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April 2, 1958


The opinion of the court was delivered by: Legge, Justice.

April 2, 1958.

Action for damages for fraudulent breach of an alleged undertaking by the defendants to procure and put in force a policy of insurance on the life of plaintiff's intestate. Plaintiff appeals from an order of nonsuit.

The loan note contained, among others, the following provision: "The said Association may at any time require the issuance and maintenance of insurance upon the life of any person obligated hereunder in a sum sufficient to pay this debt, with the Association as beneficiary, and, if the premiums are not otherwise paid, the Association may pay said premiums and any amount so paid shall become a part of the principal sum due under this note".

On May 19, 1955, Mr. Ward made application to Liberty Life Insurance Company for a "decreasing term" policy of insurance on his life, naming Greer Federal Savings and Loan Association as the beneficiary, for the purpose of insuring payment of the balance of the loan in the event that he should die while any part of the loan was outstanding. Application for this policy was made through Mr. D.S. Robinson, who was the Secretary and Treasurer of Greer Federal Savings and Loan Association and also a licensed agent of Liberty Life Insurance Company. No premium was paid with the application, nor did the application state what the amount of the initial premium would be. It appears that in this type of policy the coverage, which initially is in the amount of the loan to be secured by it, diminishes as the loan obligation is reduced; and that the monthly premiums are likewise reduced during the life of the policy. The application which was signed by Mr. Ward, contained the following statements:

"17. I hereby declare and agree * * * (3) that there shall be no liability hereunder unless during my lifetime and good health a policy is issued by the Company, received by me, and the full first premium paid thereon, and the liability of the Company hereunder shall be only as provided therein; (4) that if plan of insurance applied for is `Decreasing Term', the institution specified under No. 14 above is hereby designated as the Beneficiary to receive the proceeds of any policy issued in consequence of this application, such designation of Beneficiary to be irrevocable except with the written consent of said Beneficiary * * *."

Under date June 2, 1955, the Medical Department of Liberty Life Insurance Company wrote Mr. Ward requesting that he have a physician examine him and complete the medical report required in connection with his application. On June 7, Mr. Ward's physician completed his examination and report; and the report was received at the company's home office in Greenville on June 16. The policy was prepared under date July 1 and forwarded by the home office to Mr. Robinson. It contained, among others, the following provision: "Date Effective. This policy shall not take effect until the first premium hereunder is paid, provided that unless such premium is paid while the insured is in good health, the liability of the Company hereunder, if any, shall be limited to the return of any premiums hereunder that shall have been paid". The initial monthly premium specified in the policy was $5.21. It was never paid.

The Wards made payment to the Savings and Loan Association on July 2, 1955, of $28.91 on the "loan account" and $3.05 for the "escrow account". The amount in the escrow account, on that date, including this payment, was $36.60.

Mr. Ward was taken ill on July 30 and died on August 1, 1955. At that time the policy was still in the possession of Mr. Robinson, who returned it to the insurance company on August 1, 1955.

On February 4, 1956, Mrs. Ward, as administratrix of her husband's estate, instituted this action against the insurance company and the savings and loan association, seeking to recover $3,419.75 actual damages (stated in the complaint as being $3,425.00, the initial amount of the loan, less $5.21, the amount of the initial monthly premium on the policy applied for), and $25,000.00 punitive damages, for alleged fraudulent breach of the undertaking on the part of both defendants to procure and put in force the policy in question, said breach being accompanied by alleged fraudulent acts of Robinson as their common agent: (1) in not notifying Ward that the policy had been written and was in Robinson's possession; and (2) in not paying the initial premium either from the escrow account or out of funds of the savings and loan association.

The separate answers of the defendants denied the inculpatory allegations of the complaint and alleged; that the savings and loan association had never exercised its right to procure insurance on Ward's life; that the application for the policy had been the voluntary act of Ward himself; that the policy had been received by Robinson on or about July 12 or 13, having been sent to him by the insurance company for delivery to Ward upon payment of the initial monthly premium, which payment was never made; and that the policy had never been delivered and was never in force.

The facts as before narrated were covered in Mrs. Ward's testimony. The only other witness offered in her behalf was Mr. LeRoy Sellars, who testified that he was the secretary and loan officer of the First Federal Savings and Loan Association of Spartanburg, S.C. and was also licensed by Liberty Life Insurance Company to write decreasing term policies for the insurance of loans. The remainder of Mr. Sellars' testimony was, upon objection by defendants' counsel, excluded as incompetent. It was to the following effect: that in the form of loan note used by First Federal Savings and Loan Association there is a provision, relating to insurance upon the life of the borrower, identical with that hereinbefore quoted from the note in the case at bar; that applications for such insurance, naming First Federal Savings and Loan Association as beneficiary, are taken by him as agent of Liberty Life Insurance Company; that when such a policy has been issued it is delivered to him, and thereupon his stenographer writes a form letter to the insured advising of such delivery, and of the amount of the yearly premium, which has been charged to the insured's loan account so that his monthly payments on the loan will be increased accordingly; and that the policy is filed by the First Federal Savings and Loan Association with the other papers relating to the loan.

We think that there was no error in the exclusion of the proffered testimony of Mr. Sellars. The custom of First Federal Savings and Loan Association in its handling of decreasing term policies on the lives of its borrowers was not competent evidence of liability of the defendant Greer Federal Savings and Loan Association in the instant case. Those transactions were res inter alios acta. Cf. Chapman v. Metropolitan Life Insurance Co., 172 S.C. 250, 173 S.E. 801. Had there been offered evidence of custom on the part of Greer Federal Savings and Loan Association in handling with its borrowers transactions similar to the one here involved, a different question would have been presented. But the witness, when asked whether such transactions were handled in like fashion by savings and loan associations other than his own, answered frankly that he did not know.

In the course of her direct examination, Mrs. Ward was asked whether or not Mr. Ward, on the afternoon of the day when he was taken ill (Saturday, July 30), had gone from their home in Lyman, S.C. to the nearby town of Greer; to which she replied in the affirmative. She was then asked: "Did you later find out that among other things he did was to pay some bills in Greer?" Thereupon objection, on the ground of irrelevancy, was sustained; and this ruling of the trial judge is challenged here. It appears, from the colloquy following the objection, that the defendants had notified the plaintiff to produce at the trial the original of a notice that allegedly had been sent to Mr. Ward advising him of the issuance of the policy and requesting payment of the premium; that the plaintiff denied that such notice had been received by her or by her husband; and that her counsel's contention was that the testimony thus sought to be elicited from her, showing Mr. Ward's payment that day, in the small town of Greer, of other bills, but not that for the premium on the policy, was indicative of the fact that he did not know that he owed the latter, and was thus relevant to the issue of whether or not he had received ...

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