Glarner v. Time Ins. Co.

• Decision Date: 29 January 1991
• Docket Number: No. CX-90-1674,CX-90-1674
• Citation: 465 N.W.2d 591
• Parties: Colin K. GLARNER, Respondent, v. TIME INSURANCE COMPANY, Appellant.
• Court: Minnesota Court of Appeals

Page 591

465 N.W.2d 591

Colin K. GLARNER, Respondent, v. TIME INSURANCE COMPANY, Appellant.

No. CX-90-1674.

Court of Appeals of Minnesota.

Jan. 29, 1991.

Review Denied April 18, 1991.

Syllabus by the Court

1. Where an individual is an acceptable health risk, pays the insurer a premium, and is given a conditional receipt purporting to provide interim coverage pending delivery of the policy, coverage will be implied by law to overcome an unconscionable condition precedent.

2. Where a party opposing a motion for summary judgment fails to present evidence, within its control, in order to rebut prima facie evidence submitted by the proponent of the motion, no issues of material fact exist and summary judgment is properly ordered in favor of the moving party.

3. Where the record contains no evidence of bad faith with respect to the litigation, an award of attorney's fees is error.

Eugene J. Crosby, Faribault, for respondent.

Richard P. Mahoney and Victor E. Lund, Mahoney, Dougherty & Mahoney, Minneapolis, for appellant.

Considered and decided by GARDEBRING, P.J., and RANDALL and DAVIES, JJ.

DAVIES, Judge.

OPINION

Appellant contends the trial court erred when it found that an implied contract for interim health insurance existed and ordered summary judgment in favor of the respondent, and in awarding respondent $9,521.00 in attorney's fees.

We affirm in part, but reverse as to attorneys fees.

FACTS

Respondent, Colin K. Glarner, employed by Independent School District No. 656, was scheduled to retire June 1, 1988. Lawrence K. Vassar, an insurance salesman, sold policies for appellant, Time Insurance Company. Vassar, aware of respondent's impending retirement, contacted respondent concerning health care insurance following retirement. Vassar persuaded respondent to complete a health insurance application that was submitted to Mid-America Mutual on or about May 1, 1988. On May 18 Mid-America Mutual denied respondent's application due to blood pressure readings.

On May 31 Vassar completed a second application for respondent and submitted it to appellant. The application disclosed that Mid-America Mutual had denied the previous application due to blood pressure readings, requested a policy date of June 1, 1988, and included respondent's check for $131.12 as payment of the first quarter premium. Appellant negotiated respondent's check on June 15, 1988. Vassar assured respondent that the application would be approved.

Vassar, on behalf of appellant, executed a conditional receipt for the premium payment. The conditional receipt stated:

No insurance will become effective prior to policy delivery. Except, insurance may become effective prior to the policy delivery if and when each and every condition contained in this receipt is met. No agent or broker of the Company is authorized to alter or waive any of the following conditions:

* * * * * *

The conditions under which insurance, for which payment(s) under Life and/or Health above is intended, may become effective prior to policy delivery, are as follows:

1. The Proposed Insured(s) must be, on the Effective Date, as HEREAFTER DEFINED, a risk acceptable to the Company under its rules, standards and practices for the exact policy and premium applied for, without any modification.

2. The amount of the payment taken with the application must be equal to the amount of the full first premium payment selected.

3. The policy is issued exactly as applied for within 60 days from the date of the application. If the policy is not issued within 60 days from the date of application, then this condition has not been fulfilled and there will be no coverage provided under the terms of this conditional receipt. Any coverage provided by the Conditional Receipt ends when the policy is delivered.

If each and every one of the above conditions shall have been fulfilled, then the insurance as provided by the terms and conditions of the policy applied for will become effective on the Effective Date prior to the policy delivery. The total amount of insurance (life insurance, accidental death benefit and principal sum benefits under health insurance) which may become effective prior to the policy delivery shall not exceed $100,000.

"Effective Date" as used herein means the later of: a) the date the application is signed; b) the date of completion of all medical examinations, if required; and c) the Requested Policy Date shown on the application by the Company.

If one or more of the conditions are not met, the liability of the Company will be limited to the return of the sum received.

On July 6, 1988, appellant directed Mary Erpenbach, a paramedic, to conduct an examination of respondent for blood pressure, height, and weight readings. The exam was completed on July 7 and the results were forwarded to appellant on July 8. No further request for a medical examination was made by appellant.

