Michigan Law Review

Volume 42 Issue 5

1944

THE ASSIGNMENT OF A LIFE INSURANCE POLICY

Grover C. Grismore
University of Michigan Law School

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Recommended Citation
Grover C. Grismore, THE ASSIGNMENT OF A LIFE INSURANCE POLICY, 42 MICH. L. REV. 789 (1944).
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1 944] AssIGNMENT OF LIFE INSURANCE

THE ASSIGNMENT OF A LIFE INSURANCE POLICY

Grover C. Grismore*

T HERE is a great deal of uncertainty and confusion in the decided

cases in regard to the effect to be given to the assignment of a life
insurance policy. This is unfortunate, since to a large extent life insur-
ance has come to be regarded as an investment medium, and as an asset
which can be hypothecated by the insured in times of financial emer-
gency.
I
NATURE OF THE PROBLEM

The existing uncertainty grows very largely out of the fact that the
modern life insurance contract, as it is commonly written, purports to
confer rights upon two persons. On the one hand, we have the person
who makes the contract with the insurer. He is the promisee, called the
insured, and is usually, though not invariably, the one whose life is
covered and who pays the consideration for the insurer's promise in
the form of premiums. In addition, it is customary for the insurer to
promise the insured that he will pay the proceeds of the contract to a
third person, designated as beneficiary, if the contract matures because
of the death of the person whose life is covered.
The problem is further complicated by the fact that the policy
usually contains a number of other more or less stereotyped clauses.
Among other things it may give the right (a) to borrow money on the
contract, (b) to surrender it and to receive a specified cash value, ( c)
to exercise named options in regard t·o the mode of settlemeht, ( d) to
receive any dividends that may be declared on the contract, and ( e) to
change the beneficiary by complying with certain prescribed formalities.
Sometimes the contract does not reserve the right to change the bene-
ficiary and, more often than not, it does not distinctly specify who shall
have the privilege of exercising the several rights created by it.
More recently, some insurers have been writing into their policies
a provision expressly giving the insured the right to assign the contract,
and making the rights of the beneficiary subject to any assignment made
in the manner stipulated in the contract. More often, however, the
policy does not contain any such stipulation, although it may state that
no assignment made shall bind the insurer unless it is made in writing
and unless the insurer is notified of the fact.
* Professor of law, University of Michigan Law School.-Ed.
 790 MICHIGAN LAW REVIEW [ Vol. 42

II
AssIGNABILITY OF PARTICULAR RIGHTS

Among the rights created by the contract, those whose assignability

is most likely to be in question are the right to the cash or loan value,
the right to change the beneficiary, and the right to the proceeds of the
policy on maturity.
A. Right to Cash or Loan Value
It is a well settled rule of the modern law that contract rights are
assignable in the absence of an express prohibition or restriction in the
contract, unless the assignment will materially change the duty or in-
crease the burden or risk of the other party· to the contract, or unless
the assignment is contrary to public policy.1 The_ life insur~nce contract
is not an exception to this general rule. Accordingly it is clear that the
right to receive the casJi surrender value is assignable in the absence of
a restriction in the contract. It has been so decided in a number of
cases.2 The only question of doubt in these cases has been whether the
. assignment was made by the person in whom the right resided, and
whether the assignee had exercised his rights in conformity with the
terms of his assignment and of the contract of insura~ce. Moreover, it
has also been decided that an assignment of the contract of insurance as
a whole in general terms by those beneficially interested confers upon
the assignee the right to receive the cash value without express stipu-
lation in .the contract of assignment to this ~ffect. 3 ·

B. Right to Borrow Money or Change Beneficiary

It would also seem to follow that the right to borrow money on the
policy is assignable, since under the usual policy provision the insurer
does not rely upon the personal credit of the [Link] as security for
repayment but on the policy's cash value which it has in its hands.4
There is more doubt about the assignability of the right to change the
1CONTRACTS RESTATEM;;;NT, § 151 (1932).
2Snyder v. Home Life Ins. Co., 328 Pa. 424, 195 A. 895 (1938) (assignment
by insured and beneficiary); N.Y. Life Ins. _Co. v. Rees, (C.C.A. 8t]:i, 1927) 19 F.
(2d) 781 (assignment by insured and beneficiary); Jenkins v. Ins. Co., II2 Kan. 552,.
212 P. 363 (1923) (assignment by insured. Policy expressly reserved to insured the
right to receive the cash value) ; Cockrill v. Southwestern Life Ins. Co., (Tex. Civ.
App. 1937) 103 S. W. (2d) 399 (assignment by insured and beneficiary); Mutual
Benefit Life Ins. Co. v. First Natl. Bank, 160 Ky. 538, 169 S. W. 1028 (1914)
(assignment by insured and beneficiary).
' 3 See the cases in the preceding note, especially, Cockrill v. Southwestern Life

In~. Co., (Tex. Civ. App. 1937) 103 S. W. (2d) 399.

