A-23404, JULY 25, 1928, 8 COMP. GEN. 34

A-23404: Jul 25, 1928

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

THE CASH SURRENDER OF A CONVERTED INSURANCE POLICY OF ONE MENTALLY INCOMPETENT MAY PRIMA FACIE BE CONSIDERED A NORMAL TRANSACTION IN THE SAME MANNER AS THE REINSTATEMENT AND CONVERSION IS CONSIDERED. THE CASH SURRENDER OF A CONVERTED POLICY OF INSURANCE IS EQUIVALENT TO A CANCELLATION OF THE INSURANCE WITHIN THE MEANING OF SECTION 305 OF THE WORLD WAR VETERANS' ACT AS AMENDED BY THE ACT OF JULY 2. REQUESTING DECISION ON A MATTER PRESENTED AS FOLLOWS: YOUR DECISION IS REQUESTED AS TO THE CASE OF ARTHUR R. 000 ON WHICH PREMIUMS WERE PAID TO INCLUDE THE MONTH OF FEBRUARY 1919. HE WAS DISCHARGED FROM SERVICE ON MARCH 3. THE VETERAN WAS DECLARED INCOMPETENT BY THE COURT OF COMMON PLEAS NO. 1.

A-23404, JULY 25, 1928, 8 COMP. GEN. 34

VETERANS' BUREAU - REVIVAL OF CONVERTED INSURANCE IN THE ABSENCE OF CONTROLLING FACTS TO THE CONTRARY, THE CASH SURRENDER OF A CONVERTED INSURANCE POLICY OF ONE MENTALLY INCOMPETENT MAY PRIMA FACIE BE CONSIDERED A NORMAL TRANSACTION IN THE SAME MANNER AS THE REINSTATEMENT AND CONVERSION IS CONSIDERED, AND THEREFORE NOT NECESSARILY INVALID. THE CASH SURRENDER OF A CONVERTED POLICY OF INSURANCE IS EQUIVALENT TO A CANCELLATION OF THE INSURANCE WITHIN THE MEANING OF SECTION 305 OF THE WORLD WAR VETERANS' ACT AS AMENDED BY THE ACT OF JULY 2, 1926, 44 STAT. 799, WHICH MAY BE CONSIDERED AS APPLICABLE TO CONVERTED INSURANCE AS WELL AS TERM INSURANCE.

COMPTROLLER GENERAL MCCARL TO THE DIRECTOR, UNITED STATES VETERANS' BUREAU, JULY 25, 1928:

THERE HAS BEEN RECEIVED YOUR LETTER OF JUNE 19, 1928, REQUESTING DECISION ON A MATTER PRESENTED AS FOLLOWS:

YOUR DECISION IS REQUESTED AS TO THE CASE OF ARTHUR R. CARLSON, C 320 701. THIS VETERAN WHILE IN SERVICE APPLIED FOR TERM INSURANCE IN THE SUM OF $10,000 ON WHICH PREMIUMS WERE PAID TO INCLUDE THE MONTH OF FEBRUARY 1919. IT APPEARS THAT WHILE STILL IN SERVICE THE VETERAN ON JANUARY 15, 1919, REQUESTED A DISCONTINUANCE OF HIS INSURANCE. HE WAS DISCHARGED FROM SERVICE ON MARCH 3, 1919, AND THEREAFTER IN JANUARY 1920, REINSTATED THE ENTIRE AMOUNT OF INSURANCE BUT ALLOWED IT TO LAPSE THROUGH THE FAILURE TO PAY THE PREMIUM DUE FEBRUARY 1, 1920.

