Lightner v. Centennial Life Ins. Co., 59414

• Decision Date: 30 October 1987
• Docket Number: No. 59414,59414
• Citation: 242 Kan. 29,744 P.2d 840
• Parties: Gerald W. LIGHTNER, in his capacity as special administrator of the Estate of Jessie M. Lightner, deceased, Appellant, v. CENTENNIAL LIFE INSURANCE COMPANY, a corporation; Lloyd Lightner and Vivian Lightner, in their capacity as co-administrators for the Estate of Dale R. Lightner, deceased; and Kansas Department of Revenue, Appellees.
• Court: Kansas Supreme Court

Page 840

744 P.2d 840

242 Kan. 29

Gerald W. LIGHTNER, in his capacity as special administrator of the Estate of Jessie M. Lightner, deceased, Appellant, v. CENTENNIAL LIFE INSURANCE COMPANY, a corporation; Lloyd Lightner and Vivian Lightner, in their capacity as co-administrators for the Estate of Dale R. Lightner deceased; and Kansas Department of Revenue, Appellees.

No. 59414.

Supreme Court of Kansas.

Oct. 30, 1987.

Syllabus by the Court

1. The appellate courts have de novo review of cases decided on the basis of documents and stipulated facts.

2. Although in life insurance the term insured usually refers to the person whose death obligates the insurer to pay, the term may also refer to the applicant, the owner, or a person who is both the beneficiary and premium payor.

3. If irreconcilable conflict is found to exist, preference should be given to the hand written portions of a life insurance policy.

4. The application should be construed with the insurance policy to determine the parties' intent.

5. The terms of a policy should be construed to reflect the intent of the parties.

6. A contract is subject to construction by an appellate court only if it can reasonably be deemed open to different interpretations.

7. An insurance contract should be liberally construed against the insurer. The purpose of this rule is not to predetermine disputes but only to assist the court in determining the intent of the parties to the contract. The basis for construing an insurance policy against the insurer in close cases is the rule of contracts that the drafter must suffer the consequences of not making the terms clear.

James J. McGannon, of Regan & McGannon, Wichita, argued the cause, and Patrick J. Regan and Jerome J. Weber, of the same firm, were with him on the briefs for appellant.

Leonard R. Frischer, of Turner and Boisseau, Chartered, of Kansas City, Mo., argued the cause, and Casey R. Law, of the same firm, of Great Bend, was on the brief for appellees.

HERD, Justice:

This is a declaratory judgment action. Gerald Lightner, special administrator of the estate of Jessie Lightner, appeals a judgment in favor of Centennial Life Insurance Company; Kansas Department of Revenue; and Lloyd and Vivian Lightner, co-administrators of the estate of Dale Lightner. Gerald brought suit to determine the proper payee of proceeds from six life insurance policies owned by Jessie Lightner. The district court held Centennial properly paid the proceeds to the estate of Jessie's husband, Dale Lightner.

This dispute arose from the following facts. Dale and Jessie Lightner, husband and wife, were killed simultaneously in an automobile accident in 1980. It is undisputed that at the time of the accident, Jessie was both owner and sole beneficiary of six insurance policies on the life of her husband. The policies had been issued by Life of America, Inc., and assumed by Centennial in 1972.

The Lightners died intestate, leaving eight children to share equally in both estates. Gerald claims that by wrongfully paying the proceeds of the policies, totalling $329,075.92, to the larger estate of Dale rather than the smaller estate of Jessie, Dale's estate is exposed to substantially greater federal estate tax liability.

The sole issue is whether the policies are ambiguous and require this court to construe their terms to determine the proper beneficiary under the facts of this case. The district court, in granting summary judgment in favor of Centennial, read the beneficiary provisions of the insurance contracts in light of K.S.A. 58-704. K.S.A. 58-704 provides that in cases of simultaneous death, policy proceeds are payable "as if the insured had survived the beneficiary." Thus, Dale, as insured in this instance, is deemed to have survived Jessie. The court then looked to the insurance policies to see where the proceeds were to go when the sole beneficiary dies before the insured. The beneficiary clause in five of the policies provides:

"Unless otherwise provided herein, if any beneficiary dies before the Insured, the interest of such beneficiary shall vest in the surviving beneficiary or beneficiaries, if any; otherwise in the executors, administrators or assigns of the Insured."

The sixth policy is similar:

"The interest of any Beneficiary who dies before the Insured shall vest in the Insured unless otherwise provided herein.... If no Beneficiary shall survive the Insured, then payment of the proceeds shall be made to the executors or administrators of the Insured."

