Wernecke v. Pacific Fidelity Life Ins. Co.

• Decision Date: 20 December 1965
• Citation: 238 Cal.App.2d 884,48 Cal.Rptr. 251
• Court: California Court of Appeals Court of Appeals
• Parties: Rowena WERNECKE, Plaintiff and Appellant, v. PACIFIC FIDELITY LIFE INSURANCE COMPANY, Defendant and Respondent. Civ. 7616.

Page 251

48 Cal.Rptr. 251

238 Cal.App.2d 884

Rowena WERNECKE, Plaintiff and Appellant, v. PACIFIC FIDELITY LIFE INSURANCE COMPANY, Defendant and Respondent.

Civ. 7616.

District Court of Appeal, Fourth District, California.

Dec. 20, 1965.

Smith, Prante & Biggins and James J. Biggins, Jr., San Diego, for plaintiff and appellant.

Luce, Forward, Hamilton & Scripps, San Diego, for defendant and respondent.

COUGHLIN, Justice.

The plaintiff, as beneficiary under an interim insurance contract, brought this action against the defendant insurance company, the insurer, to recover insurance allegedly due on account of the death of her husband, the insured. The insurance contract arose out of the insured's application for insurance and his payment of an amount equal to the first premium, for which a receipt was given him by the selling agent. Plaintiff introduced in evidence the application, the cancelled check evidencing payment of the premium amount, the receipt, and proof of death. She also offered to prove that at the time the application was taken by the selling agent, the latter stated if the premium were paid at that time Mr. Wernecke would be 'covered', and 'in case he was killed the following day in a freeway accident or some other such mishap there would be coverage for the family'; and that this representation 'was a product of a sort of prepared sales approach' used in the insurance business. An objection to the offer of proof was sustained. Without introducing further evidence, plaintiff rested. Thereupon, defendant moved for a nonsuit, which was granted, and judgment was entered accordingly. Plaintiff appealed.

The application for insurance was in two parts marked, respectively, Part 'A' and Part 'B'. Part 'A' contained data essential to preparation of the type of policy requested. Part 'B' was entitled 'DECLARATION IN LIEU OF MEDICAL EXAMINATION,' and contained answers to questions respecting the defendant's previous health. Included in the latter were answers indicating that the insured had consulted a Dr. A. Pierangelo for periodic physical examinations which revealed 'no problems.'

The receipt contained the following:

'THIS PAYMENT IS MADE AND RECEIVED SUBJECT TO THE CONDITIONS OF THE OTHER SIDE OF THIS RECEIPT'

and on the reverse side thereof contained these pertinent statements:

'THE PAYMENT ACKNOWLEDGED BY THIS RECEIPT IS MADE AND RECEIVED SUBJECT TO THE FOLLOWING CONDITIONS:

'1. a. If the medical examinations, if any, required by the Company are completed; and

b. If the Company at its Home Office is satisfied that, at the time of completing both Part A and Part B of the application, the Proposed Insured was insurable under the Company's rules for a policy on the plan, in the amount, at the class of risk and otherwise exactly as applied for in Part A of the Application bearing the same number as this receipt; and

c. If an amount equal to the full first premium for the policy applied for has been paid with the application;

then, the insurance will be effective from the date of Part A, the date of Part B, or the date specifically requested in the application, whichever, date is the latest, regardless of the death * * * of the Proposed Insured occurring after completion of both parts of the application.

'2. Except as provided under Paragraph 1 above, any policy issued by the Company shall not take effect unless and until the first premium is paid and the policy is delivered during the lifetime and good health of the Proposed Insured.

'3. If the Company declines to issue a policy or issues a policy other than as applied for, which is not accepted, this receipt shall be void, and the payment will be returned upon surrender of this receipt. * * *'

The application and receipt were dated July 17, 1962. The insured died on August 3, 1962 from injuries sustained in an automobile accident.

Defendant relates certain facts in its brief not based upon the evidence presented at the time of trial but upon the declarations filed in connection with its motion for summary judgment, which was denied. It is there stated that the subject application was received at defendant's home office on July 19, 1962; thereupon defendant sent a request for information to the doctor named in the application and received a response from him on August 3, 1962 indicating that another doctor had treated the applicant for an unrethral stricture; defendant thereafter continued its investigation, obtaining a report from the latter doctor; subsequently defendant determined that applicant was not insurable under the company's rules for a policy on the plan applied for, and offered to return the premium payment, which was rejected.

