John Hancock Mut. Life Ins. Co. v. McNeill
| Decision Date | 09 September 1976 |
| Docket Number | CA-CIV,No. 1,1 |
| Parties | JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, Charles G. Hall, III, general agent for John Hancock Mutual Life Insurance Company; and Phillip Lippmann, special agent for John Hancock Life Insurance Company, Appellants and Cross-Appellees, v. Sylvia D. McNEILL, a widow, Cynthia Lori Keith, a minor, Lorraine Marie Keith, a minor, Shannon Noreen Keith, a minor, Cheryl Ann Keith, a minor, and James Craig Keith, a minor, by and through their guardian ad litem, Sylvia D. McNeill, Appellees and Cross-Appellants. 2888. |
| Court | Arizona Court of Appeals |
Evans, Kitchel & Jenckes by Philip C. Tower, Phoenix, for appellants and cross-appellees.
Jones, Teilborg, Sanders, Haga & Parks by Frank A. Parks, Phoenix, for appellees and cross-appellants.
In this appeal we are asked to determine whether a conditional receipt issued at the time of signing an application for life insurance created temporary insurance so as to have provided coverage upon death of the applicant which occurred prior to the company's determination of insurability.
This issue arose out of an action brought by appellee-plaintiff, Sylvia D. McNeill, widow of John R. McNeill as beneficiary of an alleged life insurance contract and guardian ad litem of various minors, against appellants-defendants, John Hancock Mutual Life Insurance Company (John Hancock), Charles G. Hall, III, general agent for John Hancock and Phillip Lippmann, special agent for John Hancock. Plaintiff's complaint was in two counts. Count one alleged a contract of life insurance existed with John Hancock insuring the life of John R. McNeill and asked for enforcement of that contract and punitive damages. Count two alleged negligence on the part of the general and special agent of John Hancock and sought damages against these individuals only in an amount equal to the terms of the insurance contract and punitive damages. The trial court on plaintiff's motion for summary judgment, granted plaintiff's relief as to count one, but ruled that plaintiff had made an election of remedies by obtaining judgment on count one and therefore was not entitled to a determination of punitive damages. John Hancock has appealed the judgment against it and its agents under count one. Plaintiffs have cross-appealed from the trial court's denial of their punitive damage relief.
The facts giving rise to plaintiff's action are not in substantial dispute. On October 17, 1972, as a result of a contact by Phillip Lippmann, salesman for John Hancock, John R. McNeill signed an application for life insurance on his life in the sum of $15,000, with a double indemnity clause and various paid up life insurance policies on the lives of his wife and the five minor children. After Mr. McNeill answered all the questions propounded, Mr. Lippmann determined the amount of premium involved and received a check from Mr. McNeill in the sum of $39.00 covering the first month's premium for the insurance purchased. Mr. Lippmann then issued Mr. McNeill a conditional receipt for this sum 1 which provided, in pertinent part, that if the sum received was
During the course of the initial interview with Mr. Lippmann, Mr. McNeill was advised it would be necessary for him to take a physical examination and such an examination was scheduled the same day. Mr. McNeill passed the physical examination. There is no contention that Mr. McNeill's physical condition made him uninsurable. Both Mr. Lippmann and Mr. Hall, Mr. Lippmann's supervisor, recommended to John Hancock that Mr. McNeill's application for life insurance be accepted.
The application and medical report were received in John Hancock's home office on October 24, 1972, and a retail credit report on Mr. McNeill was received by the home office on October 27, 1972. This credit report revealed that Mr. McNeill had recently been convicted of driving while intoxicated, 2 and that he had at some unknown time in the past been laid off a job because of drinking.
On November 16, 1972, Mr. McNeill was killed in an automobile accident and John Hancock was notified of his death on November 17, 1972. On December 11, 1972, plaintiffs were notified that the application for insurance had been rejected. In answer to interrogatories, John Hancock indicated that the reason the application had been denied was Mr. McNeill's recent conviction of driving while intoxicated and the information concerning his use of intoxicants.
Mr. William J. Mahoney, underwriting consultant for John Hancock, testified through deposition, that the 'guidelines' for underwriting at John Hancock did not make it mandatory that a recent conviction for drunk driving would result in a rejection of life insurance. He further testified that such a conviction and other drinking habits could result in a 'rated' premium (a higher premium then standard for the loss covered) or rejection and that this decision was normally a judgment determination by the particular underwriter reviewing the application and data. The plaintiff's basic contention on appeal is that the conditional receipt issued by John Hancock created a temporary contract of insurance effective at least at the time the physical examination was completed and since death occurred prior to any formal rejection of that temporary insurance, John Hancock is liable for the face value of the anticipated policy. The trial court agreed with this contention.
John Hancock, on the other hand, contends that during the interim between the issuance of the conditional receipt and the issuance of the actual policy, Mr. McNeill would have had coverage if three conditions were met--the payment of one month's premium, the passing of a physical examination and a showing that Mr. McNeill was acceptable under the company's rules and regulations. John Hancock thus argues that the beneficiaries can recover only if Mr. McNeill was found to be insurable in accordance with its rules and regulations or if its determination of uninsurability was made in bad faith. These determinations, John Hancock argues, are material fact issues precluding the granting of summary judgment.
This court, then, is directly faced with the issue of whether the conditional receipt utilized in this case provided temporary insurance and if so, when did that temporary insurance become effective?
Before discussing the law pertinent to this subject, it is important to analyze the type of conditional receipt involved in this case. It is generally conceded that conditional receipts utilized by insurance companies fall into three 3 general categories. As stated in Simpson v. Prudential Insurance Co. of America, 227 Md. 393, 177 A.2d 417 (1962) these classifications are:
'(1) 'insurable risk' or 'satisfaction' binders in which the document states that the proposed insurance takes effect at the time of payment or of the physical examination, if it later appears that under objective standards of insurability that the applicant was insurable at the date in question; (2) 'approval' binders in which no insurance comes into effect until the insurance is approved by an authorized official of the company; if it does, however, the effective date is that of the application or the medical examination; and (3) unconditional temporary insurance during the pendency of the application or for a stated period (rarely used in life insurance.)' 177 A.2d at 422.
Stripped of its non-essentials, the conditional receipt utilized by John Hancock here, provides that in the event the payment received, as evidenced by the receipt, 'is at least 1 month's proportionate part of premium according to the Company's published rates . . . and if the Company at its Home Office shall determine that each person proposed for insurance . . . was . . . acceptable under the Company's rule . . . the contract applied for shall take effect retroactively as of the latest 'Completion Date' . . ..'
John Hancock contends, and we agree, that this type of conditional receipt falls within the 'insurable risk' classification.
There is no doubt that insurable risk type of conditional receipts can give rise to a contract of insurance, even in the absence of the issuance of an insurance policy provided the conditions precedent to such coverage are met. As was stated in Mofrad v. New York Life Ins. Co., 206 F.2d 491 (10th Cir., 1953):
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