MARCH 4, 1924, 3 COMP. GEN. 582
Highlights
A RETROACTIVE RATING OF TOTAL AND PERMANENT DISABILITY RENDERED AFTER THE POLICY HAS BEEN SURRENDERED FOR ITS CASH VALUE IS INEFFECTIVE TO MATURE THE POLICY PRIOR TO ITS SURRENDER OR TO VOID THE SURRENDER. IF THE EVIDENCE UPON WHICH THE DISABILITY RATING WAS MADE WAS NOT IN THE VETERANS' BUREAU AT THE TIME THE POLICY WAS SURRENDERED. 1924: I HAVE YOUR LETTER OF JANUARY 19. PARTLY AS FOLLOWS: TWO CASES HAVE ARISEN IN THE BUREAU. A IS CARRYING A $2. PAYMENT OF THE CASH VALUE IN THE AMOUNT OF $122.24 WAS MADE TO HIM DECEMBER 12. HELD THAT PROOF OF SUCH DISABILITY WAS IN THE BUREAU ON THAT DATE. B IS CARRYING A $1. IT WAS ALSO HELD THAT PROOF OF PERMANENT AND TOTAL DISABILITY WAS IN THE BUREAU ON DECEMBER 15.
MARCH 4, 1924, 3 COMP. GEN. 582
WAR RISK INSURANCE - TOTAL AND PERMANENT DISABILITY AWARDS - EFFECT ON SURRENDERED POLICIES A RETROACTIVE RATING OF TOTAL AND PERMANENT DISABILITY, BASED ON EVIDENCE ON FILE IN THE VETERANS' BUREAU PRIOR TO THE SURRENDER OF THE POLICY FOR CASH VALUE, MATURES THE POLICY AS OF THE EFFECTIVE DATE OF THE AWARD AND ENTITLES THE INSURED TO THE FULL BENEFITS OF THE MATURED POLICY SUBJECT TO REDUCTION TO THE EXTENT OF THE AMOUNT ALREADY PAID AS CASH SURRENDER VALUE. A RETROACTIVE RATING OF TOTAL AND PERMANENT DISABILITY RENDERED AFTER THE POLICY HAS BEEN SURRENDERED FOR ITS CASH VALUE IS INEFFECTIVE TO MATURE THE POLICY PRIOR TO ITS SURRENDER OR TO VOID THE SURRENDER, IF THE EVIDENCE UPON WHICH THE DISABILITY RATING WAS MADE WAS NOT IN THE VETERANS' BUREAU AT THE TIME THE POLICY WAS SURRENDERED.
COMPTROLLER GENERAL MCCARL TO THE DIRECTOR, UNITED STATES VETERANS' BUREAU, MARCH 4, 1924:
I HAVE YOUR LETTER OF JANUARY 19, 1924, PARTLY AS FOLLOWS:
TWO CASES HAVE ARISEN IN THE BUREAU, THE ADJUDICATION OF WHICH INVOLVES THE APPLICATION OF THE PRINCIPLES AS PROPOUNDED BY YOU IN YOUR DECISIONS IN THE JOHN LESLIE MCPARTLIN CASE DATED AUGUST 26, 1922, AND JANUARY 30, 1923.
A IS CARRYING A $2,000 TWENTY-YEAR ENDOWMENT POLICY, U.S. GOVERNMENT LIFE (CONVERTED) INSURANCE. ON NOVEMBER 8, 1922, HE REQUESTS THE CASH SURRENDER VALUE OF HIS POLICY. PAYMENT OF THE CASH VALUE IN THE AMOUNT OF $122.24 WAS MADE TO HIM DECEMBER 12, 1922. ON APRIL 14, 1923, THE BUREAU RATED THE INSURED'S DISABILITY AS PERMANENT AND TOTAL FROM NOVEMBER 28, 1922, AND HELD THAT PROOF OF SUCH DISABILITY WAS IN THE BUREAU ON THAT DATE.
