of the bankrupt are exempt under Section 6 of the Bankruptcy Act of 1898, even though they are endowment policies payable to the assured during his lifetime and have cash surrender values, and the provisions of Section 70 (a) of the Act do not apply to policies which are exempt under the state law. It has always been the policy of Congress, both in general legislation and in bankrupt acts to recognize and give effect to exemption laws of the states." Following the payment of the policy to the beneficiary, however, the proceeds are subject to levy and attachment for such beneficiary's debts, just as any ordinary assets would be.

66

66

Some courts have also emphasized the right and duty of an insolvent, in the absence of actual fraud, to make moderate provision for his wife and children by naming them as beneficiaries in a life-insurance policy. This is clearly indicated in the opinion rendered in Central Bank of Washington v. Hume (128 U. S. 195), where “a married man," it was declared, may rightfully devote a moderate portion of his earnings to insure his life, and thus make reasonable provision for his family after his decease, without being thereby held to intend to hinder, delay or defraud his creditors, provided no such fraudulent intent is shown to exist, or must be necessarily inferred from the surrounding circumstances." But on this point the courts are by no means a unit. Some hold that the premiums paid by the insured following his insolvency are obtainable by his creditors; while others have ruled that creditors may obtain the insurance money in the proportion that the premiums paid subsequent to the insolvency bear to the sum total of the premiums paid on the policy.

Transmissibility of the Beneficiary's Interest.- Where the beneficiary has been named absolutely and without any qualifying restriction, the important question arises: Are the rights of the beneficiary in the policy such as to pass to his or her representatives in case of death before the insured dies? This question may be discussed conveniently from two standpoints: (1) when all the designated beneficiaries die before the insured, and (2) when some of them die before the insured

but others outlive him. Assuming that the sole beneficiary designated in the policy dies before the insured, is the latter at liberty to make a new appointment? Frequently the difficulty is overcome by a clause in the policy, as is the case in the New York standard provision expressly providing to some such effect as this: "If no beneficiary shall survive the insured the policy shall be payable to the legal representatives of the insured.” Beneficiary clauses also frequently contain stipulations to the effect that "if any beneficiary shall die before the insured, the interest of such beneficiary shall vest in the insured." In the absence of such provision, the courts have disagreed as to the powers which the insured may exercise in this respect. The majority of decisions permit him to make a new appointment and this ruling is regarded as the better one by legal writers on the subject. It is contended. that since the insured's original intention as to the disposition of the proceeds of the policy has failed, the power to indicate a new beneficiary should revert back to him. His original intention to protect his wife and children, it is argued, cannot be construed as implying that he meant to waive all control over his own policy in case he should happen to become the sole survivor. To hold otherwise would seem inequitable and would likely prove ineffective since the insured could lapse his policy.

5

دو

Now assuming in the second case, that the policy simply names the "wife and children " or the "children as beneficiaries, and that it contains no conditions governing the matter, how shall the proceeds of the policy be shared when some of the designated beneficiaries die before the insured dies while others survive him? In other words, are those beneficiaries who out

5 Among the states the courts of which have upheld this ruling may be mentioned the following: Alabama (87 Ala. 263), Ohio (50 Ohio St. 595), Missouri (35 Mo. App. 178), New Jersey (58 N. J. eq. 189), New York (28 N. Y. Hun. 119), Virginia (24 Grat. (Va.) 497), and Wisconsin (50 Wis. 603).

Among the states in which the contrary ruling holds may be mentioned the following: Arkansas (71 Ark. 295), Indiana (86 Ind. 196) and Maryland (95 Md. 101).

live the insured entitled to the entire proceeds of the policy, or is the interest of the surviving beneficiaries still limited to the share which they originally held under the policy, while the respective interests of those beneficiaries who died before the insured's death pass to their representatives or assigns. Here again the courts are not in accord. Where the policy is payable to "the wife of the insured, if living, otherwise to their children," it is clear that the interest of the children is a contingent one, depending upon the life of the wife. But suppose that the husband survives the wife, shall the proceeds of the policy pass only to those children who survived the mother, or shall all the children living at the time of the issuance of the contract participate in the distribution. Some courts hold sometimes called the New York rule that only the children surviving the mother come into possession of the entire policy. Other courts, however, follow the rule sometimes called the Connecticut rule - that all the children alive when the policy was issued acquire a vested right therein, and that the interest of those dying before their mother dies passes to their representatives."

The Designation of the Beneficiary.— Judging from the unusually large number of court decisions which relate to this subject, it is apparent that the beneficiary often is designated carelessly in a life-insurance policy, and that because of such carelessness the real intention of the insured might upon his death be difficult to determine and might, therefore, possibly be defeated. It is the general rule of the courts, if at all possible, so to construe the language used in designating the beneficiary as to enforce the intentions of the parties thereto. But in doing this the courts cannot set aside the language expressly used if the same is not ambiguous.

Numerous illustrations may be cited as indicating the ne

6 Among cases upholding this rule may be mentioned: 140 Mich. 233, 68 N. H. 405, 133 N. Y. 408, 118 Ga. 657, 54 Ala. 688, 202 Pa. St. 141.

7 Among cases upholding this rule may be mentioned 42 Conn. 60, 89 Iowa 396, 100 Tenn. 297, 135 Mass. 468.

cessity of care in describing the beneficiary. Thus, where the policy is payable to the insured's "children," the term includes those by a former wife but not his wife's children by a former husband. A policy payable "to the wife and upon her death before the insured to their children," " does not give an interest to a child by a marriage contracted by the insured after his first wife's death. Adopted children are included in the term "children," and the term "dependents is limited strictly to those actually dependent for support upon the insured. Again the term "relatives" has been held to "include those by marriage as well as by blood, but not an illegitimate child"; while the term "heirs" refers to "those who take under the statute of descent and distribution.” 8

Effect of Cessation of the Beneficiary's Insurable Interest in the Life of the Insured Prior to Maturity of the Contract. In the chapter on "Insurable Interest" it was stated as a general rule that a person has an insurable interest in his own life and may accordingly insure that life to any amount and name anyone as beneficiary under the policy, even though such beneficiary may not have an insurable interest at the time. The only general exception to this rule, we saw, consisted of those instances where the policy is a mere cover for fraud or speculative insurance and thus an evasion of the law against wagering. But assuming that the policy is taken out legally by one person on the life of another, or that a beneficiary has been appointed who has an insurable interest at the time, will a subsequent loss of that interest before the maturity of the contract adversely affect the vested rights of such beneficiary? Here the prevailing rule holds that a policy valid at its inception because supported by an insurable interest will not, unless its provisions clearly stipulate the contrary, be affected thereafter by a loss of that interest on the part of the beneficiary. A married woman, for example,

8 ELLIOTT, CHARLES B., Treatise on the Law of Insurance (1903), 348-387. A detailed list of the numerous interpretations which American courts have given to the various terms that are commonly used in designating beneficiaries in life-insurance policies.

named as beneficiary in her husband's policy has been held to have the right to maintain the existence of the policy following a divorce and be entitled to the proceeds upon the insured's death. Exceptions to this rule frequently exist as regards creditors, as noted in the preceding chapter; certificates or rules of fraternal and mutual benefit societies, however, usually provide that the relation of husband and wife, or other family relationship under consideration, must exist at the time of the insured's death.