LINNASTRUTH v. MUTUAL BENEFIT HEALTH & ACCIDENT ASS'N.
Upon the application of Frank Linnastruth defendant issued two accident insurance policies each providing for the payment of $1,250 in case of the death of the applicant resulting from bodily injury. The policies were dated August 5, 1940. Plaintiff, the widow of Frank Linnastruth, who died on August 6, 1940, seeks in this action to have the court reform the two policies so as to provide that the terms of the two policies commenced on July 17, 1940, and to have judgment entered for the sum of $2,500. Plaintiff has appealed from a judgment in favor of defendant.
Carl H. Abrams, a soliciting agent of defendant corporation, obtained from Frank Linnastruth on July 17, 1940, applications for the policies in question to be issued by defendant. The applications were completed and signed by Linnastruth and twenty–six dollars, thirteen dollars on each application, was paid to Abraham. Abraham dated the applications July 20, 1940, which was the date he submitted them to the office of Mutual Insurance Agency, a broker, in Los Angeles, California, for transmission to the home office of respondent at Omaha, Nebraska, where all policies of insurance of defendant are issued. The applications reached the home office on or about August 1, 1940, were approved by the underwriting department on August 2, 1940, and the two policies were issued bearing date August 5, 1940. The policies set forth the terms thereof as beginning August 5, 1940, and ending December 1, 1940, at which time the balance of the annual premiums would be due or said policies could be renewed.
Frank Linnastruth received bodily injury on July 26, 1940, as the result of a fall and on July 30, 1940, received further injury in a fall. In one of these falls he suffered a fracture of his elbow joint. Infection followed, resulting in his death on August 6, 1940. The two policies were delivered to Linnastruth on August 6, 1940, just prior to his death and while he was unconscious. On July 30, 1940, plaintiff wrote to defendant that Mr. Linnastruth had had an accident and asked that blanks be sent to her. The blanks were sent to her but she did not use them. Plaintiff promptly notified defendant of the death of her husband and on August 10, 1940, defendant wrote to her denying liability on the ground that the injuries which resulted in Mr. Linnastruth's death were received prior to the date on which the policies were issued.
The two applications for insurance are identical and one of them is attached to each of the policies. Each application contains fourteen questions and answers and at the head of each application there appears the following: “I, the undersigned, hereby make application to the Mutual Benefit Health and Accident Association, for policy form MIA50 on the annual basis. I understand and agree that this application shall not be binding upon the Association until the policy is issued to me.” The last question in each application reads as follows: “Do you hereby apply to the Mutual Benefit Health and Accident Association for a policy issued solely and entirely in reliance upon the written answers to the foregoing questions and do you agree that the association is not bound by any statement made by or to any agent unless written herein?” In answer to this question the applicant wrote “Yes.” On the reverse side of each application appears the following: “Insurance policy. This policy goes into immediate effect from date of issue on accident, and on sickness as plainly stated in the policy”. The signature of Mr. Linnastruth does not appear on this side of the application.
The policies and the applications constituted contracts between Mr. Linnastruth and defendant corporation. It is expressly so stated in each policy. The general rules which pertain to contracts are applicable. Parties to insurance contracts may make such agreements as they see fit and the courts will enforce the terms mutually agreed upon, subject to the rule that the contract is not against public policy or in contravention of express provisions of law. Boyer v. United States Fidelity & Guaranty Co., 206 Cal. 273, 274 P. 57. But, as is often the case with insurance contracts, a question has arisen as to the terms upon which the parties agreed. In his applications Mr. Linnastruth stated that he understood and agreed that the applications should “not be binding upon the Association until the policy is issued to me.” Defendant argues that this language is clear and free from ambiguity and that by the terms of the contracts defendant is not liable for injuries received before the date of the insurance of the policies. In our view the contracts are not free from ambiguity as to the meaning of the word, binding, as here used, and under well established principles the ambiguity must be construed most strongly against the party responsible for the uncertainty. Rankin v. Amazon Ins. Co., 89 Cal. 203, 26 P. 872, 23 Am.St.Rep. 460. When Mr. Linnastruth signed the application he made, in legal effect, proposals to defendant which, when accepted by defendant, resulted in valid contracts. But to what extent and in what manner did these valid contracts “bind” defendant? Defendant could accept the proposals as made or reject them and return the premiums which had been paid but it could not retain the premiums and at the same time alter the terms proposed and make the alterations effective without the consent of the applicant. Defendant did not exercise its right to reject the applications but it accepted them and issued the policies. The argument which it now presents is tantamount to a contention that it had the right to postpone the date on which the applicant would be protected by insurance to a date of its own selection. It does not seem reasonable to conclude that the parties to the contract intended such a condition. The more reasonable view appears to be that defendant was not liable in any sense until it accepted the applications and issued the policies; but that when it did in fact issue the policies defendant was obligated to comply with the terms which had been proposed; and that these terms included insurance protection for the period commencing with the date of the applications and extending to the date for which premiums were paid.