B IS CARRYING A $1,500 TWENTY-YEAR ENDOWMENT POLICY AND A $7,000 ORDINARY LIFE POLICY. ON JUNE 1, 1922, HE SURRENDERED FOR CASH THE $1,500 POLICY AND $2,000 OF THE $7,000 POLICY, PAYMENT BEING MADE ON THAT DATE. ON MAY 9, 1923, THE BUREAU RATED THE INSURED'S DISABILITY AS PERMANENT AND TOTAL AND INCOMPETENT FROM DECEMBER 15, 1921. IT WAS ALSO HELD THAT PROOF OF PERMANENT AND TOTAL DISABILITY WAS IN THE BUREAU ON DECEMBER 15, 1921.
THE QUESTION ARISES AS TO WHETHER THE INSURANCE IS PAYABLE IN THESE TWO CASES, IN VIEW OF THE FACT THAT PERMANENT AND TOTAL DISABILITY EXISTED AND PROOF THEREOF WAS IN THE BUREAU PRIOR TO THE SURRENDER OF THE POLICIES, AND AT THE TIME OF THE SURRENDER THE INSURED WAS IGNORANT OF EXISTENCE OF SUCH CONDITION. THERE IS ALSO THE ELEMENT OF INCOMPETENCY IN THE LATTER CASE.
THESE CASES AND THE CITATIONS OF AUTHORITY YOU HAVE GIVEN PRESENT A GENERAL AND A SPECIAL QUESTION FOR DETERMINATION. THE GENERAL QUESTION IS, WHETHER IN EVERY CASE A RETROACTIVE RATING OF PERMANENT TOTAL DISABILITY MATURES A POLICY OF INSURANCE AS OF A DATE PRIOR TO ITS SURRENDER FOR CASH VALUE, THEREBY INVALIDATING THE SURRENDER. THE SPECIAL QUESTION IS, WHETHER, IF THE GENERAL QUESTION BE DETERMINED IN THE NEGATIVE, ANY DIFFERENT RULE APPLIES TO CASES, SUCH AS PRESENTED, WHERE PROOF OF PERMANENT TOTAL DISABILITY IS IN THE UNITED STATES VETERANS' BUREAU AT THE TIME OF THE SURRENDER.
IT HAS BEEN HELD REPEATEDLY THAT THE EFFECTIVE DATE OF PERMANENT TOTAL DISABILITY RATINGS, WHICH MATURE ALL POLICIES OF WAR RISK INSURANCE, IS A FACT FOR DETERMINATION BY THE DIRECTOR OF THE BUREAU BASED ON MEDICAL OPINION AND ADVICE. 1 COMP. GEN. 31; ID., 756; 2 ID., 461; ID., 465; 3 ID., 33. THERE IS NO EXPRESS STATUTORY AUTHORITY FOR RETROACTIVE RATINGS UNDER INSURANCE POLICIES, BUT IT HAS BEEN HELD THAT SUCH ARE AUTHORIZED SO LONG AS VESTED RIGHTS ARE NOT DISTURBED THEREBY. 2 COMP. GEN., 462-3. THE FORMS OF BOTH POLICIES HERE FOR CONSIDERATION, 20-YEAR ENDOWMENT AND ORDINARY LIFE, IN PARAGRAPH 9, LIMIT THE PERMANENT TOTAL DISABILITY BENEFITS RETROACTIVELY TO A DATE NOT EXCEEDING SIX MONTHS PRIOR TO RECEIPT OF PROOF IN THE BUREAU OF SUCH CONDITION.