4 No decisions have been found.
1944] AssrGNMENT OF LIFE INSURANCE 79 1
beneficiary. It is arguable that to permit the assignment of this right
would tend to increase the risk of the insurer. The insurer selected the
insured and may feel confident that he would not name a beneficiary
who would have so little interest in the continuance of the life of the
person whose life is covered that he would be inclined to yield to the
temptation to shorten that life. An assignee might not exercise a similar
discretion in the choice of a beneficiary. No decisions have been found
on the question, although at least one court has said in a dictum that
even this right is assignable. 5
C. Right to Proceeds on Maturity
So far as the assignability of the right to the proceeds of a policy
is concerned, the only question of doubt has been whether the assign-.
ment of this right may lawfully be made before its maturity to one who
has no insurable interest in the person whose life is covered. The de-
cided cases are in conflict on this question, but the numerical weight of
authority clearly s1:1-pports the view that lack of insurable interest in the
assignee will not of itself invalidate an assignment of this right. Accord-
ing to the majority holding, the policy which condemns wagers is not
materially involved, nor is the likelihood sufficiently great that murder
will be encouraged to warrant invalidating an assignment of the pro-
ceeds of a life policy to one without insurable interest when the assign-
ment it~elf was actuated by other and proper motives.6 This is in line
with the modern tendency to recognize the desirability of making valu-
able contract rights freely alienable. However, if there is reason to
believe that the assignment is part of a preconceived plan of the as-
signee to indulge in a speculation on a life in which he has no insurable
interest, and on which he could not, therefore, have taken out a policy
of insurance in his own name, the assignment will be held to be invalid. 1
Moreover, if the insured was a party to the illegal plan and if the
illegal design was in contemplation at the time the contract of insurance
was procured, the case is dealt with just as if the assignee were himself
the insured. In such a case the result is that the contract of insurance is
itself held to be illegal and unenforceable against the insurer because of
the want of insurable interest in the assignee. 8 The court properly looks
5 See Douglass v. Equitable Life Assur. Soc., 150°La. 519, 90 So. 834 (1922).
6 The cases pro and con are collected in 73 A. L. R. 1036 (1931) and 87 Am.
St. Rep. 506 (1902).
7 See Hack v. Metz, 173 S. C. 413, 176 S. E. 314 (1934); Grigsby v. Russell,

222 U.S. 149, 32 S. Ct. 58 (19n) (dictum distinguishing earlier cases). Additional
cases are collected in 73 A. L. R. 1048 (19n).
8 O'Connor's Admr. v. Equitable Life Assur. Soc., l 70 Ky. 715, I 86 S. W. 502

(1916); Clement v. Insurance Co., IOI Tenn. 22, 46 S. W. 561 (1898); Powell v.
79 2 MICHIGAN LAW REVIEW [ Vol. 42

through the form of the transaction to get at its substance and deals
with it accordingly. However, if the insurer is willing to pay or has
paid without protest, the tendency is to hold that the representatives of
the insured or his properly designated beneficiaries are entitled to the
proceeds less any advances made by the assignee in connection with the
transaction, and that a suit may be brought by one against the other if
necessary to bring about this result. 9 It is said that the illegality here
existing does not involve any moral turpitude and, consequently, does
not call for application of the general rule that the court will not aid
either party to an illegal transaction, but will leave them where it finds
them. This holding would seem to be commendable in view of the fact
that the deceased's beneficiaries are not themselves parties to the illegal
transaction and it is better that they receive a windfall than that the
assignee profit from his illegal venture. The argument that, if the in-
surer wishes to make the assignee a gift by paying him something which
it is under no legal obligation to pay, no one else has any claim on the
fund, scarcely merits consideration.
On the other hand, if the illegal design was not formed until after
a valid contract of insurance had been consummated in favor of an in-
sured who had an insurable interest, the tendency is to hold that the
representative of the insured or his properly designated beneficiary is
entitled to recover the proceeds just as if there had been no assignment,
the assignee, however, being reimbursed, on equitable grounds, any con-
sideration or premiums which he had paid. 10 While this result may also
be somewhat inconsistent with the generally accepted rule that the law
will not aid either party to an illegal transaction where the parties are
in pari delictu, it can perhaps be justified on the ground that, since it is
only the assignment that is tainted with illegality, the beneficiaries of
the deceased do not need to rely on the illegal agreement to make out
a case.11 '

Dewey, 123 N. C. 74, 31 S.E. 381 {1898); Hinton v. Insurance Co., 135 N. C. 314,
47 S. E. 474 (1904); Keystone Mut. Ben. Assn. v. Spangler, l 15 Pa. 446 (1886).
Nor does the incontestable clause bar the defense of illegality in such a case, Bromley's
Admr. v. Washington Life Ins. Co., 122 Ky. 402, 92 S.W. 17 (1906). ·
9 Warnock v. Davis, 104 U.S. 775 {1881); McRae v. Warmack, 98 Ark. 52, 135

S.W. 807 (19i1); Finnie v. Walker, (C.C.A. 2d, 1919), 257 F. 698. {It is to be
noted that the court in this case stated that the assignment only was invalid, which
,quaere).
10 Quillian v. Johnson, 122 Ga. 49, 49 S. E. 801 (1904); N. Y. Life Ins. Co. v.

