Hemenway v. MFA Life Ins. Co.

• Decision Date: 09 April 1982
• Docket Number: No. 44084,44084
• Parties: Dennis HEMENWAY, Appellee, v. MFA LIFE INSURANCE COMPANY, Appellant.
• Court: Nebraska Supreme Court

Page 70

318 N.W.2d 70

211 Neb. 193

Dennis HEMENWAY, Appellee, v. MFA LIFE INSURANCE COMPANY, Appellant.

No. 44084.

Supreme Court of Nebraska.

April 9, 1982.

Syllabus by the Court

1. Declaratory Judgments. A suit for declaratory judgment is an action sui generis and may involve questions of both law and equity.

2. Declaratory Judgments: Appeal and Error. A judgment on a fact issue tried to the court alone has the effect of a jury verdict and will not be set aside unless clearly wrong.

3. Judgments: Appeal and Error. In determining whether the evidence supports the findings of the trial court in an action at law where a jury has been waived, the evidence must be considered in the light most favorable to the successful party, all conflicts must be resolved in his favor, and he is entitled to the benefit of every inference that can reasonably be deduced from the evidence.

4. Insurance: Liability. In determining whether coverage is afforded under a particular conditional receipt, the specific language of the receipt must be taken into account. Liability of the insurer, if any, is dependent upon the language of the receipt, the facts of the particular case, and the intention of the parties.

5. Insurance. A conditional receipt may give rise to insurance coverage, even though the policy has not been issued, provided that the conditions for such coverage are met under the terms of the receipts.

6. Insurance: Contracts. Insurance policies should be construed as any other contract and should be given effect according to the ordinary sense of the terms used; and if those terms are clear, they will be applied according to their plain and ordinary meaning.

7. Insurance: Contracts. An insurance contract will be interpreted in accordance with the reasonable expectations of the insured at the time of the contract and, in case of doubt, the policy will be liberally construed in favor of the insured.

8. Attorney Fees. Such attorney fee as may be awarded under the provisions of Neb.Rev.Stat. § 44-359 (Reissue 1978) must be solely and only for services actually rendered in the preparation and trial of the litigation on the policy in question.

Richard E. Mueting of Mueting & DeLay, Norfolk, for appellant.

Jewell, Otte, Gatz, Collins & Domina, Norfolk, for appellee.

Heard before KRIVOSHA, C. J., WHITE, and CAPORALE, JJ., and MURPHY and WHITEHEAD, D. JJ.

CAPORALE, Justice.

Dennis C. Hemenway, plaintiff-appellee, commenced this action for a declaratory judgment to determine whether a policy of health insurance issued by MFA Life Insurance Company (MFA), the defendant-appellant, provided coverage for a heart condition which manifested itself on or about March 13, 1978. The District Court of Nebraska in and for Antelope County entered a judgment against MFA, together with an award of attorney fees in favor of the plaintiff in the amount of $5,010.17 and costs.

MFA alleges, in summary, that the trial court erred in (1) finding the effective date of the policy in question to have been February 9, 1978; (2) finding that all conditions precedent had been met by Hemenway; (3) admitting evidence of conversations concerning policy limitations had between plaintiff and MFA's agent at the time the application for insurance was executed; and (4) awarding an attorney fee. We find the assignments, except as to the attorney fee, to be without merit and affirm as modified hereinafter.

A suit for declaratory judgment is an action sui generis and may involve questions of both law and equity. The particular decision from which this appeal is taken involves, at the outset, questions of fact. As such, the parties were entitled to a jury trial. Neb.Rev.Stat. § 25-21, 157 (Reissue 1979); MFA Ins. Companies v. Mendenhall, 205 Neb. 430, 288 N.W.2d 270, 271 (1980); State Farm Mutual Automobile Ins. Co. v. Kersey, 171 Neb. 212, 106 N.W.2d 31 (1960). A jury having been waived, the judgment of the trial court on a fact issue has the effect of a jury verdict and will not be set aside unless clearly wrong. MFA Ins. Companies v. Mendenhall, supra. In determining whether the evidence supports the findings of the trial court in an action at law where a jury has been waived, the evidence must be considered in the light most favorable to the successful party, all conflicts must be resolved in his favor, and he is entitled to the benefit of every inference that can reasonably be deduced from the evidence. Crawford v. Ham, 209 Neb. 802, 311 N.W.2d 896 (1981); Fabricators, Inc. v. Farmers Elevator, Inc., 203 Neb. 150, 277 N.W.2d 676 (1979); State Farm Mutual Automobile Ins. Co. v. Kersey, supra.

