Court Opinion

ID: 9533731
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:34:11.480067+00
Date Added: 2024-06-11T13:29:09.154231
License: Public Domain

BURNETT, Judge,
dissenting.
The doctrine of “temporary insurance” is a judicial response to the practice, followed by some insurance companies, of collecting an advance premium from an insurance applicant while shrouding in ambiguity the effective date of coverage. Were it not for the doctrine of “temporary insurance,” an insurance company might delay or backdate coverage as it sees fit — avoiding liability if a loss occurs soon after the application, or retaining the premium for a risk-free period if no such loss occurs. This practice has been vigorously condemned. Toevs v. Western Farm Bureau Life Insurance Co., 94 Idaho 151, 483 P.2d 682 (1971).
The Court today refuses to apply the doctrine of “temporary insurance” because, in the majority’s view, there was no ambiguity as to the effective date of coverage. I respectfully disagree. The application documents conveyed inconsistent messages to a prospective insured. One message, conveyed by the premium receipt and impliedly echoed by the application form, was that coverage would not begin until “the first day of the month following acceptance by the insurance company____” For the purpose of this discussion, I concede that a reasonable person would understand this language to mean not merely a physical “acceptance” of the application form and of the premium payment but “acceptance” of the insurance risk presented by the application. A second message was conveyed by the section of the application form calling for insertion of a “desired insurance effective date.” An agent completed this section by inserting “11-8-78” — the date when the application was taken and the premium was collected. I believe a reasonable person could have inferred that coverage began on that date. These conflicting messages produced an ambiguity.
The Court avoids this ambiguity by deeming the second message — that coverage began on “11-8-78” — to be unreasonable. The first impulse of lawyers and judges, schooled in the discipline of reading a document as a whole and giving a coherent meaning to all of its parts, is to reconcile any conflict. Thus, taken together, the two messages might be interpreted to mean that a “desired insurance effective date” could be specified, subject to the company’s dominant right to reject the insurance risk. That, in essence, is what the majority says today. But we must remember that the test of reasonableness is not what lawyers or judges would understand; rather, it is “what a reasonable person in the position of the insured would have understood____” Foremost Insurance Co. v. Putzier, 102 Idaho 138, 142, 627 P.2d 317, 321 (1981). In this case the insurance agent could have completed the “desired insurance effective date” section of the application form by inserting a phrase such *196as “upon acceptance.” Had he done so, a reasonable person in the position of the prospective insured clearly would have understood that coverage would not become effective until a future time. But the agent did not do so. Rather, he inserted a particular date and he chose the date when the premium was paid. I think a prospective insured reasonably could ascribe significance to this choice.
Of course, a reasonable person’s understanding also might be influenced by contemporaneous oral communications from the agent. However, in this case the evidence concerning such statements is conflicting. As the majority opinion notes, the district judge did not undertake to determine who actually said what to whom when the insurance application form was completed. Consequently, I would remand the case for a finding as to whether the insurance agent provided a clear explanation of when coverage would commence and thus cured the ambiguity in the application documents.
Because I would remand the case, I am obliged to address the district judge’s ruling that even if an ambiguity existed, it was later resolved by the letter of December 8, 1978. In that letter, as the reader will recall, the company asked for a current medical examination. The question posed by the district judge’s ruling is whether an ambiguity in documents allegedly comprising a contract may be removed by one party’s subsequent, unilateral statement of its perceived rights. I believe not. It appears well settled, as a general rule, that subsequent conduct or communication may be considered in resolving an ambiguity if, but only if, it reflects an understanding shared by the parties. See cases collected in 17 AM.JUR.2d Contracts § 274, at 687 (1964). A limited extension of this general rule is recognized where a party, by his unilateral conduct, acknowledges the existence or legality of a contract obligation that he later disavows. E.g., Spinoso v. Rio Ranches Estates, Inc., 96 N.M. 5, 626 P.2d 1307 (1981); Equitable Loan & Security Co. v. Waring, 117 Ga. 599, 44 S.E. 320 (1903).
The present case falls outside both the general rule and the limited extension. The December 8 letter expresses, at most, the insurance company’s own view — not a shared view — that no risk had been assumed on the insurance application. Moreover, the mere fact that the prospective insured later made an appointment for a medical examination cannot be viewed as an acknowledgement that no insurance coverage existed. The doctrine of “temporary insurance” would be reduced to a meaningless fiction if coverage were defeatéd merely by a prospective insured’s cooperative efforts to satisfy an insurance company’s demands before receiving a permanent insurance policy.
The “temporary insurance” doctrine is a rigorous one, but insurance companies are not its helpless victims. The doctrine does not apply if the effective date of coverage is made clear to a prospective insured and premiums are collected only for periods of genuine risk. However, if a company provides ambiguous information regarding the effective date and collects a premium without assuming risk, the doctrine can and should be applied.