Applying the clear language of these provisions, the district court held Dale was the insured. Thus, Centennial paid the proceeds to Dale's estate.

The district court decided this case on the basis of documents and stipulated facts. The proper standard of appellate review in this case is thus de novo. Crestview Bowl, Inc. v. Womer Constr. Co., 225 Kan. 335, 592 P.2d 74 (1979). This gives us the power to construe the effect of the policies differently than the district court. Patrons Mut. Ins. Ass'n v. Harmon, 240 Kan. 707, 732 P.2d 741 (1987).

The confusion in this case results from the different meanings of the word insured. In life insurance, insured usually refers to the person whose death obligates the insurer to pay. 2A Couch on Insurance § 23:1 (2d ed. rev. 1984). However, the word may also refer to the applicant, the owner, or a person who is both the beneficiary and premium payor. 44 C.J.S., Insurance § 49; Black's Law Dictionary 726 (5th ed. 1979). Jessie was all of these: applicant, owner, beneficiary, and premium payor. Both she and Dale could properly be termed the insured.

There is usually no difficulty with the term because in the typical situation the owner of the policy insures his own life for the benefit of another. In such a typical case, Dale would have applied for, paid for, and owned the policies on his life, with the proceeds upon his death going to Jessie as beneficiary.

Appellant contends the policies in question were drafted with only this typical scenario in mind. The printed provisions make no distinction between the insured and the owner; between the person whose life is insured, Dale, and the person who owns the policy, Jessie. He argues the drafter used the word insured in provisions where owner was actually meant.

Appellant agrees the first use of insured in the beneficiary clauses refers to Dale, as the person whose life is insured, but argues the second use of insured refers to the owner of the policy, Jessie. He contends the drafter intended payment to go to the owner of the policy if no beneficiary survived, not to the estate of the person whose life was insured.

Centennial says the second use of insured in the beneficiary clause indicates it has the same meaning as its first use in the clause; i.e. referring to the person whose death will make the proceeds payable. It argues it would be nonsense to assume the second use of insured means owner when the first clearly does not.

Appellant points to a later policy, not in dispute here, which was originally drafted and issued by Centennial and which has as its beneficiary clause:

"If any Beneficiary shall die before the Insured, the interest of such Beneficiary shall vest in the Owner unless otherwise provided herein."

Appellant argues this provision differs from the earlier provisions originally drafted by Life of America only in that Centennial took care to distinguish the word insured from owner.

He contends Jessie's intent in buying the earlier policies was the same as in buying this policy, and under the same scheme of estate planning. She took care to be owner as well as beneficiary because the proceeds would be subject to less tax in her smaller estate than if the proceeds went to her husband's estate.

Centennial argues a later policy has no relevance in construing the language of earlier ones; all it proves is that terms can be different. It points out that in this later policy, Jessie made her children alternative beneficiaries, thus avoiding the controversy argued here. It protests appellant cannot assert all policies must be interpreted identically when Jessie herself provided for differing disposition of proceeds in these policies. Centennial also maintains the Lightners would not have died intestate if they were genuinely concerned with estate planning.

Appellant argues Centennial recognized the estate planning intentions of Jessie when she signed her application under the printed heading, "Signature of Owner, if incidents of ownership are not to be vested in the Proposed Insured." He also maintains when Jessie added to her name, "or children in case of her death," she evidenced her intention that the proceeds should flow to her estate so her children would obtain the maximum amount of proceeds possible. He argues Jessie's writings conflict with Centennial's interpretation of the printed portions. If irreconcilable conflict is found to exist, preference should be given to the hand written portions when construing the policy. Harrison v. Farmers & Bankers Life Ins. Co., 163 Kan. 277, 181 P.2d 520 (1947).

Appellant further contends Centennial failed to ensure the drafting of the policy conformed with Jessie's application and known intent. The application for insurance is to be construed with the policy as a whole to determine the parties' intent. Leach v. Metropolitan Life Ins. Co., 124 Kan. 584, 261 P. 603 (1927), reh. denied 125 Kan. 129, 263 P. 784 (1928). The terms of a policy should be construed in light of the intent of the parties. American Media, Inc. v. Home Indemnity Co., 232 Kan. 737, 658 P.2d 1015 (1983).

Appellant argues the district court's analysis was improper in that it ignored provisions in the contract which show Centennial did not use the term insured consistently. He calls attention to six provisions in the contract which use the word insured to mean owner. They are:

1. The beneficiary clause in the first five policies states...