With the foregoing scope of review in mind, the record reveals that on February 9, 1978, as a result of a contact by the plaintiff, Loren Johnson, an insurance salesman for MFA, and Benny Rowe, district sales manager for MFA, arrived at the Hemenway residence to discuss possible health insurance coverage. The plaintiff selected a policy of insurance and Rowe assisted in filling out the application. The application indicates that plaintiff selected benefit schedules "F" and "G," which provided for $50 as maximum daily hospital room allowance and $500 as the maximum allowed under the surgical schedule. In the course of filling out the application, plaintiff mentioned to Rowe that he had received prior medical treatments for hernias, a fact which was noted in the application. After the application was completed, the amount of the premium was determined to be $182.52, which was paid to MFA's agents with a check issued by the plaintiff's wife. This payment covered the premiums for the first 2 months for the health insurance policy purchased. Rowe also issued the Hemenways a "Conditional Coverage Receipt" which provided in part: "[V]oid if altered or modified or if draft or check given in payment is not honored. NO INSURANCE SHALL BE EFFECTIVE BEFORE POLICY DELIVERY TO OWNER UNLESS ALL THE CONDITIONS ON THE OTHER SIDE OF THIS RECEIPT ARE FULFILLED EXACTLY." The language on the other side of the receipt states: "CONDITIONS PRECEDENT

"Condition No. 1. Payment of Premium. Full payment of initial premium on selected mode must be made to an authorized agent of MFA Life Insurance Company on date of application.

"Condition No. 2. Insurability. MFA Life Insurance Company at its Home Office must determine to its satisfaction, according to its rules and practices, that as of the later date of the application or medical examination form, if required, the persons proposed for insurance were insurable for the plans and amounts applied for and at the rate of initial premium paid.

"Effective Date of Insurance. If above conditions are met, insurance shall be effective, subject to the provisions in the policies applied for, as of the later date of the application or medical examination form, if required."

We note that at no time prior to the issuance of the health policy was the plaintiff required to undergo any physical or medical examination.

Approximately 3 weeks after the application and check for payment were submitted to MFA's agents, Dennis Hemenway began to experience episodes of shortness of breath and dizziness. On March 13, 1978, plaintiff was examined by a physician in Omaha and was hospitalized to receive a series of tests to determine the cause of his illness. On March 25, 1978, plaintiff was informed that his shortness of breath was due to a blockage in the arteries leading away from his heart. Plaintiff subsequently, on March 29, 1978, underwent a triple coronary heart bypass operation.

On March 25, 1978, MFA issued health insurance policy No. D-031720 to the plaintiff which recites an effective date of March 16, 1978. On April 30, 1978, the plaintiff submitted a claim to MFA for payment of the medical expenses incurred in receiving treatment for his heart condition. MFA has denied all heart-related claims on the ground that the heart condition commenced prior to the March 16, 1978, effective date of the policy.

MFA contends that the application for insurance submitted by plaintiff did not contain any request to exclude coverage for inguinal hernias, and therefore the policy issued March 25, 1978, would be considered a counteroffer for insurance exempting coverage for inguinal hernias. Hemenway argues that he has met all conditions required by the conditional receipt to be afforded coverage as of February 9, 1978; that the policy issued conforms in all respects with the insurance for which he applied; and, therefore, the health insurance policy issued by MFA should not be considered a counteroffer.

The major issue before this court is the determination of when the health insurance policy became effective, February 9, 1978, as claimed by plaintiff, or March 16, 1978, as claimed by MFA.

We begin our analysis by reviewing the pertinent law which has developed in regard to "conditional" or "binding" receipts which are utilized by insurance companies, and which afford coverage to an applicant between the date of application and the actual issuance of the policy. In determining whether coverage is afforded under a particular receipt, the specific language of the receipt must be taken into account. Liability of the insurer, if any, is dependent upon the language of the receipt, the facts of the particular case, and the intention of the parties. Vernon v. Provident Life & Acc. Ins. Co., 266 S.C. 208, 222 S.E.2d 501 (1976).

Conditional receipts, as issued by MFA in this case, have been the subject of abundant litigation. See, Annot., 2 A.L.R.2d 943 (1948); 1 Couch on Insurance §§ 14:39 to 14:46 (2d ed. 1959); Comment, Life Insurance Receipts: The Mystery of the Non-Binding Binder, 63 Yale L.J. 523 (1953-54); Comment, "Binding Receipts" in California, 7 Stan.L.Rev. 292 (1954-55). The use of such receipts has developed into a common practice among insurance companies and results from the fact that an application for insurance is simply an offer, revocable at...