Court Opinion

ID: 9791092
Source: CourtListenerOpinion
Date Created: 2023-08-31 02:05:14.085152+00
Date Added: 2024-06-11T07:37:33.945027
License: Public Domain

O’CONNELL, J.,
dissenting.
The liability of the insurer under the so-called binding insurance receipt has been the subject of much litigation and a considerable amount of comment by legal writers. It is generally recognized that the cases are in confusion and difficult, if not impossible, to classify.① Efforts have been made to distinguish the various kinds of receipts, particularly as to whether they provide for coverage from the date of the receipt by relation back if applicant is insurable, or by relation back from the date the insurer approves the application.②
It appears from the cases, however, that the courts are not so much concerned with the distinction in the language of the receipts as it reflects differences in the bargain between the parties, but rather with the deceptive character of the language in the receipts leading the average applicant to believe that he is insured until his application is rejected.③
In the present case it is possible to reconcile the provisions on the face of the receipt with the exceptions on the reverse side of the receipt. When the entire receipt is carefully read there is no ambiguity in the sense that the instrument is subject to two possible interpretations. However, the receipt is couched in language which is likely to lead the average appli*119cant to believe that he has immediate coverage subject to rejection upon notification. Others have made the same observation:
“The terms may have some meaning to a judge schooled in the fine print of insurance clauses. But it is rather doubtful if the average applicant will realize that the finder’s apparent promise of immediate coverage does not mean what it says. * ° ** In view of the applicant’s natural belief that he is covered, refusal of recovery turns the binding receipt into an instrument of deception. While the company demands premiums from the date of application, it grants coverage only from the date of approval.”④
It is further suggested by the writer that “the use of the words ‘binding receipt’ appears calculated to induce in the applicant an expectation of immediate coverage.”⑤
Defendant argues that the receipt signed by the applicant “provides immediate coverage if the company shall be satisfied that the applicant was insurable when it was issued” and “consequently it provides protection against uninsurability or loss of life occurring after it is issued and gives value to the applicant in exchange for the conditional deposit of his money.” A similar argument was made in Gaunt v. John Hancock, Mutual Life Insurance Co., 160 F2d *120599 (2d Cir 1947).⑥ The court, speaking through Judge Learned Hand, said:
“* * * An underwriter might so understand the phrase, when read in its context, but the application was not to be submitted to underwriters; it was to go to persons utterly unacquainted with the niceties of life insurance, who would read it colloquially. It is the understanding of such persons that counts, and not one in a hundred would suppose that he would be covered, not ‘as of the date of completion of Part B,’ as the defendant promised, but only as of the date of approval. Had that been what the defendant meant, certainly it was easy to say so; and had it in addition meant to make the policy retroactive for some purposes, eertainly it was easy to say that too. To demand that persons wholly unfamiliar with insurance shall spell all this out in the very teeth of the language used, is unpardonable.” (160 F2d at 601).
The court went on to say that
“* * * A man must indeed read what he signs, and he is charged, if he does not; but insurers who seek to impose upon words of common speech an esoteric significance intelligible only to their craft, must bear the burden of any resulting confusion. We can think of few situations where that canon is more appropriate than in such a ease as this.” (160 F2d at 602).
I would concur, therefore, in the result reached by the trial court. I would do so not on the theory *121that the receipt is susceptible to two possible legal meanings, and is construed in favor of the insured, but ratber on the ground tbat the langage of tbe receipt is confusing and deceptive and tbat defendant “must bear tbe burden of any resulting confusion.”⑦ Tbis burden is predicated upon tbe assumption frequently recognized tbat tbe average person would regard tbe conditional binding receipt as providing immediate coverage subject to subsequent rejection by the insurer.⑧ I recognize tbat tbis result impinges in some measure upon tbe traditional concept of freedom of contract. But, as has been pointed out elsewhere, insurance contracts are contracts of adhesion in which tbe applicant does not have equality of bargaining power as in ordinary contracts.⑨ Under such circumstances courts are entitled to provide some measure of protection to those who have no real opportunity to bargain. At least the insurer should not, *122under the claim of freedom of contract, be permitted to bargain with instruments of confusion although technically adequate to meet the requirements of precision recognized in ordinary contracts entered into by parties with equal bargaining power.
I would hold that the trial court properly ruled as a matter of law that the conditional binding receipt provided insurance coverage for the applicant. I would further hold that the trial court was correct in holding that the coverage continued until the insurer gave the applicant notice of rejection.⑩
Sloan and Denecke, JJ., join in this dissent.

