Opinion ID: 1306499
Heading Depth: 1
Heading Rank: 2

Heading: Formation of Insurance Contract

Text: (1a) Defendant's first contention is that no insurance contract ever came into existence, since no policy was ever delivered to Thompson, since he had not completed the second medical examination required by Occidental, and since Thompson was ultimately found to be uninsurable by Occidental. To support its contention, defendant relies on the language of its own standard form application executed by Thompson. [1] This court, however, in Ransom v. Penn Mutual Life Ins. Co., 43 Cal.2d 420 [274 P.2d 633], considered similar contract language [2] in an almost identical factual setting [3] and resolved the issue in favor of the insured. In Ransom (p. 423), this court had to determine wheer a contract of insurance arose immediately upon receipt by defendant of the completed application with the premium payment, subject to the right of defendant to terminate the agreement if it subsequently concluded that Ransom was not acceptable, or whether ... [defendant's] satisfaction as to Ransom's acceptability for insurance was a condition precedent to the existence of any contract. We found in Ransom (p. 425) that a contract of insurance arose upon defendant's receipt of the completed application and the first premium payment and held that the understanding of an ordinary person is the standard which must be used in construing the contract, ... We also found that an ordinary person reading the application could reasonably believe that he would secure the benefit of immediate coverage by paying the premium in advance of delivery of the policy. We do not believe that the language of the application in Ransom reasonably can be distinguished from the language of the application and receipt in the present case. [4] As the United States Court of Appeals, Ninth Circuit, observed in Metropolitan Life Insurance Company v. Grant, 268 F.2d 307, 309, the California courts make no attempt ... to draw fine distinctions from the various phraseology used in the numerous policies.... (2) Of course, an insurance company is not precluded from imposing conditions precedent to the effectiveness of insurance coverage despite the advance payment of the first premium. However, as Ransom explains, any such condition must be stated in conspicuous, unambiguous and unequivocal language which an ordinary layman can understand. As the insurer is responsible for drafting the application, it is appropriate that he be required to choose plain and unequivocal terms. (See also Slobojan v. Western Travelers Life Ins. Co., 70 Cal.2d 432 [74 Cal. Rptr. 895, 450 P.2d 271]; Young v. Metropolitan Life Ins. Co., 272 Cal. App.2d 453 [77 Cal. Rptr. 382, 78 Cal. Rptr. 568]; Koorstad v. Washington Nat. Ins. Co., 257 Cal. App.2d 399 [64 Cal. Rptr. 882]; Wernecke v. Pacific Fidelity Life Ins. Co., 238 Cal. App.2d 884 [48 Cal. Rptr. 251]; Brunt v. Occidental Life Ins. Co., 223 Cal. App.2d 179 [35 Cal. Rptr. 492]; Metropolitan Life Insurance Company v. Wood (9th Cir.) 302 F.2d 802; Metropolitan Life Insurance Company v. Grant, supra . ) (1b) Applying the test of the foregoing cases, we conclude that the trial court properly could find that a contract of insurance arose upon Thompson's payment of the first premium following his completion of the application and initial medical examination. Neither the language in the application and receipt nor the explanation given by Kelly was clear and unambiguous, and an ordinary man in Thompson's position might well assume that payment would bring immediate protection, at least until the insurer had notified him that he was uninsurable. (See Wernecke v. Pacific Fidelity Life Ins. Co., supra, 238 Cal. App.2d 884, 887.) In Kelly's words, it is probable that the technical stuff set forth in the application and receipt was never effectively brought to Thompson's attention. Of course, nothing would have prevented Occidental from rescinding its contract with Thompson during his life, upon determining that he was uninsurable. But, under Ransom, that right to rescind must be held to have terminated upon Thompson's death, at least in the absence of a material misrepresentation on Thompson's part. In a further attempt to support its contention that no contract of insurance ever came into existence, Occidental asserts that Kelly did not have authority to act on its behalf and waive the application's requirement that a policy be delivered before coverage would commence. Occidental again relies on the language of its own standard form contract which provided that No waiver or modification shall be binding upon the Company unless in writing and signed by the President or a Vice President and the Secretary or an Assistant Secretary. Upon payment of the first premium by Thompson, Kelly modified the completed contract form by changing the mode of premium payment from annual to monthly, scratching out C.O.D. (which evidently meant collect premium on delivery of policy) and substituting $205 as payment with application. Occidental contends that these unauthorized modifications were not binding upon the company because of the above quoted language, which assertedly put Thompson on notice that Kelly had no authority to modify the standard language of the policy application. We cannot accept Occidental's position, for to do so would place undue burdens upon the applicant for insurance to inquire of soliciting agents regarding their authority and to verify the facts by independent inquiry with the company involved. Certainly the language of the application did not expressly deny Kelly's authority to make the modifications at issue, for Kelly might have been one of the designated officers. (Compare Iverson v. Metropolitan Life etc. Co., 151 Cal. 746, 750-751 [91 P. 609].) Furthermore, the particular modifications are minor in nature, and relate only to payment of the premium in advance and in installments, common practices which an insured could reasonably conclude were entirely within the discretion of the agent to accept. The fact that the printed form provides for four alternative methods of payment  annual, semi-annual, quarterly and monthly (with squares after each to be checked indicating the method of payment desired), and for payment with application, would lead an applicant to conclude that the matter was entirely optional. Although the form of the application itself is rather inconclusive as to the apparent right of the agent to make such adjustments, the law of agency supports our conclusion as to the extent of Kelly's authority. Under Civil Code section 2315 et seq. an agent has (1) such authority as his principal intentionally confers upon him or intentionally or by want of ordinary care allows him to believe he possesses (§ 2316  actual authority), or (2) such authority as the principal intentionally or by want of ordinary care causes or allows a third person to believe the agent possesses (§ 2317  ostensible authority). The record indicates that Occidental allowed both Kelly and Thompson to believe that Kelly possessed the authority to act as he did. Kelly was Occidental's Oakland manager, had been employed by Occidental since 1952, and had previously received insurance applications and collected premium payments with the applications, or shortly thereafter, without any instructions from Occidental as to limitations on his authority in such transactions. (3) If a principal by his acts has led others to believe that he has conferred this authority upon his agent, he cannot be heard to assert, as against third persons who have relied thereon in good faith, that he did not intend to confer such power. ( Safeway Stores v. King Lumber Co., 45 Cal. App.2d 17, 22 [113 P.2d 483]; see also Skyways Aircraft Ferrying Service, Inc. v. Stanton, 242 Cal. App.2d 272, 280-281 [51 Cal. Rptr. 352].) (1c) We conclude that the evidence would support a finding that Kelly had authority to bind Occidental.