Brown's Admr., 139 Ky. 711, 66 S. W. 613 (1902); Gilbert v. Moose's Admr., 104
Pa. St. 74 (1883); Quinn v. Catholic Knights, 99 Tenn. 80, 41 S.W. 343 (1897).
Apparently contra, see Metropolitan Life Ins. Co. v. Elison, 72 Kan. 199, 83 P. 410
(1905); Mo. Valley Ins. Co. v. McCrum, 36 Kan. 146, 12 P. 517 {1887).
11 See 6 WILLISTON, CoNTRACTS, rev. ed., § 1752 (1938).
1 944 J AssIGNMENT OF LIFE INSURANCE 793
It is commonly stipulated in the policy of insurance that no assign-
ment shall be binding on the insurer unless it be made in writing and
unless the original or a duplicate thereof be filed at the home office of
the insurer. However, it is generally agreed that this provision is de-
signed solely for the protection of the insurer and that no one else can
claim any benefit from it. 12 Accordingly an assignment which complies
with the usual requirements will normally be effective.
III
BY WHOM ARE THE RIGHTS AssIGNABLE?
The principal difficulty which arises in connection with the assign-
ment of a life policy is not one of determining whether a particular
right is or is not assignable or whether it has been properly assigned.
On these questions the authorities are fairly clear and consistent, as we
have already seen. Rather the problem is one of determining in whom
the right resides as between insured and beneficiary. It is clear that one
cannot assign that which he does not own. If no beneficiary is named
arid the proceeds are made payable to "executors, administrators or as-
signs," or "legal representatives," all the beneficial rights reside in the
insured· and he can, of course, make an effective assignment of them
without the consent of any other person.13
Also, if both the insured and the beneficiary join in an assignment
there is no difficulty,14 assuming that neither is under disability and that
the assignment does not violate any statute.15 Likewise, if the contract
of insurance clearly defines the respective rights of insured and bene-
ficiary, the problem is easily solved. Unfortunately, too often the lan-
guage of the contract leaves this matter in doubt. When this is so, the
problem must be solved on the basis of general principles.
A. When No Right to Change Beneficiary Reserved
It has been said that: 16
"The rule is well settled that, under an ordinary policy of life
insurance in which there is no reservation of a right to cut off or
12 Travelers Ins. Co. v. Mayo, 103 Conn. 341,130 A. 379 (1925); Equitable

Life Ins. Co. v. Mitchell, 248 Ill. App. 401 (1927); Hutsell v. Citizens' Natl. Bank,
166 Tenn. 598, 64 S. W. (2d) 188 (1933); Peel v. Reibel, 205 Minn. 474, 286
N. W. 345 (1939); Sundstrom v. Sundstrom, (Wash. 1942) 129 P. (2d) 782.
13 Bancroft v. West, 128 Fla. 193, 174 So. 327 (1927); New York Life Ins. Co

v. Flack, 3 Md. 341 (1852).

14 Finegan v. Prudential Insurance Co. of America, 300 Mass. 147, 14 N. E. (2d)

172 (1938).
15 The power of a wife, who is the beneficiary of her husband's insurance policy,

to make an assignment is frequently regulated by statute. The cases on the subject are
collected in Ann. Cas. 1917B 302; and 87 Am. St. Rep. 504 (1902).
16 Mutual Benefit Life Ins. Co. v. Swett, (C.C.A. 6th, 1915) 222 F. 200 at 204.
794 MICHIGAN LAW REVIEW [ Vol. 42

modify the interest of the beneficiary, the policy and the money to
become due under it belong, from the time it' is issued, to the per-
son named in it as the beneficiary, and that the insured is without
power, whether by deed, assignment or will, or by surrender of
the policy for a new one, or by any other act of his, to transfer to
any other person the interest of the person so named as beneficiary.
In such a policy the beneficiary acquires, the moment it is issued, a
vested right which cannot be affected by any act of the insured
subsequent to the execution of the policy, except it be a breach of
condition."
Thus, it has been held that the insurer must pay the irrevocably desig-
nated beneficiary even though he had previously granted a loan to the
insured and had paid to him the cash surrender value provided for in
the contract, where these rights had not been expressly reserved to the
insured; 17 that an insured who makes an irrevocable designation of a
beneficiary loses all right to the cash surrender value of the contract,
and so sustains no loss upon the insolvency of the insurer entitling him
to claim a deduction for income tax purposes; 18 that the surrender of
the policy by the insured is ineffective to defeat the right of the irrev-
ocably designated beneficiary; 19 that the,assignee of the insured and
a contingent beneficiary have no right to the cash surrender value
where there are other contingent beneficiaries irrevocably designated; 20
that an assignment by the insured is ineffective to give the assignee any
claim to the proceeds of the policy at its maturity.21
This seems to be the almost universally accepted rule,22 and, from
17 Mutual Benefit Life Ins. Co. v. Willoughby, 99 Miss. 98, 54 So. 834 (1911).

