1. The appellants, the Sun Life Assurance Company, appeal from a judgment of the Subordinate Judge, Second Court, of Dacca, who in the suit made a declaration as follows:
In the case of other forms of policies (e. g. whole life) the paid-up policy granted usually for the total amount of premium paid as contained in p. 14 of the China Mutual Insurance Company's prospectuses of 1919 and 1921 is operative, enforceable and binding on the defendant company with regard to the Policies Nos. 70944 and 73930 of the China Mutual.
2. A prayer for a similar declaration with regard to Policy No. 51859 was rejected. The suit arose under the following circumstances : The plaintiff, Nilratan Mookherjee, who lived near Dacca, in 1915 took out a policy for the whole of his life of the face value of Rs. 2000 at a yearly premium of Rs. 82 with the China Mutual Life Insurance Company. This is Policy No. 51859. The plaintiff says that previous to taking out the said policy, he had read a prospectus issued by the said China Mutual Life Insurance Company in 1912 and was attracted by a passage in it at p. 15 relating to paid-up policies which was as follows:
In the case of other forms of policies, the paid up policy granted is usually for the total amount of premiums paid, calculated on northern rates.
3. In the fifth clause of the mutual agreement written on the back of the policy the company agreed to issue a paid-up policy for an amount to be determined by the company. In August 1919 he took out a further policy for his whole life of the face value of Rs. 5000 at a yearly premium of about Rs. 120. This plaintiff alleges that prior to the taking out of the said policy he read a prospectus issued by the company in January 1919 which purported to cancel the previous prospectuses and contained under the heading 'Paid-up Policies' this passage:
In the case of other forms of policies, the paid-up policy granted is usually for the total amount of premiums paid.
4. Actually the whole section headed 'Paid-up Policies' is as follows:
After the payment of the third years' premium providing there is no loan from the company secured on the policy, the insured may obtain a non-participating paid-up policy in lieu of his original policy, provided however that application for such paid-up policy be made within two months of the date on which the policy as originally effected lapses. A paid-up policy is one entirely free from payment of any future premiums.
In the case of an endowment assurance or whole life assurance subject to a limited number of premiums, the amount of the paid-up policy will be such proportion of the original sum insured as the number of premiums actually paid bears to the number stipulated to be paid in the original policy. For example, if it is desired to discontinue a 20 years endowment assurance policy for Rupees 2000 on which five annual premiums had been paid, a paid-up policy may be obtained for S/20th of Rs. 2000, that is to say for Rs. 500. It will thus be seen that after an endowment assurance policy or whole life assurance policy by limited payments has been in force three years, every premium paid from the commencement secures a proportionate amount of the original insurance. In the case of other forms of policies the paid-up policy granted is usually for the total amount of premiums paid.
5. The next paragraph in the prospectus is headed 'Surrender Values' and is as follows : 'If so desired, the company will grant a cash surrender value in lieu of a paid-up policy'. This policy is numbered 70944 dated 20th July 1919. It recites that the company
has received an application for this policy, particulars whereof are set out in the schedule hereto, which application, with the mutual agreements endorsed hereon, is hereby declared to be the basis of this policy.
6. The schedule sets out the name, address, and occupation of the applicant; the date of application, the date the risk commenced, the sum assured, namely Rs. 5000 which is to become payable on the death of the assured, the amount of the premium, and the due date for the payment of premiums. It also sets out that the premiums will be payable for the whole of the life of the assured. On the back of the policy are certain terms which are described as mutual agreements. The relevant terms of the mutual agreements are as follows:
5. Loans will be made on this policy after it has been two years in existence, to assist in keeping the policy in force. 6. After the payment of premiums for three or more full years provided that there is no debt on the policy under Mutual Agreement hereof or otherwise the company on receipt of written application therefor will issue a paid-up policy to the assured for as many of the sum assured as there shall have been annual premiums paid or will pay a surrender value.
