Case Name: Ruby B. DUNFORD, Representative of the Estate of Alice Hillman, Deceased, Plaintiff-Appellant, v. UNITED OF OMAHA, Defendant-Respondent
Court: Idaho Supreme Court
Jurisdiction: Idaho
Decision Date: 1973-03-02
Citations: 95 Idaho 282
Docket Number: No. 10933
Parties: Ruby B. DUNFORD, Representative of the Estate of Alice Hillman, Deceased, Plaintiff-Appellant, v. UNITED OF OMAHA, Defendant-Respondent.
Judges: Reversed and remanded with directions.
Reporter: Idaho Reports
Volume: 95
Pages: 282–288

Head Matter:
506 P.2d 1355
Ruby B. DUNFORD, Representative of the Estate of Alice Hillman, Deceased, Plaintiff-Appellant, v. UNITED OF OMAHA, Defendant-Respondent.
No. 10933.
Supreme Court of Idaho.
March 2, 1973.
Reversed and remanded with directions.
Albaugh, Bloem, Smith & Pike, Idaho Falls, for plaintiff-appellant.
McDevitt & McDevitt, Pocatello, for defendant-respondent.

Opinion:
McQUADE, Justice.
Alice Hillman brought an action to recover on an individual life insurance policy applied for by her husband, Robert K. ¿Oilman. From an adverse judgment, after trial to the court, Alice Hillman appealed. During the pendency of the appeal, Alice Hillman died, and Ruby Dunford, representative of the estate of Alice Hillman, has been substituted as appellant.
Robert K. Hillman was a practicing attorney in St. Anthony, Idaho. On September 15, 1967, Hillman conferred with two sales agents representing United of Omaha and Mutual of Omaha about life insurance and health and accident insurance. On this date Hillman applied for an individual life insurance policy in the face amount of $10,000. This application was to United of Omaha and is the policy application in dispute here. Two other insurance applications, not in issue here, were also signed by Hillman on September 15, 1967.
A check to the insurance company for $65.00 was made out by Hillman at the time the three insurance applications were made. Of the total of $65.00, $13.80 represented two monthly premium payments of $6.90 per month on the policy application here in question, and the remainder was for the other two policy applications. At the time the applications were made, Hill-man, then forty-one years old, also signed documents giving his bank authority to pay the premiums as they should become due.
In return for the pre-payment of the premiums, Hillman received a "conditional premium receipt" from the agents. This receipt provided that the insurance would be effective on the date of application or the date of any required medical examination, subject to requirements on the reverse side of the receipt. Two of these requirements were a finding by the company that the proposed insured was in surable under its rules for the policy applied for and issuance of the policy exactly as applied for within sixty days from the date of application.
Hillman complied with the physical examination requirement and was notified in October that the bank service premium plan was acceptable. On November 2, 1967, the Omaha office issued the policy for which appellant commenced this action, and sent it to its agent in Pocatello. The application' had been changed in two respects, first the premium rate had been changed from $6.90 per month to $10.00 per month and secondly, a provision excluding any waiver of premiums upon disablement was added. The changes were caused by such factors as findings of the company concerning a drinking problem by Hillman and by the fact that Hillman had become forty-two years old since the application was made. A ratification form, acknowledging the changes, was sent with the policy for Hill-man's signature.
On November 5, 1967, Hillman was killed in a car accident. The policy was returned to Omaha after respondent's general agent in Pocatello learned of Hillman's death; and the policy was then cancelled. There had been no delivery of the policy to Hillman and he had not signed the ratification form. Respondent's agents then tendered return of the premiums which tender was refused by Hillman's widow, Alice Hill-man.
The district court held that no policy of life insurance on the life of Hillman was in force on the date of his death. The court ruled that the up-rated premium was a material deviation from the application, making the altered policy a counter-offer requiring acceptance by Hillman.
Although several findings of fact are disputed, appellant principally assigns error to (1) the court's finding that the "conditional premium receipt" prevented an insurance contract from arising, (2) the court's decision that the policy was merely a counter-offer and not binding as a contract of insurance without acceptance, and (3) the court's failure to award attorney fees to appellant. The principal question to be decided by this appeal is whether the life of Robert K. Hillman was insured by the United of Omaha Insurance Company on the day he died.
Two general contract rules of construction favor appellant in this appeal. Appellant correctly asserts the general rule that a contract which is ambiguous or doubtful in its terms should be construed most strongly against the party preparing it. The insurance contract here in issue was prepared by the insurance company. Appellant also correctly asserts that in cases involving insurance contracts, where the language may be given one of two meanings, one allowing recovery and the other forbidding it, the contract should be construed in favor of the insured.
