Stonsz v. Equitable Life Assur. Soc. of U.S.

• Decision Date: 05 October 1936
• Docket Number: 119
• Citation: 324 Pa. 97,187 A. 403
• Parties: Stonsz v. The Equitable Life Assurance Society of the United States, Appellant
• Court: Pennsylvania Supreme Court

187 A. 403

324 Pa. 97

Stonsz v. The Equitable Life Assurance Society of the United States, Appellant

No. 119

Supreme Court of Pennsylvania

October 5, 1936

Argued May 27, 1936

Appeal, No. 119, March T., 1936, by defendant, from judgment of C.P. Allegheny Co., July T., 1932, No. 1352, in case of Peter Stonsz, also known as Pit Stonsz and Pit Stansz v. The Equitable Life Assurance Society of the United States. Judgment affirmed.

Assumpsit on insurance policy. Before SMITH, J.

The opinion of the Supreme Court states the facts.

Verdict and judgment for plaintiff. Defendant appealed.

Error assigned was refusal of judgment n.o.v.

Judgment affirmed.

William H. Eckert, with him Karl W. Warmcastle, for appellant.

H. F Stambaugh, with him H. P. Eberharter, Ralph H. Demmler and Watson & Freeman, for appellee.

Before KEPHART, C.J., SCHAFFER, MAXEY, LINN, STERN and BARNES, JJ.

OPINION

MR. CHIEF JUSTICE KEPHART:

On June 28, 1927, appellee applied to appellant for an insurance policy containing provisions for death benefits, with a double indemnity feature, and annuity payments for disability. On the same day he was examined by appellant's physician, and paid his first premium as estimated by the agent. The latter gave appellee a receipt reciting that if he was then an insurable risk for the insurance applied for in the opinion of appellant's agents at the home office, it would be effective as of the date of the receipt. Appellee on or about June 30th sustained severe injuries to his hands, resulting in his total disability. Because of his employment in a coal mine, appellant's home office wrote his policy at an increased premium rate for death and disability and declined to incorporate therein the double indemnity feature. The total amount of the first premium upon the policy was $12.39 less than the payment made by appellee. The policy was dated July 6, 1927, and was delivered to appellee with a check for $12.39 on July 11th. The balance of his first payment was applied to cover the adjusted premium. Appellee and his wife repeatedly notified appellant's local agency of his injury. Appellant denied liability on the grounds that appellee was not insured at the time of the accident, and that proof of loss was not properly made within the sixty-day period prescribed in the policy. A jury trial resulted in a verdict for appellee, and from the refusal of the court below to grant appellant's motion for judgment n.o.v., this appeal is taken.

The receipt issued to appellee when he paid his first premium and signed his application was as follows:

"L 137671

"Received of Peter Stonsz the sum of Two hundred twenty-three and 19/100 ($223.19) Dollars for the first semi-annual premium on proposed insurance for $10,000 on the life of Peter Stonsz, for which an application bearing a corresponding number as above is this day made to the Equitable Life Assurance Society of the United States. Insurance subject to the terms and conditions of the policy contract, shall take effect as of the date of this receipt, provided the applicant is on this day, in the opinion of the Society's authorized officers in New York, an insurable risk under its rules, and the application is otherwise acceptable on the plan and for the amount and at the rate of premium applied for; otherwise the payment evidenced by this receipt shall be returned on demand and surrender of this receipt.

"Dated at Pittsburgh, June 28, 1927.

"(Signed) CALVIN S. BOLSTER, Agent."

This receipt, incorporated by reference in the application, determines the liability, if any, of appellant. It is in form a typical "binder," or "binding receipt" familiar in both fire and life insurance transactions. There is a great confusion of authority as to the effect to be given to such receipts. Because of the similarity of wording usually found in them, attempts have been made to generalize their operation. If these apparently conflicting authorities are examined, however, it becomes clear that these receipts are not capable of general treatment, but must be individually interpreted to give them the effect which the parties intended them to have in each case. The fundamental question is, what was their intention? See Reynolds v. Northwestern Mut. L. Ins. Co., 189 Io. 76; New York Life Ins. Co. v. Babcock, 104 Ga. 67.

