BEAUMOND et al. v. PRUDENTIAL INS. CO. OF AMERICA.*
Plaintiffs appeal from a judgment of nonsuit in an action upon a policy of industrial life insurance.
Egnacio Glory, a Filipino, insured his life under two policies issued by the defendant company payable “to the executors or administrators of the Insured immediately upon receipt of due proof of the prior death of the Insured during the continuance of this Policy, unless payment be made under the provisions of the next succeeding paragraph.” This later provision, which is known as the facility of payment clause, states: “It is understood and agreed that the said Company may make any payment or grant any nonforfeiture provision provided for in this Policy to any relative by blood or connection by marriage of the Insured, or to any person appearing to said Company to be equitably entitled to the same by reason of having incurred expense on behalf of the Insured, for his or her burial, or for any other purpose, and the production by the Company of a receipt signed by any or either of said persons or of other sufficient proof of such payment or grant of such provision to any or either of them shall be conclusive evidence that such payment or provision has been made or granted to the person or persons entitled thereto, and that all claims under this Policy have been fully satisfied.”
Some time after the issuance of the policies Glory took plaintiff Miss Beaumond to the office of the company and told the agent that he wanted to make her the beneficiary of his life insurance. The agent thereupon gave him two blanks which he signed. Each of them was in identical form, except as to policy number, and read as follows:
“I, the undersigned, insured under Policy No. * * * in the above named Company, hereby request and authorize the said Company, in event of my death prior to the death of the person next hereinafter named, to pay the amount of benefit specified in said policy to Adelaide Beaumond, my (state relationship, if any) Friend and the receipt signed by said person, or other sufficient proof of such payment, shall operate in the same manner as the receipt or proof of payment described in said policy.
“It it mutually agreed and understood, however, that nothing herein is to vary in any manner any of the provisions, agreements or conditions contained in said policy and the application therefor, especially the provision in the policy that the Company may make any payment provided for in the policy to any relative by blood or connection by marriage of the Insured, or to any other person appearing to said Company to be equitably entitled to the same, anything herein to the contrary notwithstanding. (Signature) Egnacio Glory.”
The insured later died as the result of an accident, and $2,000.25 became due on the two policies. Miss Beaumond made claim for the proceeds which the company refused to recognize, paying the amount to the public administrator as the administrator of the estate of the insured. Thereupon plaintiff Beaumond brought this action joining her coplaintiff as an assignee of an interest in the sum.
The insurance company's defense is that under the facility of payment clause it may pay the money to any person who comes within its provisions, and that having done so its action is conclusive and bars an action by any other person.
While insurance policies such as the ones under consideration have been the subject of much litigation elsewhere, the construction of the facility of payment clause has not yet been passed upon by the appellate courts of California. It has been generally held in other jurisdictions, as contended by the defendant, that payment by the insurance company to any of the class or classes of persons designated in the facility of payment clause of the policy showing themselves to be equitably entitled to receive the money will operate as a discharge of the defendant from the obligations of the policy. But in making any payment the courts require not only good faith on the part of the insurer, but the exercise of reasonably sound judgment. The great power given to it under the contract which it has prepared and sold to the public cannot be exercised capriciously nor with arbitrary disregard for rights which its knows exists. “In determining who is the person ‘equitably entitled’ to receive payment, the insurer must be governed in making its choice by equitable principles approximating at least those recognized by the courts.” Zornow v. Prudential Ins. Co., 210 App. Div. 339, 206 N. Y. S. 92, 94; Sylvester v. Metropolitan Life Ins. Co., 255 Mich. 302, 238 N. W. 234.
Tested by these principles, how has the defendant insurance company treated the rights of the plaintiff Beaumond? She accompanied the insured to the office of the defendant at the time he desired to make her a beneficiary under his policies. According to her testimony: “We went in the office and Mr. Glory called for Mr. Rogan to pay his dues on his policy and Mr. Rogan came out and Mr. Glory said to him ‘Mr. Rogan, I wish to change the beneficiary on my insurance’ and Mr. Rogan said, ‘Oh, that can be fixed up, Egnacio’ and he went into his office and returned with some slips for him. * * * Mr. Rogan asked him ‘Who do you want for beneficiary,’ and he said ‘I want this young lady here, Miss Beaumond, to be my beneficiary,’ he said she is the only friend I have and I want her to be my beneficiary in case something should happen to me. * * * And Mr. Rogan then put that slip of paper on the table and he said all you need to do is, Egnacio, is just sign here and that will change your beneficiary to this young lady and Mr. Glory signed the slip of paper and he said to Egnacio if you want to be sure that this girl gets the money if anything should happen to you you should take out an insurance for her life, payable to your order then if anything should happen to either one of you the remaining one will be sure to get some money and–because you are her beneficiary and she is yours, see Egnacio you are her beneficiary and she is yours, so he said, all right, I will take out a policy on her life. * * * He got up and got a slip of paper for me to sign and I signed the slip of paper and Mr. Rogan says to me, now, that is all there is to it. And Mr. Glory paid my policy and paid for his own policy at the time, in fact he paid them ahead of time and they told me they would send my policy to me and Mr. Rogan gave me definitely to understand that all he had to do was to sign that paper and make me beneficiary.”
No other conclusion can be reached than that Glory, described in the testimony as a very illiterate Filipino boy who could read and write only a very little, signed the forms given to him by the insurance company's agent upon his representations that by such action Miss Beaumond became the beneficiary under the policies of insurance. Such conduct upon the part of the company amounted to an election on its part to accept her as the person to be “equitably entitled” to the money payable upon his death. This does not amount to any change in the terms of the policy. It is, as one court has said, “an agreement in addition thereto, and entirely consistent therewith, which may rest in parol and be enforced according to its terms.” Shea v. United States Industrial Ins. Co., 23 App. Div. 53, 48 N. Y. S. 548, 550.
Also, the company paid the proceeds of the policies to the public administrator after receiving from Miss Beaumond her claim thereto, and with full knowledge of her rights. It seeks to justify this action by asserting that the public administrator was entitled to the money for the payment of funeral expenses. But these expenses had not been paid at the time the insurance company made its settlement and they amounted to only $322.50, while the amount payable under the policies was $2,000.25. The insurer could have paid Miss Beaumond on the condition that the funeral expenses would be paid out of the insurance money. Instead, it denied the claim of the one whom it knew that its insured desired to have the money, after he had done everything which the company told him was necessary to effectuate that purpose, in favor of the public administrator. Its action in so doing cannot be justified upon any principle of good faith or fair dealing.
The rule allowing the insurer to act under the facility of payment clause should not be extended to deprive a named beneficiary of the right to enforce payment under such a policy, where payment has not been made in good faith to some one else. Dorsey v. Metropolitan Life Ins. Co. (La. App.) 145 So. 304. When the proofs of death and the claims of Miss Beaumond were submitted to the insurance company, it was charged with definite knowledge of her rights. It could not thereafter act carelessly or with complete indifference to them. Sylvester v. Metropolitan Life Ins. Co., supra.
The judgment is reversed.
EDMONDS, Justice pro tem.
We concur: CONREY, P. J.; HOUSER, J.