In situations such as in the instant case, by the decision in Ransom v. Penn. Mutual Life Ins. Co., 43 Cal.2d 420, 274 P.2d 633, California has aligned itself with those jurisdictions holding, in effect, that where an applicant for life insurance pays a prescribed premium, and the writings evidencing the transaction state that the insurance applied for is effective from date of application upon payment of the premium and company satisfaction of insurability, it will be deemed the parties intended the insurance to be effective forthwith, subject to termination upon notice from the company that the applicant is not insurable. In Ransom v. Penn. Mutual Life Ins. Co., supra, 43 Cal.2d 420, 423-425, 274 P.2d 633, the court predicated its decision, in part, upon the conclusion that the premium having been paid for insurance protection, and the writings not clearly expressing an intent that the insurance not be effective forthwith, the provision that it should be effective as of date of application 'if' or 'provided' the company was satisfied that applicant was insurable is considered a condition subsequent rather than precedent to the existence of insurance. In reaching this conclusion, as stated in Metropolitan Life Insurance Company v. Grant, 9 Cir., 268 F.2d 307, 309, the court 'did not approach the problem as one dealing with the fine niceties of terminology.' Instead, it would appear that the court activated the rationale later expressed in Steven v. Fidelity & Casualty Co., 58 Cal.2d 862, 868, 27 Cal.Rptr. 172, 377 P.2d 284, where it held that as to certain insurance transactions the coverage obtained thereby is that which the ordinary layman, acting in the ordinary course of business, reasonably may expect by virtue of that transaction, and the insurance afforded by his contract will be determined accordingly unless it is made clear to him that the coverage provided by the particular contract does not conform to what the ordinary layman might reasonably expect under the circumstances. Any ambiguity in the writings respecting the forthwith effectiveness of the insurance deprives the transaction of the clarity required by the rule.

To the ordinary layman, payment of an insurance premium constitutes payment for insurance protection, and when paid under circumstances such as in the instant case presupposes immediate commencement of protection although subject to termination by the insurance company in the event it is not satisfied with his insurability. (Gaunt v. John Hancock Mutual Life Ins. Co., 2 Cir., 160 F.2d 599, 601-602.) The provisions of the subject receipt, authored by the insurance company, support contradictory implications; on the one hand permit the company to apply the cash payment to a premium period commencing with the date of application, if it approves issuance of the policy, because the applicant is insured during this time; and on the other hand permit the company, by ultimate nonapproval, to deny existence of insurance during the same period. Either the company has insured the applicant during the interim period or it has not insured him during that time. In any event, the language used does not foreclose the implication by the ordinary layman that upon payment of the premium requested he is insured until the company advises him it is not satisfied he is insurable under the plan selected.

The receipt in the instant case is strikingly similar to those considered in Brunt v. Occidental Life Ins. Co., 223 Cal.App.2d 179, 181, 183-186, 35 Cal.Rptr. 492; Metropolitan Life Insurance Company v. Grant, supra, 268 F.2d 307, 308-310, and Gaunt v John Hancock Mutual Life Ins. Co., supra, 160 F.2d 599, 601, which held the insurance was effective upon payment of the premium. (See also Life & Casualty Insurance Company of Tennessee v. Vertrees, 44 Tenn.App. 672, 318 S.W.2d 559, 560.)

In the instant case, Part 'B' of the application indicated the insurance was available without medical examination. On the face thereof nothing appeared to indicate that applicant was not insurable because of any physical disability, nor that an investigation would be made concerning such. In light of these circumstances, the applicant, as an ordinary layman, was justified in assuming that the provision in the receipt respecting satisfaction of the insurance company concerning his insurability was a mere formality. In this regard, it should be noted, there is an inherent uncertainty in the provision that the company be satisfied the applicant 'was insurable under the Company's rules', which is meaningless to the applicant unless he knows the 'rules' that will govern the company's determination. That such a provision does not meet the clarity of expression required in insurance transactions appears from the declaration in § 10113 of the Insurance Code that nothing shall be incorporated in a policy of life insurance 'by reference to any * * * rules * * * of either of the parties thereto * * * unless the same are indorsed upon or attached to the policy.' The defendant's rules were not indorsed upon or attached to the receipt. As a consequence, there was nothing in the transaction alerting the applicant to the fact that the company might make an independent inquiry respecting his physical condition...