Docket No. 91804–Agenda 25–January 2002.

MARILYN LAUER, Appellee, v. AMERICAN FAMILY LIFE 

								INSURANCE COMPANY, Appellant.

Opinion filed April 4, 2002.

	JUSTICE THOMAS delivered the opinion of the court:

	At issue is whether an insurance company can validly make the

two-year contestability period in a life insurance policy begin on

the policy’s issue date rather than on the date it issues a conditional

receipt to the insured. We hold that it can.

BACKGROUND

	The facts are undisputed. On March 23, 1997, Albert Lauer

applied for life insurance with defendant, American Family Life

Insurance Company. In his application, Lauer failed to disclose that

he had been diagnosed with terminal lung cancer in May 1996 and

had received multiple regimens of chemotherapy during 1996 and

1997. On March 26, 1997, Lauer paid his first premium and

defendant issued a conditional receipt. The conditional receipt

provided temporary life insurance that would end on the earlier of

120 days or the date insurance took effect under the policy.

Defendant subsequently issued Lauer a 20-year decreasing term life

insurance policy with an “issue date” of April 12, 1997. Lauer’s

wife, plaintiff Marilyn Lauer, was the named beneficiary.

	Lauer died of lung cancer on March 28, 1999, and plaintiff

submitted a claim for benefits under the policy. Defendant initiated

an investigation and received medical records showing that plaintiff

had been diagnosed with lung cancer in 1996 and had received

chemotherapy in 1996 and 1997. Defendant informed plaintiff that

it would not honor the policy because Lauer had materially

misrepresented his health and had failed to answer questions

truthfully in his application. Defendant asserted that it considered

Lauer’s lung cancer material to the risk it assumed and that it

would not have issued the policy if Lauer had disclosed that he had

cancer. Accordingly, defendant refunded the premiums Lauer had

paid.

	Plaintiff filed a two-count complaint against defendant. In

count I, she sought a declaratory judgment that the policy was

incontestable when her husband died. In count II, she alleged that

defendant breached the contract by failing to pay benefits.

Defendant moved to dismiss both counts. Defendant argued that

count I should be dismissed pursuant to section 2–615 of the Code

of Civil Procedure (735 ILCS 5/2–615 (West 2000)) because the

two-year contestability period began on the policy’s issue date

rather than on the date it issued the conditional receipt. Thus, the

policy was still contestable when Lauer died. Defendant argued

that count II should be dismissed pursuant to section 2–619 of the

Code of Civil Procedure (735 ILCS 5/2–619 (West 2000)) because

Lauer had made material misrepresentations in his application.

Thus, defendant was entitled to rescind the policy. The circuit

court of Cook County granted the motion, and plaintiff appealed.

	The appellate court reversed and remanded. 321 Ill. App. 3d

890. The court held that the contestability period began to run on

March 26, 1997, the day defendant issued a conditional receipt to

Lauer. Citing section 224(c) of the Illinois Insurance Code

(Insurance Code) (215 ILCS 5/224(c) (West 2000)), the court

stated that the application was part of the insurance contract and

thus the contestability period began when plaintiff’s coverage

began with defendant. The court believed that section 224(c)

evinced a legislative intent to make the contestability period run

from payment of the first premium, not from an arbitrary issue date

selected by the insurance company. 321 Ill. App. 3d at 894-95. We

granted defendant’s petition for leave to appeal.

ANALYSIS

	Defendant first argues that the appellate court erred in holding

that the two-year contestability period began to run on the date

defendant issued a conditional receipt, rather than on the policy’s

issue date. We agree.

	We begin by analyzing the relevant policy language. The

incontestability clause provides, in relevant part:

		“We will not contest the validity of this Policy except for

nonpayment of Premium after it has been in force during the Primary Insured’s lifetime for two years from the later

of:

			1. the Issue Date; or

			2. the date We approve any Reinstatement Application.”

“Issue Date” is defined as “[t]he date this Policy was issued as

shown in the Schedule.” The schedule lists the issue date as April

12, 1997. Thus, the policy clearly provides that the contestability

period began to run on April 12, 1997, and the only question is

whether the policy language was contrary to the Insurance Code.

	The primary goal of statutory interpretation is to ascertain and

give effect to the legislature’s intent. Kraft, Inc. v. Edgar, 138 Ill. 2d 178, 189 (1990). The best indication of legislative intent is the

statutory language, given its plain and ordinary meaning. Illinois Graphics Co. v. Nickum, 159 Ill. 2d 469, 479 (1994). Moreover, courts afford considerable deference to the interpretation placed on

a statute by the agency charged with its administration. Denton v. Civil Service Comm’n, 176 Ill. 2d 144, 148 (1997); City of Decatur v. American Federation of State, County, & Municipal

Employees, Local 268, 122 Ill. 2d 353, 361 (1988).

	Section 224 of the Insurance Code (215 ILCS 5/224 (West

2000)) sets forth the standard provisions required in life insurance

policies issued in Illinois. The relevant portion is subsection (c),

which contains the requirements for the contestability period:

			“(c) A provision that the policy, together with the

application therefor, a copy of which shall be endorsed

upon or attached to the policy and made a part thereof,

shall constitute the entire contract between the parties and

that after it has been in force during the lifetime of the

insured a specified time, not later than 2 years from its

date, it shall be incontestable except for nonpayment of

premiums ***; provided that the application therefor need

not be attached to or made a part of any policy containing

a clause making the policy incontestable from date of

issue.” 215 ILCS 5/224(c) (West 2000).