See Ann. Cas. 1913D 836, and annotation at 838. ,

18 Morse v. Commissioner of Internal Revenue, (C.C.A. 7th, 1938)' 100 F. (2d)

593, 120 A. L. R. 961 (1939) with annotation at 967. ,

19 Ferguson v. Phoenix Mut. L. Ins. Co., 84 Vt. 350, 79 A. 997 (19u). See

35 L. R. A. (N.S.) 844 (1912), and annotation.

20 Entwistle v. Travelers Ins. Co., 202 Pa. 141, 51 A. 759 (1902).
21 City Savings Bank v. Whittle, 63 N. H. 587, 3 A. 645 (1885); Block v. Valley

Mut. Ins. Assn., 52 Ark. 201, 12 S. W. 477 (1889).

22 Wisconsin alone goes to the opposite extreme in holding that the beneficiary has

no rights which the insured cannot cut off by his own act alone, either by surrender,
assignment, or by will. Clark v. Durand, 12 Wis. 248 (1860); Estate of Breitung, 78
Wis. 33, 46 N. W. 891, 47 N. W. 17 (1890); Meggett v. N. W. Mut. Ins. Co., 138
Wis. 636, 120 N. W. 392 (1909).
However, a statute makes the rule prevailing elsewhere applicable when the bene-
ficiary is the wife of the insured. See Boehmer v. Kalk, 155 Wis. 156, 144 N. W.
182 (1913).
It should be noted also, that, in some jurisdictions, it is held that one who is
insured under a certificate issued by a mutual benefit society, as distinguished from a
policy issued by an ordinary life insurance company, has the right to change the bene-
ficiary, together with all the other rights that go with this pri;vilege, as set forth infra,
1 944} AssrGNMENT OF LrFE INSURANCE 795

it, it would seem to follow that in such cases the beneficiary alone has
the power to make an effective assignment of any or all of the rights
created by the contract of insurance which are not expressly reserved to
the insured. Strangely enough, however, it has been said, in a leading
case, that, "it is probable that the beneficiary cannot obtain the loan
value of the policy without the consent of the insured; it is probable
that the surrender value cannot be obtained without the consent of the
insured; but if either value is obtained, it belongs to the beneficiary." 28
One can well understand the doubt which the court expresses in regard
to the propriety of permitting the beneficiary to cash in on the policy
during the lifetime of the insured, even though he be an irrevocably
designated beneficiary.
The fact of the matter is that this mode of approach to the solution
of the problem is untenable both on logical and on practical grounds.
It seems to proceed on the assumption that, in the absence of specifica-
tion, a contract of insurance must be dealt with as a unit; and that all
rights created by it must necessarily reside in one person at a time; that
if the beneficiary has any irrevocable rights he must necessarily own all
the rights created by the contract that are not expressly reserved to the
insured. This is an obvious non sequitur. The problem properly dealt
with is purely one of interpretation; of seeking to determine in whom
it was intended by the parties to the contract that the particular right
should reside. Inasmuch as the insured pays the premiums, and it is
with him the contract is made, it would seem to be a more rational in-
terpretation to say that he is entitled to any and all of the performance
except that part of it which the insurer specifically promised to render
to the beneficiary. In the normal case this would mean that the insured
would be the owner of and have the disposition of all the rights created
by the contract other than the right to the proceeds which are payable
in case the policy matures because of the death of the person whose life
is covered. Of course, he should not have any rights that cannot fairly
be said to have been tacitly reserved to him by the contract. So, even
under this mode of dealing with the matter, if no surrender value is
provided for, neither he nor his assignee has any right to surrender the
contract by agreement with the insurer.24 Slight reflection would seem
to justify the conclusion that this interpretation is much more in accord
with the probable intention of the parties to the contract, and this, after

even though the right is not expressly reserved. See Carpente_r v. Knapp, IOI Iowa
712, 7o·N. W. 764 (1897); Baldwin v. Wheat, 170 Ga. 449, 153 S. E. 194 (1930).
28 Mutual Benefit Life Ins. Co. v. Willoughby, 99 Miss. 98 at 108, 54 So. 834

