Cheney v. Metropolitan Life Ins. Co.

• Decision Date: 19 July 1985
• Docket Number: No. 14482,14482
• Citation: 370 N.W.2d 569
• Parties: Marva CHENEY, Plaintiff and Appellant, v. METROPOLITAN LIFE INSURANCE COMPANY, a New York domiciled insurance company duly qualified to do business in South Dakota; the South Dakota Public Employees Insurance System, 216 East Capitol, Pierre, Hughes County, South Dakota; Al Asher as Administrator of the South Dakota Public Employees Insurance System; and Linda Nill, as Administrator of the Life Insurance section of the Public Employees Insurance System, Defendants and Appellees.
• Court: South Dakota Supreme Court

Page 569

370 N.W.2d 569

Marva CHENEY, Plaintiff and Appellant, v. METROPOLITAN LIFE INSURANCE COMPANY, a New York domiciled insurance company duly qualified to do business in South Dakota; the South Dakota Public Employees Insurance System 216 East Capitol, Pierre, Hughes County, South Dakota; Al Asher as Administrator of the South Dakota Public Employees Insurance System; and Linda Nill, as Administrator of the Life Insurance section of the Public Employees Insurance System, Defendants and Appellees.

No. 14482.

Supreme Court of South Dakota.

Argued Sept. 11, 1984.

Decided June 19, 1985.

Rehearing Denied July 19, 1985.

Ronald G. Schmidt of Schmidt, Schroyer, Colwill & Zinter, P.C., Pierre, for plaintiff and appellant.

William P. Fuller of Woods, Fuller, Shultz & Smith, Sioux Falls, for defendant and appellee Metropolitan Life Ins. Co.

Roger L. Severns, Jr., Sp. Asst. Atty. Gen., Pierre, for defendants and appellees South Dakota Public Employees Ins. System, Al Asher and Linda Nill; Mark V. Meierhenry, Atty. Gen., Pierre, on the brief.

BERNDT, Circuit Judge.

This is an appeal from a summary judgment dismissing an action for declaratory judgment, mandamus and other relief, by appellant, Marva Cheney, to collect life insurance benefits. We affirm.

The facts of this case are before us by stipulation and are not in dispute.

Appellant was the widow of Julian Cheney. Julian Cheney took office as the South Dakota Commissioner of School and Public Lands on January 3, 1983, and thus became a state employee, eligible to join the state employees' group life insurance plan. Cheney died January 16, 1983.

Marva Cheney died subsequent to the initiation of this action. By stipulation and order, William B. Cheney and Luke A. Cheney, as co-trustees of the Marva Cheney Trust, were substituted as parties plaintiff.

Appellee, Metropolitan Life Insurance Company, hereinafter called Company, is the underwriter for the State Insurance Group Life Insurance Plan, which is administered through its agent, South Dakota Public Employees Insurance System, hereinafter called System, also an appellee.

On January 3, 1983, Cheney was furnished with an "offering brochure" and the necessary forms to apply for life insurance coverage under the State's group plan. The offering brochure, or booklet, outlines the insurance plan which was available and specifies when coverage takes effect under the heading, "When Your Insurance Becomes Effective."

Cheney signed and submitted, on January 3, 1983, the necessary application requesting to be insured for three times his basic annual earnings, which were rounded out at $102,000.00. The application authorized the State of South Dakota to make the necessary payroll deductions to cover the premium. Appellant wife was designated as the beneficiary.

There is an insurance contract, or master policy, between Company and System which was issued January 1, 1973. Page 1 of this policy states: "The provisions hereinafter contained, including those in the Exhibits, are part of this Policy as fully as if recited over the signatures hereto affixed." Under "Eligibility and Effective Dates of Insurance" this policy, Page 2, Section 2, reads as follows:

A. Eligibility.--Each Employee shall be eligible for insurance hereunder on his own account ... as set forth in the Exhibit applicable to him.

B. Effective Dates of Insurance.--The insurance on account of any Employee ... shall become effective as set forth in such Exhibit.

The Schedule of Exhibits lists only one exhibit, namely, Certificate Form G.3300A, F, 1KE, 31, 2XYA, as applicable to all employees. In regard to this certificate, Section 7, Page 6 of the policy reads:

Certificates.--The Insurance Company will issue to the Employer, for delivery to each Employee insured hereunder, an individual certificate which shall state the insurance to which such Employee is entitled under this Policy and to whom benefits are payable, and which shall summarize the provisions of this Policy principally affecting the Employee. The word "certificate" as used in this Policy includes certificate riders and certificate supplements, if any.

