Anderson v. Country Life Ins. Co.

• Decision Date: 17 November 1994
• Docket Number: No. 1,CA-CV,1
• Citation: 180 Ariz. 625,886 P.2d 1381
• Parties: Anna Mae ANDERSON, individually a widow, and Anna Mae Anderson, as Personal Representative of the Estate of Roger Anderson, deceased, Plaintiff-Appellant, v. COUNTRY LIFE INSURANCE COMPANY; Donald Fitzgerald and Jane Doe Fitzgerald, Defendants-Appellees. 93-0181.
• Court: Arizona Court of Appeals

Page 1381

886 P.2d 1381

180 Ariz. 625

Anna Mae ANDERSON, individually a widow, and Anna Mae Anderson, as Personal Representative of the Estate of Roger Anderson, deceased, Plaintiff-Appellant, v. COUNTRY LIFE INSURANCE COMPANY; Donald Fitzgerald and Jane Doe Fitzgerald, Defendants-Appellees.

No. 1 CA-CV 93-0181.

Court of Appeals of Arizona Division 1, Department E.

Nov. 17, 1994.

Reconsideration Denied Jan. 11, 1995.

[180 Ariz. 627] Arnett & Arnett by Wayne C. Arnett, Mark W. Arnett, Tempe, for plaintiff-appellant.

Thomas, Burke & Phillips, P.C. by Thomas P. Burke II, Phoenix, for defendants-appellees.

OPINION

TOCI, Judge.

Anna Mae Anderson, individually and as personal representative of the estate of her husband, Roger Anderson, appeals the trial court's grant of summary judgment in favor of Country Life Insurance Company ("Country Life").

This appeal presents the following issue: may an insurer who accepts advance premiums and issues a written receipt for health insurance coverage effective immediately, conditioned upon the later issuance of a policy of insurance, defeat interim coverage by refusing to issue the policy after a loss occurs?

The answer is no. We conclude that a conditional receipt of this nature is illusory, unconscionable, and against public policy. An insurer may not collect a premium for a period during which it had no risk. Consequently, when Country Life accepted a premium from the Andersons for immediate coverage, a contract for interim insurance was created notwithstanding the condition in the receipt giving Country Life the power to defeat such coverage by not issuing a policy of insurance. Thus, we reverse the summary judgment in favor of Country Life and remand with directions that judgment be entered in favor of the Andersons on this issue.

We also dispose of two additional issues. First, we conclude that the Andersons' failure to submit a claim does not preclude recovery where the insurer indicated that no coverage existed. Second, we conclude that, because the Andersons' policy was not an "insurable risk" type of policy, Country Life did not condition insurance on Mr. Anderson's health at the time of application. Country Life was, therefore, under no duty to continue processing Mr. Anderson's application once Country Life determined that it would not issue a policy. We therefore affirm summary judgment for Country Life on Mrs. Anderson's claim of insurance bad faith.

I. FACTS AND PROCEDURAL HISTORY

In reviewing the ruling on a motion for summary judgment, we are not bound by any issues of law decided by the trial court and will determine such issues anew. See Gary Outdoor Advertising Co. v. Sun Lodge, Inc., 133 Ariz. 240, 242, 650 P.2d 1222, 1224 (1982). Furthermore, where the issues can be decided as a matter of law, we have the authority both to vacate the trial court's grant of summary judgment in favor of one party and to enter summary judgment for the other party if appropriate. McCallister Co. v. Kastella, 170 Ariz. 455, 457, 825 P.2d 980, 982 (App.1982); Roosevelt Sav. Bank of New York v. State Farm Fire & Casualty Co., 27 Ariz.App. 522, 526, 556 P.2d 823, 827 (1976); see also Trimmer v. Ludtke, 105 Ariz. 260, 263, 462 P.2d 809, 812 (1969). In exercising our authority to enter summary judgment in favor of the nonmoving party, the Andersons, on the issue of interim health benefits, we view the following facts and all inferences therefrom in a light most favorable to Country Life. Cf. Cecil Lawter Real Estate Sch., Inc. v. Town & Country Shopping Ctr. Co., 143 Ariz. 527, 533, 694 P.2d 815, 821 (App.1984).

On November 26, 1990, Country Life's agent, Donald Fitzgerald, met with the Andersons at their home to obtain their application for health insurance. The Andersons filled out an application, and Mrs. Anderson wrote a personal check in the amount of $1,616.93 to Country Life for a six-month premium for both the Andersons. Fitzgerald accepted the check and completed the application. During the meeting, Fitzgerald gave the Andersons a "conditional receipt for medical policy," which he dated that same day. ¹ Fitzgerald specifically pointed out to Mr. Anderson that the policy would not become effective until all conditions were met and the company approved the issuance of a policy. ² Fitzgerald said that after reading the conditional receipt, Mr. Anderson indicated that he understood the significance of the document and considered its use standard procedure for issuance of the policies.

