Columbian National Life Insurance v. McClain

Mr. Justice Stone delivered the opinion of the court. Defendant in error, Merle M. McClain, recovered judgment against the Columbian National Life Insurance Company on a policy of insurance issued on the life of her husband, Edward G. McClain. We shall refer to plaintiff in error as the company, -to Edward G. McClain as McClain and to defendant in error as plaintiff. McClain applied and tendered premium for a $2,000 life insurance policy, premium payable annually. Part I of his application recited that the date of his birth was November 24, 1904; age, nearest birthday, thirty-five. It was dated May 23, 1940. Part II of the application showed medical examination and signature of both McClain and the examiner, all as of May 24, 1940, on which date his nearest birthday was his thirty-sixth. He was given a receipt for his premium payment which recited that the insurance would “be in force from the date of the completion of Part II of his examination” provided the company found him insurable and approved the policy. — 460 — Thereafter, under date of June 11,1940, the company’s agent wrote McClain that the company had rejected his application, and, “On account of your weight the premium has been raised $4.72 per thousand or a total of $9.44 for the two thousand. I believe we are fortunate in having it issued as such and I would suggest that you keep it.” With that letter he enclosed a policy dated May 23, and suggested that McClain sign an enclosed printed form of “Amendment to Application” and send check for the balance of premium. However, McClain did not then accept this proposal and nothing further was done until nearly three months later when, on September 6, 1940, the agent personally visited McClain and persuaded him to accept a policy at the higher rate. McClain thereupon paid the additional premium required and signed an “Amendment to Application” dated September 6, 1940, agreeing to the “Corrections and Amendments” in his application dated the 23rd day of May, 1940, in the space headed, “Corrections and Amendments.” In that document, signed by McClain, he was required further to certify that he had had no sickness, injury or impairment of health since the date of examination under the original application; that there had been no change in his family history and that he had made no application for life insurance that had not been granted as applied for. Instead of receiving a new policy, McClain was given the same policy which had been tendered to him with the letter of June 11. It was plainly dated the twenty-third day of May, 1940, and called for the payment of premium on the twenty-third day of May in each year. It was labelled, “Ten year term policy.” It provided for “additional annual premium” for double indemnity and further “annual premium” for waiver of premium agreement and recited, “annual premium $33.84.” To the original application, photostatic copy of which was attached to the policy, there had been added under the title “Corrections and Amendments (For Home Of — 461 — fice Use Only)” the words “Eliminate Extended Insurance” written with pen; then, in type so similar to that surrounding it as to be inconspicuous, the words “Issue policy with age of applicant advanced 8 years, total annual premium $33.84,” the figures being inserted with pen. On the policy itself, in the upper lefthand corner of the first page, opposite the policy number and overshadowed by the name of the company, which was printed in large type, were the words “Age 43 Rated.” Under “Benefits and Provisions” the policy provides under the heading “Premiums” that “Premiums are payable annually,” and under the heading “Grace Period” that “Thirty-one days’ grace is allowed for the payment of all premiums after the first.” ’ McClain died June 30, 1941, without paying a second premium on the policy. The company contends that the effective date of the policy is May 23, 1940, as shown on its face, in which event the policy had lapsed prior to McClain’s death on June 30, 1941. Plaintiff claims, and the trial court found, that the term of the policy should extend from September 6, when the policy was delivered and paid for, or at least from June 11, when the company first made its counteroffer of a different policy at a higher rate of premium. Either of these dates would continue the policy in force until the time of McClain’s death. The rulés of construction of insurance policies are simple; the application often difficult. In construing such a contract of insurance, the court should attempt to ascertain and carry out the intention of the parties which is to be ascertained, if possible, from the words of the contract alone. It should be given a reasonable construction such as intelligent businessmen would give to it, and where, by reason of ambiguity in the language of the policy, there is doubt or uncertainty as tó its meaning and it is fairly susceptible of two interpretations, one favorable to the insured and the other favorable to the insurer, the former will be adopted. The — 462 — courts will construe the policy, when possible, so as to uphold, rather than avoid, the contract and to accomplish the purpose for which it was made. Forfeiture for nonpayment of premiums is not favored nor authorized unless clearly required by the wording of the contract. The