Machinery Center, Inc. v. Anchor National Life Ins. Co.

• Decision Date: 24 November 1970
• Docket Number: No. 130-70.,130-70.
• Citation: 434 F.2d 1
• Parties: MACHINERY CENTER, INC. and the Continental Bank and Trust Company, Plaintiffs-Appellants, v. ANCHOR NATIONAL LIFE INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

434 F.2d 1 (1970)

MACHINERY CENTER, INC. and the Continental Bank and Trust Company, Plaintiffs-Appellants, v. ANCHOR NATIONAL LIFE INSURANCE COMPANY, Defendant-Appellee.

No. 130-70.

United States Court of Appeals, Tenth Circuit.

November 24, 1970.

Warren Patten, Salt Lake City, Utah (Albert J. Colton, and Fabian & Clendenin, Salt Lake City, Utah, on the brief), for plaintiffs-appellants.

Richard W. Giauque, Salt Lake City, Utah (James R. Amschler, and Van Cott, Bagley, Cornwall & McCarthy, Salt Lake City, Utah, on the brief) for defendant-appellee.

Before BREITENSTEIN, Senior Circuit Judge, SETH, Circuit Judge, and TEMPLAR, District Judge.

TEMPLAR, District Judge.

This case involves an interpretation of a conditional premium receipt issued by the defendant-appellee, Anchor National Life Insurance Company, at the time an application for an insurance policy was submitted to it on the life of Roger V. Pierce. The trial court sustained defendant's motion for summary judgment and the plaintiffs, Machinery Center, Inc. and The Continental Bank and Trust Company, appealed.

Roger V. Pierce had been for a number of years and was in the spring of 1968 the president of appellant Machinery Center, Inc. In order to meet requirements for a Small Business Administration insured loan to Machinery Center, Inc., from appellant Continental Bank and Trust Company, Pierce applied to appellee for life insurance and on April 29, 1968, Pierce completed an application to it for $60,000, declining term insurance. The primary beneficiary named was appellant Continental Bank and Trust Company, and appellant Machinery Center, Inc., was named as the contingent beneficiary and owner of the policy. On the same day, Machinery Center paid by check the first year's premium in the amount of $819.40, and was issued by appellee a conditional premium receipt. The check for the premium was cashed by Anchor during the lifetime of Pierce.

The pertinent part of the conditions of the application, Part I, reads as follows:

"IT IS AGREED: * * * (2) that no insurance shall be considered in effect under this application (except as may be provided in the conditional premium receipt bearing the same date as this application) unless and until the application is approved and accepted by the Company at its Home Office and the policy manually delivered to and accepted by the Proposed Insured (or the Owner, if other than the Proposed Insured) during the lifetime and continued insurability of each person proposed for insurance and the first premium thereon has been paid in full. * * *"¹

Pierce was examined on April 29, 1968, by a physician chosen by appellee and the physician rated the proposed insured as a "good" risk. Pierce died on June 10, 1968, at which time appellee Anchor had not made a decision to accept the application of Pierce, and the record indicates that at the time of Pierce's death the underwriting investigation had not been completed because parts of the medical and other information on Pierce requested by appellee had not been received by it. At no time did appellee Anchor ever deliver any policy of insurance to Pierce or to either of the appellants. The appellee tendered the return of premium in the amount of $819.40 to appellant Machinery Center, but this tender was refused.

Appellee refused payment of the principal amount of the insurance applied for on the grounds that it had made no decision to accept the application before applicant's death and no policy was delivered during his lifetime. This action was thereafter instituted to recover under the terms of the conditional premium receipt the amount of insurance applied for.

In granting appellee's motion for summary judgment, the trial court held:

"* * * that at the date of death of Robert V. Pierce (`applicant\'), defendant had not completed its underwriting investigation, that defendant had not at that date determined or satisfied itself that the applicant was insurable or entitled to the insurance applied for, and that therefore under the terms of the Application and Conditional Premium Receipt involved, there was no insurance policy or contract of insurance in force or effect; that there is no geniune sic issue as to any material fact and that the said defendant is entitled to judgment in its favor as a matter of law, * * *"

The issue presented to this Court is whether or not the trial court was correct in holding that as a matter of law, appellee Anchor was entitled to summary judgment under the facts and circumstances of this case.

