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Show THURSDAY, MARCH 22, 1973 THI DAILY RECORD PAfil nnn In the Supreme Court of the State of Utah No Ida Long, Plaintiff and Appellant, company cannot terminate the coverage by rejection after the death of the 12844 applicant. FILED . March 8, 1973 v. United Benefit Life Insurance Company, Incorporated, Defendant and Respondent. ' . I L. M. Cummings. Clerk This court has never previously specifically determined the legal effect of a binding receipt, i. e. , after an applicant has completed the application, paid the first premium, and has been issued a receipt, does a contract of temporary br interim insurance arise, subject to the right of the company to terminate the agreement subsequently if it concludes the applicant is not acceptable; or most the company be satisfied as to the applicant's acceptability, as a condition precedent to the existence of any contract? However, in Prince v. Western Empire Life Insurance Company, 19 Utah 2d in a number of cases, 174, 179, 428 P. 2d 163 (1967), this court stated: mostly of recent origin, it has been held that a binding receipt stating that the insurance shall be in force from a certain date provided the application is approved and accepted at the home office is effective in providing protection to the applicant until the application is approved on the ground of an assumed intention of the parties to this effect . . . . " 1. CALLISTER, Chief Justice; Plaintiff, as beneficiary, initiated this action to recover the proceeds from an insurance contract, which she claimed was in full force and effect at the time of the death of her husband, the insured. The trial court, after submitting special interrogatories to the jury, granted defendant's motion for a directed verdict and rendered a judgment of no cause of action in defendant's favor. Plaintiff appeals therefrom. On June 1 6. 1970, insurance agents McKensie and Hulick, representing United Benefit Life Insurance Company, called upon Harry W. Long, in response to an inquiry card he had sent to Mutual of Omaha, the parent company of United. According to the testimony adduced at the trial, Mr. Long was contemplating atrip and desired life insurance to protect his family. The plan suggested was a mortgage protection policy for $11,000 with an additional $2, 000 life insurance. The agents filled out an application form; Mr. Long answered the questions and signed it. Mr. Long made out two checks, each in the amount of $13. 83; one was currently dated and was cashed immediately; the other was postdated to July 10, 1970. The second check was given because Mr. Long executed a bank service plan agreement whereby the monthly premium would be deducted from his checking account and sent directly to the insurance company. Under the company rules, the agents were to collect two monthly premiums when an insured subscribed to the bank service agreement. The jury in response to special interrogatories found that the agents informed Mr. Long at this time he completed and signed the application that he was insured from then on, until the application was thereafter accepted or denied by the company. The jury further found that the agents detached and delivered the receipt attached to the application, although the actual receipt was never located. On July 3, 1970, Mr. Long sustained fatal injuries in an automobile accident. On July 6, 1970, after being apprised of Mr. Long's demise, the local agents attempted to refund the premium payments to Mrs. Long. The agents testified that on that date they observed in the local office a letter from the home office rejecting Mr. Long's application for "confidential reasons." Mrs. Long refused the tender and initiated this action. There was no evidence presented to indicate that Mr. Long was not in good health and insurable. The position of the company was that it may refuse to issue a policy of insurance for any reason. The application provided that if the first premium were paid in full, as evidenced by the conditional receipt bearing the same numbers as the application, the liability of the company should be as stated in the conditional receipt. The specimen in evidence indicates that the document delivered to an applicant is labeled receipt, the term "conditional" does not appear therein. The face of the receipt provides: the sum of $ Received of which amount is the full first premium for insurance applied for to the United Benefit Company in an application bearing the same number and date as the receipt. The insurance applied for shall be effective on the date of application or the date of any medical examination required by the Company, whichever is the later, subject to the requirements stated on the reverse side of this receipt. If the application is not approved, full. refund ofpre-miu- m will be made on surrender of this receipt. If you are In Service v. Pyramid Life Insurance Company, the court in a scholheld the and the reviewed law case that language of the receipt arly opinion in issue indicated an intention to create temporary insurance coverage for the time during which the approval of the application was pending. The receipt provided that it was made and accepted subject to certain specified conditions, one of which was that if the company at it's home office, after investigation, should be satisfied that on die date of the application or the date of the medical examination the person proposed for the insurance was insurable, the insurance protection should take effect from the date of the application or the date of such medical examination, whichever was later. In the course of its opinion the court explained that historically it was the practice of many insurance companies to state in their applications that the contract of insurance was not effective until the application had been approved by the company, the