The purpose of this clause, "insurance . . . shall take effect as of the date of this receipt" was to provide an inducement for the payment by appellee of the first premium in advance and to give preliminary protection to the insured until the issuance of the policy. Generally speaking an insurance contract is effective as of the date of its issuance unless a contrary agreement is made by the parties. As the insured should pay only for protection he actually receives, the first premium would be due as of the date that the protection commences. There is, however, a necessary delay from the time of the application to the time of the issuance of the policy. It is of advantage to the insured to be protected during that period, and to the insurer, not only to have the use of the first premium before it would be normally entitled to receive it, but also to secure definitely a client. It is usually customary for the parties to enter into a preliminary agreement looking toward the attainment of these objects for their mutual benefit. The insured believes that this binder is valid if he is an insurable risk. Sometimes it takes the form of a temporary contract of insurance, binding upon the parties until the carrier acts upon the application, whether it is accepted or rejected. See Rossi v. Firemen's Ins. Co., 310 Pa. 242; Queen's Ins. Co. v. Hartwell Ice, etc., Co., 7 Ga.App. 787; Hubbard v. Insurance Co., 129 Io. 13. If clearly established, such an agreement is favorably regarded by the courts whether oral or written. Reynolds v. Northwestern Mut. L. Ins. Co., supra; Cooksey v. Mutual L. Ins. Co., 73 Ark. 117. In De Cesare v. Metropolitan L. Ins. Co., 278 Mass. 401, it was held that the distinction sometimes drawn between the respective authority of fire and life insurance agents to bind their companies to such contracts did not exist where the applicant had passed his medical examination successfully, and where the receipt given by the agent showed an intention to effect present insurance pending action by the carrier upon the application. If the parties so intend, therefore, an interim contract of life insurance may be made in this manner, which will be valid and binding on the carrier: See Reynolds v. Northwestern Mut. L. Ins. Co., supra; Hart v. Traveler's Ins. Co., 236 App.Div. (N.Y.) 309; Albers v. Security Mutual Life Ins. Co., 170 N.W. 159 (S.D.); Starr v. Mutual Life Ins. Co., 41 Wash. 228.

This question confronts us in the present case: Does the language of this receipt indicate an intention to create a temporary insurance for the time during which the approval of the application was pending? Two conditions are imposed upon which the insurance was to become effective as of June 28, 1927. The first is that the applicant must be, on that day, an insurable risk in the opinion of the home office; the second, that the "application is otherwise acceptable on the plan and for the amount and at the rate of premium applied for." The cases previously cited indicate a trend in the courts to construe the conditions liberally, and to treat receipts similar in wording to the one before us as binding during the interim regardless of the ultimate action of the carrier on the application. These decisions are based upon the assumption that if the receipt meant anything, no other result could have been intended by the parties, for unless the insured was to be protected against injury or death during the interim period there would be no advantage to him in paying his premium in advance. As was said in Albers v. Security Mutual Life Ins. Co., supra: "If the company did not intend that there should be insurance effective pending the date of the application and the date of the approval of the risk and the issuance of the policy, then the company would be charging and obtaining the full amount of the premium for one year, while the period of actual insurance would be as many days less than one year as there were days intervening between the date of the application and the approval." In other words, the insured would be paying for something which he did not receive.

Thus in De Cesare v. Metropolitan Life Ins. Co., supra, although the application expressly stated: "no obligation is to be assumed by the company unless and until such application is so approved," the court said: ". . . the agreement in the receipt, when construed with the application, created a valid contract for temporary insurance effective upon acceptance of the application . . . and the fact that the agreement did not contemplate that any obligation would be assumed by the company unless and until the application should be approved does not require a different conclusion."

In Hart v. Travelers' Insurance Co., supra, the receipt read, in part: "The Company shall have the right to disapprove such application and shall incur no liability thereunder until and unless received and approved by the Company at the Home Office . . ." No policy was ever issued to the applicant during his life. Nevertheless the court held "He [the insured] undoubtedly thought he was getting some advantage by making this full payment at this time. He did not believe that by furnishing the premium in full in advance he was doing something to his disadvantage -- paying money for a period when he was not insured at all . . . if the construction to be placed upon this binding receipt is not that Levy was thereby insured from the date of the binder...