(19n).
24 See Wilde v. Wilde, 209 Mass. 205, 95 N. E. 295 (1911).
 MICHIGAN LAW REVIEW [ Vol. 42

all, is the only legitimate criterion for determining in whom the rights
created by the contract should be held to reside. '
It is probable that the rule generally adopted has had its origin in
the reluctance which the courts of the last century felt in admitting that
one who is not a party to a contract, in the sense that he is a promisee
who has paid a consideration, can have any rights under the contract.
The thought seems to have been that by dealing with the beneficiary as
the complete and sole owner of the contract and, so to speak, eliminat-
ing the insured, we make the beneficiary more of a party to the contract
and thus justify giving him an enforceable right.
B. When Right to Change Beneficiary Reserved
When the right to change the beneficiary is expressly reserved to
the insured, tq.e cases are not so harmonious. In such a case, of course,
the insured can control all the other rights created by the contract,
whether they are expressly reserved to him or not, by the expedient of
naming himself or his estate as beneficiary. Even though a third person
be named as beneficiary, it should undoubtedly be held that the right
to borrow money on the policy and the right to surrender it and to re-
ceive the, cash value thereof, when these are reserved in the contract,
reside in him alone, in the absence of a specification to the contrary, for
the reasons set forth above. 25 The only real doubt grows out of the
question whether he can confer upon an assignee a right to the proceeds
of the policy at its maturity, superior to -that of the named beneficiary,
without changing the beneficiary in the manner stipulated in the con-
tract. I. View That Beneficiary Has Mere Expectancy
A number of courts have held that an assignment by the insured,
in general terms, of a policy in which the right to change the beneficiary
is reserved confers upon the assignee a right to the proceeds at its ma-
turity which is superior to that of the named beneficiary. While the
reasons which have motivated this decision have not always been clearly
and definitely articulated, apparently it is commonly justified on one
or the other of two more or less distinct theories. One group of such
cases seems to proceed on the theory that a revocably designated bene-
ficiary has no right or ow_nership in relation to the proceeds of the con-
tract during the lifetime of the- insured; that all he has is a mere
25 lt has been so decided. Lamar Life Ins. Co. v. Moody, 122 Miss. 99, 84 So.

135 (1920); Morrison v. Mut. Life Ins. Co. of N.Y., 15 Cal. (2d) 579, 103 P. (2d)
963 (1940). But the right must be exercised in conformity with the terms of the
contract. Thus, where the policy provided' for surrender for a cash value after three
full years' premiums had been paid, it was held that a surrender prior to that time
was ineffective to bar the beneficiary. Roberts v. N. W. Natl. Life Ins. Co., 143 Ga.
780, 85 S. E. 1043 (1915).
1944] AssIGNMENT OF LIFE INSURANCE 797

expectancy. The insured is regarded as the present holder of the right,

which consequently he can transfer by assignment. 26 Thus, in Mutual
BenefitLife Insurance Company v. Swett, a leading case for this view,
a wife who was named as beneficiary in her husband's life insurance
policy joined with him in an assignment of the policy to a bank as secur-
ity for her husband's debt and then contended that her joinder was in-
valid since she received no consideration. The court said:
" ... The wife had no vested interest which she could assign
until the death of her husband-no assignable or transferable in-
terest in the policy until some right of action on it accrued in her
favor.... As she had but a mere expectancy at the time of the as-
signment, she did not become surety for her husband, because the
absolute right to assign the policy was lodged in him. Having no
property right in the policy . . . she pledged nothing for his debts;
nor was it necessary that she should receive a consideration for her
26 Mut. Life Ins. Co. v. Swett, (C.C.A. 6th, 1915) 222 F. 200; Farmers State

Bank v. Kelley, 155 Ga. 733, 118 S. E. 197 (1923); Mo. State Life Ins. Co. v. Cal.
State Bank, 202 Mo. App. 347, 216 S.W. 785 (1919); St. Louis Union Trust Co. v.
Dudley, (Mo. App. 1942) 162 S. W. (2d) 290; Davis v. Modern Industrial Bank,
279 N. Y. 405, 18 N. E. (2d) 639 (1939); Taylor v. Southern Bank & Trust Co.,
227 Ala. 565, 151 So. 357 (1933); Equitable Life Ins. Co. v. Mitchell, 248 Ill. App.
401 (1927); Elmorev. Continental Life Ins. Co., 131 Kan. 335,291 P. 755 (1930);
Potter v. N. W. Mut. Life Ins. Co., 216 la. 799, 247 N. W. 667 (1933); Bank of
Belzoni v. Hodges, 132 Miss. 238, 96 So. 97 (1923); Belknap v. N. W. Mut. Life
Ins. Co., 108 Vt. 421, 188 A. 897 (1936); Mass. Mut. Life Ins. Co. v. Bank of Cal.
N.A., 187 Wash. 565, 60 P. (2d) 675 (1936).
See also, Janesville State Bank v. Aetna Life Ins. Co., 200 Minn. 3 I 2, 274 N. W.
232 (1937), which holds that the insured can pledge the policy for a loan, and that
the pledgee has priority over the beneficiary, even though the insurer objects and has
already paid the beneficiary. The court said, at p. 314, "Appellants insist that there
was no evidence to support a finding of an assignment. of the policy to the bank, and if
there was such evidence, that there could be no oral assignment that would bind the
insurance company. We are inclined to share that view but think it not material here.
The trial court found the deposit with the bank to be a pledge, and we think the
evidence justifies such a finding. That an insurance policy that reserves to the insured
the right to change the beneficiary may be assigned, without the consent of the bene-
ficiary, is not open to serious question .... and we think it necessarily follows that such
a policy may be the subject of a valid pledge by the· insured without the beneficiary's
consent.•.. It has been held, and we think correctly, that where there is a prohibition
in a policy forbidding the assignment of a policy of insurance without the consent of
the insurer the policy may still be the subject of a valid pledge"; Morgan v. Penn. Mut.
Life Ins. Co., (C.C.A. 8th, 1938) 94 F. (2d) 129, which holds that an insured who
has reserved the power to change the beneficiary has the right to surrender the policy
by mutual agreement with the insurer, and thus to defeat the beneficiary without his
consent and without changing the beneficiary, although no right to cancel the policy
is provided for in the contract; and Carpenter v. Knapp, IOI la. 712, 70 N. W. 764
(1897), which holds that an assignment by a revocably designated beneficiary, prior to
the maturity of the policy, passes no interest to the assignee, and hence, on maturity of
the policy, the attaching creditor of the beneficiary has a claim superior to that of the
assignee.
 MICHIGAN LAW REVIEW

