Court Opinion

ID: 9699359
Source: CourtListenerOpinion
Date Created: 2023-08-25 20:20:47.58249+00
Date Added: 2024-06-11T18:20:49.304596
License: Public Domain

POMEROY, Justice,
dissenting.
I emphatically dissent. Once again the Court, without justification in the facts of the case at hand, ignores the clear and unambiguous language of an insurance contract and dictates a result unsupported by the agreement of the parties.
In so doing the Court begins with a discourse concerning the evils perceived to be inherent in insurance contracts, particularly the practice common among life insurance com*600panies of accepting premium payments before the effective date of coverage (i. e., prior to completion of a required medical examination). Then, following a review of the “totality of the circumstances” in light of the “dynamics of the transaction”, the majority, assuming a gratuitous regulatory role over the insurance industry in Pennsylvania,1 concludes that the “reasonable expectations” of the applicant require a finding that temporary insurance was in effect from the date of signing the application and payment of the premium. Thus the problem in deciding an insurance claim seems no longer to be one of ascertaining what the contract as written means, but of somehow divining the “reasonable expectation” of the insured as to what the contract should mean.
*601Initially, it is important to note that we are not here dealing with a lengthy and complex document which is arguably incomprehensible to the average layman. Rather, we are dealing with a short and explicit form of premium receipt presented and explained to the applicant when he signed the application and made a payment on account of initial premium. As will be noted from the text of the receipt attached to the majority opinion, the top line of the paper declares in capital 12-point letters that “NO INSURANCE WILL BECOME EFFECTIVE PRIOR TO POLICY DELIVERY UNLESS THE ACTS REQUIRED BY THIS RECEIPT ARE COMPLETED.” The main text of the receipt, in 10-point type, then details the two steps to be completed, and plainly states that the insurance “shall take effect and be in force . . . from the date of the last medical examination” from which insurability is determined. This is followed by the warning that “Unless all acts required are completed, no insurance shall take effect hereunder.” On the reverse side of the receipt form, under the heading “IMPORTANT” appears a final admonition to the application. It is in 14-point type, repeated here for the sake of completeness:
“The Company reserves the right to require a medical examination. Until you can provide proof that you are insurable, the Company provides no insurance.
“If you are requested to have an examination, don’t delay. Make arrangements promptly. There is no insurance until a satisfactory medical examination has been made and all the conditions of this receipt are completed.”
There is no dispute that the applicant in this case, the plaintiff’s husband, was advised by the agent and knew that he had to take a physical examination. (R. 12a, 34a). He was also told that there would be no coverage until the physical examination had been approved at the home office of the company. (R. 38a). But all this language of the receipt, says the Court, and the fact that this applicant was given an oral rendering of its provisions, is unimportant and irrelevant; the applicant is not obliged to read the receipt, *602and its language has nothing to do with the case. The outcome is not determined by the language of the agreement, whether read or not, but by “the dynamics of the transaction viewed in its entirety.” Opinion of the Court, ante at 1354.
A dozen years ago this Court declined to hold that under the particular contract then before it, the taking of a medical examination was a precondition to coverage. We stated flatly that “[i]f the insurance company had wished to make the taking of the medical examination a condition precedent to the contract, it should have said so with explicit language.” Steelnack v. Knights Life Insurance Co. of America, 423 Pa. 205, 208, 223 A.2d 734, 735 (1966). As I see it, the insurance company in the case at bar has carefully heeded that admonition, but to no avail.2 Ignoring the carefully explicit and unambiguous language of the receipt here involved, the Court concludes that Francis Collister, the applicant, was covered despite his failure to obtain a medical examination.
