Court Opinion

ID: 5681233
Source: CourtListenerOpinion
Date Created: 2022-01-12 14:57:38.78673+00
Date Added: 2024-06-11T08:39:54.272272
License: Public Domain

Tom, J. (dissenting).
The issue raised on this appeal is simply stated: What period of life insurance coverage is an insurer required to provide in return for the payment of an “annual” premium? On its face, the question appears no more challenging than, “Who is buried in Grant’s Tomb?” or, “How many pounds are there in a hundredweight?” Its apparent triviality notwithstanding, the answer for plaintiff insured, Michael Katz, was a not-so-obvious 343 days.
On July 11, 1997, plaintiff submitted an application to defendant American Mayflower Life Insurance Company for term life insurance coverage in the amount of $1 million. The company offers the applicant two payment options: Pay the premium upon submission of the application or pay upon delivery of the policy. If the applicant chooses to pay immediately, American Mayflower provides temporary insurance coverage pursuant to a “Conditional Receipt.” If the consumer chooses the second option and pays the first premium after his application has been accepted by American Mayflower and the policy delivered, no coverage is provided until the first premium is paid.
The application provides:
“(1) the entire contract will consist of this application and the policy issued in response to it; . . .
“(3) except as provided in the Conditional Receipt, if issued, with the same number as this application, no insurance will take effect unless: (a) the policy is *203delivered to the Owner; (b) the first modal premium is paid; and (c) there has been no change since the date of this application in the insurability of all persons proposed for insurance or in any of the answers to the questions on this application.”
Plaintiff did not purchase the preliminary insurance coverage provided by the conditional receipt—or “binder,” as it is commonly known (see Springer v Allstate Life Ins. Co., 94 NY2d 645, 649-650 [2000]).
On September 2, 1997, American Mayflower issued a policy to plaintiff with a policy date of September 2, 1997. The policy was delivered to plaintiff on September 24, 1997, at which time, he paid the first “annual” premium and coverage became effective.
The policy states that plaintiff will be charged $1,720 as an “annual premium” for the initial premium period of 10 years. The table of premiums delineates the beginning of each policy year as September 2, including the initial year. A general provision in the policy, entitled “Policy Date,” provides, “Policy anniversaries, policy years, policy months and Premium Due Dates are measured from the Policy Date. The first policy year begins on the Policy Date. Subsequent policy years begin on the same date each year thereafter.” The schedule indicates that the “Policy Date” is identical to the date of issue, September 2, 1997.
Plaintiff commenced this putative class action seeking to recover “compensatory and/or actual damages” or, in the alternative, “disgorgement and/or restitution,” on behalf of himself and other, similarly situated policyholders. The substance of the complaint, which asserts causes of action for breach of contract and unjust enrichment, is that while plaintiff paid a full annual premium at the time the policy was delivered, the insurer failed to provide a full year of life insurance coverage during the first policy year. That is, although coverage was not effective until the delivery date (September 24), the annual premium was applied to the period beginning with the policy date (September 2). Thus, plaintiff was charged a premium for 22 days for which he received no coverage. The complaint alleges that “[t]his practice is not disclosed in defendant’s policies and applications” and that the insurer “unilaterally controls how long it takes between the time a policy is approved and the time the policy is issued and actually sent to its agent for delivery to and acceptance by the owner.” The complaint charges that “American Mayflower’s unlawful practices permit it to obtain money *204wrongfully from unsuspecting consumers.” It adds, “Plaintiff, and thousands of deceived consumers like him, reasonably believed American Mayflower would only charge premiums for periods of time for which it was under a reciprocal obligation to pay death benefits under the policy.”
