cash loan value. (2) The same amounts, respectively, were to be paid on the surrender of the policy. This is the cash surrender value. (3) The insured might surrender his policy at the end of three years and receive, in return, insurance in the amount of $720 or at the end of twenty-five years insurance in the sum of $6,380. This is called paid-up insurance. It must be noted that while the insured would thus escape all liability for future payments, this sum does not become due until the death of the insured. In other words, the time for the payment of the insurance remains, but the amount is decreased. (4) In place of paid-up insurance, the insured, at the end of three years, may have the original amount, $10,000, extended for three years and seven months, or for fourteen years and eleven months, at the end of twenty-five years. This is called extended insurance. Thus, it will be seen that extended insurance differs from paid-up insurance in being a reduction in time, but not in amount.

Extended insurance remains the same in amount as the original policy, though the time is cut down. There appears to be no good reason for calling the one extended and the other paid-up. Both, in a sense, comply with both appellations. However, the terms have become fixed. Owing to the fact that the insured must exercise his option within a certain time after his last premium falls due, difficulty has arisen where he fails both to pay and to exercise his option, and leaves the company at sea as to which one of his privileges he desires to exercise.

In nearly every state it is settled that time is of

41

the essence of such an agreement and that if the insured fails to exercise his option within the time prescribed, all of his rights become forfeited. However, time is not of the essence of such a contract in Kentucky, according to precedent. In the Kentucky decision, the attorney for the insurance company failed, in his argument, to fire his best gun, or at least, made use of his weakest. It was argued that the delay in making the demand imposed upon the insurer the burden of unnecessary bookkeeping, and that forfeiture was therefore proper. The court retorted with a quotation from an earlier Kentucky case, as follows: "The premiums, by express convention, paid for both current insurance and a paid-up policy, and now to deny to the assured the benefit of a paid-up policy because the old one was not surrendered in time is, in the strictest and most obnoxious sense, a forfeiture. Such a claim is without support in reason, justice, or authority, and cannot be sanctioned in a court of equity."

A much better reason for holding contrary to the Kentucky court is based on the fact that, by holding off for several months after the policy becomes forfeited, the insured is enabled to play fast and loose, by demanding extended insurance if, in the meantime, his health fails, or paid-up insurance if he sees, later, that he will probably live beyond the period of extension. Such a principle, carried to a logical extreme, would bankrupt many insurance companies. To use a popular expression, the insured is allowed to bet on a sure thing, under the Kentucky rule.

41 Manhattan Life Ins. Co. v. Patterson, 109 Ky. 624, 53 L. R. A. 378.

84. Excuses for non-payment.-The sickness, insanity, or death of the insured is no excuse for his failure to pay his life insurance premiums. The only excuses recognized are those arising by operation of law, or by the act of the insurer. Among the latter excuses are the insolvency of the insurance company, resulting in a suspension of payment, waiver and estoppel. Among excuses arising by operation of law, the most perplexing is war between the country of which the insurer is a resident and that of the insured. For example, many persons residing in Georgia were insured in New York companies at the outbreak of the Civil War. War suspends and makes illegal commercial intercourse between the citizens of the belligerents, whether such persons are combatants or non-combatants. Furthermore, our Civil War was, for this purpose, as much a war between independent nations as the Russo-Japanese war. After the close of the Civil War, much litigation arose and three lines of authorities developed.

(1) Under the Connecticut rule, the contract terminated absolutely with the outbreak of the war and was not, for any purpose, revived by the cessation of hostilities. One of the grounds upon which this rule is based is, that the premium could have been paid, lawfully, by a change of residence to a northern state or through a northern agent.42 If the rule of international law laid down is correct, then this decision is unquestionably sound. If, however, the court went wrong in its conception of international

42 Worthington v. Charter Oak Life Ins. Co., 41 Conn. 472, 19 Am. Rep. 495.

law, this rule in insurance appears harsh, and results in a great and undeserved gain to life insurance companies. Those who hope that the commercial classes will eventually demand the abolition of war can hardly expect that the life insurance companies will be encouraged by such a rule to join them in making the demand.

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(2) Under the New York rule, the contract revived at the close of the war upon the tender of overdue premiums.43 Here again, betting on a sure thing is countenanced. A Confederate veteran, half dead at the close of the war, could crawl to the office of the company and revive his policy. The one who escaped sound and whole would find it cheaper, in many cases, to take out new insurance. If the death of the insured occurred during the war, this rule allowed a recovery of the amount of the policy minus the premiums due.45

(3) The third rule, adopted by the United States Supreme Court, appears most just to all concerned. The policy is forfeited so that it cannot be revived, as under the New York rule. However, the insured is entitled to the equitable value of the policy, arising from the premiums actually paid. This equitable value is the difference between the cost of a new policy and the present value of the premiums yet to be paid on the forfeited policy, when the forfeiture occurred. In other words, the insured receives a sum about equal to the reserve value of the policy,

48 Cohen v. N. Y. Mut. Life Ins. Co., 50 N. Y. 610, 10 Am. Rep. 522. 44 See § 81.

45 Martine v. Internat. Life Assur. Soc., 53 N. Y. 339, 13 Am. Rep. 529. 46 N. Y. Life Ins. Co. v. Statham, 93 U. S. 24, 23 L. Ed. 789.

the fund which was laid aside to meet this anticipated loss.

85. Notice of premiums due.-The following principles may be deduced from the endless litigation as to the duty of the insurance companies to notify the insured of the maturity of the premium. (1) In the absence of an agreement to do so, the insurer is not bound to give the insured notice of the fact that a premium is due, if the amount and time of payment are certain. (2) If the association is doing business on the assessment plan, notice is generally required to fix the liability of the insured. It may be regarded as implied in the contract. (3) The insurer may, by waiving its rights to receive payment without notice, or by its course of business, make such notice necessary. (4) By statute, it is provided in many states that notice must be given. Certain courts have held that the insured cannot waive his statutory right to receive notice, even by express agreement." (5) Where the insurer agrees to deduct from the premium a sum equal to the amount of the dividends and allow the insured to tender only the balance, the insurer must give notice of the amount of such balance.48 Here, notice is virtually implied from the agreement.

86. Suicide.-Let us assume that X takes out life insurance in favor of his own estate and that the policy makes no provision for death by suicide. If X commits suicide, can his personal representative recover the insurance? In the leading case on the

47 Griffith v. N. Y. Life Insurance Co., 101 Cal. 627, 40 Am. St. Rep. 96. 48 Phoenix Ins. Co. v. Doster, 106 U. S. 30.