This certificate, entitled "Group Insurance Certificate," sets out an employee's eligibility for insurance and the effective date thereof as follows:

Each Employee employed subsequent to January 1, 1973 shall be eligible for insurance under the Group Policy on his own account on the first warrant date for the payroll deduction for the contribution required by the Employer toward the cost of his insurance under the Group Policy next following the date of his employment.

....

The insurance on account of any Employee who makes such request on or before the date of his eligibility for such insurance shall become effective on the date of his eligibility for such insurance provided he is actively at work on such date. The insurance on account of any Employee who makes such request after the date of his eligibility for such insurance and on or before the thirty-first day following the date of his eligibility for such insurance (or on or before the thirty-first day following the date of his return to active work if he is not actively at work on the date of his eligibility for such insurance) shall become effective on the next following warrant date following the date of such request, provided he is then actively at work....

Company furnished to System a manual entitled "Group Insurance Administration Manual" which sets forth general information and procedures to be followed in administering the group insurance program. Chapter II of the manual covers eligibility and effective dates of the employee life insurance as follows:

Eligibility Date.--The warrant date of the first payroll deduction for the cost of the employee's insurance following the date of his employment.

Effective Date.--1. Same as "Eligibility Date" if the card was signed on or prior to the eligibility date.

LEGAL ISSUE

Was Julian Cheney covered under the State Employees' Group Life Insurance Plan on the date of his death, January 16, 1983?

Appellant contends that Section 7, Page 6, of the policy and SDCL 58-16-38 ^* delineate what shall be in the certificate and that these provisions do not include eligibility or effective dates. Appellant argues that the attempt to impose or construe language in the certificate as a condition to eligibility is improper and a violation of the policy language as well as of SDCL 58-16-38.

Appellant contends that the three items referenced in SDCL 58-16-38, and only these three items, are authorized by statute to be contained in the certificate. Appellant, in effect, is saying that "effective date" has nothing to do with "the insurance protection to which he is entitled" as set forth in SDCL 58-16-38. Such argument is untenable. There can be no insurance protection unless there also is an effective date; therefore, provision for an effective date in the certificate is not beyond the scope of SDCL 58-16-38.

The certificate states that it is a summary of the policy provisions concerning eligibility and effective dates and other provisions of the group policy and is not a contract of insurance, and that the group policy alone constitutes the contract under which the insurance is provided. Appellant agrees that the certificate is a part of the policy to the extent provided by the policy itself, but argues that a summary can create no conditions of eligibility. As previously noted, the policy contains no effective date provision, but refers to the certificate for such date.

Where the certificate contains provisions which are not contained in the master policy itself, the certificate is consistently construed to be an integral part of the policy. The certificate herein is the identical certificate which was held to be a part of the group life insurance policy by this court in Halverson v. Metropolitan Life Ins. Co., 286 N.W.2d 531 (S.D.1979). The court, in Halverson, stated:

The certificate involved here contains several substantive terms and conditions which cannot be found in the master policy and without which the policy of insurance is incomplete. The certificate contains the only provisions relating to eligibility, effective dates of coverage (which contains the requirement for proof of insurability), extended death benefits, conversion rights, cessation of insurance, and the schedules of insurance.

Id. at 533.

"Every insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended, or modified by any rider, endorsement or application lawfully made a part of the policy." SDCL 58-11-39.

"Words used are to be understood in their ordinary sense...." SDCL 2-14-1. Jacobs v. Pyle, 52 S.D. 537, 219 N.W. 247 (1928).

We reject appellant's argument that Section 7, Page 6 of the policy and SDCL 58-16-38 prevent the effective date provision of the certificate from lawfully being made a part of the policy.

Since the policy contains no provision for an effective date, such provision in the certificate applies.

We next consider appellant's argument that insurance coverage was in force on Cheney at the time of his death under governing relevant statutes and under the express terms of the policy itself.

SDCL ch. 58-16 authorizes the issuance of group life insurance. SDCL ch. 3-12A authorizes the State of South Dakota, acting through the Board of Trustees of the South Dakota Retirement System, to participate in a group health and life insurance plan for employees. There is nothing in either chapter which automatically places any insurance in force on Cheney, or any other employee, or which specifies an effective date.

SDCL 3-12A-25 and 3-12A-2(3) empower the South Dakota Retirement System Board of Trustees to make rules and regulations for the effective administration of SDCL ch. 3-12A, including the effective dates of coverage where not specified by statute....