Defendant responded by bringing this pre-answer motion to dismiss the complaint based upon the documentary evidence, specifically, its life insurance policy, and for failure to state a cause of action (CPLR 3211 [a] [1], [7]). Defendant argued that it cannot be held in breach of the insurance contract because it provided precisely the life insurance coverage specified in its policy. It noted that the life insurance contract contains a schedule that “shows the policy years during which premiums are payable.” The “table of premiums” lists the “Current Annual Premium” for each “Policy Yr Beginning SEPTEMBER 2.” Read together with the sections entitled “Policy Date” and “Premium Provisions,” the application and the printed policy establish that the initial “year” of coverage runs from the date coverage became effective (the delivery date of September 24th) to the next anniversary of the policy date (September 2nd). Since this is understandable from reading the policy, defendant contended, it performed in accordance with the contract of insurance. Furthermore, defendant noted that the contract gives the insured 20 days during which he could return the policy for a full refund. Finally, the insurer argued that plaintiffs retention of the policy constitutes acceptance and his continued payment of premiums reflects his ratification of its terms.
In opposition to the motion, plaintiff noted that while he does not dispute defendant’s right to commence coverage upon delivery and payment, he received less than a year of coverage for his initial “annual” premium payment. Contrary to the position taken by defendant, plaintiff argued that the insurer’s peculiar use of the term is misleading and inconsistent with its common meaning, thereby creating an ambiguity that the courts are required to resolve against the insurer. Therefore, he asserted his entitlement to a refund for the period of time preceding delivery of the policy, during which no life insurance coverage was provided.
Supreme Court granted defendant’s motion and dismissed the complaint, holding that this matter is governed by its previous decision in Franco v Guardian Life Ins. Co. of Am. (2003 NY Slip Op 50024[U] [Sup Ct, NY County, Jan. 28, 2003, Cahn, J., Index No. 604302/2001], affd 13 AD3d 292 [2004]). In that case, *205the court held that the word “annual,” when read “in the context of the application and policy in their entirety,” does not mean that “the premium will afford insurance [coverage] for twelve full months” but “clearly describes the length of time between premium payments.” (Id. at *6-7.) The court therefore dismissed plaintiffs’ first cause of action for breach of contract. The court dismissed the third cause of action for unjust enrichment on the ground that this matter is governed by the terms of an express contract.
On appeal, plaintiff argues that the term “annual” is ambiguous, and that any ambiguity in an insurance policy must be resolved in favor of the insured. Plaintiff contends that the use of the term “annual” is internally inconsistent with the provision “no insurance effective until delivery.” He asserts that further ambiguity arises from the use of the term “annual premium” to refer to periods of coverage of dissimilar duration. Defendant responds that its policy is clear and unambiguous, that it performed in accordance with the policy provisions and that plaintiff both accepted the policy and ratified its terms.
Because of the obvious disparity in bargaining power between the insured and the insurance company, defendant’s contentions concerning acceptance and ratification are uncompelling. The subject policy provides a 20-day examination period.1 However, the only available alternatives are to either accept coverage on the terms extended by the insurer or to return the policy and forgo any coverage at all. In addition, life insurance obtained from a competitor may well impose the same conditions precedent to the effectiveness of coverage, as the Franco case aptly illustrates. In this regard, the life insurance policy is a classic example of a contract of adhesion (see Henningsen v Bloomfield Motors, Inc., 32 NJ 358, 161 A2d 69 [I960]).
Because the insured generally lacks the power to bargain for more favorable contract terms, the insurer is subject to the doctrine of contra proferentem (see Matter of Mostow v State Farm Ins. Cos., 88 NY2d 321, 326-327 [1996]). Therefore, to obtain a construction of its policy favorable to its interests, an insurer is required to demonstrate that the interpretation sought to be accorded to the terms of the insurance contract “is the only construction which may fairly be placed on them” (Lachs v Fi*206delity & Cas. Co., 306 NY 357, 365 [1954]; see Bronx Sav. Bank v Weigandt, 1 NY2d 545, 551 [1956]).
The provisions of an insurance policy are normally construed “by giving the words their plain meaning” (United States Fid. & Guar. Co. v Annunziata, 67 NY2d 229, 233 [1986]), but this is only feasible “if they are clear and unambiguous” (Hartol Prods. Corp. v Prudential Ins. Co., 290 NY 44, 47 [1943]). While courts often look to the dictionary to determine the ordinary meaning of a disputed term (see Mazzola v County of Suffolk, 143 AD2d 734, 735 [1988]), that course is unavailing because the word “annual” is itself the source of ambiguity. As pertinent to this dispute, “annual” is subject to two different meanings: the first is “covering the period of a year,” as plaintiff proposes, and the second is “occurring or happening every year or once a year,” as defendant suggests (Merriam-Webster's Collegiate Dictionary [10th ed]). To illustrate, a corporation produces an annual report; the document covers corporate operations for the year. The corporation also holds an annual meeting; while the meeting occurs once a year, it is not necessarily held on the same date.