7. (The italicized words 'for as many of the sum assured as there shall have been annual premiums paid' are crossed out in red ink, the crossing out being initialled). On 1st January 1921, the same plaintiff took out a policy numbered 73930 similar to the second policy No. 70944, for a sum of Rs. 10,000. The terms and conditions of the policy apart from the sum assured were the same as No. 70944 and this plaintiff flays that in taking out the policy he was influenced by a prospectus similar in terms to the one he read before he took out policy No. 70944. In the year 1922 the China Mutual Life Insurance Company became amalgamated with the defendant company which took upon itself the debts, obligations and liabilities of the China Mutual. The male plaintiff has duly paid the premiums under each of the said policies up to the time of the beginning of the suit. The female plaintiff is the wife of the male plaintiff and the policies have been endorsed in her favour. The plaintiff has from time to time corresponded with the defendants and requested them to state that he is entitled to have issued to him, in respect of each of the said policies and in lieu thereof, a paid-up policy for the total amount of the premiums he has paid under each policy. The defendants have replied that they are prepared to issue him a paid-up policy in respect of and in lieu of each of the said policies, but not for the total amount of the premiums paid, but for some lesser sum to be determined by them.
8. The plaintiff says that his purpose is to pay the premiums under the policies until he has paid an amount equal to the face 'value and then obtain, in lieu of each policy, a paid-up policy for the total amount of the premiums paid from the defendants in accordance with the statement in the prospectus of 1919-20 that 'In the case of other forms of policies the paid-up policy granted is usually for the total amount of premium paid.' The plaintiff has asked for a declaration similar to that granted with a view to assisting him in his object. Objections have been raised to the form and purport of the declaration, but with a view to having the real matter at issue between the parties decided as far as possible, the case was argued before us on the basis that the plaintiffs by reason of the statements in the prospectuses claimed to be entitled to have paid-up policies issued to them in each case for the total amount of the premiums paid. The learned Judge decided against the plaintiffs' claim in respect of the first Policy No. 51859, but decided in favour of the plaintiffs under the two later policies.
9. In view of Clause 5 of Policy No. 51859 which states that the company will issue a paid-up policy for an amount to be determined by the company, it is clear beyond all doubt that the plaintiff is only entitled in lieu of the first Policy No. 51859 to a paid-up policy for such an amount as may be determined by the company. I am in agreement with the learned Judge's decision as regards Policy No. 51859. As regards the two other policies which stand on the same footing, the matter is not so simple. The prospectuses certainly stated that in policies such as this 'the paid-up policy granted is usually for the total amount of premiums paid'. It may be that the plaintiff was influenced as he says in his evidence by this statement when he took out the policies. The question is whether the plaintiff has any rights in the present proceedings in respect of the statements in the prospectuses. These prospectuses have been produced. They are small booklets in which the China Mutual Life Insurance Company set out their financial position, the kinds of business they do and the benefits that persons insured with them may obtain. The prospectuses may be an inducement to all who read them to enter into contracts of insurance with the China Mutual. The contracts of insurance are contained in the policies issued. In the case of policies Nos. 70944 and 73930, it is recited that the Company
has received an application for this policy particulars whereof are set out in the schedule hereto, which application with the mutual agreements endorsed hereon, are hereby declared to be the basis of this policy.