 Life Insurance Receipts: The Mystery of the Non-Binding Binder, 63 Yale L J 523 (1954).

 Ibid., at pp 527-28; Anno., 2 ALR2d 943, § 9 (1948).

 It has been suggested that it is not the language of the receipt which is deceptive but that “it is the concept of ‘retroactive immediate coverage’ * * “Binding Receipts” in California, 7 Stan L Rev 292, 300 (1955).

 Life Insurance Receipts: The Mystery of the Non-Binding Binder, 63 Yale L J 523, 533-34 (1954). The author further observes that “If an applicant should question the effect of the binder, the agent may tell him that he is protected ‘from now on.’ * * * Statements of this nature appear repeatedly in the litigated cases,” (citing Maddox v. Life & Casualty Co. of Tennessee, 79 Ga App 164, 53 SE2d 235, 237 (1949); Himes v. Metropolitan Life Ins. Co., 207 S C 40, 36 SE2d 137, 138 (1945)).

 Ibid., citing Cheek v. Pilot Life Ins. Co., 215 N C 36, 1 SE2d 115, 116 (1939).

 In the Gaunt case six possible advantages to the insured were listed by the defendant insurer:
"* * * (1) The policy would sooner become incontestable. (2) It would earlier reach maturity, with a corresponding acceleration of dividends and cash surrender. (3) It would cover the period after ‘approval5 and before ‘issue.' (4) If the insured became uninsurable between ‘completion' and ‘approval5 it would still cover the risk. (5) If the insured’s birthday was between ‘completion5 and ‘approval,5 the premium would be computed at a lower rate. (6) When the policy covers disability, the coverage dates from ‘completion.' "

 Plaintiff relies upon Ransom v. The Penn Mutual Life Ins. Co., 43 Cal2d 420, 274 P2d 633 (1954), which involved a binding receipt not unlike that presently under consideration. Insofar as the California court rested its decision upon a finding of ambiguity in the contract, I would reject its reasoning.

 E. g., Francis v. Mutual Life Ins. Co., 55 Or 280, 106 P 323 (1910); Gaunt v. John Hancock Mut. Life Ins. Co., 160 F2d 599, 602 (2d Cir 1947).

 “* * * One assumption of freedom of contract is relative equality of bargaining power. And another is workable competition among sellers, enabling buyers to shop around for the most favorable terms. In the binder situation, however, the applicant has no equality or bargaining power with the insurance company. Neither can he adequately compare the contents of various insurance policies. Since the basic assumptions underlying the traditional unwillingness of courts to police contracts are absent, an approach which provides protection of the applicant is essential.” Life Insurance Receipts: The Mystery of the Non-Binding Binder, 63 Yale L J 523, 535 (1954). See also: Kessler, Contracts of Adhesion—Some Thoughts About Freedom of Contract, 43 Colum L Rev 629 (1943); Life Insurance Binding Receipts, 33 Ill L Rev 180 (1938); Patterson, The Delivery of a Life-Insurance Policy, 33 Harv L Rev 198 (1919).

 Colorado Life Co. v. Teague, 117 SW2d 849, 856 (Tex Civ App 1938); Mohrstadt v. Mutual Life Ins. Co. of New York, 114 F 81, 84 (8th Cir 1902) (dictum). Cf., Reck v. Prudential Ins. Co., 116 NJL 444, 184 A 777, 778 (1936). Contra, Leube v. Prudential Ins. Co. of America, 147 Oh St 450, 72 NE2d 76 (1947).