The Court’s decision is contrary to the clear weight of authority elsewhere.3 While reliance is placed on a number *603of recent cases in other jurisdictions, examination of the cited opinions reveals that without exception those cases were concerned with complicated and ambiguous legal terminology. The following excerpts will illustrate the point: “While some of the language tends to support the company’s position, it does no more than produce an ambiguity, and the ambiguity must be resolved against defendant [insurance company].” Ransom v. Penn Mutual Life Ins. Co., 43 Cal.2d 420, 274 P.2d 633, 636 (1954); “They [insurance companies] have nevertheless failed to clarify the language used in such receipts so as to eliminate patent ambiguities . . .”, Smith v. Westland Life Ins. Co., 15 Cal.3d 111, 121, 123 Cal.Rptr. 649, 656, 539 P.2d 433, 440 (1975); “Thus the provisions of the contract . . . were confusing and ambiguous . . . [t]he contract is to be construed in favor of the insured.” Toevs v. Western Farm Bureau Life Ins. Co., 94 Idaho 151, 153, 483 P.2d 682, 684 (1971); “. . . and, if there is an ambiguity involved, it will be decided in favor of the insured.” Turner v. Worth Ins. Co., 106 Ariz. 132, 134, 472 P.2d 1, 3 (1970); “. . .if nothing is said about the complicated and legalistic phrasing of the receipt . . . the applicant has reason to believe that he is insured.” Prudential Life Ins. Co. of America v. Lamme, 83 Nev. 146, 149, 425 P.2d 346, 348 (1967); “Thus we have consistently construed policy terms strictly against the insurer and where several interpretations are permissible, we have chosen the one most favorable to the assured.” Allen *604v. Metropolitan Life Ins. Co., 44 N.J. 294, 305, 208 A.2d 638, 644 (1965); “. . . particularly where the language expressing the extent of the coverage may be deceptive to the ordinary layman . . . .” Bowler v. Fidelity and Casualty Co. of N. Y., 53 N.J. 313, 327, 250 A.2d 580, 587 (1969). Accord: McAvoy Vitrified Brick Co. v. North American Life Assurance Co., 395 Pa. 75, 149 A.2d 42 (1959).
I have no quarrel with this line of authority, for I am in complete agreement with the general proposition that insurance contracts should be interpreted strictly against the drafters and that the ambiguities with which such contracts are frequently replete must be resolved in favor of the insureds. But in the simple, brief document now before us, there is simply no ambiguity or confusingly technical or convoluted phraseology. It is not the function of a court to rewrite express and unambiguous terms in a contract to comport with what that court might deem a fairer result in a particular situation. See Corbin on Contracts, § 559, p. 268 (1960). This presumably elementary aspect of the law of contracts is not changed because the contract pertains to insurance. See, e. g., Penn-Air, Inc. v. Indemnity Insurance Company of North America, 439 Pa. 511, 517, 269 A.2d 19, 22 (1970). Thus a leading authority on insurance law applies it to receipts such as the one before us:
“In accordance with the general rule of construction, a binding receipt which is ambiguous is to be construed in favor of the insured. Any doubt as to whether a binder receipt issued for the initial premium pending an application for a life insurance policy operates to put the insurance into immediate effect must be resolved against the insurer.
“The rule of construction of a binding receipt in favor of the insured applies only when there is in fact an ambiguity to be interpreted. In accordance with the general rule of construction, the court is not authorized to rewrite the terms of a binder which is clear.” 1 Couch on Insurance 2d, § 14:36, at 616 (1959)"(footnotes omitted).
*605Couch’s statement represents the general rule, acknowledged in Pennsylvania as elsewhere:4
“There are numerous cases that read similarly worded conditions in binders as subsequent and find temporary coverage regardless of insurability. See, e. g., Wood v. Metropolitan Life Ins. Co., 302 F.2d 802 (9th Cir. 1962) (applying Ransom v. Penn Mutual Life Ins. Co., 43 Cal.2d 420, 274 P.2d 633 (1954)); Metropolitan Life Ins. Co. v. Grant, 268 F.2d 307 (9th Cir. 1959); Iwai v. Hawaiian Life Ins. Co., 51 Haw. 288, 459 P.2d 195 (1969); Allen v. Metropolitan Life Ins. Co., 44 N.J. 294, 208 A.2d 638 (1965); Prudential Ins. Co. v. Lamme, 83 Nev. 146, 425 P.2d 346 (1967). Some of the holdings turn on ambiguities in the language of the binders. It is a universal rule of construction that ambiguities are to be resolved against the insurer. Mutual Life Ins. Co. v. Hurni Packing Co., 263 U.S. 167, 44 S.Ct. 90, 68 L.Ed. 235 (1923). In the present case, however, there are no ambiguities in the binder, and we cannot read any into it.” Thomas v. Chesapeake Life Ins. Co., 226 Pa.Super. 366, 367, 313 A.2d 332, 335 (1973).