original application was rejected. The sending of the policy to McClain on June 11 was only a counteroffer which was not then accepted. When on September 6 the agent of the company renewed the offer and induced McClain to take insurance and pay the premium, McClain signed what constituted a new application for a different policy than before applied for and at a higher premium. This policy was by the terms of his application to be in effect on delivery of the policy and payment of premium. There is no word as to predating the policy and no word as to a term of less than ten years or as to the first “annual” premium payment giving him protection for eight and a half months instead of the full year. With this situation existing, the insurance company delivered to McClain a policy dated back three and a half months prior to the date when it was delivered or paid for or even applied for. Beyond dispute, this policy went into effect on September 6, 1940, and the annual premium should have provided insurance coverage for one year from that date, unless there is evidence of agreement to the contrary between the parties. As to the applicable rule generally, where there is an express provision in the application that the policy shall not take effect until payment and delivery, yet the policy bears earlier date and provides for the payment of premiums on specific dates computed from the.date of the policy, there is a conflict of authority. 111 A.L.R. 1420. In this jurisdiction the rule is announced in our opinion in Shinall v. Insurance Co., 91 Colo. 194, 14 P. (2d) 183, where we resolved the ambiguity in favor of the insured and held that the grace period and term of the policy were controlled, not by the date of the policy, — 463 — but by the date of its effective delivery and payment of premium thereon. The rule as established in the Shinall case should control here and support the judgment for the plaintiff unless there is some distinguishing feature here established. In the Shinall case the policy provided that if, after being in force one full year from its date, it should lapse for nonpayment of premium the grace period should continue it in effect, and yet we held that it lapsed, not one full year from its date; but one full year from its issuance and delivery. In the instant case the policy provides that premiums are payable annually and that “thirty-one days’ grace is allowed for the pay-, ment of all premiums after the first.” In the former case the termination of the policy through lapsing and the grace period are specifically dependent on the date of the policy. In the instant case it depends on the term covered by the annual premium. We find no essential difference therein. Counsel for the company urge as a further distinguishing feature that here, but not in the Shinall case, the policy was predated for insured’s benefit to reduce his insurable age which increased a year on May 24, and that the lower premium rate of insurance at the age ending May 23 was consideration for the predating of the policy. The terms of a contract cannot be changed even for the benefit of a party without his knowledge and approval and, as the event demonstrated in this case, predating the policy was not of benefit. The contract provides that it is for a ten-year term, not nine years and eight and a half months. It provides that it shall become effective, not on the policy date, but on the date of delivery and payment.' Part II of the original application itself bears date of May 24, when McClain’s insurable age was the same as on the date of payment and delivery of the policy, and the receipt given insured on the originally tendered payment of premium recited that the policy should be in force, not as of May 23, but as of the date of Part II of the application. The letter from the company’s agent advis — 464 — ing insured of the rejection of his application and making tender of a new policy nowhere suggests that the policy is being predated to make him of lower insurable age, or that it is based on his age as of May 23, or that his age is being advanced from an earlier age by any specified number of years or at all. It merely states the total amount of additional premium required of him at that later time to obtain a less favorable policy than he had applied for in May. The amended application which insured finally signed in September makes no mention of predating the policy or of the age upon which it is to be based. It merely agrees to the changes noted in his earlier application giving him a less favorable policy at a higher rate, in order to obtain the policy, plaintiff was required to show insurability as of September 6, by proof as to health and family history and that he had not been rejected by any other insurance company to that date. All these facts would evidence intention to insure for a policy term beginning September rather than May, and would militate against the interpretation of the policy as being predated by agreement with insured. On the other hand, if insured read the statement at the top of page one of the policy “Age 43 Hated” and also noted on the photostatic copy of his original application the added words “age of applicant advanced 8 years” and considered the two statements together, he would, by computation, have discovered that the policy was being based upon his