THE STATUTE DOES NOT EXPRESSLY FIX THE TERMS FOR CASH SURRENDER BUT VESTS IN THE DIRECTOR AUTHORITY TO PRESCRIBE THE TERMS. SECTION 402, ACT OF OCTOBER 6, 1917, 40 STAT., 409. THE 20-YEAR ENDOWMENT AND THE ORDINARY LIFE POLICIES HERE FOR CONSIDERATION CONTAIN IDENTICAL PROVISIONS AS TO CASH SURRENDER AS FOLLOWS:
5. CASH-SURRENDER VALUE, PAID-UP INSURANCE, EXTENDED INSURANCE, AND POLICY-LOAN PROVISIONS AS FOLLOWS SHALL BE EFFECTIVE ONLY AFTER PREMIUMS FOR TWELVE FULL MONTHS HAVE BEEN PAID--- ALL VALUES, RESERVES, AND NET SINGLE PREMIUMS BEING BASED ON THE AMERICAN EXPERIENCE TABLE OF MORTALITY, WITH INTEREST AT THREE AND ONE-HALF PERCENTUM PER ANNUM:
(A) UPON WRITTEN REQUEST THEREFOR BY THE INSURED MADE WHILE THIS POLICY IS IN FORCE OR NOT LATER THAN THREE CALENDAR MONTHS AFTER THE DUE DATE OF THE PREMIUM IN DEFAULT; AND UPON COMPLETE SURRENDER OF THIS POLICY WITH ALL CLAIMS THEREUNDER, THE UNITED STATES WILL PAY TO THE INSURED THE CASH- SURRENDER VALUE HEREOF. THE SAID CASH-SURRENDER VALUE AT THE END OF ANY POLICY YEAR FOR WHICH PREMIUMS HAVE BEEN PAID IN FULL, IF NO INSTALLMENTS ON ACCOUNT OF TOTAL PERMANENT DISABILITY HAVE BEEN PAID, SHALL BE THE RESERVE, TOGETHER WITH ANY DIVIDEND ACCUMULATIONS LEFT ON DEPOSIT, LESS ANY INDEBTEDNESS UNDER THIS POLICY. FOR EACH MONTH WITHIN ANY POLICY YEAR, FOR WHICH MONTH THE PREMIUM HAS BEEN PAID, THE RESERVE AT THE END OF THE PRECEDING POLICY YEAR SHALL BE INCREASED BY ONE-TWELFTH OF THE INCREASE IN RESERVE FOR THE CURRENT POLICY YEAR.
IT IS ASSUMED, THOUGH YOU DO NOT SO STATE, THAT PREMIUMS WERE PAID FOR 12 FULL MONTHS PRIOR TO THE SURRENDER IN EACH OF THE CASES PRESENTED.
UNDER THE TERMS OF THE POLICIES QUOTED THE BUREAU MUST DETERMINE AS A FACT THAT THE WRITTEN REQUEST BY THE INSURED FOR CASH SURRENDER WAS MADE "WHILE THIS POLICY IS IN FORCE.' THAT IS, THAT THERE WAS A VALID AND SUBSISTING INSURANCE POLICY WHICH HAD NOT MATURED BY PERMANENT TOTAL DISABILITY. SUCH A FINDING WOULD BE EQUALLY AS BINDING AND CONCLUSIVE ON BOTH THE INSURED AND THE GOVERNMENT AS A FINDING OF PERMANENT TOTAL DISABILITY UNDER PARAGRAPH 9 OF THE POLICIES. HENCE, A RETROACTIVE FINDING OF PERMANENT TOTAL DISABILITY AS OF A DATE PRIOR TO SURRENDER OF A POLICY WOULD BE INCONSISTENT WITH THE FINDING, EQUALLY EFFECTIVE, THAT THERE WAS NO SUCH DISABILITY AT THE TIME THE POLICY WAS SURRENDERED.