Respondent suffered a heart attack on July 14, 1988. Between July 14 and July 25 respondent incurred approximately $29,000 in medical expenses. Respondent immediately submitted all medical bills to appellant for payment. On August 16 appellant informed respondent by letter that he was not accepted for coverage, but the letter rejecting respondent's coverage provided no specific reason for appellant's action. Appellant never delivered the health insurance policy to respondent. On August 22, 1988, appellant refunded the $131.12 premium to respondent.

On August 29, 1989, respondent served a complaint on appellant, Time Insurance Company, alleging a breach of contract and requesting the court to adjudge: that an implied contract for interim health insurance existed; that appellant, as insurer, is responsible for respondent's medical bills incurred during the period of interim insurance; and that respondent be awarded costs, disbursements, and attorney's fees. Appellant did not answer the complaint, but instead, on September 27, 1989, moved the court to dismiss for failure to state a claim pursuant to Minn.R.Civ.P. 12.02.

On October 10, 1989, respondent moved the court for summary judgment. The trial court consolidated the motion to dismiss and the motion for summary judgment. Both parties submitted briefs and made oral arguments. The respondent submitted additional affidavits, but the appellant offered no evidence, relying on its position that the complaint was insufficient to sustain a claim.

ISSUES

I.a. Did the trial court correctly grant summary judgment implying interim insurance coverage by law where the insurer's conditional receipt made interim coverage illusory?

b. Was there a material factual dispute as to the insurability of respondent at the time the premium was paid and the conditional receipt issued?

II. Did the trial court err by awarding attorneys fees to respondent when no evidence of bad faith by appellant was entered into the reward?

ANALYSIS

I.

On appeal from a summary judgment this court determines whether any genuine issue of material fact exists and whether the trial court erred in its application of the law. Lee v. Metropolitan Airport Com'n, 428 N.W.2d 815, 819 (Minn.App.1988). Summary judgment should be granted only when it is clear that no material fact issues are involved. Nord v. Herreid, 305 N.W.2d 337, 339 (Minn.1981). This court must view the evidence in the light most favorable to the non-moving party and resolve all doubts or factual inferences against the moving party. Id. A party opposing a motion for summary judgment "must present specific facts showing genuine issues for trial." Marose v. Hennameyer, 347 N.W.2d 509, 511 (Minn.App.1984).

The Question of Law

The appellant argues that no coverage existed because no policy was delivered to respondent as required by "condition 3" of the conditional receipt.

The interpretation and construction of an insurance policy is a matter of law. As such, this court may determine whether the trial court properly interpreted and applied the law to the facts presented.

State Farm Mutual Automobile Ins. Co. v. Budget Rent-A-Car Systems, Inc., 359 N.W.2d 673, 675-76 (Minn.App.1984) (citation omitted). Therefore, the interpretation of "condition 3" of the conditional receipt is an appropriate subject for our further review.

Conditional receipts can be categorized into three types. First, the approval type provides that the policy takes effect at a certain date, but with the added proviso that the application must be accepted by the company. There is no contract without company acceptance. Second, the condition precedent type of receipt creates an immediate contract, but coverage does not take effect until the company is satisfied that the risk is acceptable. The effect of these two types of receipts is to offer illusory coverage and to give a company a premium for a period of time during which the applicant remains more or less uninsured. A third type of conditional receipt, the condition subsequent type, provides coverage starting upon payment, but it permits the company to terminate coverage effective upon a determination that the risk is unacceptable. See e.g., W. Young & E. Holmes, Cases and Materials on the Law of Insurance, 563 (2nd ed. 1985) (citing Simses v. North American Co. for Life & Health Ins., 175 Conn. 77, 394 A.2d 710, (1978)).

"Condition 3," as applied by appellant, amounts to an approval, or illusory, type of conditional receipt. The condition provides that coverage will take effect upon delivery of the applied for policy; delivery of the policy only follows approval of the application by the company. Condition 3, as interpreted by appellant, gives appellant full claim to respondent's premium payment without its incurring any liability during the interim period.

An alternative interpretation of condition 3 is that coverage under the conditional receipt is valid for 60 days or until the policy is delivered or refused, whichever comes first. This alternative interpretation (condition subsequent) is...