joining with him in the assignment·in order to bind her, because

in so doing she parted with nothing of appreciable value. The
bank's rights were as secure without her joinder as with it: The
ownership of the policy was not in her, but in her husband." 21 -
This approach involyes a confusion between property rights and
contract rights. It seems to proceed on the assumption that an insurance
poli~y purports to create a property i:ight to a fund; that this right vests
in the insured during his lifetime and passes to his designated bene-
ficiary at death, if it has not been otherwise disposed of. Carried to its
logical conclusion, it leads to the view that the designation of the bene-
ficiary is testamentary in its nature. It should therefore follow that .he
can take nothing in any event since the statute of wills has not been
complied with. No court has ever carried the argument to this extreme
in an insurance case, but this conclusion has been reached on occasion in
analogous cases in which this approach has been adopted.28
The fact of the matter is that it is based upon a false assumption.
An insurance policy is not a conveyance or tra;nsfer of property. It is a
contract by which the insurer, among other things, undertakes to make
a payment to the named beneficiary on the death of the person whose
life is covered, provided the insured has not exercised his reserved
power to substitute someone else in his stead to receive the payment. A
right is created immediately in the beneficiary. True, this right is con-
tingent, not only upon the death of the person whose life is covered,
but also upon the insured refraining from exercising his reserved power.
However, the fact that the beneficiary's right is contingent does not
put him in the position of one who has a mere expectation of inheriting
property. It is almost universally agreed today that a person for whose
benefit a contract is made may have rights under it just as if he were a
party to the contract and had paid a consideration. This being so, it
would seem that the revocably designated beneficiary is in no different
situation than is any party to a contract whose rights are contingent or
21 (C.C.A. 6th, 1915) 222 R. 200 at 205.
28 Thus, where a mortgagor contracted with the mortgagee to pay the amount of
the mortgage debt to named beneficiaries in the event that the mortgagee should die
before the maturity of the debt, it was held that the beneficiaries could not recover on
the agreement because it was testamentary in character. McCarthy v. Pieret, 281 N. Y.
407, 24 N. E. (2d) l02 (1939), commented on in 38 MicH. L. REv. 900 (1940).
So also, it has been held that the designation of a beneficiary to receive payment of a
war savings bond on the death of the, owner before its maturity is testamentary in
character. Decker v. Fowler, 199 Wash. 549, 92 P. (2d) 254 (1939); Deyo v.
Adams, 178 Misc. 859, 36 N. Y. S; (2d) 734 (1942); Warren v. United States, 68
Ct. Cl. 634 (1929); Franklin Wash. Trust Co. v. Beltram, 133' N. J. Eq. 11, 29 A.
(2d) 854 (1943); United States v. Dauphin Trust Co., (D.C. Pa. 1943) 50 F. Supp.
73, in re Di Santo's Estate (Ohio) 51 N. E. 2d 639 (1943), contra.
1 944} AssIGNMENT OF LIFE INSURANCE 799