first premium paid by the applicant, and the policy delivered. In the intervening period between the signing of the application by the applicant and the delivery of the policy, no money had been advanced to the company, and no insurance was in effect. This interval, which might last several weeks, was undesirable to both the insurer and the applicant. The disadvantage to the applicant was that he was not covered by insurance during this period. The disadvantage to the insurer was that the applicant had the power to revoke his offer made in the application, either because he chose not to carry insurance or to purchase it from a rival company. In either such event, the company lost what it had expended for the investigation and medical examination of the applicant, in addition to the loss of business. To alleviate this situation the companies initiated the practice of issuing binding or conditional receipts, which usually contained a provision to the effect that the insurance should be considered as in force from the date of the receipt, or the date of the medical examination, provided that the application was approved and accepted at the home office of the insurer. i The court stated that the issuance of these binding receipts did away with the disadvantage threatening the insurer. The applicant to whom the receipt was issued felt contractually obligated toperform, and it served to give the insurer the use of the premium money at the earliest date possible. It further offered a selling point of 'which no agent failed to make the utmost in his talks with prospective clients. The court observed that in those cases where it has been determined that the legal effect of the receipt was to create temporary insurance, two principles have been cited: (1) that where there are ambiguous or conflicting recitals as to the time when the insurance becomes effective, the conflict is resolved against the insurer; and (2) that considerations of public policy make it fundamentally unfair for an insurer to collect a premium while providing no coverage for the period reserved by the insurer to consider and act upon the application. The court declared that the purpose of the clause stating that the insurance should take effect "on the date hereof, or on the date of the medica examination for such insurance" was to provide an inducement for the payment by the applicant of the first premium in advance, and to give preliminary protection to the insured until the issuance of the policy. This preliminary agreement entered into by the parties was for their mutual benefit and avoid ed the aforementioned disadvantages pending delivery of a policy. not advised regarding the application within 60 days, please notify the Company at its Home Office in Omaha, Nebraska. The court stated: Many cases in the courts indicate a trend to construe the conditions liberally, and to treat receipts similar in wording to the one before us as binding during the interim regardless of the ultimate action of the insurance carrier on the application. These decisions are based upon the assurance that if The reverse side of the receipt provides: Requirements For Insurance To Become Effective. Insurance will be effective as stated in this receipt provided that: 1. The proposed insured . . . is determined by the Comat the Home Office in Omaha, Nebraska to be insurable, pany in accordance with its usual rules and practices, on the basis and for the policy applied for, effective on the date of application or the date of any medical examination required by the Company, whichever is the later; 2. The full first premium is paid in cash on the date of application; 3. The policy is issued exactly as applied for within 60 the date of application; from days 4. The total life insurance in force with the Company on the proposed insured, including the amount now applied for, will not exceed $125,000. Defendants prevailed in the trial court on the ground that the application was merely an offer for a contract, which was unconditionally rejected within a reasonable time prior to applicant's death; and, therefore, no insurance contract came into being. On appeal, plaintiff contends that where an applicant has completed and submitted an application and paid the premium and a receipt is Issued, which provides that the effective date of the insurance is the date of the application (no medical examination was required in the instant case), a contract of insurance is created. Thereafter, an insurance "... 2. 3. 201 Kan. 196, 440 P. 2d 944, At p. 959 of 440 P. 2d. 956-96- 0 (1968). the receipt meant anything, no other result could have been intended by the parties, for unless the insured was to be protected against death during the interim period there would be no advantage to him in paying his premium in advance. If the company did not intend that there should be insurance effective pending the date of the application, or medical, as in this case,1 and the date of the approval of the risk and the issuance of the policy, then the company would be charging and obtaining the full amount of the premium for one year, while he period of actual insurance would be as many days less thah one year as there were days intervening between the date of the application and the approval. In other words, the insured would be paying for something which he did not receive. Citation The court stated that if the receipt did not afford the applicant coverage until a formal policy was issued or the risk declined by the . insurance company, then the receipt was ambiguous and should be construed against the insurance company, the party who drew it up and issued it upon its printed form by its agents. The court explained: If there was to be no contract of insurance in any event until the application was approved, and a policy issued thereon, it would seem entirely immaterial to the insured |
