The opinion of the court was delivered by: MCLEAN
This action was begun in the Supreme Court, New York County, and was removed by defendant to this court on the ground of diversity of citizenship. The complaint contains two counts. The first seeks recovery of the amount allegedly payable by defendant upon two life insurance policies issued by it to Thomas Francis Turull y Belling (Turull), who died in 1961. Turull's widow, Hortense Justiz de Turull, was the beneficiary under policy No. 487534 issued on November 27, 1937. She claims $25,000. Turull's daughter, Gladys Turull Johansen, was the beneficiary under policy No. 515508 issued on July 17, 1939. She died after Turull. Her executor claims $25,000 on the policy.
The second count is asserted by Harry T. Johansen, Jr. Defendant issued its life insurance policy No. 681561 to him on October 8, 1946. He seeks a judgment declaring that defendant is obligated to accept premium payments from him in United States dollars, to make policy loans in United States dollars, and to pay the proceeds of the policy upon his death in United States dollars.
Defendant's answer, in addition to denials and various affirmative defenses, contains a counterclaim seeking a judgment declaring that all sums payable under these policies are payable only in Cuban pesos in Havana, Cuba, rather than in United States dollars in New York. The declaration thus requested is merely the opposite of that asked by Johansen. It is unnecessary, since the decision upon plaintiff's claims will determine the question. At the court's suggestion, defendant withdrew the counterclaim at the conclusion of the trial.
This case has an importance above and beyond the amount immediately involved. It raises a fundamental issue as to the nature and extent of defendant's obligation on policies of life insurance issued by defendant in Cuba to Cuban residents which provided that all sums payable thereunder, either by the insured by way of premiums or by defendant, were to be paid in Havana, Cuba, in United States dollars. There were many such policies. This action is regarded by the parties, particularly by defendant, as a test case. It is apparently the first case which has been fully tried on the merits, although there have been a few decisions of other courts which have reached conflicting results, most of them rendered on motions for summary judgment.
The problem can be fully understood only after a consideration of the nature of the business carried on by defendant in Cuba. Much of the evidence was devoted to that subject. The relevant facts are as follows.
Defendant is a life insurance company organized under the laws of Canada in 1871. Its head office is in Toronto. It does business not only in Canada and in the United States, but in some twenty-two other countries, including Cuba. Since 1909 it has had a branch office in Havana in charge of a resident manager. For approximately fifty years, from 1909 until 1959, it issued policies to residents of Cuba.
Castro came to power in Cuba on January 1, 1959. Very shortly thereafter his government was recognized by the United States. Since Castro's advent, defendant has written no new policies in Cuba. Its office staff there has been greatly reduced from that of former years. Its activities are now limited to servicing existing policies and paying death claims in Cuba. The description of defendant's operations which follows, although phrased for convenience in the present tense, refers for the most part to the years prior to 1959.
The Cuban branch is not separately incorporated. It is a branch office which has always rendered daily reports of its operations to the head office in Toronto. Applications for insurance obtained by defendant's agents in Cuba are forwarded to the head office in Toronto for acceptance or rejection. Nevertheless, in a certain sense, defendant's operations in Cuba are distinct from those in Canada or in other countries. Defendant's business in Cuba, even before Castro, has always been subject to Cuban laws and to the supervision of the Cuban government. Defendant is required to render quarterly and annual reports of its operations to the government. A register of all Cuban policies is maintained by defendant which is inspected from time to time by government officials. Reserves to meet its obligations on those policies are maintained by defendant in Cuba. These reserves are invested in Cuban securities, particularly Cuban government bonds.
The Cuban government required that defendant make a deposit of $25,000 with the government when it began business in Cuba and a further deposit of $25,000 subsequently. Although prior to Castro the government did not specifically require that defendant's investments in Cuba be equal to its liabilities on its Cuban policies, it offered a strong inducement to that end by imposing a tax in the event that defendant's Cuban investments did not equal its Cuban liabilities. Defendant's investments in Cuba were not sufficient to avoid this tax until 1960. Other taxes are paid by defendant in Cuba, notably upon the premiums received upon policies issued there.
The policies issued by defendant in Cuba differ in some respects from those issued in Canada. Not only are they in the Spanish language rather than in English, but certain of the terms of the policies are different. The rates are different. Cuban residents must pay premiums at a "semi-tropical" rate, which is higher than that required of residents of colder countries. All policies must be authenticated before a notary in Cuba in order to become effective.
It has always been defendant's practice, in each of the countries in which it operates, to specify the capital city of the country in the policy as the place of payment. In Cuba the place of payment is Havana. Turull's policy No. 515508 and Johansen's policy each stated:
"PLACE OF PAYMENT. - All sums payable or exigible under this policy shall be paid at the principal office of the Association in the city of HAVANA, REPUBLIC OF CUBA."
Turull's policy No. 487534 contained the same provision but with the added qualification that "but the insured may, with the assent of the Association, make his payments elsewhere." All premiums paid by Turull under this policy were paid in Havana. There is nothing to indicate that he ever requested the privilege of paying any of them elsewhere.
With respect to currency, each of the three policies in suit provided that:
"CURRENCY. - All sums payable or exigible under this policy shall be paid in lawful currency of the United States of America."
This provision was common to all policies issued by defendant in Cuba up to July 1939. Between 1939 and 1951 defendant issued policies payable in dollars and also policies payable in Cuban pesos. From 1951 until it stopped issuing new policies in 1959, defendant issued only policies payable in pesos.
This came about because of certain Cuban currency laws and decrees which have an important bearing here and which may be briefly outlined at this point. From 1914 to 1939 two currencies were legal tender in Cuba, the peso and the United States dollar. Theoretically they were of equal value, but actually by 1939 the peso was worth less than the dollar. In an effort to bolster the peso, the Cuban government in 1939 enacted a law, effective on July 10, 1939, which in substance made the dollar and the peso interchangeable, on a one for one basis. Each continued to be legal tender, but debtors were now given an option as to which they wished to use in payment of their debts. Creditors were required to accept pesos in extinguishment of an obligation expressed in dollars, and vice versa. By 1942, the peso had risen in value until it was worth at least as much as a dollar. Indeed, for a time in 1942, it sold at a slight premium.
In 1951 another significant change took place. In 1948, by virtue of Law No. 13, a central bank had been established in Cuba. The law provided that after a specified interval, pesos would be the only legal tender. Decree No. 1384 dated April 9, 1951, effective July 1, 1951, implemented this provision. The United States dollar ceased to be legal tender. All obligations had to be expressed and paid in pesos, the only legal tender. Obligations previously contracted in dollars were to be discharged in pesos, at the rate of one peso for one dollar. A man could still own dollars in Cuba, but he could not use them to pay ...