IN MARCH 1920, THE VETERAN WAS DECLARED INCOMPETENT BY THE COURT OF COMMON PLEAS NO. 1, PHILADELPHIA COUNTY, PENNSYLVANIA, AND HIS FATHER WAS APPOINTED HIS GUARDIAN. ON AUGUST 30, 1920, THE VETERAN, ALTHOUGH UNDER A LEGAL ADJUDICATION OF INCOMPETENCY, APPLIED FOR THE REINSTATEMENT AND CONVERSION OF $1,000 TERM INSURANCE. THE APPLICATION FOR REINSTATEMENT AND CONVERSION WAS ACCEPTED AND A POLICY OF CONVERTED INSURANCE FOR $1,000 WAS ISSUED EFFECTIVE SEPTEMBER 1, 1920, ON WHICH PREMIUMS WERE PAID TO MARCH 1924, A PERIOD IN EXCESS OF SIX MONTHS.

ON JANUARY 29, 1924, THE VETERAN APPLIED FOR THE CASH SURRENDER VALUE OF THIS $1,000 POLICY OF CONVERTED INSURANCE. ON FEBRUARY 9, 1924, A CHECK AMOUNTING TO $124.33 WAS MAILED TO THE VETERAN REPRESENTING THE CASH SURRENDER VALUE OF THE $1,000 INSURANCE AS OF JANUARY 31, 1924.

THE DISABILITY RATINGS FIRST MADE IN THIS CASE SHOWED TEMPORARY PARTIAL DISABILITIES OF VARIOUS DEGREES SERVICE CONNECTED, BUT NO PERMANENT AND TOTAL DISABILITY. THE RATINGS ALSO INDICATED THAT THE VETERAN WAS REGARDED AS INCOMPETENT DUE TO HIS MENTAL CONDITION FROM NOVEMBER 1, 1921, TO FEBRUARY 28, 1923, AND THEN FROM DECEMBER 21, 1923. IN VIEW OF THE FACT THAT THE RATINGS SHOWED A DISABILITY OF LESS THAN PERMANENT AND TOTAL AND IN VIEW OF THE FACT THAT THESE RATINGS SHOWED THE DISABILITY TO BE SERVICE CONNECTED, THE BUREAU REGARDED THE ACCEPTANCE OF THE APPLICATION FOR REINSTATEMENT AND CONVERSION AS CORRECT AND IT IS SUBMITTED THAT UNDER YOUR DECISION OF SEPTEMBER 3, 1921 (A.D. 5870 REVIEW) THE REINSTATEMENT MAY BE REGARDED AS INCONTESTABLE IN THE ABSENCE OF ANY EVIDENCE OF FRAUD AND IN THE ABSENCE OF ANY FAILURE TO PAY PREMIUMS. IN THIS DECISION YOU STATE: " IF INSURANCE HAS STOOD REINSTATED FOR SIX MONTHS THE REINSTATEMENT CAN NOT BE REVOKED OR THE INSURANCE CANCELLED FOR ANY OTHER CAUSE THAN FRAUD OR FAILURE TO PAY PREMIUMS.'

ON MAY 5, 1926, THE CASE WAS REVIEWED AND RERATED AND A PERMANENT AND TOTAL DISABILITY FOUND TO HAVE EXISTED FROM APRIL 1, 1926. AS THE RESULT OF ADDITIONAL COMPENSATION GRANTED BY THE RATING OF MAY 5, 1926, IT WAS DETERMINED BY THE VETERANS' BUREAU THAT $9,000 OF THE TERM INSURANCE WHICH THE VETERAN HAD NEVER ATTEMPTED TO REINSTATE HAD BEEN PREVENTED FROM LAPSING UNDER SECTION 305 OF THE WORLD WAR VETERANS' ACT. ACCORDINGLY AN AWARD OF THE PERMANENT AND TOTAL DISABILITY BENEFITS UNDER THIS $9,000 EFFECTIVE AS OF APRIL 1, 1926, THE DATE OF THE PERMANENT AND TOTAL DISABILITY LESS NECESSARY DEDUCTION FOR PREMIUMS AND INSURANCE, WAS PREPARED. AT THIS TIME CONSIDERATION WAS ALSO GIVEN TO THE QUESTION OF THE CASH SURRENDER VALUE OF THE $1,000 CONVERTED INSURANCE FOR WHICH THE INCOMPETENT VETERAN HAD MADE APPLICATION DIRECT AND WHICH HAD BEEN ACCEPTED. IT WAS THE OPINION OF THE VETERANS' BUREAU THAT AS THIS VETERAN WAS SHOWN TO HAVE BEEN INCOMPETENT WHEN HE APPLIED FOR THE CASH SURRENDER OF THE CONVERTED INSURANCE AND AS SUCH APPLICATION HAD BEEN MADE BY HIM DIRECT AND NOT THROUGH HIS GUARDIAN, SUCH SURRENDER WAS INVALID. CONSEQUENTLY AN AWARD WAS PREPARED IN FAVOR OF THIS VETERAN'S GUARDIAN FOR THE INSTALLMENTS OF PERMANENT AND TOTAL DISABILITY BENEFITS UNDER THE CONVERTED INSURANCE DUE UNDER THE $1,000 POLICY OVER AND ABOVE THE AMOUNT REPRESENTED BY THE CASH SURRENDER VALUE.