age as thirty-five rather than thirty-six. The court below having found in favor of insured, we cannot conclude that this possibility of inference of predating, discoverable only by such computation, so outweighs all evidence to the contrary as to make the court’s finding void of support. The fact that the premium rate may have violated our statute against discrimination in rates is no- defense to the suit on the policy here. Finally, it is urged that the court below erred in excluding evidence and offer of proof that, “At the time — 465 — of soliciting this insurance and making and signing the application, the insured named therein, after having had explained to him the various premium rates on his birth date, as it was shown on the application, requested that the policy be dated on the basis of his insurable age, being thirty-five years.” We think such offer was properly rejected. Even on May 24, which was the effective date of his original application for a policy, his insurable age would have been thirty-six years. Further, the offer of proof violates a specific provision of the policy, that “This policy and the application therefor constitute the entire contract between the parties * * * and no statement shall avoid the policy or be used in defense to a claim under it unless contained in the written application and a copy of the same attached hereto.” Still further, this offer, as to a purported conversation with the agent at the time of the soliciting of the application in May, would not affect the new agreement in September, where the premium rate was neither that for age thirty-five nor that for age thirty-six, but a rate arbitrarily set by the company. Our attention has not been called to any decision involving facts altogether like those in the case at bar. We have considered particularly the Missouri cases relied on by plaintiff in error, for the reason that the decisions there have been in harmony with our decision in the Shinall case. In Prange v. International Life Ins. Co., 329 Mo. 651, 46 S.W. (2d) 523, the policy expressly stipulated that after delivery to the insured it should take effect as of a specified date prior to that of the original application and, on the date of delivery, the insured signed a supplemental application expressing his desire that the policy be dated on that earlier day. That constituted strong and positive evidence of agreement that the policy should be so predated. In McQueeny v. National Fidelity Life Ins. Co., 350 Mo. 469, 166 S.W. (2d) 461, the application provided that the policy should not take effect until payment of — 466 — the first annual premium and the application had been completed and received and approved by the company, and that the policy should bear the date of such approval, unless otherwise requested in statement 9, and under statement 9 were written the words: “Date policy June 28, to hold age.” Accordingly, there the agreement for predating the policy was plainly established by the written contract. In Tablet v. General Am. Life Ins. Co., 342 Mo. 726, 117 S.W. (2d) 278, the policy was dated the second day of March, which was the last day for insurance at the age of twenty-seven, and payment and delivery made at a later date. There, however, the application provided that the insurance policy as issued should not take effect until the first premium was paid and the policy delivered, “but in that event the policy shall bear the date of its issuance and all future premiums shall become due on such policy date * * *.” Insured’s age was plainly stated in the policy as twenty-seven; the policy specifically provided that the first premium was term insurance for the first year ending on the second day of March; further, the insured prior to his death paid four annual premiums based on the policy date and had' made application for reinstatement after default, stating that the premium was due on the policy date. Thereby the agreement to predate the policy was manifest. In Meadows v. Continental Assurance Co., 89 F. (2d) 256, the policy was dated July 9, 1926, and accepted August 9, 1926. It specifically provided that, “After the delivery of this policy to the insured and the payment of the first premium it shall take effect as of the 9th day of July, 1926,” and in that case also the policy provided that the first year’s insurance under the policy was term insurance, and still further in that case, the insured had paid premiums on the policy for six years without default according to the policy date. In each of these cases there is convincing evi — 467 — dence in the plainly stated provisions of the application and policy establishing agreement of the parties for predating the policy in order to gain advantage of a lower premium rate. Such lower rate is sufficient consideration to support such an agreement. The distinction between those cases and the instant case is that here the application and policy contain no such clear evidence of consideration and intention to predate the policy. In those cases the evidence was clear; in this case it is uncertain and ambiguous, and should be interpreted favorably to the insured. We find no essential distinction between this case and the Shinall case and, accordingly, the judgment of the court below is affirmed. Mr. Chief Justice Knous, Mr. Justice Jackson and Mr. Justice Alter dissent.