The remarks of the court in Beswick v. National Casualty Co., 206 Mo.App. 67, 226 S.W. 1031, 1033, are of especial interest. Although the facts of that case contain elements dissimilar to the facts of the present case in that the agent gave a receipt for the premium bearing a definite date, the reasoning of the court is in line with the reasoning upon which our conclusion is based. The court there said: “But the application contained this clause: ‘I agree that this application shall not be binding upon the company until accepted either by the secretary at the home office or by an agent duly authorized to issue policies.’ And defendant contends that this entirely defeats any idea or provision that the insurance should begin on the date of the application. We do not think this clause has reference to the time when the insurance, if accepted, is to take effect, but only makes the contract of insurance, which the plaintiff sought subject to defendant's acceptance. If the defendant did not choose to accept the insurance thus proffered, it could decline it and return the premium, and it was agreed in the receipt that if they did not accept it in 20 days they would return the money. They did not decline the insurance. They accepted it, but chose to date the policy November 1, 1917, which made it commence after the accident had occurred. The duty of the defendant, if it chose to accept the insurance at all––and it did choose to accept it––was to issue the policy pursuant to the terms of the contract made by its authorized agent with the applicant.”
It is contended by plaintiff that the trial court erred in refusing to permit testimony concerning a conversation between the agent Abraham and Mr. Linnastruth in which Mr. Abraham stated that the applicant would be protected from the date of the application. It is also contended that under the doctrines of waiver and estoppel defendant may not now assert nonliability. The conclusion at which we have arrived, as above set forth, makes it unnecessary to discuss these contentions.
The judgment is reversed.
I concur. Decedent signed his applications for the policies on July 17. He knew that before the contracts could be issued the applications must be received and considered by defendant at its office in Omaha. While the application form notified decedent that he should not be protected until the policies were issued, such notice could not reasonably have intended that an application for insurance might be suspended in this way, thereby leaving decedent without insurance for a period to be determined solely by the insurer. The public expects, and it is entitled to expect, generous treatment at the hands of such corporations as are under state regulation. When decedent applied for insurance he paid the designated premiums and supplied the factual data concerning himself as of that date. He bargained for insurance then and there, and it is a reasonable construction of the contracts that he knew upon acceptance of the applications the insurance dated back to July 17, the day on which decedent signed the agreements for the insurance and paid the price demanded.
The premiums were retained not only until the applicant deceased but for more than four months thereafter, and until defendant answered in this action. It had no right or authority arbitrarily to defer the issuance of the policies after accepting decedent as an insurable risk. Decedent was entitled within a reasonable time to action upon his applications. Such time would have required the date and issuance of the policies to be prior to July 26, the day of the first accident. Having prepared the forms for the applications, defendant may not after a loss so construe uncertain phrases of the contract as to defeat it, if by reasonable construction the policy may be made valid. Narver v. California State Life Ins. Co., 211 Cal. 176, 294 P. 393, 71 A.L.R. 1374.
W. J. WOOD, Justice.