateral security is payment by the owner thereof." (Emphasis added.) In that case the Court was concerned with the right of the estate of the deceased debtor, who had been the initial purchaser of a truck under a conditional sale contract and whose life had been insured for the benefit of the creditor, to recover from a subsequent purchaser of the truck who had assumed the debt. The debt had been paid from proceeds of the life insurance policy. The Court held that the grantee, by assuming the debt, had become primarily liable for its payment, and that by payment of the debt from proceeds of insurance on the life of the original purchaser, the insured's estate became subrogated to obtain payment from the assuming grantee of the amount so paid. The Court distinguished the holding in Miller v. Potter, 210 N.C. 268, 186 S.E. 350, by pointing out that in that case the creditor, and not the insured debtor, had paid the premium for the life insurance coverage.

In the present case, as in Hatley v. Johnston, supra, the insured debtor paid the premium. As between the creditor and the insured debtor the credit life insurance was collateral security, but this did not place the defendant insurance company in the position of a surety or in any sense render it secondarily liable on the debt. Indeed, the defendant insurance company did not become liable, either primarily or secondarily, on any debt of the debtor or by reason of any default of the debtor or of his estate in making payments to the creditor. Rather, it became liable solely because, for a premium paid to it, it had assumed the risk of the debtor's continued life and his death had occurred at a time the insurance policy was in effect.

The Certificate of Insurance issued to the debtor as required by G.S. § 58-211(7) provided:

"If the debtor dies prior to the termination of insurance on his life as described below, the Prudential will, upon receipt of written proof, pay the insurance to the Policyholder to reduce or extinguish the balance remaining to be paid under said instalment obligation. * * *"

This agreement to pay the balance was in no way contingent upon whether the balance owed to the creditor might be otherwise satisfied subsequent to the time of death, either by repossession of the car by the creditor or by payment by the insured's estate. The insurer's obligation to pay arose immediately upon death of the insured. Therefore, when subsequent to that time the debt was satisfied by repossession of the car, the debtor's estate became subrogated to the rights of the creditor as beneficiary under the credit life insurance policy as against the insurer and became entitled to the proceeds of the policy. This is the risk for which the debtor paid "an identifiable charge" for the insurer to assume and this is the risk which the insurer agreed to assume.

*492 The fact that the insured's estate, plaintiff herein, is not named directly as beneficiary in the insurance policy issued by the defendant company, is no bar to plaintiff's right to maintain this suit. North Carolina has long recognized the right of one for whose benefit a contract has been made to sue to enforce its terms, even though he is not directly a party to the contract. Lammonds v. Aleo Manufacturing Co., 243 N.C. 749, 92 S.E.2d 143. Here, the creditor life insurance was clearly for the benefit of the insured's estate in that the proceeds of the policy were, by contractual and statutory provision, to be applied to discharge an indebtedness of the estate. If defendant insurance company fears it might incur double liability, both to the named beneficiary and to the insured's estate, it can protect itself by way of interpleader. G.S. § 1-73; 1 McIntosh, N.C. Practice and Procedure, § 728.

Defendant contends, nevertheless, its demurrer should be sustained since, so defendant argues, it appears from the face of the complaint that the insurance policy sued on automatically terminated upon repossession of the chattel. In this connection the policy provided:

"The insurance on any debtor shall automatically terminate at the earliest of the following dates: * * * * * * "(c) in the event of repossession of the property under the instalment contract on or before said sixtieth day after default, then on the fifteenth day after such repossession, unless during such fifteen day period the debtor redeems the repossessed property and the Creditor reinstates the instalment contract."

Defendant's argument ignores the fact that its liability in the present case had already become fixed before repossession of the chattel occurred. Defendant became liable under its policy at the instant the insured died. At that moment the policy was in full force and defendant's liability to make payments under its terms then accrued.

The judgment sustaining defendant's demurrer was in error and is

Reversed.

MALLARD, C. J., and BROCK, J., concur.