Because no ambiguities existed in the receipt in the case at bar, the majority errs in reaching a result contrary to the obvious intent of the agreement.5
*606One of the means used by the majority to justify the result reached in this case is to characterize an insurance contract as “adhesive”. As I understand it, a “contract of adhesion” is one where the superior bargaining power of one party denies to the other party any opportunity to bargain in a meaningful way over terms and conditions of the contract. See generally Restatement (Second) of Contracts §§ 231-237 (Tent. Draft No. 5, 1971). In the case before us, however, the majority acknowledges the general availability of “C.O.D.” insurance, from which it appears that the present applicant was free to demand immediate coverage or to patronize another insurance company. Thus the “adhesive” quality which is often present was not in fact an element in the situation before us. The fact that the receipt form, like the application, was a standard form contract does not in and of itself make the arrangement adhesive.6
Even if the contract before us could properly be characterized an adhesion contract, that is not an end of the matter; *607there is still an agreement in effect between the parties and a court must determine the extent, if any, to which it will be enforced. The idea that an adhesion contract may be wholly or in part unenforceable is one to be implemented with restraint, for it involves a judicial determination of public policy; it is not meant to be a device which enables a court to randomly impose its sense of justice on a market place dependent on supply and demand in arriving at contractual terms.
As I understand its opinion, the majority does not purport to base its refusal to enforce the terms of the receipt solely on the ground of its alleged adhesive quality. Rather, the fact that an insurance contract is said to be adhesive in nature is used to reach the startling conclusion that “the insured is under no duty to read the policy,” Opinion of the Court, ante at 1351. A consequence of this, in turn, is that what governs the rights and duties of the parties inter se are not the provisions of the document as written, but “the reasonable expectations of the insured,” id. at 1352; that becomes “the important consideration” id., “the focal point of the insurance transaction,” id. at 1353. Thus courts are adjured to examine the “dynamics” of that transaction to ascertain the reasonable expectation of the applicant. “The conclusion we reach here is not determined by the language of the conditional receipt, but by the dynamics of the transaction viewed in its entirety.” Opinion of the Court, ante at 1354. Those dynamics are then found to be that the applicant “could reasonably have believed” that the receipt “was what it purported to be, viz., evidence of payment of the first two months premium, and nothing more.” We are left to infer the consequence that the applicant reasonably expected that he was obtaining immediate coverage.
I must confess that the strained argument of the majority strikes me as a complete tour de force. While the doctrine of “reasonable expectations” has found acceptance and indeed has validity in some situations in insurance litigation, it *608has no place in the case at bar. The idea of recognizing “reasonable expectations” of an applicant or an insured does not mean that a claimant on a policy is entitled to every benefit imaginable within a contractual framework. Rather, the approach is an equitable one, meant to guard against the use of complex and confusing qualifications and exceptions by insurers to defeat the reasonable expectations of the average layman entering into an insurance transaction. See R. Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv.L.R. 961 (1970). But, as Professor Keeton has noted:
“Thus, not only should a policyholder’s reasonable expectations be honored in the face of difficult and technical language, but those expectations should prevail as well when the language of an unusual provision is clearly understandable, unless the insurer can show that the policyholder’s failure to read such language was unreasonable.
