RANSOM v. PENN MUT. LIFE INS. CO.*
In an action on an alleged agreement of life insurance the beneficiary Lois Ransom, widow of the insured, received a verdict for $40,000. Judgment was entered accordingly, a motion for judgment notwithstanding the verdict having been denied. The defendant insurance company, herein further called the company, appeals from the judgment and from the denial of its motion.
On September 16, 1949, Ralph W. Ransom, after having applied for life insurance, submitted to an examination by Dr. Pace, a medical examiner for the company. The examination showed no abnormality except that Ramsom, who was 28 years old, 5 feet 10 1/212 inches high, and who weighed 200 pounds, was somewhat overweight (not sufficient in itself to prevent his insurability). For the filling out of the medical questionaire by Dr. Pace he answered ‘no’ to the questions whether he had had a special heart study or an electrocardiogram and whether there had been a suspicion of or treatment for palpitation of heart, shortness of breath, pain in chest, abnormal pulse, any disease of the heart or blood vessels or a high blood pressure. As to earlier illnesses and treatments he only mentioned an appendectomy and that in 1948 he had consulted Dr. Long in San Jose for a physical examination. Ramsom wished to change the character of the insurance for which he applied to one for $20,000 with double indemnity in case of accidental death and signed the first (nonmedical) part of the application to that effect on September 22, 1949. Part one contained among others the following clauses above applicant's signature:
‘I also understand and agree that:
‘1. If the first premium is paid in full in exchange for the attached receipt signed by the Company's agent when this application is signed the insurance shall be in force, subject to the terms and conditions of the policy applied for, from the date of Part I or Part II of this application, whichever is the later, provided the Company shall be satisfied that the Proposed Insured was at that date acceptable under the Company's rules for insurance upon the plan, at the rate of premium and for the amount applied for, but that if such first premium is not so paid or if the Company is not satisfied as to such acceptability, no insurance ahall be in force until both the first premium is paid in full and the policy is delivered while the health, habits, occupation and other facts relating to the Proposed Insured are the same as described in Part I and Part II of this application and in any amendments thereto.
‘2. Notice to or knowledge of an agent or a medical examiner is not notice to or knowledge of the Company, and that no agent or medical examiner is authorized to accept risks, to pass upon acceptability for insurance, or to modify, alter or enlarge any contract of insurance.’
Ransom wanted to pay the first premium when he signed Part I of the application, as he wished the insurance to be in force from that time, but as a matter of convenience it was agreed that Hathaway, the agent of company who solicited the insurance, would add his check for the first month's premium ($25.80) to the application and would be paid back the next day. This was done. It is doubtful whether the receipt attached to the application was given in return. Hathaway first testified that he had done so, but when the receipt carrying the same number as the application proved to be in the possession of the company, he retracted and testified that he might have sent a receipt with another number, but that he was not sure. Ransom's widow, the plaintiff, could not find such a receipt. On the 23rd of September when she repaid the $25.80 she was given an informal receipt only. There was evidence that according to instructions and custom the printed receipt attached to the application should be given if payment was made at the signing of the application. The receipt so attached contained a clause similar to the above clause 1 of the application.
The application reached the home office of company in Philadelphia on September 28, 1949. In accordance with its rules and on authorization by Ransom, the company in a letter of September 29 asked Dr. Long for a statement of his findings at the visit Ransom had mentioned in his application. By letter of October 11, Dr. Long answered that Ransom came for a complete checkup on October 17, 1947, complaining of a heavy feeling in the chest. At the beginning of the examination his blood pressure was 150/10050100, but taken again under less tension 130/983098. Except for a moderate obesity the results of examination and tests, among which was an electrocardiogram, were essentially normal. The patient was advised to reduce and reassured as to his physical status. Dr. Long testified at the trial that the diastolic (lower) pressure was too high also at the second reading. His diagnosis was hypertension; Ransom was so informed. Hypertension is the same as high blood pressure.
