Opinion ID: 2163380
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Heading Rank: 1

Heading: expiration date change

Text: In consideration of the premium actually paid, which is less than the amount required for the current renewal term of this policy, it is agreed that the expiration date for such current term of this policy shall be and hereby is changed to read: EXPIRATION DATE 6-06-76 $6.00 All coverages hereunder shall cease on the expiration date shown above at the time of the day as stated in the policy, unless the policy is renewed pursuant to its terms. Anderson testified that he received this endorsement but that he ignored it. Under the terms of the policy, American Standard had the option to cancel the policy for nonpayment of premium. The company instead chose the less harsh alternative of changing the expiration date of the policy to conform to the amount of the premium actually paid by Anderson. Anderson went to Erickson's office on June 5, 1976, and attempted to tender a partial payment to Erickson for the purpose of renewing his policy. Erickson testified that Anderson had a bill for $46.00 from the company with him (his premium of $46.00 reflected the fact that he had now attained the age of 20), but Anderson asked if he could pay for only one month, or about $15.00. Erickson informed Anderson that he was not authorized to accept a partial premium payment but was required to collect the premium for the entire three-month renewal period. Anderson left without paying the premium for renewing his policy. On June 10, 1976, Anderson's van was involved in a collision with another vehicle. Diane Herzog, a passenger in the van, was seriously injured in the collision. Anderson called Erickson on June 11, 1976, and was informed that the company would not cover him because his policy had expired prior to the accident. Anderson brought suit against American Standard and judgment was entered in favor of American Standard pursuant to a jury verdict of no coverage. The pivotal question in this case is whether Anderson's policy expired on June 6, 1976, or whether his policy was in full force and effect until June 17, 1976. When we review a jury verdict we review the evidence in the light most favorable to the verdict. City of Hazelton v. Daugherty, 275 N.W.2d 624 (N.D.1979). By so doing, an appellate court demonstrates its respect for the jury in our system of jurisprudence. Anderson has argued that American Standard is estopped from denying that it received full payment of the premium for the period from March 17, 1976, to June 17, 1976, because the policy delivered to Anderson indicated on its face that the premium was paid in full. As support for his argument, Anderson cites § 26-04-02 of the North Dakota Century Code, which provides: 26-04-02. Receipt for premium in policy Effect. An acknowledgment in a policy of the receipt of premium is conclusive evidence of its payment so far as to make the policy binding notwithstanding any stipulation in the policy that it shall not be binding until the premium actually is paid. Anderson contends that under § 26-04-02, N.D.C.C., the company was bound by its statement in the policy that the premium has been paid. We believe Anderson is asking us to interpret § 26-04-02, N.D.C.C., in a manner which would stretch its meaning beyond the clear import of its words and frustrate its purpose. In our interpretation, § 26-04-02, N.D.C.C., is designed to protect the policyholder in two situations: (1) where the insurance company argues that the policy coverage never commenced due to nonpayment of premium; or, (2) where the company argues that the policy has terminated for nonpayment of premium but has never given the insured notice that the premium or a balance thereof was due. Anderson has cited two North Dakota cases which have interpreted § 26-04-02, N.D.C.C., namely, Harrington v. Mutual Life Ins. Co. of New York, 21 N.D. 447, 131 N.W. 246 (1911); and Donahue v. Mutual Life Ins. Co. of New York, 37 N.D. 203, 164 N.W. 50 (1917). Both of those cases are distinguishable in that they were concerned with the question of when the contract of insurance came into existence, not when the contract expired. Sawyer v. State Farm Fire and Casualty, 69 Cal.2d 801, 447 P.2d 344, 73 Cal.Rptr. 232 (1968), supports Anderson's position that the statute applies to termination as well as commencement of the policy period. The California statute [Cal.Ins.Code § 484 (West)] was identical to § 26-04-02, N.D. C.C., at the time that Sawyer was decided. In Sawyer the California Supreme Court held that the acknowledgment of the receipt of premium in the policy must be deemed to apply to the stated term of