Progressive Enterprises, Inc. v. New England Mut. Life Ins. Co.

• Citation: 538 F.2d 1057
• Decision Date: 12 May 1976
• Docket Number: No. 75-1289,75-1289
• Parties: PROGRESSIVE ENTERPRISES, INC., Appellant, v. NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1057

538 F.2d 1057

PROGRESSIVE ENTERPRISES, INC., Appellant, v. NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY, Appellee.

No. 75-1289.

United States Court of Appeals Fourth Circuit.

Argued Oct. 10, 1975.

Decided May 12, 1976.

Alvin B. Fox, Newport News, Va. (Ellenson, Fox & Wittan, Newport News, Va., on brief) for appellant.

A. C. Epps, Richmond, Va. (James W. Tredway, III, Christian, Barton, Epps, Brent & Chappell, Richmond, Va., on brief) for appellee.

Before HAYNSWORTH, Chief Judge, RUSSELL and WIDENER, Circuit Judges.

RUSSELL, Circuit Judge.

This is a suit on a life insurance policy. The policy contained a provision barring recovery, except for return of premiums paid, if the insured committed suicide "within two years from the date of issue of this Policy." The insured admittedly committed suicide. The District Court held that such suicide occurred within the two-year period "from date of issue" and granted judgment for the insurance company. The plaintiff has appealed. We affirm.

The pertinent facts are not in any substantial dispute. The insured Ralph N. Wood, Sr. applied for a policy of ordinary life insurance on April 9, 1971. The application provided that "(I)f a conditional receipt amount is paid with this Application, in accordance with Item 28 above, the insurance policy shall take effect as stipulated in the Conditional Receipt." Item 28 of the Application required the payment of "$15.00 or one month's premium, whichever is larger." The agent of the insurance company issued a Conditional Receipt in the amount of $362.77 on April 16, 1971. The Conditional Receipt contained these provisions:

A. Underwriting Date. The "Underwriting Date" shall be the latest of the dates of Parts I and II of the Application and the Report of the Medical Examiner.

C. If Policy Can Be Issued as Applied For. If the underwriting rules of the Company permit a policy to be issued for the plan of insurance, amount, additional benefits and rate classification applied for, it shall become effective as of the Underwriting Date.

D. If Policy Can Be Issued, But Not as Applied For. If the underwriting rules of the Company prevent issuance of a policy exactly as applied for, but permit issuance on some basis, then the policy with the necessary changes (called the issuable policy) shall become effective as of the Underwriting date, but only if (1) within 60 days after the Underwriting Date the applicant accepts any necessary amendment to the Application and pays any amount necessary to complete payment of at least one month's premium for the issuable policy and (2) at the time of such acceptance and payment the proposed insured is living and there has been no change in his insurability since the Underwriting Date. * * *

(Emphasis added in body)

H. General. No insurance shall become effective except as provided in this Receipt. * * *

The health of Wood did not warrant the issuance of a policy, with rate classification, as applied for. The insurance company did, however, conduct a number of additional medical examinations in order to determine whether it could issue him a different policy. It was not until about the middle of July, 1971 that the company offered the assured a special class, Table H, rated policy. ¹ The policy, as offered, was accepted and the plaintiff on July 15, 1971 paid the first annual premium, less a credit for the amount paid at the time of the issuance of the conditional receipt. The parties agree however, that the date of the policy, for premium purposes, should be May 28, 1971, and this is the date shown on the policy as issued. The assured committed suicide on May 5, 1973. The beneficiary filed proof of loss under the policy and demanded payment. The insurance company denied liability and this suit followed.

The critical issue, on which the rights of the parties turn, is the time when the period fixed in the suicide clause commenced. ² There are three possible dates for the commencement of the period provided in the suicide clause: 1. The date of the policy itself, i. e., May 28, 1971; 2. The date of the Conditional Receipt, i. e., April 16, 1971; and 3. The date when the policy was actually issued, i. e., July 23, 1971. There are authorities which, based on the facts of the individual case, support each of these possibilities. ³ The plaintiff at the outset, adopted as "date of issue" under the suicide clause here the formal date in the policy itself. It was readily obvious, however, that the only date that would take the case out of the bar of the suicide clause was that of the Conditional Receipt; either of the other possibilities would bring the suicide within two years from "date of issue" as fixed in the suicide clause and would bar recovery under the policy's suicide clause.

