Williams v. Mutual of Omaha, No. 8352.

• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)
• Writing for the Court: SOBELOFF, , and HAYNSWORTH and BOREMAN, Circuit
• Citation: 297 F.2d 876
• Parties: George L. WILLIAMS, Appellee, v. MUTUAL OF OMAHA, Appellant.
• Docket Number: No. 8352.
• Decision Date: 05 January 1962

297 F.2d 876 (1962)

George L. WILLIAMS, Appellee,
v.
MUTUAL OF OMAHA, Appellant.

No. 8352.

United States Court of Appeals Fourth Circuit.

Argued June 22, 1961.

Decided January 5, 1962.

297 F.2d 877

Hoover C. Blanton, Columbia, S. C. (Whaley & McCutchen, and Thomas B. Whaley, Columbia, S. C., on brief), for appellant.

Kale R. Alexander, Columbia, S. C. (Alex Lazzarino, Columbia, S. C., on brief), for appellee.

Before SOBELOFF, Chief Judge, and HAYNSWORTH and BOREMAN, Circuit Judges.

HAYNSWORTH, Circuit Judge.

Upon a claim of a fraudulent breach of a contract of health and accident insurance, judgment was entered in the District Court requiring the insurance company to pay to the plaintiff $12,000 actual damages and $3,000 punitive damages. Its motions for the direction of a verdict in its favor, and for judgment notwithstanding the verdict, were denied. We conclude that the denial of these motions was improper.

In 1928, the insurance company issued to the plaintiff, Williams, then a resident of Florida, a health and accident insurance policy.¹ The plaintiff chose to pay premiums on a quarterly basis, and he regularly paid a quarterly premium of $17 until April 1959. The premium due on the first day of that month was not paid. Meanwhile, the plaintiff had moved from Florida to Columbia, South Carolina.

In a letter dated July 20, 1959, the plaintiff wrote to the insurance company's South Carolina collecting agency that he had not received notice of the April premium until that day, that he had been very busy and the matter had slipped his mind. He asked that arrangements be made under which he would be permitted to continue this insurance. He enclosed two checks, each dated July 22, 1959, and each in the sum of $17, for the premiums due on the first of April and the first of July. There was subsequent correspondence between the plaintiff and officials in the home office of the insurance company. The insurance company declined to accept the tendered premiums, but offered the plaintiff a different form of policy providing different benefits, which the plaintiff declined, writing that he had obtained insurance from another reputable company providing greater benefits for a lower premium. He then commenced this action, alleging that he had failed to pay the April premium when due because he had not received the notice of that premium until July, and that he had relied upon the company's continued practice of sending him notice of premiums due approximately two weeks prior to the due date.²

297 F.2d 878

The form of this health and accident insurance policy is a common one. It purports to provide coverage during a stated term³ commencing at 12:00 o'clock noon on the date the insured accepts delivery of the policy as to the accident coverage, and on the 31st day thereafter as to disease coverage, and ending at 12:00 o'clock noon on the date any renewal becomes due. It specifically provides "the acceptance of any premium on this policy shall be optional with the Association * * *."⁴ It extends the stated coverage during a succession of terms of specified duration, provided that the insured pays, and the Association accepts, the specified premium for each of the renewal terms. If the insured does not remit the specified premium, or if he remits, but the Association declines to accept it, the coverage provided comes, to an end with the expiration of the current term. The policy has no cash or surrender values, and nothing in the nature of increasing protection⁵ which would be forfeited upon a termination of the coverages.

The District Court found some inconsistency between the provision that payment of premiums in advance "is required to keep this policy in continuous effect" and the provision that the acceptance of any premium is optional with the company. Both of these provisions are contained in paragraph (c) of the Additional Provisions quoted in footnote 4 above, and we find no inconsistency

297 F.2d 879

between them. The statement that the payment of premiums in advance is required to keep the policy in effect is not a representation by the company that there is no other requirement, nor is it a promissory undertaking that it will not exercise its reserved option to decline to accept any premium tendered. The one is an affirmative statement, by the company, that the policy will lapse and its coverages terminate if the stipulated premium is not paid in advance, while the other is an affirmative statement of the company's right to cancel at the expiration of any term by declining to accept a renewal premium. The two statements in the same numbered paragraph can be read together harmoniously. Each may be given effect, and no ambiguity arises for application of the principle of strict construction against the insurer, the author of the contract

Attached to the contract is a rider entitled "Non-Cancellable Endorsement," which provides that the Association cannot cancel the policy during any period for which the premium has been paid, nor during any period of disability of the insured.⁶ Plainly, this endorsement deprives the company of any right it otherwise may have had to cancel the insurance during a period for which a premium has been paid, and it makes it certain that the insurer will not exercise its option to decline to accept premiums,⁷ so as to restrict or avoid its obligation under its insuring clauses with respect to death, injury or disability resulting from accident or disease suffered during a period of coverage. There is nothing in the language of the endorsement to suggest that the policy will be forever renewable at the option of the insured, or which restricts the right of the insurer to decline the acceptance of a renewal premium when the insured is in good health.

Many of the earlier health and accident insurance policies contained provisions giving the insurer the option to decline to accept a renewal premium and reserving to it the additional right to cancel the coverages during a term for which a premium had been paid.⁸ The rider here effectively relinquishes the right of cancellation during a term, but does not impair the right to decline to accept a renewal premium for an additional term.

Similar contracts have been considered by many courts. Since the decisions are not entirely harmonious, we must first determine whether we are governed by the laws of Florida, where the contract was made, or by the laws of South Carolina, where the action was commenced. To resolve the conflict of laws question, we look to the decisions of the Supreme Court of South Carolina, for if the action had been tried in the courts of that state, the law of the forum would govern the resolution of the conflicts question.

The Supreme Court of South Carolina has dealt with this question on a number of occasions where an insured had moved to South Carolina from another state in which he had accepted delivery of an insurance policy. That court has uniformly held that the lex loci contractu, not the law of the forum, governs the construction and interpretation of the insurance policy.⁹ We look, therefore,

297 F.2d 880

to the decisions of Florida's courts for guidance in answering the substantive question

In Prescott v. Mutual Ben. Health & Accident Ass'n, 133 Fla. 510, 183 So. 311, 119 A.L.R. 525, the...