Court Opinion

ID: 9659630
Source: CourtListenerOpinion
Date Created: 2023-08-23 21:51:08.126934+00
Date Added: 2024-06-11T18:14:10.141953
License: Public Domain

DOUGLAS B. HEEN, District Judge.
The defendant insurance company appeals, asking trial de novo from a judgment of the district court finding it liable for damages for unreasonable delay in acting upon an application for life insurance. The action was commenced by the applicant’s surviving wife, and the trial court, hearing the case without a jury, awarded damages in the face amount of the life insurance policy for which application had been made.
On July 25, 1967, Herbert Damm made application for a five-year level term insurance policy with the defendant insurance company. The insurance was solicited by the defendant’s agent, Harris Hollen, who assisted Mr. Damm in filling in the application. Myris A. Damm, the applicant’s wife and the plaintiff in this case, was designated as the primary beneficiary in the insurance application, the purpose of the desired insurance being in part to cover a house mortgage debt and an unpaid chattel mortgage balance on a truck and trailer.
The application provided that if the full first premium “is paid on the date of this application . . . then the liability of the Company shall be as stated in the receipt.” Mr. Damm paid a quarterly premium, a full first premium under the terms of the application, and was given a “Binding Receipt,” the terms of which he accepted by the express language of the application. The receipt provided that insurance coverage would be effective as of the date of the receipt, which was July 25, 1967, or on the date of completion of the medical *618examination, if required, whichever was later, if the defendant company found that the applicant was an insurable risk.
On July 31, 1967, the defendant company acknowledged receipt of the insurance application and Mr. Damm’s payment of the first premium. The premium payment was deposited in a suspense account and the agent was advanced part of his commission, with the balance payable upon issuance of the policy.
At the time of the application a medical examination form prepared by the defendant company was given by Mr. Hollen to the applicant for his use in connection with the physical examination. At no time did the defendant insurance company directly communicate to Mr. Damm that he must furnish proof of a satisfactory medical examination before the insurance coverage would be in effect. Instead, this function —and the evidence is far from satisfactory on this point — was performed by its agent, Mr. Hollen.
Mr. Damm did not submit any medical information to the defendant company in connection with his application for insurance, nor did he undergo a physical examination for this purpose. The insurance policy was never issued by the defendant, nor did the defendant take any other action on the application. On January 10, 1968, Mr. Damm was killed in a trucking accident.
On January 23, 1968, upon learning of the applicant’s death, the defendant company wrote, addressing- its letter to Herbert Damm, saying that his application had been filed in a “Not Complete” file because of non-receipt of his medical examination and offering to reconsider his application upon receiving the requested medical information. This letter attempted a refund of the applicant’s initial premium payment by an enclosed check of the same date, payable to Herbert Damm.
Two causes of action are set forth in the plaintiff’s amended complaint, the first of which is based on contract and the second on tort.
In denying recovery under the first cause of action, the district court held that the defendant company was not liable in contract, because the applicant failed to furnish medical information required by the defendant under the application, so that a contract of insurance was not effected. Judgment, however, was awarded the plaintiff on her second cause of action in tort, the trial court holding that the defendant negligently delayed in action upon Mr. Damm’s insurance application, he having been led to believe that the insurance was in force.
In appealing the decision of the trial court, the defendant asks trial de novo.
This appeal, taken before the effective repeal date of the North Dakota trial de novo statute, is to be decided under de novo appellate law and procedure [Steele v. Steele, 189 N.W.2d 660 (N.D.1971)]; and all issues of the case are reviewable on appeal. Steele v. Steele, supra; Knauss v. Miles Homes, Inc., 173 N.W.2d 896 (N.D.1970); Patterson Land Co. v. Lynn, 44 N. D. 251, 175 N.W. 211 (1919).
We affirm.
As earlier noted, the applicant, Herbert Damm, upon paying the initial premium was given a “Binding Receipt,” which by its terms set forth the condition that insurance coverage would be effective from the date of the application or as of the date of the medical examination, if required, whichever was later, provided the defendant accepted the risk. The legal effect and consequence of the conditional receipt here in question is the first and basic issue to be considered. An extensive collation dealing with conditional receipts appears in 2 A.L.R.2d, at 943.
A conditional receipt similar to that presently before the court was considered in Prudential Ins. Co. of America v. Lamme, 83 Nev. 146, 425 P.2d 346 (1967). *619There the conditional receipt provided that insurance coverage would be effective as of a specified date, provided the company was satisfied that on such date the applicant was an insurable risk under the company’s underwriting rules. There, as here, the applicant paid the first premium on the life insurance policy and was given a conditional receipt. The policy was never issued, because the applicant did not appear for a physical examination. Seven weeks after making application, the applicant died. In holding the defendant company liable, the Nevada Supreme Court stated:
[T]he conditional receipt created a temporary contract of insurance subject to a condition — rejection of Richard Lamme’s application by the insurance company. Since rejection did not occur prior to his death, the company is liable.
Prudential Ins. Co. v. Lamme, supra, at 348.
Accord: Albers v. Security Mut. Life Ins. Co., 41 S.D. 270, 170 N.W. 159 (1918).