“It is important to note, however, that the principle of honoring reasonable expectations does not deny the insurer the opportunity to make an explicit qualification effective by calling it to the attention of a policyholder at the time of contracting, thereby negating surprise to him.” R. Keeton, supra 83 Harv.L.R. at 968.
Here, contrary to the assertions of the majority, the applicant was informed both that a physical examination was necessary and that the physical examination as well as approval by the home office were prerequisites to coverage. Thus, any expectations to the contrary could hardly be deemed reasonable.
In sum, in the insurance dispute at bar, there is nothing whatever to suggest any fraud, deception or overreaching on the part of Nationwide, and nothing to support the position that the applicant could reasonably have entertained any expectations other than those which the receipt unambiguously set forth. I would affirm the order of the courts below.

. There are legitimate reasons for requiring payment of premiums in advance of coverage attaching. As Professor Williston has observed:
“During the period when the applicant’s offer (application) is outstanding and unaccepted by the company, the offeror (applicant) has the power to revoke his offer. Should he do so, the company not only loses its expected underwriting profit but is also put the cost of the medical examination and related expenses of securing and processing the application. Such costs are particularly burdensome where a considerable volume of the company’s business consists of applications for policies in small dollar amounts.” IX Williston on Contracts, § 902A, at 197-199 (3rd ed. 1963).
I am of the opinion that this Court has neither the responsibility nor the expertise to balance such considerations with those conflicting considerations favoring coverage of an applicant pending approval of the application. The General Assembly has properly seen fit to establish an Insurance Department to oversee the operation of insurance companies in this state. See the Insurance Company Law of 1921, Act of May 17, 1921, P.L. 789, § 1, 40 P.S. § 1, et seq. Accordingly, I agree with the rationale of the Wisconsin Supreme Court which, when faced with a similar contract, concluded:
“It is not within the province of this court to determine what coverage, in its good conscience, the life insurance industry should be required to offer. . . That function [the regulation of insurance companies] is vested by the legislature in the office of the Commissioner of Insurance. We do not have the power to create a new contract for the parties. Thus, while we may not approve of such a sales device as a conditional receipt and would like to see interim insurance afforded, we are powerless to so legislate.” Brown v. Equitable Life Ins. Co. of Iowa, 60 Wis.2d 620, 630, 211 N.W.2d 431, 436 (1973).

. Indeed, only last year Mr. Justice MANDERINO, writing for himself and two other members of the Court, emphasized the importance of clarity of language in an application form:
“The application form . . . could be prepared in large type in terms easily understood by the insured so that reliance on the agent’s representations would not be necessary. The insurance company might adopt a practice whereby an insured is required to sign the policy and acknowledge the receipt of a clear and comprehensible notice of at least the main coverage provided either as contained in the policy document or separately. These examples only serve to illustrate why we are not persuaded that the insurance company is helpless to avoid or severely limit the possibility of fraudulent claims. We have very little sympathy for Nationwide’s alleged concerns in view of the fact that its procedures necessitate reliance by a consumer on the representations of the insurance agent.” Rempel v. Nationwide Life Insurance Co., 471 Pa. 404, 412, 370 A.2d 366, 369-370 (1977).