	The appellate court read the “it” in the clause “after it has been

in force during the lifetime of the insured a specified time, not later

than 2 years from its date” as referring to the “entire contract between the parties” rather than to the “policy.” Thus, according

to the appellate court, the legislature unequivocally showed an

intent to have the two-year period run from the first date at which

the parties entered into any part of the contract, not from the

policy’s “issue date.” 321 Ill. App. 3d at 894. The court, however,

analyzed this section as if the final clause did not exist. The final

clause–“provided that the application therefor need not be attached

to or made a part of any policy containing a clause making the

policy incontestable from date of issue”–demonstrates the error of

the appellate court’s analysis in two respects. First, when this

section is read as a whole, it is clear that the “it” in the first clause

refers to the policy, not to “the entire contract between the

parties.” Following the language to the end of the section shows

that the same “it” is the object of the last clause, which begins

“provided that the application therefor.” A person applies for a

policy, not “the entire contract between the parties.” Thus, “it”

must refer to the policy, and the reference to “its date” refers to the

policy’s date, not the date the parties first entered into the contract.

	Much more importantly, however, the final clause specifically

authorizes the insurance company to include a provision that the

contestability period begins on the policy’s issue date. Although the

appellate court was correct that the statute makes the application

and the policy the entire contract between the parties, the statute

just as clearly provides that “the application therefor need not be

attached to or made a part of any policy containing a clause making

the policy incontestable from date of issue.”

	Additionally, section 401(a) of the Insurance Code (215 ILCS

5/401(a) (West 2000)) gives the Director of Insurance the power

to make reasonable rules and regulations to make the insurance

laws effective. The provision of the Illinois Administrative Code

applicable to section 224(c) provides that “[t]he period of

contestablility shall be determinable from the policy, i.e., by

reference to a specified issue date, policy date or effective date

***.” 50 Ill. Adm. Code §1405.40(e)(2) (2001). Here, as

specifically authorized by statute and administrative regulation,

defendant’s policy makes the contestability period run from the

issue date.

	It is also clear that the insurance provided under the

conditional receipt was not part of the subsequent policy issued to

Lauer. By its own terms, the conditional receipt provided

temporary insurance, provided that certain conditions were met. It

specifically provided that the insurance it provided expired 120

days after it was issued or the date insurance took effect under the

policy applied for. Thus, the insurance provided under the

conditional receipt expired when defendant issued the policy.

	The appellate court held that it was “clear” that the legislature

intended the contestability period to begin on the date the

insurance company first receives a premium from the insured,

rather than from the policy’s issue date, and that this interpretation

was in accord with “the public policy of protecting the public from

unscrupulous insurance companies.” 321 Ill. App. 3d at 895. We

are unsure how the appellate court reached this conclusion, given

that the statute says nothing about the period of contestability

running from the date a premium is received and instead

specifically authorizes the company to make the period run from

the date of issue. The appellate court focused on what it believed

was a fair result rather than on what the statute specifically

provides. This was clearly in error because an insured’s right to

have a policy become incontestible after two years, except for the

nonpayment of premiums, is wholly statutory. Thus, the legislature

may provide when that period begins to run, and a court may not,

in the guise of statutory construction, rewrite the statute to suit its

own notions of fairness.

	Interestingly, the rule of statutory construction plaintiff asks

us to follow is that “ ‘[t]he only legitimate function of the courts is

to declare and enforce the law as enacted by the legislature, to

interpret the language used by the legislature where it requires

interpretation, and not to annex new provisions or substitute

different ones, or read into a statute exceptions, limitations, or

conditions which depart from its plain meaning.'’ ” Bronson v. Washington National Insurance Co., 59 Ill. App. 2d 253, 261-62 (1965), quoting Belfield v. Coop, 8 Ill. 2d 293, 307 (1956). We agree, and that is why we cannot accept plaintiff’s interpretation.

Defendant was authorized by statute to have the contestability

period run from the policy’s issue date, and thus the clause at issue was valid and enforceable. Accordingly, the policy was still

contestable when Lauer died, and the appellate court erred in

reversing the circuit court’s dismissal of count I of plainitffplaintiff’s

complaint.

	Defendant also argues that the circuit court correctly

dismissed count II of the complaint, which alleged that defendant

breached the contract by failing to pay proceeds. We agree.

Defendant’s evidence conclusively established that Lauer materially

misrepresented his health, and plaintiff has not disputed this fact.

Plaintiff has focused solely on whether the policy was contestable

and has not argued that, if the policy was still contestable,

defendant would not be entitled to rescind the contract.

Accordingly, we hold that the trial court correctly dismissed count

II.

CONCLUSION

	In sum, we hold that section 224(c) of the Insurance Code

authorizes an insurer to provide that the contestability period

begins on the policy’s issue date. Defendant’s incontestability

clause was thus valid and enforceable, and the policy was still

contestable when Lauer died. Accordingly, as there was no dispute

that Lauer fraudulently failed to disclose his lung cancer, defendant

was entitled to rescind the policy. We reverse the appellate court’s

judgment and affirm the circuit court’s dismissal of plaintiff’s

complaint.

Appellate court judgment reversed;

circuit court judgment affirmed.