Great Am. Reserve Ins. Co. of Dallas v. Strain

• Decision Date: 07 November 1962
• Docket Number: No. 39165,39165
• Citation: 377 P.2d 583
• Parties: GREAT AMERICAN RESERVE INSURANCE COMPANY OF DALLAS, Plaintiff in Error, v. Leara L. STRAIN, Defendant in Error.
• Court: Oklahoma Supreme Court

Page 583

377 P.2d 583

1962 OK 241

GREAT AMERICAN RESERVE INSURANCE COMPANY OF DALLAS, Plaintiff in Error, v. Leara L. STRAIN, Defendant in Error.

No. 39165.

Supreme Court of Oklahoma.

Nov. 7, 1962.

Rehearing Denied Jan. 8, 1963.

Syllabus by the Court

1. One will not be permitted to repudiate his contract and retain the benefits which he has derived therefrom; the law requires that every right acquired under the contract sought to be repudiated must be absolutely surrendered as a condition precedent to its avoidance.

2. An insurer who, with full knowledge of facts alleged to preclude or defeat recovery upon an insurance policy, fails to return or tender the premium received thereunder, is barred by both waiver and estoppel in pais from avoiding liability.

3. A proposed amendment to make pleadings conform to the proof, when erroneously rejected by the trial court, may on appeal be treated as though it had been allowed below.

Appeal from the District Court of Rogers County; John Q. Adams, Judge.

Action by beneficiary under a group life insurance policy to recover death benefits. From a judgment based upon verdict allowing recovery, insurer appeals. Affirmed.

Bassmann, Goordon & Mayberry, Claremore, Rucker, Tabor, Best, Sharp & Shepherd, Joseph M. Best, O. H. 'Pat' O'Neal, Tulsa, for plaintiff in error.

H. Tom Kight, Claremore, for defendant in error.

DAVISON, Justice.

Great American Reserve Insurance Company of Dallas, designated herein as defendant or 'insurer', issued on December 4, 1957, its group life insurance policy covering 'eligible employees' of the Oklahoma State Highway Patrol. On the same day an individual 'certificate of insurance under the group policy' was issued by the insurer to Owen B. Strain, deceased, then a member of the Highway Patrol. The present action was brought by Leara L. Strain, plaintiff below, who, as named beneficiary, sought to recover death benefits provided by this policy. Judgment was entered on a jury verdict allowing recovery. Insurer has perfected this appeal after the trial court overruled its motion for a new trial.

The 'certificate of insurance' provided, inter alia, that it shall be 'void' if issued to an employee who is 'not actually at work' on the date thereof. At the trial defendant showed by stipulation of the parties that from November 26, 1957, until his death on December 5, 1957, decedent was continuously confined as a bed patient in the Franklin Hospital at Claremore, Oklahoma. On rebuttal, the beneficiary produced several witnesses who testified that on the effective date of the policy (December 4,) the deceased was on the payroll of the Patrol and, although bedfast, did nevertheless actually perform some of the regular and customary duties of his employment because he prepared a certain supplemental accident report at the request, and for the use of, the local county attorney. The proof so elicited stands uncontradicted and undisputed. The principal contention advanced is that the decedent was never 'actually at work' within the meaning and purview of the quoted policy clause; hence, the insurer urges that the contract of insurance did not become effective prior to decedent's death, and is unenforceable by the beneficiary.

Policy provisions with language bearing some resemblance to that employed here have, with varied conclusions, been applied by appellate courts to fact situations of a more or less similar nature. See White v. Great American Reserve Insurance Company, Tex.Civ.App., 342 S.W.2d 793; Boyer v. Travelers Ins. Co., 7 Cal.2d 615, 61 P.2d 925; Augusta v. John Hancock Mutual Life Ins. Co., 11 Misc.2d 111, 170 N.Y.S.2d 908; Equitable Life Assurance Society of United States v. Worthman, 7 Cir., 67 F.2d 721; Colantonio v. Equitable Life Assurance Society, Ohio Com.Pl., 100 N.E.2d 716; Elsey v. Prudential Ins. Co. of America, 10 Cir., 262 F.2d 432; see also John Hancock Mutual Life Ins. Co. v. Welsh, 5 Cir., 267 F.2d 152. Under the record in the cause at bar we need not, however, for the reasons to be stated, decide whether the evidence, as narrated, is sufficient to show that the deceased was 'actually at work' on the effective date of the policy.