NO QUESTION IS PRESENTED AS TO AWARD OF BENEFITS UNDER THE $9,000 UNCONVERTED INSURANCE, BUT THERE IS PRESENTED FOR CONSIDERATION THE AWARD MADE WITH RESPECT TO THE AMOUNT OF $1,000 WHICH WAS REINSTATED AND CONVERTED, AND SUBSEQUENTLY PAID THE VETERAN ON A CASH SURRENDER VALUE BASIS.

THE INSURANCE THAT LAPSED WAS TERM INSURANCE. THE $1,000 INSURANCE SURRENDERED FOR CASH WAS A REINSTATEMENT IN THAT AMOUNT ONLY AND WAS CONVERTED INSURANCE. A SURRENDER AND RECEIVING OF THE CASH ON A CONVERTED POLICY OF ONE MENTALLY INCOMPETENT MAY PRIMA FACIE BE CONSIDERED A NORMAL TRANSACTION, IN THE SAME MANNER AS THE REINSTATEMENT AND CONVERSION IN THE FIRST INSTANCE IS APPARENTLY SO CONSIDERED, AND THEREFORE NOT NECESSARILY INVALID AND PARTICULARLY NOT IN THE ABSENCE OF OTHER CONTROLLING FACTS. IT CAN NOT ACCURATELY BE SAID THAT A SURRENDER FOR CASH IS ALWAYS AGAINST INTEREST AND INEQUITABLE.

ACCEPTING THE REINSTATEMENT, CONVERSION, AND SURRENDER FOR CASH AS VALID ACTIONS, THE QUESTION PRESENTED IS WHETHER THE CONVERTED INSURANCE FOR $1,000 MAY BE CONSIDERED AS REVIVED UNDER SECTION 305 OF THE WORLD WAR VETERANS' ACT OF JULY 2, 1926, 44 STAT. 799, APPLICABLE TO "INSURANCE" WHICH THE INSURED HAS ALLOWED TO "LAPSE" OR WHICH HE HAS "CANCELED OR REDUCED.'

THE STATUTE DOES NOT DISTINGUISH BETWEEN TERM AND CONVERTED INSURANCE. TERM INSURANCE HAS NO EXTENDED OR CASH VALUE WHEN THE INSURANCE LAPSES OR IS CANCELED AS DOES CONVERTED INSURANCE. THE SURRENDER OF A CONVERTED POLICY FOR CASH IS EQUIVALENT TO A CANCELLATION WITHIN THE MEANING OF THIS STATUTE. IT IS UNDERSTOOD THAT THERE WAS SUFFICIENT DISABILITY INSURANCE UNCOLLECTED IN THIS CASE TO APPLY AS PREMIUM TO REVIVE NOT ONLY THE $9,000 OF THE TERM INSURANCE, BUT ALSO THE $1,000 CONVERTED INSURANCE. IF SO, PAYMENT OF INSURANCE BENEFITS UNDER SUCH CONVERTED POLICY, LESS PROPER AMOUNT OF PREMIUMS, INTEREST, AND CASH SURRENDER VALUE, IS AUTHORIZED.