Prudential Insurance Company of America v. Clauson, 5872.

• Decision Date: 21 November 1961
• Docket Number: No. 5872.,5872.
• Citation: 296 F.2d 76
• Parties: PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant, Appellant, v. M. Elizabeth CLAUSON, Plaintiff, Appellee.
• Court: U.S. Court of Appeals — First Circuit

296 F.2d 76 (1961)

PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant, Appellant, v. M. Elizabeth CLAUSON, Plaintiff, Appellee.

No. 5872.

United States Court of Appeals First Circuit.

Heard November 8, 1961.

Decided November 21, 1961.

James D. St. Clair, Boston, Mass., with whom Earle C. Cooley and Hale & Dorr, Boston, Mass., were on brief, for appellant.

Julian L. Yesley, Boston, Mass., with whom Peabody, Koufman & Brewer, Boston, Mass., were on brief, for appellee.

Before WOODBURY, Chief Judge, and HARTIGAN and ALDRICH, Circuit Judges.

ALDRICH, Circuit Judge.

Effective July 1, 1957, Chrysler Motor Corporation contracted with defendant-appellant for a policy of group term life insurance upon the lives of its dealers. The plan was contributory and required election to participate. The amount of each dealer's insurance was to depend upon the classification in which from time to time he fell, which, in turn, was to be determined by a point formula based upon his volume of business. The dealer's annual contribution to the premium was based upon the current amount of his insurance.

Plaintiff-appellee's husband, Clauson, was a Chrysler dealer. He was approached in 1957 by one Ingalls, a Chrysler representative, whose duties included obtaining dealers' applications to be insured under this policy.¹ Clauson told Ingalls that he believed he was qualified on the basis of his 1956 business for Class 3, or $50,000 of insurance. Ingalls stated that he thought Clauson fell in Class 4, or $30,000. It was agreed that Chrysler's shipping records would be determinative. Clauson made written application for the larger coverage, with a list of Chrysler shipments which placed him in Class 3. Thereafter he received from defendant a certificate under the group policy for $50,000. He duly made the appropriate premium contributions.

Clauson died in May 1958, during the first policy year. It was then discovered that his 1956 volume was less than he had thought and that he had only enough points to qualify for $30,000. The defendant paid plaintiff, Clauson's designated beneficiary, $30,000, and she brought suit for the additional $20,000. The court, which tried the case without jury, found that Clauson had acted in good faith. Chrysler, however, had not examined its records, but had simply sent the application on to the defendant with an oral understanding as to later verification. The court decided in favor of the plaintiff in a careful opinion based upon estoppel. Clauson v. Prudential Ins. Co. of America, D.C.D.Mass., 1961, 195 F. Supp. 72.

Stated briefly, the defendant says that Clauson did not in fact qualify for $50,000 of life insurance, and therefore that the plaintiff is entitled only to the lower amount. It says that the policy provides for a determination, "as of" the policy anniversary date, of the classification of each insured, and argues that this could be done at any time. Plaintiff replies that the certificate indicated that this had already been done, that the policy provided that Chrysler's determination shall be "conclusive," and that there cannot be any revision. To this defendant says that the mechanical problems involved in writing this insurance for a large number of dealers the first policy year were so great that defendant and Chrysler orally agreed that the certificates would be issued the first year on the basis of each insured's own statement of his classification without verification, and that in the case of claims maturing during that year Chrysler's records would be checked and payments made accordingly.

It is admitted that no notice of this arrangement was communicated to the individuals insured. On the contrary, they were led to understand, not only by the delivery, but by the express language of their certificates, that the determination of their classification and amount of insurance had already been made. Clauson's certificate provided, after stating that the "Effective Date" was "07/01/57," "Amount of Insurance: $50000. (as of the Effective Date of this Certificate)." It continued, in a new paragraph, "The Owner's amount of life insurance is at all times determined by the provisions of the Group Policy. The amount of insurance indicated above is that applicable to the Owner under the Group Policy on the effective date of this Certificate, and such amount is subject to increase and decrease in accordance with the provisions of the Group Policy." We read this language as relating solely to subsequent policy years. Paragraph 4(b) (ii) of the master policy commenced as follows, "As of July 1, 1958 and as of each July 1 thereafter, the Policyholder Chrysler shall determine each Dealership's Total Insurance Credit Points for the immediately preceding calendar year. * *" There were certain stated consequences of such determination. There were no provisions, however, for any change in the amount of insurance stated with respect to July 1, 1957.

We are not clear whether the defendant concedes, but if it does not, on this record it must, that its position can be justified only by treating the oral arrangement between Chrysler and Prudential as to revision in the...