Quindlen v. Prudential Insurance Company of America

• Decision Date: 13 August 1973
• Docket Number: No. 72-3149.,72-3149.
• Parties: Mrs. Frances E. QUINDLEN, Plaintiff-Appellee, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

482 F.2d 876 (1973)

Mrs. Frances E. QUINDLEN, Plaintiff-Appellee, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.

No. 72-3149.

United States Court of Appeals, Fifth Circuit.

July 11, 1973.

Rehearing Denied August 13, 1973.

Neilson S. Jacobs, Shreveport, La., for defendant-appellant.

Troy E. Bain, Shreveport, La., for plaintiff-appellee.

Before BELL, INGRAHAM and RONEY, Circuit Judges.

RONEY, Circuit Judge:

Milton D. Quindlen applied for life insurance, paid a full year's premium, received temporary insurance pending acceptance or rejection of the application by the Company, and then died. The insurance company contended that it had rejected his application and thus had terminated the temporary insurance before the date of death. The District Court found that a five-day notice is required by the Louisiana statute to terminate this type of temporary life insurance, that no notice was given, and therefore held against the insurance company. We hold that the Louisiana statute does not apply to this kind of policy so that a five-day notice is not required, but we further hold that notice of some kind is necessary under the terms of the policy to complete in fact the rejection of the application by the Company. No notice at all having been given prior to death, the corporate act of rejection was never completed and the judgment for the beneficiary of the policy is affirmed.

The insurance industry has developed what is known as temporary or interim life insurance to give insurance protection for the period of time between the application for insurance and the eventual issuance of the policy. Under this kind of insurance, if he pays the initial premium, an applicant can receive immediate, full insurance coverage from the date that he applies for a policy of life insurance.

Inasmuch as the contract provisions of life insurance applications and interim insurance pending acceptance or rejection of the application vary among insurers, it is necessary to pay close attention to exactly what the insurance company here agreed to do.

On August 24, 1967, the insured, a resident of Shreveport, Louisiana, applied to The Prudential Life Insurance Company of America for a $15,000 life insurance policy. On August 26, 1967, he completed a physical examination, paid the first annual premium, and was issued a "Prepayment Receipt," the effect of which was to establish temporary or interim insurance coverage on his life. On October 3, 1967, a Prudential employee in Houston stamped his application as rejected. On October 5, 1967, the insured died. On October 6, 1967, a form card entitled "Notice of Rejection of Application" was prepared in Prudential's Houston office and was mailed to the Shreveport office so that the insured could be advised of the rejection. The notice of rejection was communicated to the insured's wife on October 6, 1967. This suit followed.

The "Prepayment Receipt" required an affirmative act by Prudential to terminate the interim insurance: either rejecting the insurance application or declining to consider it on a prepaid basis during insured's lifetime.

The pertinent sections of the receipt provide:

NOTWITHSTANDING THE ABOVE PAYMENT NO INSURANCE SHALL TAKE EFFECT OR CONTINUE IN EFFECT EXCEPT AS SPECIFIED IN THIS RECEIPT. IF AND ONLY IF PART I OF THE APPLICATION AND PART II OF THE APPLICATION . . . ARE ALL COMPLETED . . . and if and only if the Company has neither rejected the application nor declined to consider it on a prepaid basis, then:

1. Insurance (interim term insurance if requested in the application) in accordance with the terms and conditions of the policy applied for shall take effect on the effective date;

* * * * * *

Any insurance under 1 above may be terminated by the Company at any time during the proposed Insured\'s lifetime by rejecting the application or declining to consider it on a prepaid basis . . . . If any insurance is terminated . . . the Company\'s sole liability shall be the return of the above payment.

The Louisiana Insurance Code, La.Rev.Stat. 22:636, which governs all contracts of insurance entered into in Louisiana, provides for a basic five-day notice before effective cancellation of coverage under an insurance policy. The Code expressly does not apply to certain temporary life insurance binders, however, because Section E provides:

E. This Section shall not apply to temporary life insurance binders nor to contracts of life or health and accident insurance which do not contain a provision for cancellation prior to the date to which premiums have been paid, nor to the contracts provided in Part XV of this Chapter.

La.Rev.Stat. 22:636(E) (1959).

The critical question as to the statutory five-day notice requirement, then, is whether this "Prepayment Receipt" is a "temporary life insurance binder" expressly excluded from the notice requirement. The answer to this question turns on whether "temporary life insurance binders," as referred to in Section E, is modified by the clause "which do not contain a provision for cancellation prior to the date to which premiums have been made."

In construing this section, the District Court concluded that the only time notice is not required to terminate temporary insurance is when no premium is paid for it. The Court said:

We conclude that from a grammatical sense the adjectival clause beginning "which do not" modifies not only "contracts of life or health and accident insurance" but also "temporary life insurance binders." The failure of the Legislature to insert a comma after "binders", while using one after "paid", suggests a law-making intent to have the adjectival clause attach to temporary life insurance binders.

Moreover, our conclusion is buttressed, in fact impelled, by the overall scheme of Section 636. Paragraph "A" requires notice of cancellation by the insurer of any policy which by its terms is cancellable at the option of the insurer. This rule has three exceptions (the third need not be discussed). Subsection "A" requires notice of cancellation and Subsection "E" clearly excepts contracts of life or health and accident insurance which do not contain a provision for cancellation prior to the date to which premiums have been paid. If read literally, the second exception would relieve insurance companies of giving notice where the policy contained no provision for cancellation prior to the date to which premiums have been paid. Such a conclusion is nonsensical. The reasonable explanation is that where a policy of life or health and accident insurance is issued but no premium is paid, then the insurance company could cancel without notice.

The statutory construction principle requiring restrictive interpretation of exceptions demands that we attach the adjectival clause to temporary life insurance binders. Therefore, failure to pay the premium when a "temporary life insurance" policy is issued obviates notice of cancellation. The consequence of this is to have Subsection "E", in its first and second exceptions, parallel in an exclusory manner, the provisions of Subsection "A."

Although we acknowledge that Subsection E constitutes an exception from the general rule requiring notice and, as such, must be narrowly construed, the settled rules governing statutory construction and the very nature of temporary life insurance require that we adopt a view different from the District Court.

First, under the "doctrine of the last antecedent," relative and qualifying words, phrases, and clauses are to be applied to the words or phrase immediately preceding, and are not to be construed as extending to or including others more remote. See, e.g., Mandel Bros. v. FTC, 254 F.2d 18 (7th Cir. 1958), rev'd on other grounds, 359 U.S. 385, 79 S.Ct. 818, 3 L.Ed.2d 893 (1959); United States ex rel. Santarelli v. Hughes, 116 F.2d 613 (3d Cir. 1940); 82 C.J.S. Statutes § 334 (1953).

Second, as a general rule, the use of a disjunctive in a statute indicates alternatives and...