In her petition plaintiff alleged, in general terms, compliance with all the conditions of the policy. This form of pleading, we note, is sanctioned by our code of civil procedure. 12 O.S.1961 § 300. The sole defense interposed in the answer was insured's breach of the condition requiring him to be 'actually at work' on the date the policy was issued. The execution of the policy and defendant's acceptance of the premium due thereon were not denied. Although prior to the filing of its answer insurer admittedly did have knowledge of all the facts upon which it sought to avoid the obligation, it did not plead therein that the premium was returned nor that an offer to restore the same had been made. At the trial, defendant correctly assumed the burden of proving the allegations of its answer and undertook to establish a breach of condition by showing that on December 4, 1957--the date on which its policy was issued--decedent remained in the hospital. Nowhere in the proceedings did the defendant show or attempt to establish the return or tender of the premium. As reflected by defendant's argument and the trial court record, defendant unmistakably proceeded on the assumption that decedent's confinement in the hospital on December 4, rendered the policy ineffective, void ab initio, or extinguished by operation of law and without the necessity of any affirmative action on its part. This view of the law was erroneous.

The policy clause upon which defendant sought to avoid its liability contained this language: 'This Certificate (of insurance) is void if issued to (a) an Employee who is not actually at work on the date hereof * * *.' The word 'void' admits of more than one meaning. A contract may be void in the sense of being illegal; if so, the obligation, being prohibited by law, is a nullity in its contemplation; hence incapable of affirmance, ratification and enforcement. In some context the word void may be construed as meaning merely voidable; that is, the contract continues in force and effect until its timely repudiation or rescission by an affirmative act of the party entitled to avoid the obligation. It is the latter meaning of the term void that the law attaches to a policy clause such as that under consideration. Pacific Mutual Life Ins. Co. v. O'Neil, 36 Okl. 792, 130 P. 270, 274. In the case last cited this court, quoting from an Indiana decision, said:

"* * * A court cannot by its fiat alone, render a voidable contract void, but its can only adjudge that the party entitled to avoid it has done so, and that it thereby and for that reason became invalid. * * *" (Emphasis supplied)

The nature and effect of a so-called 'void' clause in the insurance policy is aptly explained in Moody v. Amazon Insurance Co., 52 Ohio St. 12, 38 N.E. 1011, 1012, 26 L.R.A. 313, 49 Am.St.Rep. 699:

'* * * Those clauses usually contained in policies of insurance, which provide that the policy shall become void, or its operation defeated or suspended, or the insurer relieved wholly or partially from liability, upon the happening of some event, or the doing or omission to do some act, are not in any proper sense conditions precedent. If they may be properly called conditions, they are conditions subsequent, and matters of defense, which, together with their breach, must be pleaded by the insurer, to be available as a means of defeating a recovery on the policy; and the burden of establishing the defense, if controverted, is, of course, upon the party pleading it.' (Emphasis supplied)

Non-compliance with, or breach of, a condition such as that which defendant invoked in its defense does not operate to extinguish the policy or render it ineffective and void. The law requires an affirmative act of rescission on the part of the insurer in order to avoid its liability.

In Pacific Mutual Life Ins. Co. v. O'Neil, supra, we quoted with approval as follows: (130 P. page 274)

"* * * If appellant [insurer] desired to avoid this policy for the reasons pleaded, it was required to act with reasonable promptness after acquiring knowledge of the facts, and thereupon it was its duty to notify appellees [beneficiary] of its decision to avoid the policy, and of the reasons therefor, and to return or tender, or in some appropriate way manifest its willingness and readiness to restore the unearned premium received. The answers filed do not disclose the time when appellant [insurer] learned the true state of appellees' title, nor deny knowledge of the same at the time of issuing the policy, but proceed upon the theory that the policy was void ab initio and without any action on the part of the insurer. This theory was wrong and the averment of facts insufficient. The answers should have pleaded the covenants or conditions relied upon, a breach, and the acts done by the appellant [insurer] in pursuance of its election to avoid the contract. * * *" (Emphasis supplied)

The duties of a party who seeks to rescind a contract are defined in 15 O.S.1961 § 235, which provides:

'Rescission, when not effected by consent, can be accomplished only by the use, on the part of the party rescinding, of reasonable diligence to comply with the following rules:

'1. He must rescind promptly, upon discovering the facts which entitle him to rescind, if he is free from duress, menace, undue influence, or disability and is aware of his right to rescind; and,

'2. He must restore to the other party everything of value which he has received from him under the contract; or must offer to restore the same, upon condition that such party shall do likewise, unless the latter is unable, or positively refuses to do so.'

The terms of the quoted enactment are clear and definite. Its provisions control, with equal force and effect, whether the action or defense...