In a letter of October 13 the company reported Dr. Long's statement to Dr. Pace and asked him to arrange for two afternoon blood pressure observations on two different days, with special attention to the diastolic, to inquire as to any subsequent heavy feeling in the chest and if necessary to make additional examinations to clear up the case. On October 17th Dr. Pace sent Ransom a letter requesting him to come to the office for further tests, but Ransom did not react. Hathaway who had also been informed of the necessity of further blood pressure readings arranged with Dr. Pace that the readings would be taken any evening when Hathaway would bring Ransom over after work. When Hathaway visited Ransom for that purpose Ransom told him that he could not go because he had a cold. Hathaway went back a couple of days later, but that evening, October 27, 1949, Ransom was killed in an auto accident.
About November 8, 1949, the company tendered Mrs. Ransom a check for $25.80 and informed her of the rejection of the application. The check was returned and this suit followed.
From the evidence at the trial the following must be mentioned: Robert L. Weaver, medical director of the company, testified that, in view of the report from Dr. Long, Ransom, in accordance with the company's rules, was not acceptable upon the plan at the rate and for the amount applied for because of his history of heavy feeling in chest and finding of high blood pressure. With respect to the processing of applications that indicate high blood pressure, rule 346 of the company's printed manual requires that two or more blood pressures will be obtained and that the staff will consider the highest systolic the applicant has been determined to have had in the past five years. No new readings were obtained but even if they had been normal, no insurance at standard rate or with double indemnity would have been given. The further blood pressures were asked for the possibility of insurance at substandard rates. Asked why Ransom was not informed that he was not acceptable on the plan applied for if the company knew this on receipt of Dr. Long's report, witness testified that this was not the custom of the company.
Dr. Dennis, the autopsy surgeon who performed the autopsy on Ransom's body, testified that the cause of his death was rupture of the aorta by external violence. There were no remarkable findings as to the heart or other named organs. He could not say that there were no circumstances or conditions to indicate any abnormality whatever, but he found no other lesions that would bring about the death, determination of the cause of which was the purpose of the autopsy performed.
Appellant's main contention is that as a matter of law the conditions which the application contains for the insurance to be in force from the date of the application were not fulfilled, so that there was no contract of insurance and the motion for judgment notwithstanding the verdict should have been granted. As we have concluded that this contention is correct, appellant's further grievances need not be mentioned. Respondent contends that the verdict can be sustained either on the theory that there was an immediate contract of temporary insurance subject to termination by the company if the application had been found unacceptable, which condition subsequent had not happened, or on the theory that the insurance would be in force from the application unless the company reasonably and in good faith was not satisfied as to its acceptability, whereas the jury could hold that there was no reasonable ground for dissatisfaction in good faith.
No case in this jurisdiction has been cited by the parties or found by us which construes a clause in any way similar to the one here involved, although in other jurisdictions there is a great number of decisions on this subject. See Annotations 81 A.L.R. 332, 107 A.L.R. 194, 2 A.L.R.2d 943. However, as shown by these annotations, the cases in other jurisdictions are strongly conflicting. Although the conflict is partly attributable to differences in the formulation of the clauses regarding the force of the insurance prior to the delivery of a formal policy the main cause of disagreement is the difference of attitude of the courts as to the principles which should be applied in the construction of such clauses. The majority accepts that the general principles of construction of contracts are applicable to such insurance contracts and that when the contractural documents are clear the court will not rewrite the contract. They do not accept the existence of a temporary contract of insurance with condition subsequent if such construction does not accord with the language of the provision involved and require performance of conditions expressed as prerequisite of the taking effect of the insurance from a date prior to the delivery of a formal policy. Examples of such majority decisions are: Mofrad v. New York Life Ins. Co., 10 Cir., 206 F.2d 491; Maddox v. Life & Casualty Ins. Co. of Tennessee, 79 Ga.App. 164, 53 S.E.2d 235; Bearup v. Equitable Life Assur. Soc. of the U. S., 351 Mo. 326, 172 S.W.2d 942; Gerrib v. Northwestern Mut. Life Ins. Co., 256 Ill.App. 506; Raymond v. National Life Ins. Co., 40 Wyo. 1, 273 P. 667; Gonsoulin v. Equitable Life Assurance Society, 152 La. 865, 94 So. 424. There is however a sizable minority which is influenced by the consideration that the applicant pays the first premium at the time of the application for the purpose of receiving immediate coverage and who consider the conditions restricting the right to early coverage as ‘tricks' by which the insurance companies obtain premiums for coverage which they do not provide, although it is sometimes conceded that the applicant by the provisions attacked may obtain other advantages. Such courts tend to find ambiguities in the clauses in question for the purpose of construing them against the insurance companies so as to provide for a temporary insurance with condition subsequent, or such temporary insurance is even read into the contract without resort to the ambiguity technique. See Annotations 2 A.L.R.2d 943, 1019 et seq. Examples of this minority view are Gaunt v. John Hancock Mut. Life Ins. Co., 2 Cir., 160 F.2d 599; Duncan v. John Hancock Mut. Life Ins. Co., 137 Ohio St. 441, 31 N.E.2d 88; Colorado Life Co. v. Teague, Tex.Civ.App., 117 S.W.2d 849; Stonsz v. Equitable Life Assur. Soc., 324 Pa. 97, 187 A. 403, 107 A.L.R. 178.