Under these circumstances, the plaintiff has accordingly argued for the date of the Conditional Receipt for the commencement of the time period fixed by the suicide exclusion. The basis for this contention may be quickly stated. The application for insurance, as executed on April 9, 1971, contained the statement that, upon payment of the sum specified in Item 28 thereof, the insurance applied for "shall take effect as stipulated in the Conditional Receipt." While the assured himself did not make the payment as provided in Item 28, the soliciting agent of the Company, without the knowledge of the assured, did and the plaintiff contends that this was sufficient under the terms of the application to make the policy "take effect as stipulated in the Conditional Receipt." And the plaintiff asserts that "date of issue" in the suicide clause should be construed as meaning the effective date of the policy as fixed in the Conditional Receipt. Under the reasoning, the commencement date for the suicide provision would be April 16, 1971, and suicide of the assured would have occurred beyond the two-year period as fixed therein. Whether this argument is tenable depends on a fair construction of the Conditional Receipt itself, since the application provides that the effective date referred to therein shall be "as stipulated in the Conditional Receipt."

The Conditional Receipt states that if the policy "as applied for" is issued, it shall "become effective as of the Underwriting Date," ⁴ or if the policy as applied for may not be issued, but one may be issued "on some basis," then the issuable policy "shall become effective as of the Underwriting Date" if "within 60 days after the Underwriting Date the applicant accepts any necessary amendment to the Application and pays any amount necessary to complete payment of at least one month's premium for the issuable policy * * *." Concededly, the Company did not issue a policy "as applied for." The policy it issued was on a different "basis," with different "benefits and rate classification." And the policy as issued by the Company was not accepted by the assured nor was the first month's premium on the issued policy paid "within 60 days after the Underwriting Date." It is plain, then, that the policy as issued on July 23, 1971 did not "become effective" under the Conditional Receipt on "the latest of the dates of Parts I and II of the Application and the Report of the Medical Examiner," and the "date of issue," as used in the suicide exclusion provision, must be assumed to be either the actual date of issue of the policy or its formal date. In either event, the plaintiff would be barred from recovery by the suicide exclusion provision.

This case is easily distinguishable from Motta, ⁵ the authority on which plaintiff primarily relies. In that case, the policy "as applied for" was issued "within 60 days" from the date of the Conditional Receipt. By the express language, this made "the effective date" of the policy that of the "Underwriting Date." But that is not this case. The policy issued here was, to repeat, not the policy "as applied for." It was an entirely different policy and it was not offered to the applicant or issued by the Company within 60 days after the application. It is easy enough to identify a policy with an application where the policy issued is precisely the policy "applied for;" the application and the policy do not so easily merge into a single contract when the policy issued is completely different from that "applied for."

The plaintiff seeks to overcome the consequences of Section D of the Conditional Receipt with the claim that the Insurance Company, by failing to return the premium paid at the time of the issuance of the Conditional Receipt, is foreclosed from asserting ineffectiveness of the policy as of the "Underwriting Date" as defined in the Conditional Receipt. It cites as authority for this position Smith v. Westland Life Ins. Co. (1974) 41 Cal.App.3d 97, 115 Cal.Rptr. 750. The reasoning of that case has much to recommend it. But this is a diversity case, controlled by Virginia law; and the law of Virginia is contrarywise to the position of the plaintiff and the conclusion of the California Court. Hayes v. Durham Life Insurance Company (1957) 198 Va. 670, 96 S.E.2d 109, 112. We have heretofore had occasion to consider Hayes in this connection; and, while we have expressed some reservations on its reasoning, we have recognized that it is binding upon us in a diversity case arising in Virginia such as here. Justice v. Prudential Insurance Company of America (4th Cir. 1965) 351 F.2d 462, 463. In that case, we said:

* * * Subsequent cases may afford Virginia the opportunity to limit Hayes to its facts in view of the growing recognition of the public interest involved in requiring insurance companies to act promptly when they hold an applicant's premium in order not to mislead him to his detriment into believing that he is covered, but such a decision in view of the very broad and sweeping dicta of the Hayes case should come from Virginia's courts. We therefore conclude with the district court that the Hayes case is controlling and fatal to the...