conditional. No one would assert that a contractor who has made a

contract to do a piece of work and thereby entitle himself to a per-
formance by the other party to the contract has no present right in
relation to that performance, but a mere expectancy. The fact that one
of the contingencies in the insurance contract, upon the happening of
which the beneficiary's right is to become absolute, rests in the control
of a third person, namely the insured, would seem to be immaterial.
All that the insured has is the power to cause the contingency to happen
which will defeat the beneficiary, by naming either himself or someone
else in his stead. He does not have a right to the proceeds in any real
sense at the moment and, not having that right, it would seem to follow
that he has nothing other than the power to change the beneficiary
which is capable of transfer by assignment or otherwise.
2. View that Assignment is Equivalent to Change of Beneficiary
Other cases have reached the same result by taking the view that,
since the assignor intended the assignee to have a right to the proceeds
superior to that of the beneficiary, the assignment must be deemed to be
the equivalent of a change of beneficiary, because this is the only way
in which his intention can be effectuated.29 The objection that there
has not been a compliance with the requirements incorporated in the
policy for effecting a change of beneficiary is brushed aside with the
assertion that these are intended only for the benefit of the insurer and
that, if he is willing to forego the benefit of them, no one else can
raise the question. However, no court adopting this view has carried
the argument to its logical conclusion. It is recognized that the assignee
is not really substituted in the place of the beneficiary, since he is al-
lowed to take only to the extent of his interest. If the assignment is for
security, it is held that any balance remain1ng after payment of the
debt secured must be paid to the beneficiary designated in the policy.80
Moreover, if the insured should happen to resist the assignee's claim
because the formalities for change of beneficiary have not been com.-
plied with, it would seem that the originally designated beneficiary
should prevail.81
29 Atlantic Mut. Life Ins. Co. v. Gannon, 179 Mass. 291, 60 N. E. 933 (1901);

Merchants Bank v. Garrard, 158 Ga. 867, 125 S. E. 715 (1924); Carnes v. Franklin
Life Ins. Co., (C.C.A. 5th, 1936) 81 F. (2d) 800; Baldwin v. Wheat, 170 Ga. 449,
153 S. E. 194 (1930); Antly v. N. Y. Life Ins. Co., 139 S. C. 23, 137 S. E. 199
(1927); Martin v. Stubbings, 126 Ill. 387, 18 N. E. 657 (1888}; Shay v. Merchants
Banking Trust Co., 335 Pa. 101, 6 A. (2d) 536 (1939).
80 See the cases cited in the preceding note.
81 See Davis v. Modern Industrial Bank, 279 N. Y. 405, 18 N. E. (2d) 639

( 1939) ·
800 MICHIGAN LAW REVIEW [ Vol. 42

This approach to the solution of the problem· is no more tenable

than the other. In the first place, as has been pointed out a number of
times, an assignment is a totally different transaction from that of
changing the beneficiary. It has been said:
" ... the assignment of a policy and a change of beneficiary are
not the same, but different, things. An assignment is the transfer
by one of his right or interest in property to another. It rests upon
contract, and, generally speaking, the delivery of the thing as-
signed is necessary to its validity. The power to change the bene-
ficiary is the power to appoint. The power of appointment must be
exercised in the manner agreed upon in the contract of insur-
ance." 32
Neither is there any very good reason for denying that the formal
requirements for bringing about a change of benefici~ry are intended
for the ben~fit of the beneficiary as well as of the insurer.
The strongest argument that can be made for this view is to be
found in the suggestion that the insured, not usually being versed in
the law, does not know the difference and may think he has effected
a change when he has made an assignment. However, it is doubtful
whether this is so. The insured may not be cognizant of the exact legal
distinctions between the two kinds of acts, but it is difficult to believe
that he is unaware that they are two different things, since the poiicy
normally speaks of both of them and lays down different requirements
for their accomplishment. The fact of the matter is that the insured
is frequently mistaken about his rights and powers under the contract.
He assumes that all the rights reside in him so long as he lives.
However, the fact that a person supposes he has a right which in fact
he does not have can ·scarcely be regarded as a sufficient reason for
permitting him to transfer that right to a third person to the detriment
of the true owner of the right.
3. View that Only Beneficiary Can Assign
On the other hand, other courts, having more regard for the true
nature of the transaction and its legal incidents, have held that the
contract of insurance, in its inception, creates distinct rights in both the
insured and the beneficiary. Since, by the terms of the contract, the
beneficiary is given a conditional right to the proceeds of the policy
at maturity, these cburts hold that he alone has the power to transfer
32 Mut. Benefit Life Ins. Co. v. Swett, (C.C.A. 6th, 1915), 222 F. 200 at 205;
Taylor v. So. Bank & Trust Co., 227 Ala. 565, 151 So. 357 (1933); Equitable Life
Ins. Co. v. Mitchell, 248 Ill. App. 401 (1927), accord.
1 944} AssIGNMENT OF LIFE INSURANCE 801

this right by assignment. The insured has the power to destroy the
conditional right of the beneficiary only by exercising one of the other
rights which are expressly, or impliedly, conferred upon him by the
contract, such as the right to surrender the policy; or by exercising his
power to change the beneficiary in the manner provided for. They say
that an assignment by the insured cannot be regarded as the equivalent
of an exercise of the power to change the beneficiary. At most, it con-
fers upon the assignee the rights and powers whjch reside in the in-
sured-assignor. 88
In Anderson v. Broad Street National Bank, a leading case for this
view, the New Jersey court said:
" ... After a careful examination of the authorities, I am of the
opinion that whether the interest be regarded as vested and de-
feasible, contingent, a mere expectancy, or whatever the charac-
teriz~tion may be, if the policy stipulates the course by which the
beneficiary's interest is to be nullified, he cannot be deprived of
his right unless the prescribed mode for its destruction is followed,
and that the assignment in this case by the insured had not that
effect." 84 •