The words “annual premium” are certainly amenable to the interpretation advanced by defendant—that is, a sum that although payable once a year, does not necessarily purchase a full year of insurance coverage. However, this is not “the only construction which may fairly be placed on them” (Lachs, 306 NY at 365) so as to render the phrase unambiguous as a matter of law.
The term “annual premium” is widely used in the insurance area, and it has therefore attained the status of a term of art. Where a term has acquired a technical meaning, the technical construction is preferred over the common meaning except when “another intention is established, as where there is a nontechnical meaning and one party is a layperson” (Calamari and Perillo, Contracts § 3.13, at 159 [5th ed]).
The problem in resolving the ambiguity issue is one of context. If the term “annual premium” is construed solely with reference to the life insurance policy, then a comparison of four different provisions—those of the policy governing the policy date, premium payment and the table of premiums,2 together with the conditions for effectiveness of coverage contained in *207the insurance application—reveals that, in the first year, the period of coverage is less than the full policy year. However, if the operative question is what period of coverage the insured should reasonably expect to receive in return for the payment of an annual premium, the obvious ambiguity arises. The common practice throughout the insurance industry is to calculate premiums on a yearly basis (e.g. Holmes Protection of N.Y. v National Union Fire Ins. Co., 152 AD2d 496 [1989] [one-year period]; Matter of Ideal Mut. Ins. Co., 231 AD2d 59, 62 [1997] [12 months]). Even the subject life insurance contract lists the “Current Annual Premium” for each policy year, and only in the first year does the annual premium afford less than a full year’s coverage. Therefore, if one were to ask the hypothetical reasonable person how much insurance coverage will be received in return for payment of an “annual” premium, it would be eminently reasonable to expect the answer to be, “One year.”
A party who assigns a narrower interpretation to a commonly understood term bears the burden to prove that the parties accepted that interpretation as controlling (see Frigaliment Importing Co. v B.N.S. Intl. Sales Corp., 190 F Supp 116, 121 [SD NY 1960]). Any ambiguity in an insurance policy is construed against the insurer in favor of the interpretation that would be placed upon the term by the average person (Mostow, 88 NY2d at 326-327). As noted by the Court of Appeals in Hartol Prods. Corp. v Prudential Ins. Co. (290 NY at 50):
“ [I]nsurance contracts, above all others, should be clear and explicit in their terms. They should not be couched in language as to the construction of which lawyers and courts may honestly differ. In a word, they should be so plain and unambiguous that men of average intelligence who invest in these contracts may know and understand their meaning and import” (quoting Janneck v Metropolitan Life Ins. Co., 162 NY 574, 577-578 [1900]).
Defendant’s contract offends this general rule of drafting. While defendant places great emphasis on the peculiar terms of its *208policy defining the coverage afforded in the first year, significantly, it does not go so far as to argue that a reasonable person would expect to receive less than 365 days of insurance coverage in return for the payment of an annual premium. Defendant’s indiscriminate use of the term “annual” to describe all premium payments due under the policy is misleading in the absence of a clear explanation that the initial premium payment does not purchase a full year of coverage if the consumer elects to make payment at the time the policy is delivered.
The use of the term “annual premium” in the subject life insurance policy is consistent with neither its common meaning nor its general use within the insurance industry. Moreover, its peculiar meaning is not readily discernible from a reading of the policy. As stated by the Ohio Court of Appeals in Margulies v Guardian Life Ins. Co. of Am. (2003 Ohio 1959, ¶ 24, 2003 WL 1903437, *3, 2003 Ohio App LEXIS 1870, *9 [Ct App 2003], appeal not accepted for review 99 Ohio St 3d 1545, 795 NE2d 683 [2003]), “[Requiring an insured to read four distinct sections, contained in two separate documents comprising an insurance contract, to gain an understanding of something as basic as the length of the initial coverage term renders this contract ambiguous.” Confronted with the similarly convoluted contract language of this policy, plaintiff should be afforded the opportunity to demonstrate that he received materially less under defendant’s life insurance policy than he was reasonably given to expect.