But see: Thorne v. Aetna Life Ins. Co., 286 F.Supp. 620 (N.D.Ind.1968).
Paulk v. State Mut. Life Ins. Co., 85 Ga.App. 413, 69 S.E.2d 777 (1952), later a much cited authority, was concerned with a conditional receipt which provided that upon payment of the initial premium and if the applicant was an acceptable risk, life insurance would be effective as of the date of the application or of the medical examination, whichever was later. Paulk held that such a conditional receipt did not give rise to interim insurance prior to the medical examination and company approval of the applicant as an acceptable risk.
In 1967 the Georgia court again considered the legal consequences and effect of the conditional receipt, and in Etheridge v. Woodmen of World Life Ins. Soc’y, 114 Ga.App. 807, 152 S.E.2d 773 (1966), cert. granted 1967, after extensive review of authorities, expressly overruled Paulk. In Etheridge the court adopted what it termed the modern view that a conditional receipt purporting to effect immediate coverage if the insurer approves the application or is satisfied as to the applicant’s insurability results in a binding contract for interim insurance prior to the insurer’s approval of the application or determination of insura-bility, stating:
The condition stated in the receipt is construed to be a condition subsequent rather than a condition precedent. Sincé the condition is a condition subsequent, the insurance company has the burden of showing by proper pleading and proof that the applicant was not an insurable risk. To carry its burden and escape liability, the company must show that at the time the conditional coverage commenced the applicant was in fact not an insurable risk by any reasonable standard in relation to the coverage applied for.
In paying his money in advance and accepting the binder in return, the applicant is not thereby offering to be insured, because his application does this for him regardless of whether he pays a premium in advance. Thus, the binder is issued for a separate consideration, not as a necessary part of the application. In cases of this kind there are two sev-erable offers: (1) an offer by the applicant to purchase a policy of life insurance and (2) an offer by the company to provide interim insurance pending the company’s consideration of the applicant’s prior offer. The latter offer is accepted by the applicant by advance payment of the initial premium on the policy applied for. The application and receipt together constitute a contract as soon as the application is submitted, the premium paid and the conditional receipt issued. .
Etheridge v. Woodmen of World Life Ins. Soc’y, supra, at 775.
 Being of the opinion that Ether-idge states the better rule, we hold that the conditional receipt here resulted in a present or interim contract of insurance *620subject to a condition subsequent, namely, that Mr. Damm at the time such conditional coverage commenced was not an insurable risk by any reasonable standard in relation to the coverage for which application had been made. To avoid liability under such conditional insurance coverage, and again in accord with the reasoning of Etheridge, it was incumbent upon the defendant to prove the existence of such a condition subsequent. Not having rejected the application prior to the death of the applicant nor having proved at trial that at the commencement of the interim or conditional coverage Mr. Damm was an unin-surable risk, the defendant company in this case is liable to the beneficiary for the face value of the policy.
A common objection to the construction whereby a conditional receipt gives rise to interim or temporary insurance is that present insurance coverage is afforded one who in fact is not an insurable risk. That such a contingency may be avoided is demonstrated by National Farmers Union Property & Cas. Co. v; Michaelson, 110 N.W.2d 431 (N.D.1961), the application in that case specifically providing that no insurance was bound under the application and the applicant expressly agreeing that no insurance would be effective until the application was approved by the company. Prudential also dealt with the legal consequence whereby a conditional receipt temporarily may insure the uninsurable, the court sweeping this argument aside on the ground of broad public policy, noting that insurance companies could choose to assume the risk sometimes involved in the use of conditional receipts or could write “COD” insurance, the court explaining the term “COD” insurance as follows:
Absent a contrary agreement (the conditional receipt, for example) payment of the initial premium and delivery of the policy are usually concurrent acts, thereby creating a period between the signing of the application by the applicant and the delivery of the policy during which no money has been advanced to the insurance company, and no insurance is in effect. This is called “COD”, or “cash on delivery” insurance.
Prudential Ins. Co. of America v. Lamme, supra, Footnote 4, 425 P.2d at 348.
In this case, the plaintiff properly was entitled to judgment, but, as this court said in Heinzeroth v. Bentz, 116 N.W.2d 611, 616 (N.D.1962), for reasons not entirely valid. A judgment will not be reversed merely because it rests on inapplicable reasons.
What has been said is decisive of this case, and other issues not controlling of the case will not be considered. The judgment of the district court is affirmed.
The cases of Mann v. Policyholders’ Nat’l Life Ins. Co., 78 N.D. 724, 51 N.W 2d 853 (1952), and Bekken v. Equitable Life Assur. Soc’y of United States, 70 N.D. 122, 293 N.W. 200 (1940), are not decisive of the instant action. Both Mann and Bekken were concerned with an insurer’s negligence, and any language in those cases discussing contractual matters is purely dictum.
For the reasons stated, the judgment of the district court is affirmed.
ERICKSTAD and KNUDSON, JJ., concur.
WM. L. PAULSON, deeming himself disqualified, did not participate; DOUGLAS B. HEEN, District Judge of the Second Judicial District, sitting in his stead.