the policy and that the policy could not be canceled for nonpayment of the premium. We cannot agree with Anderson's position nor can we follow the approach taken by the California Court in Sawyer. We agree with the logic in the dissenting opinion written by Justice McComb in Sawyer, supra 447 P.2d at 351, 73 Cal.Rptr. at 239. We quote extensively the following language from Justice McComb's dissenting opinion in Sawyer: McCOMB, Justice (dissenting). . . . In my opinion, there is some doubt that the language of the policy here involved should be interpreted to include an acknowledgment of the receipt of premium. In any event, however, it seems to me that defendant had a right, upon proper notice before a loss, to exercise the cancellation right reserved to it in the policy. Under section 484 of the Insurance Code, if a policy contains an acknowledgment of the receipt of premium, such acknowledgment cannot be contradicted to invalidate the contract; but this does not mean that either party is prohibited from exercising cancellation rights contained in the policy. To interpret section 484 to mean that a policy containing an acknowledgment of the receipt of premium cannot be cancelled, upon proper notice before a loss, is to read words into the statute that are not there, which, of course, is something this court should not do. [Citations omitted.] Under the majority's interpretation, the clause `so far as to make the policy binding' is expanded to mean `so far as to make the policy binding for the entire period covered by the premium acknowledged to have been received.' In my view, it could not have been the intention of the Legislature to so provide. Rather, it appears to me, from the clear language of the statute, that the Legislature intended to provide that if the receipt of premium is acknowledged in the policy, a binding insurance contract has come into existence even though (1) the policy provides that it shall not be binding until the premium is actually paid, and (2) the premium has not been paid. The section does not in any way indicate that such binding contract of insurance is immune from cancellation, when the right of cancellation has been reserved to the insurer in the policy. The California Legislature, apparently as a reaction to the holding in the Sawyer opinion, amended § 484 of the California Insurance Code in 1969 to read as follows: § 484. Policy as receipt; cancellation An acknowledgment in a policy of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding. Notwithstanding such acknowledgment, a policy may be canceled effective at such times as otherwise permitted by law for nonpayment of all or any portion of the premium which is actually unpaid if such cancellation right is reserved to the insurer in the policy. An insurance contract is a contract of adhesion, and as such is to be construed against the insurer and in favor of the insured. Kasper v. Provident Life Ins. Co., 285 N.W.2d 548, 553 (N.D.1979). Where the insurance contract is unambiguous its meaning should not be strained to impose liability on the insurer. Kasper, supra 285 N.W.2d at 553. In the instant case, the company clearly reserved a right of cancellation in the policy. Rather than exercise its right of cancellation, American Standard modified the expiration date of the policy to conform to the amount of premium actually paid. Payment of premiums in accordance with the conditions of an insurance policy is a condition precedent to the maintenance of insurance and an essential part of the insurance contract. See Sjoberg v. State Auto Ins. Ass'n of Des Moines, Iowa, 78 N.D. 179, 48 N.W.2d 452, 453 (1951); Bach v. North Dakota Mutual Fire Ins. Co., 56 N.D. 319, 217 N.W. 273, 276 (1928); Rumsey v. St. Paul Mercury Ins. Co., 242 N.W.2d 677 (S.D. 1976); and Presentation Sisters, Inc. v. Mutual Ben. Life Ins. Co., 85 S.D. 678, 189 N.W.2d 452 (1971). Rumsey, supra 242 N.W.2d 677 is factually similar to the instant case. In Rumsey, plaintiff owed the insurer a balance of $10.20 on his automobile insurance premium. Plaintiff was sent a notice that his balance of $10.20 was due in ten days. When the insurer did not receive the balance-due payment, it canceled Rumsey's policy and returned the unused portion of his premium. Rumsey was involved in an accident after the effective date of cancellation. The South Dakota Supreme Court, applying Oregon law to the case because the contract of insurance was made in Oregon, determined that the cancellation was effective. In the instant case, the question was one of modification of the insurance contract because the company never exercised its cancellation rights. The trial court instructed the jury as follows: