BAINE v. CONTINENTAL ASSUR CO

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District Court of Appeal, Second District, Division 1, California.

BAINE v. CONTINENTAL ASSUR. CO.

Civ. 12735.

Decided: January 26, 1942

Isaac Martin Sackin, of Hollywood, for appellant. Joe Crider, Jr., and Clarence B. Runkle, both of Los Angeles, for respondent.

This is an appeal from a judgment in favor of respondent insurance company in an action for specific performance of an “Exchange of Policy” clause contained in a life insurance policy, made and delivered to appellant by respondent on June 18, 1927 at Los Angeles, said clause reading as follows:

“Exchange of Policy––At any time while in full force, provided the Insured is then less than sixty years of age, this policy may be changed without medical examination for a policy of the same amount upon any form issued by the Company at the time this policy takes effect and which provides for a higher rate of premium. Such change will be made upon written application therefor on the forms required by the Company and upon payment of a sum equal to the difference between the premium on the new policy and the premium paid on this policy, with interest at the rate of five and one–half per cent per annum from the due date of each payment to the date when the change is made. The new policy shall take effect as of the date of this policy and shall be based upon the same age of the Insured as this policy.”

Pursuant to said recital, appellant on October 16, 1938, and again on January 11, 1939, requested respondent insurance company to exchange the ordinary life policy dated June 18, 1927, “for a new life policy with disability benefits” providing for a life income of $10 each month for each $1,000 of insurance. Respondent refused to make the requested exchange and on April 24, 1939, appellant instituted the instant action. It was stipulated at the trial that on the dates when such requests for exchange were made, appellant was less than sixty years of age; that a proper offer of payment was made by him and that his insurance policy was in full force and effect.

Respondent in its answer to the complaint herein alleged as an affirmative defense the fact that disability insurance was denied appellant at the time the original policy was issued because of unfavorable family history disclosed by the medical certificate attached to appellant's application for such policy.

With respect to this defense, it was found by the court that appellant's application for the policy, which was issued, “in addition to said life insurance policy also requested the issuance by defendant to plaintiff of certain disability and double indemnity benefits upon defendant's Disability Form L–398, which was a supplemental contract form to be added to the life insurance policy; that defendant refused to issue said supplemental form providing for disability and double indemnity benefits and did execute and deliver said life insurance policy without said additional benefits and the policy thus executed and delivered by defendant was received and accepted by plaintiff and at about the same time plaintiff received from defendant, as a refund, the difference between the premium originally tendered to cover both the life insurance and the supplemental contract for disability and double indemnity benefits and the premium on the life insurance policy only as such policy was actually executed and delivered.”

It was found by the court also that at the time when said life policy was executed and delivered to appellant, respondent “had available for issuance at least twelve other forms of life insurance policies, each providing for a higher rate of premium than said policy, executed and delivered to plaintiff, and that at the same time defendant also had available for issuance seven different forms of riders or supplemental contracts which did not constitute separate policies themselves but which could be attached to life insurance policies to provide for additional insurance, to–wit: double indemnity for accidental death and various forms of disability benefits; that each of said supplemental contracts, or riders, provided for a premium for the benefits therein specified which was separate from and in addition to the premium charged by defendant for the life insurance provided in the several forms of policies to which such supplemental contracts or riders might be attached.”

As a conclusion of law from the various facts found, the court concluded: “Plaintiff is entitled to exchange said policy for another policy executed on one of the other forms of life insurance policy available for issue by defendant in 1927 providing for Ten Thousand and No/100 ($10,000.00) Dollars of life insurance at a higher rate of premium, but he is not entitled to change said policy for another life insurance policy identical in terms and amount and premium but including as a supplemental contract a rider providing for additional insurance of a different kind, to–wit: disability benefits at an additional premium.”

It is urged by appellant (1) that the finding of the trial court in accordance with said affirmative defense is not sustained by the evidence; (2) that said affirmative defense is barred by the incontestability clause of the policy; (3) that the court erred in creating a new contract for the parties by a forced construction of the explicit terms of the policy; and (4) that the insurance contract should be construed most strongly against the insurer, the author thereof.

An examination of the record herein reveals evidence supporting the court's finding that disability insurance was denied appellant at the time the original ordinary life policy was issued. In the first place, it was stipulated at the trial that appellant received a refund from the respondent insurer, either at the time the original policy was delivered to him or thereafter, of the difference between $333.20 and $252.60 because of reduction in amount of premium on account of denial of disability insurance. In the second place, appellant's application for such original policy of insurance, a photostatic copy of which was introduced in evidence, reads in part as follows:

“I hereby apply * * * for a policy of insurance upon the Com'l Ordinary Life––N.P. Disability L–398 plan, with” (here follow three tables of disability benefits printed on the face of the application, to–wit:)

for $10,000.00 with Premium of $333.20 payable annually.”

Appellant placed a check mark before Table 1 in said application.

Both the agent, Lewis, and Miss Bender, as underwriter for the life department of the General Agent at Los Angeles for the respondent Insurer, testified that after the application left their hands, i.e., between the time it was mailed to the home office at Chicago and the time when the issued policy (to which was attached a photostatic copy of appellant's application) was returned to Miss Bender for delivery to appellant at Los Angeles, certain deletions were made in the application: horizontal pen and ink lines had been drawn through the words “N.P. Disability L398”; oblique lines had been drawn through the three indemnity and disability tables, and the figures $252.60 had been substituted therein for $333.20, the amount of the original premium. All of these deletions are plainly visible in the photostatic copy of the application attached to the original policy which was introduced in evidence at the trial herein.

In addition to this, there was introduced in evidence a letter dated October 28, 1938, from an associate actuary of insurer written in answer to an inquiry of appellant, reading in part as follows: “Our records indicate that on June 9, 1927 you made written application for an Ordinary Life policy in the amount of $10,000 and that in said application you applied for supplemental contract providing for accidental death coverage and disability Form L398. The total premium for such policy with such additional benefits was indicated in the application as $333.20. The Company declined to issue such rider providing accidental death coverage and disability benefits and policy was issued without the supplemental contract. The premium was thus reduced to $252.60 and the request for the rider was crossed out in the application. We suggest you refer to photo of application attached to policy #96633. This refusal of the Company to issue such rider is set forth in the application subsequently made by you for other policies.

“We are unable to agree with your interpretation of the policy contract. The Company's viewpoint remains the same as set out in our letter of last year.”

Evidence was introduced by respondent to the effect that disability insurance is issued only in the form of a separate rider, and that a more rigid medical examination is required by the insurer for the issuance of disability insurance than for ordinary life insurance.

The “Exchange of Policy” clause provides that “this policy may be changed without medical examination for a policy of the same amount upon any form issued by the Company at the time this policy takes effect and which provides for a higher rate of premium.” (Emphasis added.) Obviously, it is not a reasonable construction of said clause to say that it entitled appellant to ask for the same form of policy, unchanged in any respect, bearing exactly the same rate of premium, but supplemented by the addition of a new and different contract providing for additional insurance of an entirely different type. Therefore, appellant's requests that respondent issue “a new life policy with disability benefits” did not meet the requirements of the “Exchange of Policy” clause.

Moreover, having accepted without protest the refund of premium and the denial of respondent to issue disability benefits, appellant cannot make a demand ten or twelve years later for the issuance of disability benefits based upon the “Exchange of Policy” clause.

With respect to appellant's second point, it is the general rule that a provision in a life policy to the effect that after being in force for a specified time it shall be incontestable, precludes any defense after the stipulated period on account of false statements warranted to be true, even though such statements were fraudulently made, unless fraud is expressedly or impliedly excepted from the effect of such provision. 14 Cal.Jur. 531. This was the holding in Coodley v. New York Life Ins. Co., 9 Cal.2d 269, 70 P.2d 602, cited by appellant, and this rule was followed in Mutual Life Ins. Co. v. Margolis, 11 Cal.App.2d 382, 53 P.2d 1017, also cited by appellant.

Since there was sufficient evidence to support the findings and judgment and no errors appear in the record, the judgment appealed from is affirmed.

YORK, Presiding Justice.

DORAN and WHITE, JJ., concurred.