Baldwin v. Equitable Life Assur. Soc. of U.S.

• Decision Date: 07 March 1961
• Docket Number: No. 50250,50250
• Citation: 252 Iowa 639,108 N.W.2d 66
• Parties: John W. BALDWIN, Appellant, v. EQUITABLE LIFE ASSURANCE SOCIETY OF UNITED STATES, Appellee.
• Court: Iowa Supreme Court

Page 66

108 N.W.2d 66

252 Iowa 639

John W. BALDWIN, Appellant, v. EQUITABLE LIFE ASSURANCE SOCIETY OF UNITED STATES, Appellee.

No. 50250.

Supreme Court of Iowa.

March 7, 1961.

Guthrie & Blackburn, Webster City, for appellant.

Henry & Henry, Des Moines, for appellee.

LARSON, Justice.

This is an action for declaratory judgment by John W. Baldwin, plaintiff-appellant, against the Equitable Life Assurance Society of the United States, defendant-appellee. The purpose of the action was to determine plaintiff's rights and obligations under a policy of insurance issued to him by defendant on April 22, 1936. Defendant's cross-petition asked reformation of the policy to correct what it referred to as a mutual mistake of the parties, and both parties prayed for general equitable relief. The matter was tried as in equity. Plaintiff contended the policy purchased and delivered to him was a twenty-payment life policy, now fully paid, and prayed judgment to that effect and for the sums paid defendant as premiums since 1956. It was defendant's contention that by mutual mistake the policy was issued upon a twenty-payment life form instead of an ordinary life form, which provided the correct premium for an ordinary life policy, but not the correct premium for a twenty-payment life policy. Obviously a mistake occurred, but what it was and who made the mistake is at issue.

The trial court found the policy intended by the parties was a twenty-payment life policy, but due to a mutual mistake the premium required was incorrectly stated in the policy, reformed the instrument to provide the correct premium, and established plaintiff liability to defendant for the deficiencies in premiums, with interest at 5% per annum from the respective due dates, less the premiums paid from 1956 to date. Plaintiff appeals.

Although defendant did not appeal, it contends that under the pleadings and relief prayed we should in this suit reform the instrument to comply with the real intention of the parties, which it says was an ordinary life policy, but if that relief were not granted, then the trial court's determination of the real contractual intention and the legal rights of the parties should be upheld, for under the evidence there was clearly a mutual mistake as to the premium charged and collected for the twenty-payment life policy purchased. Plaintiff argues the error, if it was an error, was solely that of the defendant and maintains that under the law such a purely unilateral mistake will not justify a reformation of the insurance contract.

I. The law seems well settled in all jurisdictions that a court of equity will reform an insurance contract where the contracting parties make a mistake and the policy fails to express the real agreement between them. Quinn v. Mutual Benefit H. & Acc. Ass'n, 244 Iowa 6, 13, 55 N.W.2d 546, and citations; Allemang v. White, 230 Iowa 526, 530, 298 N.W. 658, and citations; Stoltz v. National Indemnity Co., 345 Ill.App. 495, 104 N.E.2d 320; Hibbard v. North American Life Ins. Co., 192 Wis. 315, 212 N.W. 779; Buck v. Equitable Life Assurance Society, 96 Wash. 683, 165 P. 878; Columbian National Life Ins. Co. v. Black, 10 Cir., 35 F.2d 571, 71 A.L.R. 128; Metropolitan Life Ins. Co. v. Henriksen, 6 Ill.App.2d 127, 126 N.E.2d 736, 740; 76 C.J.S. Reformation of Instruments § 30; 29 Am.Jur., Insurance, § 338. Reformation does not mean changing the agreement, but refers to a change in the drafted instrument to conform to the real agreement. It is stated in the latter citation, 'the court does not change the terms of the contract made by the parties; it merely declares what those terms were, that is, it makes the writing express the real agreement or intention of the parties.' As a court of equity, we seek from the evidence the real agreement or intention of the parties. Each such case must then rest largely upon its own facts.

Much of the relevant evidence here is undisputed. When defendant's agent Cottingham called upon plaintiff and his wife in April, 1936, plaintiff, a meat-cutter in a market at Ames, Iowa, then 27 years of age, applied for a $1,000 ordinary life insurance policy with double indemnity for accidental death. The agent prepared the application, plaintiff signed it and paid the first premium of $23.70.

