Lincoln Natl. Life Ins. v. Reed

Citations: 234 Ark. 640; 353 S.W.2d 521; 3 A.L.R. 3d 637; 1962 Ark. LEXIS 739Docket: 5-2520

Court: Supreme Court of Arkansas; February 12, 1962; Arkansas; State Supreme Court

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Reed filed three consolidated lawsuits in the Union Circuit Court regarding five disability insurance policies against multiple insurance companies: one against the Equitable Life Assurance Society, two against Lincoln National Life Insurance Company (one originally issued by Reliance Life Insurance Company), and two against Guardian Life Insurance Company. All policies were initially issued in Tennessee, where Reed was a resident at the time. After moving to Arkansas, Reed's insurance policies were stolen, prompting their re-issuance. 

The Equitable and Lincoln policies remain classified as Tennessee contracts, governed by Tennessee law, which stipulates that notice of permanent and total disability must be provided within a reasonable time. Reed, claiming total disability, did not notify the insurers until after turning sixty-five, failing to meet this condition precedent. Reed acknowledges that under Tennessee law, he cannot recover under the Equitable policy since he did not prove his disability prior to age sixty.

Reed argues that the Lincoln policies should be interpreted under Arkansas law due to various factors, including borrowing against the policies, theft in Arkansas, changing the beneficiary, and receiving premium notices in Arkansas. However, the court concludes these factors do not alter the policies' classification as Tennessee contracts. Reed cites cases supporting the application of Arkansas procedural law to foreign contracts, but these do not change the substantive law governing the insurance contracts. Additionally, cited California cases concerning contract interpretation based on the place of performance do not apply here, as they are not aligned with Tennessee's requirement for timely notice of disability.

The law governing the execution, interpretation, and validity of contracts is determined by the jurisdiction where the contract is formed. Citing relevant case law, it is established that the interpretation of a contract from the state of origin will be accepted in other states when assessing its validity and enforcement. Specifically, the validity and obligations of insurance policies executed in one state remain governed by that state's law, even if the insured moves elsewhere, with the latter state's laws applicable only to remedial and procedural matters.

In this case, the insurance policies in question must be evaluated under Tennessee law, which stipulates that failure to provide proper notice is detrimental to the policyholder's right to recover. When policies were stolen, the Equitable and Lincoln companies issued substitutes that did not alter their original Tennessee contracts. However, the Guardian Company issued new policies in Arkansas, which were treated as Arkansas contracts due to the specific circumstances of their issuance, including a signed affidavit by the insured and beneficiary requesting the cancellation of the lost policies in exchange for new ones. Thus, the rights associated with the Guardian policies will be governed by Arkansas law.

Appellee obtained a judgment against Guardian for permanent and total disability benefits under two policies, effective five years prior to the lawsuit. Guardian Policy No. 586582 includes a waiver of premium and states that benefits will not commence more than one year before the company receives proof of disability. Policy No. 586581 similarly stipulates that disability payments begin upon receipt of proof at the company's home office, continuing monthly for the insured's lifetime while the disability persists, and including any accrued payments from proof receipt to approval. The language of both policies is clear, indicating benefits are calculated from the date of proof receipt. The term "reckoned" means the calculation starts after the specified date, as established in prior jurisprudence. The appellant contends there is insufficient evidence that the insured was totally and permanently disabled before turning sixty in 1954. However, the record shows the insured suffered significant health issues, including obstructive emphysema and tuberculosis leading to lung surgery, as well as colon surgery and hernia repair, all predating his sixtieth birthday. Despite his deteriorating health, he was a highly valued employee earning $36,000 annually, with no salary reduction until 1957, when it dropped to $25,000.

The company expressed gratitude for the insured's services, effectively providing him with a pension. Subsequent to September 1953, the insured, Reed, performed minimal work due to his physical condition, raising a jury question regarding his permanent total disability under the policy. The court allowed the jury to find for the policyholder from the outset of his disability, supported by case law including Smith v. Mutual Life Insurance Company, which established that recovery could begin when total and permanent disability is verified, provided all premiums were paid. Other cases reaffirmed this principle, while Aetna Life Insurance Company v. Davis indicated that recovery could be limited to six months prior to proof submission. The court emphasized that unless explicitly stated, the existence of disability establishes liability, not the proof thereof. 

In the current case, the insured failed to notify the insurance company of his disability until over five years after it began. The trial court rejected an instruction to the jury regarding the reasonableness of the notice given, which the reviewing court deemed necessary. The court referenced Home Life, Accident Company v. Beckner and Aetna Life Insurance Company v. Davis to assert that the timeliness of notice is typically a jury question. Given that some of the insured's issues arose before and some after turning sixty, the jury needed to assess the reasonableness of the notice provided by the insured. Consequently, the judgments against Equitable and Lincoln were reversed, and the case against Guardian was remanded for a new trial.