10. There is no mention anywhere in the policy of the prospectus. In my view the effect of that recital, in the absence of any reference to the prospectus, is to confine the terms of the particular insurance con. tract, except in so far as they are implied by law, to the policy itself in which the particulars of the application and the terms of the Mutual Agreement are set out. It seems to me that the case in British Equitable Assurance Co. Ltd. v. Baily (1906) AC 35 a House of Lords case, deals with the legal position in the present case. The respondent became a policy-holder in the participating branch of an insurance company. After distributing the profits of this branch among the participating policy-holders for many years without deduction for a reserve fund, the company proposed to alter that practice by devoting part of the profits to a reserve fund and to alter the bye-laws accordingly. The plaintiff policy-holder asked for an injunction against the company on the ground that he had taken his policy upon the faith of a prospectus which stated the practice. Kekewich J. declared that the company ought to continue to distribute the entire profits arising in the participating branch of its business, after making certain deductions (which it is not necessary to specify) among the holders of participating policies. The Court of Appeal upheld the decision but the House of Lords reversed it. At p. 41 Lord Lindley said:
This appeal turns entirely on the contracts entered into between the Insurance Company and its participating policy-holders, represented by Mr. Baily. The contracts are contained in the policies issued to them. It is contended that the applications for these policies were based on the faith of prospectuses containing statements and holding out inducements which preclude the company from making alterations in the mode of applying their profits without the consent of the policy-holders. My Lords, if these gentlemen were seeking to rescind or rectify their contracts on the ground of fraud or mistake, or were suing for damages occasioned by fraudulent misrepresentation, it would be legitimate to refer to the statements in the prospectuses on the faith of which they became policy-holders. But the complaining policy-holders are not doing anything of the sort, and the prospectuses not being referred to in the policies, cannot in my opinion, be legitimately referred to in order to construe the contracts into which the policy-holders have been induced to enter. These contracts are to be found in the policies themselves.
11. In the present case the plaintiffs-respondents are not seeking to rescind or rectify their contracts of insurance on the ground of fraud or mistake nor yet to recover damages for alleged fraudulent misrepresentation. They seek to affirm the contracts of assurance, the policies, and to have them construed so as to include the statements in the prospectuses. In such a case, as Lord Lindley said, the prospectuses, not being referred to in the policies, cannot legitimately be referred to in order to construe the contracts into which the policy-holders have been induced to enter. For that reason, this appeal, in my opinion, must be allowed and the declaration made must be set aside and the plaintiff's suit dismissed. The appellants are entitled to their costs both here and below. In view of the possibility of the respondents hereafter bringing proceedings for rescission or rectification or damages, I express no opinion formally upon the effect of the words 'in the case of other forms of policies, the paid-up policy granted is usually for the total amount of premiums paid,' although my views must have been apparent during the course of the argument.
12. I agree. I would only add this, that in my opinion, even if ill were legitimate to read the prospectus and the policy together, the words, 'In the case of other forms of policies, the paid-up policy is usually for the total amount of the premiums paid,' are not intended to be, and cannot be construed, as a promise by the insurers. On this point Thiselton v. Commercial Union Assurance Co. Ltd. (1926) Ch 888 is of assistance. There the prospectus contained the following statement:
Loans on policies-Loans are promptly made upon security of the society's policies to very nearly the full extent of their surrender value Interest is payable half yearly at the rate of i. 1/2 per cent. per annum, except when the loan amounts to 200 or more, when the rate is only & per cent.
13. The plaintiff in the action endeavoured to establish his right to obtain loans from the insurers at the rates of interest specified in the prospectus. Eve J. held that arrangements for loans were not directly connected with, and germane to, the main contract, and therefore not of a character strictly collateral thereto. This cannot be suggested here, because the right to a paid-up policy of some sort in certain circumstances is recognized by the policy of insurance itself. Eve J. however proceeds:
The statement as to interest is in the present tense and a correct statement of an existing fact; it is not, as I read it, an agreement or even a representation that it shall never be varied.
14. There is no allegation or proof that the statement as to the usual practice of the China Mutual was untrue at the time it was made. The language of the clause seems to me to be quite inconsistent with any intention on the part of the insurers to enter into a binding agreement of the kind suggested with prospective policy-holders. Indeed the learned trial Judge holds that the prospectus cannot be treated as part of the policy; but he is of opinion that the prospectus can be looked at to interpret the 'technical' term 'paid-up policy' as used in the contract. Assuming that ''paid-up policy' can properly be described as a technical term, the definition or explanation of it is in the words 'a paid-up policy is one entirely free from any future premiums.' The prospectus then proceeds to set out the terms on which endowment policies or whole life policies by limited payments are invariably, and other policies are usually, exchanged for paid-up policies as previously defined. These terms are no part of the characteristic of being paid up. I agree that the appeal must be allowed and the suit dismissed with costs.
15. We assess the hearing fee at Rs. 300 and the fee for drawing grounds of appeal at Rs. 50.