YOU HAVE CITED A NUMBER OF COURT CASES UPON THE GENERAL PROPOSITION THAT THE CONTINGENT LIABILITY OF AN INSURER BECOMES FIXED THE MOMENT THE CONTINGENCY INSURED AGAINST HAPPENS, AND ONE CASE THAT THERE CAN BE NO VALID CANCELLATION AFTER THE HAPPENING OF SUCH CONTINGENCY. THESE CASES ARE NOT APPLICABLE. THERE IS A MATERIAL DIFFERENCE BETWEEN COMMERCIAL INSURANCE AND GOVERNMENT WAR RISK INSURANCE WITH RESPECT TO DETERMINATION OF THE FACT OF HAPPENING OF A CONTINGENCY AS APPLIED TO PERMANENT TOTAL DISABILITY. UNDER COMMERCIAL INSURANCE THE FACT IS A MATTER OF PROOF INDEPENDENT OF ANY AWARD BY THE INSURER, WHILE UNDER THE WAR RISK INSURANCE ACT THE FACT IS A MATTER OF DETERMINATION AND RATING BY THE DIRECTOR OF THE VETERANS' BUREAU, EXCEPT POSSIBLY THOSE DISABILITIES WHICH THE LAW ITSELF EXPRESSLY STATES SHALL BE CONSIDERED AS PERMANENT AND TOTAL. SECTION 302.
ACCORDINGLY, IT IS HELD AS A GENERAL PROPOSITION THAT A RATING OF PERMANENT TOTAL DISABILITY AS OF A DATE PRIOR TO THE SURRENDER OF THE POLICY FOR CASH VALUE IS NOT EFFECTIVE TO MATURE THE POLICY PRIOR TO ITS SURRENDER NOR TO RENDER INEFFECTIVE THE SURRENDER.
THERE IS FOR CONSIDERATION THEN WHAT EFFECT ON THIS GENERAL RULE HAS THE FACT THAT THERE WAS IN THE BUREAU PROOF OF PERMANENT TOTAL DISABILITY AT THE TIME OF SURRENDER OF THE POLICY. IN THE CASE OF "A" IT IS NOT SHOWN THAT THE PROOF OF THE DISABILITY WAS IN THE BUREAU AT THE TIME OF FILING REQUEST FOR SURRENDER, NOVEMBER 8, 1922, BUT YOUR STATEMENT SHOWS THAT SUCH PROOF WAS RECEIVED BY NOVEMBER 28, 1922, EFFECTIVE DATE OF THE PERMANENT TOTAL RATING AND PRIOR TO PAYMENT OF THE CASH SURRENDER VALUE ON DECEMBER 12, 1922. IT MAY BE SAID, THEREFORE, THAT THE PROOF WAS ACTUALLY IN THE BUREAU AT THE TIME THE POLICY WAS FINALLY SURRENDERED, WHICH WOULD BE THE DATE OF PAYMENT OF THE CASH VALUE. IN THE CASE OF "B" THE PROOF OF PERMANENT TOTAL DISABILITY WAS IN THE BUREAU DECEMBER 15, 1921, LONG PRIOR TO THE REQUEST FOR SURRENDER OF THE POLICY, JUNE 1, 1922. I ASSUME THAT SUCH CASES AS THESE ARISE BY REASON OF ADMINISTRATIVE PROCEDURE OF THE SEVERAL DIVISIONS OF THE BUREAU WITHOUT NOTICE OR INFORMATION OF THE CONTROLLING EVIDENCE IN OTHER DIVISIONS AND ARE EXCEPTIONAL CASES.
AS PARAGRAPH 9 OF THE POLICY FIXES THE RECEIPT OF PROOF IN THE BUREAU AS THE CONTROLLING DATE FROM WHICH RATINGS OF PERMANENT TOTAL DISABILITY MAY BE MADE RETROACTIVELY EFFECTIVE FOR A PERIOD OF SIX MONTHS, THAT DATE MAY ALSO BE CONSIDERED AS CONTROLLING THE EFFECTIVENESS OF A SURRENDER FOR CASH VALUE AND TO BRING SUCH CASES AS PRESENTED WITHOUT THE GENERAL RULE. AWARDS IN THESE CASES SHOULD, OF COURSE, TAKE INTO ACCOUNT THE AMOUNT PAID AS CASH SURRENDER VALUE. ACCORDINGLY, INSURANCE IS PAYABLE IN BOTH CASES "A" AND "B.'