After the meeting, Country Life proceeded with the Andersons' application. Country Life cashed the Andersons' premium check on or about December 4, 1990, and the Andersons received a copy of the canceled check. On December 7, 1990, Country Life notified Fitzgerald that the company required additional information. Country Life wanted medical examinations of both Mr. and Mrs. Anderson. It also requested some additional medical history for Mr. Anderson. Finally, it indicated that, even without a medical examination, Mrs. Anderson would require a 75 percent rate increase because of her stated height and weight. Fitzgerald relayed this information to the Andersons on December 14, 1990, and asked them to schedule the medical examinations.

The very next morning, on December 15, 1990, Mr. Anderson suffered a heart attack and was hospitalized. Mrs. Anderson contacted Fitzgerald the following day to notify him of these events and to obtain assurance that they would have health coverage for his medical bills. Fitzgerald told her he could not confirm coverage and would need to contact the home office.

Before the home office responded, local processing of the application continued. Shortly after December 15, 1990, Mrs. Anderson was visited by Dr. Potoch, a medical examiner, who took urine samples and provided certain paperwork for Mrs. Anderson's signature. On December 20, 1990, Fitzgerald visited the Andersons in Mr. Anderson's hospital room. Fitzgerald had Mr. Anderson complete and sign a form regarding additional medical history.

In the evening of December 20, 1990, Mr. Anderson died from an aneurysm. The following day, before County Life learned of his death, it sent a letter addressed to Mr. Anderson refunding his portion of the advance premium on the policy. The letter stated that Mr. Anderson's heart attack prevented normal processing procedures on his behalf. The letter also stated, however, that processing of the application could continue on behalf of Mrs. Anderson if she had the required medical examination and paid the 75 percent rate increase previously mentioned.

Several months later, Fitzgerald visited Mrs. Anderson at her home. He brought with him three application amendments requiring her signature to secure her policy. Mrs. Anderson signed amendments increasing her premium rates because of her weight and clarifying her answer to a question on the original application. A third proposed amendment provided for the exclusion of Mr. Anderson from the original policy application. Mrs. Anderson refused to sign this amendment, telling Fitzgerald that her husband "was never on the policy, so why should I sign?" Country Life then discontinued processing Mrs. Anderson's application and refunded the balance of the premiums paid.

Mrs. Anderson filed suit against Country Life. She alleged, among other things, breach of contract and breach of the duty of good faith and fair dealing. Country Life moved for summary judgment on all claims. It argued that no contract of insurance was ever formed because the conditional receipt required that Mr. Anderson take a medical exam and that a policy be issued prior to insurance becoming effective. Country Life additionally argued that there was no evidence of bad faith on its part. Granting the summary judgment, the trial court summarized its reasoning as follows:

It is the opinion of the Court that the language in the conditional receipt in this case to the effect that "there is no coverage--unless a policy is issued" is clear and unequivocal. The conditional receipt also contains bold type language that the agent is not authorized to "alter, waive or otherwise change the conditions of this receipt."

II. DISCUSSION

A. Background

To obtain some measure of protection against the applicant's withdrawal of his offer during the investigation into insurability, insurers have conceived the idea of issuing what is known as a binding receipt. See 12A John Alan Appleman & Jean Appleman, Insurance Law and Practice § 7237, at 188 (1981). These binding receipts, or conditional receipts, as they are sometimes called, are issued with the payment of the first premium. Id. What the insurers "generally seek to do is make interim coverage depend upon their approval of the application, or a finding that the applicant was insurable at the time the application is made." Id. at 189. The exact language of these provisions varies greatly.

The issuance of a conditional receipt improves the insurer's position in several ways. First, it does away with the disadvantage to the insurer of the applicant changing his mind after the insurer has incurred the cost of determining if the applicant is an insurable risk. The applicant to whom a binding receipt has been issued feels, as a rule, contractually obligated to perform. Second, the issuance of a conditional receipt gives the insurer the use of the premium money at the earliest date possible. Powell v. Republic Nat'l Life Ins. Co., 337 So.2d 1291, 1297 (Ala.1976).

Conditional receipts have been the subject of extensive litigation and commentary. See generally 12A Appleman §§ 7237-7244; C.T. Drechsler, Annotation, Temporary Life, Accident, or Health Insurance Pending Approval of Application or Issuance of Policy, 2 A.L.R.2d 943 (1948); George J. Couch, Cyclopedia of Insurance Law §§ 14.1-14.46 (1984). Although there are several types of conditional receipts, for the purposes of this discussion we consider only two. The...