On appeal, the appellants contend that Utah law applies; that their rights are defined by the receipt issued by appellee, not by the application; that the premium receipt is an insurability type receipt; that under an insurability type receipt the insurer is bound if the applicant was insurable, objectively determined; that Utah's hostility to insurers' attempts to hide behind ambiguous receipts is evident; that there is a genuine issue of fact — was Pierce insurable; that a contract was in force between the parties; that actual "satisfaction" need not be shown; that neither Mofrad² nor Killpack³ are governing; that the language, "if the company is not so satisfied," does not convert an insurability receipt into an approval receipt; and that the record does not support appellee's assertion that it was not satisfied that Pierce was insurable. The appellee contends that the trial court was correct in holding that the plain terms of the application and conditional premium receipt controlled the obligations of the parties and that the application and conditional premium receipt in question clearly set forth at least two pre-conditions to the effectiveness of the policy which were not fulfilled. Appellee relies solely on two cases decided by this Circuit.², ³

Appellants are correct in their contention that the law of the State of Utah governs since this is a diversity case and the Court must follow the substantive law as declared by the Utah courts.⁴ In this case the law of Utah is to the effect that Utah law governs the rights and obligations of the parties to a contract if the contract was made in Utah.⁵ This contention that the law of Utah applies has not been questioned or controverted by the appellee and it will be assumed by this Court, for the purposes of this appeal, that Utah law does govern the rights and obligations of the parties in this controversy.

A binding receipt and the application for insurance are to be considered and construed together⁶ and there is no reason why this rule should not apply to a conditional premium receipt. Since the applicant, Pierce, signed the application, it must be presumed that he read the agreement and was aware of its contents.⁷

In the interpretation of binding receipts, the intention of the parties should be the controlling factor. This intention is the mutual intention of the parties and not the intention of only one of them, unless the other party was aware of the intention and understanding of the one and allowed him to contract without advising him of another interpretation.⁸

Although Utah follows the rule of law that in interpreting insurance contracts any doubts, uncertainties, or ambiguities used in the contract will be strictly construed against the insurer and in favor of the insured,⁹ this rule is not applicable unless there is some genuine ambiguity or uncertainty in the language upon which reasonable minds might differ.¹⁰ In a case where the parties' intentions are clear from an examination of the documents, the Court will not rewrite the contract.¹¹ In the present case the language of the application and the conditional premium receipt is clear and free from doubt; neither document is ambiguous. In Mofrad this Court stated at 206 F.2d page 494:

"`It was within the rights of, and was competent for, the parties to provide in the application under what conditions and at what time the policy should become effective and binding.\' Jones v. New York Life Ins. Co., 1927, 69 Utah 172, 253 P. 200, 202."

There are, generally speaking, two types of conditional receipts which are, the "approval" type receipt which makes the insurance company's obligation conditional upon acceptance and approval by the company, and the "insurability" type receipt which conditions the insurance company's obligation on the company's satisfaction of the applicant's insurability as of the time of the application or medical examination. In the case at bar, the Court concludes, as did the trial judge below under the Utah law, that the conditional premium receipt in question is an "approval" type receipt.

Reading in pertinent part the application and the conditional premium receipt, the Court concludes that the receipt governs the rights and obligations of the parties in this case. The receipt contains certain conditions precedent which had to be complied with before any insurance became effective. The effect of the language contained in the receipt is that if appellee Anchor had not determined and satisfied itself, after investigation and medical examination, that the proposed insured, Pierce, was insurable, then no insurance was in effect until Anchor approved and accepted the application and manually delivered the policy to the proposed insured or owner during the lifetime and continued insurability of the proposed insured. The record reflects that at the time of...