Kampf v. Franklin Life Ins. Co.

• Decision Date: 13 June 1960
• Docket Number: No. A--75,A--75
• Citation: 161 A.2d 717,33 N.J. 36
• Parties: Jean D. KAMPF, Plaintiff-Respondent, v. FRANKLIN LIFE INSURANCE COMPANY, Springfield, Illinois, a corporation of the State of Illinois, Defendant-Appellant.
• Court: New Jersey Supreme Court

Page 36

33 N.J. 36

161 A.2d 717

Jean D. KAMPF, Plaintiff-Respondent, v. FRANKLIN LIFE INSURANCE COMPANY, Springfield, Illinois, a corporation of the State of Illinois, Defendant-Appellant.

No. A--75.

Supreme Court of New Jersey.

Argued Jan. 11 and 12, 1960.

Reargued April 4, 1960.

Decided June 13, 1960.

Nicholas Conover English, Newark, argued the cause for defendant-appellant (McCarter & English, Newark, attorneys; Nicholas Conover English, of counsel).

Max Klayman, Newark, argued the cause for plaintiff-respondent (Clive S. Cummis, Newark, of counsel and on the brief).

The opinion of the court was delivered by

SCHETTINO, J.

This appeal is from a Superior Court, Chancery Division summary judgment in favor of the plaintiff on cross motions in an action brought by a beneficiary of a 20-year term life insurance policy. The trial court's opinion is reported at 56 N.J.Super. 185, 152 A.2d 162 (Ch.Div.1959). We certified the matter on our own motion while the appeal was pending in the Appellate Division.

The case presents two issues for consideration. The first involves the determination of the date on which the contract of insurance required that the crucial premium payment had to be made. After argument on that point, we requested reargument and briefs on the question of whether the payment of that premium was excused under the waiver of premium provision of the policy.

I

On September 24, 1956 defendant's agent delivered to the insured the policy dated September 21, 1956 for which he had applied earlier in that month and under which he had agreed to make payments quarterly. He thereupon paid his initial quarterly premium.

The insured died on April 22, 1958 at which time it is alleged by defendant that the policy had lapsed because of the failure to pay the premium due on March 21 of that year before the expiration of the 31-day grace period provided for in the policy. The grace period provision states that the policy would remain in force and that if death occurred within that period, the amount of the premium, if unpaid, would be deducted from the amount payable to the beneficiary.

The policy provides that the first premium was payable at the beginning of the first policy year and subsequent ones were payable on the quarterly anniversary of the first policy year's date which in this policy was stated to be September 21, 1956. The application for insurance which is expressly made a part of the policy provides that the policy shall not take effect until delivered to the insured and first payment has been made during insured's lifetime while in good health in which event 'such policy shall be deemed effective as of the beginning of the first policy year as shown on such policy.'

Defendant urges that the effective date is September 21, 1956--the date on which the policy was executed by its officers; that therefore the quarterly premium payment was due on March 21, 1958 and that the 31-day grace period ended on April 21, 1958. Thus, as the death occurred on April 22, 1958 the policy had already lapsed.

Plaintiff counters that the effective date was September 24, 1956, the date on which the policy was delivered by defendant's agent to the insured and the first premium paid, which date, under the contract, actually marked the beginning of insurance coverage; that the due date of the last premium was March 24, 1958 and therefore that the death occurred within the grace period which would have ended on April 24, 1958.

The trial court found an ambiguity in the insurance contract. It referred to the rule of construction that when a contract contains ambiguous language, it will be construed against the party who drew it and held that 'The more liberal rule should be called into play in order to avoid the forfeiture which the Court of Chancery seeks to avoid, and to do so is also in accordance with the 'almost unanimous holding of all courts that insurance contracts must be liberally construed in favor of a policyholder or beneficiary thereof, wherever possible, and strictly construed against the insurer in order to afford the protection which the insured was endeavoring to secure when he applied for the insurance. " Among the authorities cited were: Snyder v. Dwelling House Insurance Co., 59 N.J.L. 544, 37 A. 1022 (E. & A.1896); Yannuzzi v. United States Casualty Co., 9 N.J. 201, 207, 115 A.2d 557 (1955); Schneider v. New Amsterdam Cas. Co., 22 N.J.Super. 238, 243, 92 A.2d 66 (App.Div.1952); 13 Appleman, Insurance Law & Practice (1943), § 7401, p. 50; 1 Couch, Insurance 2d (Anderson ed. 1959), § 15:73, p. 776. It found for plaintiff.

