Court Opinion

ID: 9705156
Source: CourtListenerOpinion
Date Created: 2023-08-26 00:58:17.632435+00
Date Added: 2024-06-11T18:22:08.357100
License: Public Domain

*811ZASTROW, Justice
(dissenting).
The majority holds that the premium deposit receipt is of the “insurable” type and not the “approval” type of conditional receipt. However, that interpretation ignores the very language of condition No. 3, i. e.:
“If the Company at its Home Office shall be satisfied that each person proposed for insurance under the policy applied for was on the Application Date insurable under the Company’s rules and standards for the policy in the amount and on the form applied for and for the premium specified in Part I; then but only after such conditions are met, insurance under the terms and conditions of each policy applied for shall become effective as of the Application Date regardless of the occurrence after the Application Date of death or change of insurability of any person proposed for insurance * * *.”
It is only too clear that the temporary insurance does not become effective until the company is satisfied with the proposed insured; whereupon, a policy will be issued which relates back to the application date. This is the strict construction view adopted by some jurisdictions. Brown v. Equitable Life Insurance Company of Iowa, 1973, 60 Wis.2d 620, 211 N.W.2d 431; Simpson v. Prudential Insurance Co. of America, 1962, 227 Md. 393, 177 A.2d 417; La Barre v. Prudential Ins. Co. of America, 1936, 284 Ill.App. 653, 2 N.E.2d 354; Scheinman v. Phoenix Mut. Life Ins. Co. of Hartford, Conn., 1969, 7 Cir., 409 F.2d 999; Cortez v. Life Insurance Company of North America, 1969, 8 Cir., 408 F.2d 500. The rationale behind these holdings is simply that as a matter of strict contract law the language of the receipt clearly expresses the intention of the parties. Annot., 2 A.L.R.2d 987, 43 Am.Jur.2d, Insurance, §§ 220-225; 44 C.J.S. Insurance § 230a(3).
However, I agree with the Nevada Supreme Court’s statements in Prudential Insurance Company of America v. Lamme, 1967, 83 Nev. 146, 425 P.2d 346 that:
“[A]n insurance policy is not an ordinary contract. It is a complex instrument, unilaterally prepared, and seldom understood by the assured. The same is equally true of the conditional receipt. The parties are not similarly situated. The company and its representatives are expert in the field; the applicant is not. A court should not be unaware of this reality and subordinate its significance to strict legal doctrine, (citation omitted) Nor should a court be obliged to overlook the obvious advantage to the company in obtaining payment of the premium when the application is made. It is a device to avoid the possibility that the applicant will change his mind and revoke his application, or deal with a rival company.” 425 P.2d at 347.
See also Toevs v. Western Farm Bureau Life Insurance Co., 1971, 94 Idaho 151, 483 P.2d 682; Peterson v. Great American Ins. Co., 74 S.D. 334, 52 N.W.2d 479, 481; Craig v. National Farmers Union Automobile & Cas. Co., 76 S.D. 349, 78 N.W.2d 464, 467.
If there was to be no contract of insurance until the company was satisfied as to the applicant’s insurability, and a policy issues thereon, it would seem entirely immaterial to the insured whether the contract related back to the date of the application or not. If he lived until the application was approved and a policy issued, it would not matter whether he had been insured during the interim between the date of the application and the date of issuance of the policy. On the other hand, if he died before the application was approved and the policy issued, his beneficiary would derive no benefit from the insurance if a “rejection in good faith” is made by the company. Service v. Pyramid Life Insurance Company, 1968, 201 Kan. 196, 440 P.2d 944.
Though the underwriters may be aware that certain advantages1 exist which could *812justify construing the premium deposit receipt in this way, the ordinary applicant would not be aware of those advantages. As Judge Learned Hand stated in Gaunt v. John Hancock Mut. Life Ins. Co., 1947, 2 Cir., 160 F.2d 599:
“An underwriter might so understand the phrase, \yhen 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, certainly 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. It does indeed some violence to the words not to make actual ‘approval’ always a condition, and to substitute a prospective approval, however inevitable, when the insured has died before approval. But it does greater violence to make the insurance ‘in force’ only from the date of ‘approval;’ for the ordinary applicant who has paid his first premium and has successfully passed his physical examination, would not by the remotest chance understand the clause as leaving him uncovered until the insurer at its leisure approved the risk; he would assume that he was getting immediate coverage for his money.” 160 F.2d at 601-602; cert, den., 331 U.S. 849, 67 S.Ct. 1736, 91 L.Ed. 1858 (emphasis supplied)
The chief objective of a relation back provision would be to enable the insurance company to collect premiums for a period during which there was in fact no insurance and, consequently, no risk. Service v. Pyramid Life Insurance Company, supra.
It would appear that the majority’s interpretation of the premium deposit receipt as a condition subsequent is clearly contrary to the plain meaning of the language used in the receipt. At the very least, it certainly indicates that the terms and conditions of the receipt are ambiguous.
In construing the premium deposit receipt, we keep in mind the rules of interpreting insurance contracts that any uncertainty or ambiguity must be most strongly against the insurer,2 and where provisions are susceptible to different interpretations, the interpretation which will sustain the policy should be adopted.3 Therefore, I would adopt the interpretation of the premium deposit receipt as providing a temporary contract for life insurance immediately upon execution of the application, payment of the premium and the completion of the medical examination. The provision that the company be satisfied that the insured be acceptable at the date of the application creates only a right of the insurer to terminate the contract if the company becomes dissatisfied with the risk before a permanent policy is issued. Toevs v. Western Farm Bureau Life Insurance Co., supra; Service v. Pyramid Life Insurance Company, supra; Jones v. John Hancock Mutual Life Insurance Company, 1969, 6 Cir., 416 F.2d 829; Metropolitan Life Insurance Company v. Wood, 1962, 9 Cir., 302 F.2d 802; Ransom v. The Penn Mutual Life In*813surance Company, 1954, 43 Cal.2d 420, 274 P.2d 633; Gaunt v. John Hancock Mut. Life Ins. Co., supra; Albers v. Security Mutual Life Ins. Co., 1918, 41 S.D. 270, 170 N.W. 159.
As Judge Hand has stated, the understanding of an ordinary person is the standard which must be used in construing the contract, Gaunt v. John Hancock Mut. Life Ins. Co., supra; and such a person upon reading the application would believe that he would secure the benefit of immediate coverage by paying the premium and completing the medical examination. Because of the obvious advantages to the insurer in obtaining payment of the premium when the application is made, it would be unconscionable to permit the company, after using language to induce payment of the premium at that time, to escape the obligation which an ordinary applicant would reasonably believe had been undertaken by the insurer. The language in the receipt is ambiguous, and that ambiguity must be resolved against the defendant-insurer. Duncan v. John Hancock Mut. Life Ins. Co., 137 Ohio St. 441, 31 N.E.2d 88; Gaunt v. John Hancock Mut. Life Ins. Co., supra.
For these reasons I would hold that the premium deposit receipt used by the defendant created a temporary contract of insurance subject to a condition — rejection of Stanley Grandpre’s application by the defendant or by the failure of the defendant to act upon the application within forty-five days. It would not have to be decided whether rejection would have been effective without notice to the applicant since rejection did not occur prior to his death, but, in fact, happened one day after his death. The temporary insurance contract upon Grandpre’s life was still in effect at the time of his death and the insurance company is liable. Patterson, Essentials of Insurance Law, 2d ed., p. 100 (1957); citing Gaunt v. John Hancock Mut. Life Ins. Co., supra; and Reck v. Prudential Ins. Co. of America, 1936, 116 N.J.L. 444, 184 A. 777; Allen v. Metropolitan Life Ins. Co., 1965, 44 N.J. 294, 208 A.2d 638; Ransom v. The Penn Mutual Life Insurance Company, supra; Prudential Insurance Company of America v. Lamme, supra; Toevs v. Western Farm Bureau Life Insurance Co., supra.