This conclusion has been condemned by the New York court on

the ground that:
"· .. From an every-day, practical standpoint it is desirable to
hold that an assignee of a policy containing a clause permitting a
change of beneficiary and an assignment of the policy secures a
right in the proceeds of the policy superior to the rights of the
33
Anderson v. Broad Street Natl. Bank, 90 N. J. Eq. 78, 105 A. 599 (1918);
Sullivan v. Maroney, 76 N. J. Eq. 565, 78 A. 150 (1909); Douglass v. Equitable Life
Assur. Soc., 150 La. 519, 90 So. 834 (1922); Muller v. Penn. Mut. Life Ins. Co.,
62 Colo. 245, 161 P. 148 (1916); Johnson v. N. Y. Life Ins. Co., 56 Colo. 178,
138 P. 414 (1914); Schoenholz v. N. Y. Life Ins. Co., 234 N. Y. 24, 136 N. E.
227 (1922) (In this case, however, the insurer resisted the claim of the assignee to
whom an oral assignment had been made and the New York court, in a latter case
which reached the opposite conclusion, distinguished the case on this ground. See
Davis v. Modern Industrial Bank, 279 N. Y. 405, 18 N. E. (2d) 639 (1939)); Gold-
man v. Moses, 287 Mass. 393, 191 N. E. 873 (1934); Carter v. Thornton, (C.C.A.
8th, 1938) 93 F. (2d) 529. (In this case the policy, which was a group contract,
prohibited assignment. The court held that the attempted assignment was not the
equivalent of a change of beneficiary, althouglt this was apparently what the parties had
in fact intended.)
See also Indiana National Life Ins. Co. v. McGinnis, 180 Ind. 9, IOI N. E. 289
(1913), which holds that cancellation of the policy by mutual agreement between the
insured and the insurer, where the right to cancel is not reserved in the contract, does
not defeat the right of a revocably designated beneficiary, whose rights can be cut off
only in the manner provided for in the contract.
3¼ 90 N. J. Eq. 78 at 82 (1918).
 802 MICHIGAN LAW REVIEW [ Vol. 42

named beneficiary. If an assignee, in the absence of the consent of

the beneficiary, does not obtain such right it will be practically im-
possible for an insured to borrow on a policy in time of need of
financial aid in those cases where compliance with the form pre-
scribed in the policy cannot be followed." 35
Why it should ever be impossible to follow the, form prescribed in
the policy for effecting a change of beneficiary is not evident nor is
any explanation of the nature of the supposed difficulty offered by
the New York court. Even though it be admitted that such cases may
· and do arise, it is difficult to see what justification this furnishes for
giving the insured greater rights than he can properly be said to be
entitled to under the terms of the contract which he made. The proper
solution of the difficulty should be found, not in distortion of the law
and the contract, but rather by requiring insurers to draft their con-
tracts in such a way as to eliminate the difficulty. Some insurers have
already done this by stipulating in the contract that the right of the
beneficiary shall be subordinate to that of an assignee of the insured,
thus in effect giving the insured the express power to ·transfer part or
all of the beneficiary's right without observing the formalities specified
as necessary to revoke his designation. 86
While the result aimed at in making an assignment can usually be
readily accomplished by making appropriate changes in the designation
of beneficiaries, the formalities commonly prescribed for doing this
are somewhat cumbersome and time-consuming. If life insurance is to
continue effectively to serve as an investment and saving medium as
well as a protection to dependents, it would be desirable that the in-
sured be given the power to transfer the beneficiary's interest in whole
or in part without his consent and without an undue amount of red tape.
It is something of a reproach to insurance company counsellors that in
drafting the insurance contract they have not given more attention to
this matter and to the problem of specifying in detail the respective
rights qf insured, beneficiary and assignee, so that there would be no
room for misconstruction of the intention. In this way much costly and
· unnecessary litigation could be avoided without any prejudice to the
interests of the insurer.
85 Davis v. Modern Industrial Bank; 279 N. Y. 405 at 414, 18 N. E. (2d) 639

(1939). .
36 For a case involving a policy in which this was done, see Fisher & Co. v. Phoenix

Mutual Life Ins. Co., 15 Tenn. App. 502 (1932). In this case the policy provided
that, "If the right to change the beneficiary has been reserved to the insured an as-
signment, release or surrender of this policy or any interest therein by the insured shall
operate to the extent thereof to [Link], release or surrender the interest of any and all
beneficiaries hereunder." ( Quoted from id. at p. 506). ·