. See, e. g., Machinery Center, Inc. v. Anchor Nat. Life Ins. Co., 434 F.2d 1 (10th Cir. 1970); Scheinman v. Phoenix Mutual Life Ins. Co., 409 F.2d 999 (7th Cir. 1969); Cortez v. Life Ins. Co., 408 F.2d 500 (8th Cir. 1969); Thompson v. Occidental Life Ins. Co. of Cal., 90 N.M. 620, 567 P.2d 62 (1977); Brown v. Equitable Life Ins. Co. of Iowa, 60 *603Wis.2d 620, 211 N.W.2d 431 (1973); United States Ins. Co. of America v. Collins, (D.C.App.1973), 305 A.2d 527; Fabrizio v. Fidelity & Guaranty Ins. Co., 27 Utah 2d 248, 494 P.2d 953 (1972); Borer v. Security Indus. Life Ins. Co., (La.App.1971), 245 So.2d 5, writ refused, 258 La. 575, 247 So.2d 394 (1971); Cannon v. Southland Life Ins. Co., 263 Md. 463, 283 A.2d 404 (1971); Adams v. State Capital Life Ins. Co., 11 N.C.App. 678, 182 S.E.2d 250 (1971); Cavello v. Metropolitan Life Ins. Co., 312 N.Y.S.2d 438, 34 A.D.2d 682 (1970); Elliott v. Interstate Life & Acc. Ins. Co., 211 Va. 240, 176 S.E.2d 314 (1970); Employers Protective Life Assur. Co. v. Gatlin, 246 Ark. 244, 437 S.W.2d 811 (1969); Marshall v. Bankers Life & Cas. Co., (Tex.Civ.App.1968), 425 S.W.2d 45; Woodmen of World Life Ins. Soc. v. Etheridge, 223 Ga. 231, 154 S.E.2d 369 (1967); Morgan v. State Farm Life Ins. Co., 240 Or. 113, 400 P.2d 223 (1965); Adolf v. Union N. L. Ins. Co., 170 Neb. 38, 101 N.W.2d 504 (1960).

. See e. g., Scheinmann v. Phoenix Mutual Life Ins. Co., 449 F.2d 999 (7th Cir. 1969); Cortex v. Life Ins. Co., 408 F.2d 500 (8th Cir. 1969); Taylor v. New York Life Ins. Co., 324 F.2d 768 (10th Cir. 1963); Essex County State Bank v. Fireman’s Fund Ins. Co., 331 F.Supp. 931 (D.N.J.1971). Thompson v. Occidental Life Ins. Co. of Cal., 90 N.J. 620, 567 P.2d 62 (1977); Brown v. Equitable Life Ins. Co. of Iowa, 60 Wis.2d 620, 211 N.W.2d 431; Adolf v. Union N. L. Ins. Co., 170 Neb. 38, 101 N.W.2d 504 (1960).

. By the same token, it is improper for a court to purport to find an ambiguity where none exists and then to apply the rule of construction which resolves ambiguities against the drafter of the document. As the Supreme Court of Oregon succinctly stated in Morgan v. State Farm Life Ins. Co., 240 Or. 113, 400 P.2d 223 (1965);
“Admittedly, there have been cases in which a theory of constructive ambiguity has been employed in the absence of any ambiguity, [citations omitted]. Nevertheless, we are unable to decide the case at bar on the basis of a fiction which we deem inapplicable. The literal meaning of the receipt in this case is that *606the insurer engaged to insure the insured, if he turned out to be insurable, and, in that event, the insurance would be in effect from the date of application. Such contracts have not been declared to be illegal in this state. Accordingly, this is the contract the parties made, and we are not at liberty to create a new contract for the parties.” 240 Or. at 116-17, 400 P.2d at 224-25.

. Insurance contracts are only one type of standard form contracts which have become pervasive in recent years. This phenomenon is thus described by Professor Slawson:
“Standard form contracts probably account for more than ninety-nine percent of all the contracts now made. Most persons have difficulty remembering the last time they contracted other than by standard form; except for casual oral agreements, they probably never have. But if they are active, they contract by standard form several times a day. Parking lot and theater tickets, package receipts, department store charge slips, and gas station credit card purchase slips are all standard form contracts.
“Moreover, standard forms have come to dominate more than just routine transactions. For individuals, if not quite yet for corporations, form contracts are in common use for even such important matters as insurance, leases, deeds, mortgages, automobile purchases, and all of the various forms of consumer credit. The contracting still imagined by courts and law teachers as typical, in which both parties participate in choosing the language of their entire agreement, is no longer of much more than historical importance.” W. Slawson, Standard Form Contracts and Democratic Control of Lawmaking Power, 84 Harv.L.R. 529 (1971).