Title: Lauer v. American Family Life Insurance Co.
Citation: N/A
Docket Number: 91804
State: Illinois
Issuer: Illinois Supreme Court
Date: April 4, 2002

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, &amp; 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 plaintiff'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.