We are of the opinion that in this state the majority view giving such clauses their normal construction should be followed. Insurance contracts are construed according to the same rules as other contracts, § 1635, Civil Code. They should be considered as a whole and the different parts read together and all given effect. The terms of the contract constitute the measure of the insurer's liability, and it should be construed according to the language used to arrive at the true meaning. 14 Cal.Jur. 440, Insurance, § 22 and cases there cited. The general rule of construction is stated as follows in Vierra v. Shaffer, 113 Cal.App.2d 768, 772, 248 P.2d 992, 994, quoting from 12 Am.Jur. 749:
“Interpretation of an agreement does not include its modification or the creation of a new or different one. A court is not at liberty to revise an agreement while professing to construe it. Nor does it have the right to make a contract for the parties—that is, a contract different from that actually entered into by them. Neither abstract justice nor the rule of liberal construction justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract of an obligation not assumed.”
The quoted language of the first clause of the application, on which the plaintiff must rely for the contention that the insurance was in force, is inconsistent with an agreement for temporary insurance existing until a condition subsequent is fulfilled. Especially the last aprt of said clause ‘but that * * * if the Company is not satisfied as to such acceptability, no insurance shall be in force until both the first premium is paid in full and the policy is delivered * * *’ precludes such construction. The only construction of the clause which gives its language its normal meaning is that the existence of insurance prior to the delivery of the policy is dependent on the fulfillment of the express conditions stipulated in the proviso. There is a further reason why we do not feel justified in trying to circumvent these conditions. On similar conditions, although still less favorable than those in this application, sec. 10115, Insurance Code, predicates the right of a beneficiary to recover prior to actual delivery of the policy, if the first premium has been paid at the time of the application. When the legislature thinks it worth while to institute such right by a special provision of our code independent of contract we can hardly say that a somewhat more liberal provision in a contract is a trick which we should thwart by all means available to us.
The essential question then is whether there is any evidence from which the jury could conclude that the conditions contained in the proviso were met. We do not find any evidence indicating that the company was ‘satisfied that the Proposed Insured was at that date acceptable under the Company's rules for insurance upon the plan, at the rate of premium and for the amount applied for.’ To the contrary, the evidence is without conflict that the company being apprised of Ransom's history of high blood pressure, which did not appear from the information given by him to Dr. Pace, in accordance with its rules required him to submit to further blood pressure readings with which demand Ransom did not comply. Said demand communicated to Ransom undisputably shows company's lack of satisfaction; neither can there be any doubt that the readings demanded were required by the rules to which the quoted condition refers. This requirement was not satisfied and could not be satisfied because of Ransom's accidental death. The further testimony of Dr. Weaver that even if the new readings would have been normal Ransom because of his hstory would only have been acceptable at an extra premium rate and on an amended plan, although uncontradicted, need not be considered. So long as the required readings had not taken place the condition of the company's satisfaction of Ransom's acceptability under the company's rules had not been fulfilled.