Plaintiff and his wife both testified that Cottingham then attempted to interest plaintiff in a twenty-payment life policy, and its features were discussed. However, due to financial commitments in the spring months, plaintiff demurred. The agent then suggested that another $1,000 policy be sent out on approval, with the annual premium coming due in the month of October. Mr. Cottingham, testifying by deposition, did not recall this conversation, but according to his recollection and his books, the second policy, the one here involved, was another $1,000 ordinary life policy with annual premiums to be due in the fall. Thus, the first factual problem before the court was as to the type of policy involved. Plaintiff and his wife were quite positive the agent 'talked' a twenty-payment life policy, and especially recalled that it would be paid up in a shorter time as one of its features. They declared Cottingham was to ask that 'a twenty-year pay' policy be sent out for their 'approval'.

A second application was not filled out. One application was used for both policies. This failure to fill out a second application possibly accounts for all the misunderstandings or mistakes that followed.

When the policy involved herein arrived a month or so after the agent had delivered the first one, it was on the twenty-payment life form, showing the premium of $23.70 per annum rather than $34.54, which was the correct amount for such a coverage. In every other aspect it was a regular twenty-payment life policy, including extended coverage and the usual table of loan and surrender values. These amounts, of course, were over twice those appearing on the ordinary life policy plaintiff had just received a short time before.

The plaintiff's wife testified that the agent 'brought the policy to us and explained that it was a twenty-year policy and that the company had made us a very good rate on it' and the plaintiff said he 'recommended that it was a very good rate and that we accept this policy.' They did accept it. Both testified they did not notice or pay any attention to the fact that the premiums were the same as for the ordinary life policy, or note the other differences, but that the policy was put away with their valuable papers and thereafter plaintiff simply paid the premiums as the notices were received from the company. It was not until Mrs. Baldwin was examining their papers in 1958 that she discovered the twenty payments required by the policy had been paid. The defendant was promptly notified, and for the first time it discovered that a mistake had been made. Although many years had passed, it took the position that the contract between the parties was, in fact, an ordinary life contract and demanded that plaintiff continue to pay the premiums accordingly. Plaintiff continued to pay them in order to avoid a lapse and instituted this action to determine his rights under the policy.

II. Perhaps we should first dispose of defendant's contention that as a matter of fact the policy in question was an ordinary life agreement exactly like the first one plaintiff purchased. The trial court heard and observed the witnesses. Under such circumstance we of course give weight to the findings of fact by the trial court, even though the review be de novo. There is ample evidence to support its finding that the policy intended was a twenty-payment life policy, and we are satisfied that such was the real intention of both parties. As to the matter of a mistake by one or both parties relative to the terms and conditions of the written policy when delivered, we shall have more to say later, but as to the type of policy involved, we hold the trial court was correct.

III. As with contracts generally, the cardinal principle in the construction of insurance contracts is that the intention of the parties should control. Sands v. Iowa Mutual Ins. Co., 244 Iowa 16, 19, 55 N.W.2d 572; Iowa Electric Co. v. Home Ins. Co., 235 Iowa 672, 677, 678, 17 N.W.2d 414, 417, and citations. It is also true generally that when two different interpretations of an insurance agreement are possible, the one most favorable to the insured is preferred. Iowa Electric Co. v. Home Ins. Co., supra, and citations; Struble v. Square Deal Ins. Co., 237 Iowa 1155, 1159, 24 N.W.2d 441, 442. Furthermore, it is well established that one who contends for reformation of an insurance policy or other written contract, on the ground of mutual mistake, must show by clear, satisfactory and convincing evidence the true agreement of the parties. Bales v. State Automobile Ins. Ass'n, 248 Iowa 487, 489, 81 N.W.2d 474; Wall v. Mutual Life Ins. Co., 228 Iowa 119, 127, 289 N.W. 901, 904, and citations; King v. Good, 205 Iowa 1203, 1207, 219 N.W. 517; Columbian Nat. Life Ins. Co. v. Black, 10 Cir., 35 F.2d 571, 71 A.L.R. 128, 133, and many citations.

However, there is another rule worthy of note, and recognized by respectable authority, to the effect that in reformation matters involving insurance contracts, less actual proof is required than in contract cases generally. 29 Am.Jur., Insurance, § 338, p. 702; Center Street Fuel Co. v. Hanover Fire Ins. Co., 272 Wis. 370, 75 N.W.2d 462. We ourselves have often used the rule in behalf of an insured, but if it be a sound rule, it should be equally applicable to insured and insurer. Henderson v. Hawkeye-Security Ins. Co., Iowa, 106 N.W.2d 86, and citations therein.

Was the evidence sufficiently clear, satisfactory and convincing of a mutual mistake to permit a court of equity to grant reformation? The trial court thought so and we agree. By plaintiff's own testimony, the agent explained to him the difference...