Appellant relies heavily on the "temporary contract of insurance theory" set forth by this Court in Toevs v. Western Farm Bureau Life Insurance Co. That theory holds that under certain circumstances a conditional premium receipt creates a temporary contract of insurance subject to a condition, rejection of the application by the insurance company. Some of the circumstances leading to use of the temporary contract theory in Toevs included unequal bargaining power, complex and ambiguous phrasing in the contract, and use of a conditional premium receipt.
Since the conditional premium receipt in this case stated that the insurance would be effective on the date of application or the date of any required medical examination, subject to requirements on the reverse side of the receipt, a temporary contract of insurance was in effect. The two most pertinent requirements here were that Hillman be found insurable and that the policy be issued as applied for within sixty days. Hillman was therefore covered unless the company properly rejected the application before his death. Since Hillman received no notice of any rejection or change of terms by the insurance company before his death, the temporary contract'of insurance was still valid and in force.
Notice is necessary in this case in order to allow an applicant who is temporarily covered to obtain insurance elsewhere, especially since the applicant here complied with all that was required of him by the insurance company. Hillman paid two months' premiums, signed an authorization to honor checks drawn by the insurance company on his bank, and took a medical examination. It is true that some jurisdictions have held that a failure to give notice of termination does not leave the temporary insurance in force. We are of the view, however, that notice must be given where there is a temporary contract of life insurance. Termination of temporary insurance against loss by fire, wind or hail requires proper notice of such rejection to be given the insured. The same rule should apply where a valid temporary contract of life insurance is in force.
There was a rejection of the application by the insurance company here, but the required notice of the rejection was not given the insured. When an insurance policy is issued materially differing from the policy applied for, such policy is a counteroffer which under the general rule of contracts amounts to a rejection of the application. Here the policy issued was different from the policy applied for and was thus a rejection of the original application. Hillman, had he lived, could not have been forced to accept a policy with higher premiums than set forth on his application. The company's ratification form showed its realization that the issued policy was really a counter-offer. The change in monthly premium from $6.90 to $10.00 is thus a material difference between the application and the issued policy. However, since no notice of the counter-offer, which amounted to a rejection of the temporary insurance contract, was communicated to Hillman before his death, the temporary contract of insurance was still in effect.
Appellant argues that attorney fees should be awarded in this case as provided for under § 41-1839 of the Idaho Code. Respondent urges that the two-year statute of limitations bars the award of attorney fees in this case. Contrary to respondent's argument, any attorney fees in this case are a part of the relief which may be accorded a claimant in an action on the breached contract, which is governed by the five-year statute of limitations. Thus, reasonable attorney fees will be awarded to appellant.
Appellant is awarded the sum of $10,000 with interest thereon from the 5th day of November, 1967, at the rate of 6% per annum, and the sum of $1,000 as and for reasonable attorney fees on appeal. The trial court shall fix a reasonable attorney fee for trial of the action.
Judgment reversed and remanded with directions to render judgment in favor of appellant and to determine reasonable attorney fees for trial of the action. Costs to appellant.
DONALDSON, C. J., and SHEPARD, J., concur.
. Big Butte Ranch, Inc. v. Grasmick, 91 Idaho 6, 415 P.2d 48 (1966).
. See O'Neil v. New York Life Ins. Co., 65 Idaho 722, 152 P.2d 707 (1944) ; Watkins v. Federal Life Ins. Co., 54 Idaho 174, 29 P.2d 1007 (1934).
. 94 Idaho 151, 483 P.2d 682 (1971).
. Id., 483 P.2d at 686.
. Id.
. See Leube v. Prudential Ins. Co., 147 Ohio 450, 72 N.E.2d 76, 2 A.L.R.2d 936 (1947) ; Eyring v. Kansas City Life Ins. Co., 234 Mo.App. 328, 129 S.W.2d 1086 (1939).
. See cases set forth in Annot., 14 A.L.R.3d 568, § 11.
. Annot., 2 A.L.R.2d 943, 982 (1948).
. See 1 Couch on Insurance 2d (Anderson) § 7:20 (2d ed. 1959).
. See 1 Couch on Insurance 2d (Anderson) § 12:2, 12:4 (2d ed. 1959).
. Idaho Code § 41-1839 provides in pertinent part as follows:
"(1) Any insurer issuing any policy, certificate or contract of insurance, surety, guaranty or indemnity of any kind or nature whatsoever, which shall fail for a period of thirty (30) days after proof of loss has been furnished as provided in such policy, certificate or contract, to pay to the person entitled thereto the amount justly due under such policy, certificate or contract, shall in any action thereafter brought against the insurer in any court in this state for recovery under the terms of the policy, certificate or contract, pay such further amount as the court shall adjudge reasonable as attorney's fees in such action."
. See Idaho Code § 5-219(2).
. See I.C. § 5-216.