We understand that life insurance is offered on two bases here pertinent. The applicant may submit the premium with his application and if the policy issues, it is dated as of the date of the application and coverage is provided retroactively to that date. Alternatively, the applicant may omit to submit the premium with the application, in which event the policy bears the date of its actual issuance, even though by virtue of other provisions the insurance does not become effective until the policy is delivered and the first premium is paid during the life and good health of the assured. The second procedure was the one here used, and the time interval between the date fixed in the policy (the date of issuance by the company) and the date of actual insurance coverage (the date the first premium is paid) represents the margin of success or failure of the claimant.

If the time for payment of subsequent premiums is measured from the date the policy bears, then obviously the insured has received no protection for the time period between that date and the date on which the insurance coverage in fact began, notwithstanding that he paid a premium for that interval. On the other hand, an insured may profit by the 'predating' in other respects, to wit, the running time under the incontestability clause (State Mut. Life Assur. Co. v. Stapp, 72 F.2d 142, 145--146 (7 Cir. 1934)) or suicide clause. Schwartz v. Northern Life Ins. Co., 25 F.2d 555 (9 Cir. 1928), certiorari denied 278 U.S. 628, 49 S.Ct. 29, 73 L.Ed. 547 (1928).

Defendant urges, and we see no basis to reject its position, that neither statute nor case law forbids the parties to agree that the time for premium payment shall be measured from the date of actual issuance of the policy rather than the date of effective coverage. Defendant stresses the practical problems of the insurance industry and argues the alternative plans we described above are the only feasible approaches to the immediate problem. It argues that if, where the premium does not accompany the application, the dates for subsequent premium payments must be computed from the date of actual coverage (i.e., the date the first premium is paid), there would be costly administrative problems involved in ascertaining the precise date and correcting the internal records and calculations. Adverting to the compensatory advantages to the assured from the use of the fixed policy date, described above, and these practical problems, defendant urges the contract of the parties offends no policy of law and should be enforced precisely according to its terms. We agree, if the contract is free of ambiguity in this respect, and hence the issue is whether there is room for doubt on the face of the agreement.

We think the contract clearly requires the later premium dates to be measured by the date of issuance stated in the policy, and accordingly defendant is entitled to prevail on this facet of the case.

The problem here is one of simple contract law. As was noted by Judge Parker in Sellars v. Continental Life Ins. Co., 30 F.2d 42, 45 (4 Cir. 1929) 'Courts cannot make contracts for parties. They can only enforce the contracts which the parties themselves have made.' When the terms of an insurance contract are clear, it is the function of a court to enforce it as written and not to make a better contract for either of the parties. Kupfersmith v. Delaware Ins. Co., 84 N.J.L. 271, 275, 86 A. 399; 45 L.R.A., N.S., 847 (E. & A.1913); James v. Federal Insurance Co., 5 N.J. 21, 24, 73 A.2d 720 (1950). The parties are entitled to make their own contracts. McCampbell v. New York Life Ins. Co., 288 F. 465, 469 (5 Cir. 1923), certiorari denied 262 U.S. 759, 43 S.Ct. 705, 67 L.Ed. 1219 (1923). Absent statutory prohibitations, an insurance company has the right to impose whatever conditions it desires prior to assuming its obligations and such provisions should be construed in accordance with the language used. Schneider, supra. This rule applies with equal force to the selection of the dates on which premium payments are to be made. The parties may agree upon such dates and where the time of payment is thus specified by the terms of the policy, those terms control and the date so fixed is binding on both parties. 14 Appleman, op. cit. supra, § 7953, p. 165.

But, here, the narrow basic issue is when were premium payments due? This policy is clear for it provides that

'This insurance is granted in consideration of the application herefor and of the payment in advance of the premiums as herein provided. The first premium in the amount specified on the first page, Is payable at the beginning of the first policy year and subsequent premiums are payable on the anniversary of said date in every year thereafter until premiums have been paid for the period specified on the first page.' (Emphasis added.)

The policy provided for an option which the insured accepted to pay the premium quarter-annually. Whatever reference to this date may mean in other contexts, it is clear that 'the beginning of the first policy year' is the date which fixes the time for the payment of future premiums. Our sole determination in the present matter is that the parties did fix the date when the first premium was payable which in turn determined the due date of each subsequent premium payment. 14 Appleman, op....