In Corn v. United American Life Ins. Co., D.C., 104 F.Supp. 612, 615, the applicant had paid the first premium in the amount of $437.10 when he signed the first part of his application but was killed in an accident before he had submitted to medical examination or filled out the second (medical) part of his application. The court held there was no insurance stating, among other things: ‘Diligent search has failed to reveal a single authority which recognizes the existence of interim insurance where the alleged insured himself had failed to take steps upon which the agreement of the parties conditioned liability.’ Although the commencement of the coverage in the case before us is not expressly conditioned on the completion of the medical examination, we think that the same principle must govern here. The company's rules, to which the proviso refers, require the taking of the further blood pressure readings before the company makes its decision as to the acceptability of the applicant. For the taking of the readings the cooperation of the applicant himself is necessary. We see no essential difference between not submitting to required supplementary medical examinations and not submitting to any medical examination at all.
Respondent urges that in considering the applicant's acceptability the insurer must act in good faith and reasonably, not arbitrarily. Although there is authority to the contrary with respect to the requirement of reasonableness, we concede the correctness of the rule. Occidental Life Ins. Co. of Cal. v. Lame Elk White Horse, D.C.Mun.App., 74 A.2d 435, 437; Western & Southern Life Ins. Co. v. Vale, 213 Ind. 601, 12 N.E.2d 350, 353; and compare Restatement, Contracts, § 265. But the rule is in no way decisive here because there is in the evidence nothing from which it could be concluded that the company's attitude was not reasonable and in good faith. To determine the acceptability of the applicant, an insurer has the right and is under the necessity of making a careful investigation of all relevant conditions and circumstances. Reese v. American National Ins. Co., 5 Cir., 175 F.2d 793, 794; Gerrib v. Northwestern Mut. Life Ins. Co., 256 Ill.App. 506, 517; Raymond v. National Life Ins. Co., 40 Wyo. 1, 273 P. 667, 673. Evidently high blood pressure readings and chest complications are relevant conditions to be investigated and the demand for further medical examinations was made without any relation to the applicant's subsequent accidental death. That the completion of the medical examination was thus protracted was not caused by any fault of the company but solely by the incompleteness of the information given by Ransom and by his failure to respond to the demand for this examination. Good faith could not require the company to consider a post mortem held for the sole purpose of determining the cause of death and not decisive as to high blood pressure instead of the blood pressure readings its rules required. There is no evidence whatever indicating that a reasonable insurer in the company's position would have been satisfied as to Ransom's acceptability under its rules without a completed medical investigation.
Appellant urges that also the conditions that the first premium was paid in full in exchange for the attached receipt signed by the company's agent when the application was signed, had not been fulfilled and that misrepresentations by Ransom in the medical part of his application constituted a defense to any action on the alleged contract of insurance. By these contentions we are not impressed. The check provided by Hathaway may well be considered by payment by Ransom with borrowed money. It is doubtful whether the giving of the attached receipt in exchange for such payment is a separate condition, as the second part of the proviso does not mention the failure to do so as preventing coverage prior to the delivery of the policy; the doubt is to be solved against the insurer. Neither does the matter of the alleged misrepresentation seem decisive where the company after having been apprised of the true facts did not reject the application but demanded further medical examination to clear up the point. However, the lack of satisfaction of the company as to Ransom's acceptability under its rules necessarily leads to the conclusion that the insurance applied for was not in force at the time of Ransom's death and that therefore the motion for a judgment notwithstanding the verdict should have been granted.
The judgment is reversed with directions to enter judgment for defendant notwithstanding the verdict.
I concur. I am in full agreement with those courts which hold that a trick clause such as that in the application here in question should be strictly construed against the company, because of the false appearance of coverage that it would create if not strictly construed. However Ransom was not in fact tricked in this case. When he was actually notified by the company that it required a further physical examination he was put on notice that the company was not satisfied and that the insurance for that reason was not yet in force. On this ground alone I concur in the reversal.
NOURSE, Presiding Justice.
GOODELL, J., concurs.