. (1) Applicant is protected against subsequent change in physical condition which might otherwise render him unacceptable to the company; (2) The insurable applicant who dies prior to the completion of the company’s evaluation of the application is protected; (3) The policy would sooner become incontestable; (4) The policy would earlier reach maturity with corresponding acceleration of dividends and cash surrender; (5) If the insured’s birthday was *812between “completion" and “approval,” the premium would be computed at a lower rate; (6) When the policy covers disability, the coverage dates from “completion.” Rivota v. Fidelity & Guaranty Life Insurance Company, 1974, 7 Cir., 497 F.2d 1225; Gaunt v. John Hancock Mut. Life Ins. Co., 1947, 2 Cir., 160 F.2d 599.

. See Dairyland Ins. Co. v. Kluckman, 1972, 86 S.D. 694, 201 N.W.2d 209; Presentation Sisters, Inc. v. Mutual Ben. Life Ins. Co., 1971, 85 S.D. 678, 189 N.W.2d 452; Wilson v. Allstate Ins. Co., 1971, 85 S.D. 553, 186 N.W.2d 879; Aetna Ins. Co. v. Labor, 1970, 85 S.D. 192, 179 N.W.2d 271.

. Duerksen v. Brookings International Life & Cas. Co., 1969, 84 S.D. 20, 166 N.W.2d 567; Dakota Block Co. v. Western Casualty & Surety Co., 1965, 81 S.D. 213, 132 N.W.2d 826; Dairyland Ins. Co. v. Kluckman, supra.