Plaintiff, a lawyer, is hardly a paradigm of the typical life insurance policyholder and, therefore, not the best representative of the putative class. However, even holding plaintiff to the standard of contract interpretation expected of an attorney, it still would have been impossible for him to make an informed election between the two available payment methods based on the information available at the time, which was limited to the life insurance application. While the application makes it clear that coverage will not take effect until the policy is delivered and the initial premium paid, it does not disclose that, under this option, the initial premium will apply to a period of time for which no coverage is provided. Only after delivery of the policy (and payment “on or before policy delivery”) would it be apparent, to the well-versed reader, that defendant was collecting an unearned premium. Defendant offers no excuse for its failure to make this disclosure in its application.
Finally, defendant does not state any reason why it charged its insured for a period of time when no insurance coverage was *209provided. The annual premium for the first year is the same premium charged for each succeeding year during the initial 10-year policy term. Plaintiffs policy lists annual premium charges of $1,720 for each “policy year” beginning September 2nd. In the first year, however, the policy year encompasses the period prior to effective date of the policy, from the date of issuance on September 2nd to the date of delivery on September 24th.
In the procedural posture of a motion to dismiss directed at the pleadings pursuant to CPLR 3211, “the allegations of a complaint, supplemented by a plaintiffs additional submissions, if any, must be given their most favorable intendment” (Arrington v New York Times Co., 55 NY2d 433, 442 [1982], cert denied 459 US 1146 [1983]; see Dulberg v Mock, 1 NY2d 54, 56 [1956]). So read, the complaint suggests that the insurer, without economic justification, routinely employed inadequate disclosure, obtuse contract language contained in multiple provisions in two separate writings, the unusual use of a term of art and inequality of bargaining power to exact unearned premiums from its policyholders. Under these circumstances, it is inappropriate to grant summary dismissal to defendant based on the very contract used to accomplish this end.
Plaintiffs cause of action for unjust enrichment was properly dismissed. The general rule, as stated by this Court in Hohenberg Co. v Iwai N.Y. (6 AD2d 575, 578 [1958]), is that “where there is an express contract no recovery can be had on a theory of implied contract.” “Without in some manner removing the express contract from the picture in the normal fashion (rescission, abandonment, etc.) it is not possible to ignore it and proceed in quantum meruit” (La Rose v Backer, 11 AD2d 314, 320 [1960], amended 11 AD2d 969 [1960], affd 11 NY2d 760 [1962]). Since this dispute is governed by the terms of a written contract, the cause of action for unjust enrichment is not viable.
Accordingly, the order granting defendant’s motion to dismiss the complaint should be modified to reinstate the cause of action for breach of contract.
Buckley, P.J., and Williams, J., concur with Sullivan, J.; Tom, J., dissents in a separate opinion.
Order, Supreme Court, New York County, entered January 30, 2003, affirmed, without costs or disbursements.

. A statutory period of at least 30 days is now provided during which the insured may examine the policy and elect to cancel (Insurance Law § 3209 [b] [1]), effective January 1, 1998 for individual life insurance policies (Insurance Law § 3209 [n] [1]).

. The insurance policy provides, “The consideration for this Policy is the application and payment of the Total Initial Premium shown in the Schedule *207on or before delivery.” The schedule indicates that the “policy date” is identical to the date of issue, September 2, 1997. The table of premiums states, “The Current Annual Premium is that premium which the Company anticipates will be payable on the date shown.” The table lists the “Current Annual Premium” for each “Policy Yr Beginning SEPTEMBER 2.” The section entitled “Policy Date” recites, “Policy anniversaries, policy years, policy months and Premium Due Dates are measured from the Policy Date. The first policy year begins on the Policy Date.”