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District Court of Appeal, Fourth District, California.

Paul R. ENSIGN, Plaintiff, Cross-Defendant and Respondent, v. PACIFIC MUTUAL LIFE INSURANCE COMPANY, Defendant, Cross-Complainant and Appellant.*

Civ. 5168.

Decided: July 19, 1956

Gray, Cary, Ames & Frye, San Diego, for appellant. Chandler & Durham, La Jolla, for respondent.

The plaintiff brought this action to recover certain disability benefits alleged to be due from defendant, a California corporation, under the terms of a certain insurance policy. The court below gave judgment for plaintiff and defendant appeals.

The policy originally issued in January, 1929, was inoperative during plaintiff's military service from 1940 to 1946. It was renewed in 1946 and continued in force through the year 1952. It is captioned ‘Non-Cancellable Income Policy’ and it ‘provides indemnity for * * * loss of time by sickness; * * *.’ The obligation is stated, so far as material, as insurance ‘against disability commencing while this policy is in force and resulting from sickness; as follows:

‘The company will pay indemnity at the rate of Two Hundred Dollars per month for the period throughout which disability * * * consists of continuous, necessary and total loss of all business time * * *’.

Plaintiff suffered the kind of disability described in the obligation of the contract on September 17, 1952, while the policy as renewed was in full force. In denying liability the company states:

‘(Our contention) is that under the policy plaintiff had to prove two things: First, in order for the plaintiff to recover under the policy at all he had to bring himself within its terms—that is he had to show that he really lost business time; second, in order to establish a measure of recovery under the terms of the policy (in excess of zero), he had to show average earnings in excess of zero during some part of the prior two years.’

Among the ‘Additional Provisions', on the third page of the policy, we find ‘The Insured is by occupation a Physician and Surgeon classified Extra Ordinary by the Company’, and also Paragraph 25:

‘Indemnity for disability will not be paid under this policy at a rate in excess of the average earnings of the Insured for the period of time that he has been actually employed during the two years immediately preceding the commencement of the disability for which the Company is liable * * *’.

Defendant construes the last quoted clause to defeat the benefits of the insurance in their entirety. The argument is made that, since this is the only method of measuring the rate of indemnity payable in the event of the insured's disability, the insured must have been gainfully employed within the two-year period mentioned in order to collect any indemnity. This argument is fully answered, we think, by a recent decision of the Supreme Court in construing an ‘incontestable’ clause where the insured understated his age in his application. The court said: ‘A policy provision which measures the amount of recovery does not avoid the obligation of the policy.’ New York Life Ins. Co. v. Hollender, 38 Cal.2d 73, 78, 237 P.2d 510, 513. Concededly the insured was voluntarily retired from his profession during the two years before he suffered his present total disability in 1952. He was also retired from his practice during the period of his military service. On renewing his policy thereafter he explained to the company that he was given a physical disability discharge, and particularly inquired the effect thereof upon the renewal. The company by an executive officer replied that the only exclusions would be for service-connected sickness, and that coverage would be effective as to other illnesses. Again in 1947 plaintiff reported to the company ‘I have been unable to do any work’. He stated on a company form that his occupation was ‘Physician (retired)’ and indicated he had no earnings. These definite statements of the insured, accepted by the company, are some evidences of the intent of the parties upon the point in renewing the policy, and maintaining it over a period of six years while the plaintiff was unemployed. These circumstances do not indicate that the parties intended that plaintiff's retirement vitiated the insurance. Defendant argues further that the construction for which it contends finds support in the use of the term ‘loss of business time’ in the clause of the policy quoted, supra.

A policy of the company which contained this same clause was interpreted by the Supreme Court of Arkansas, wherein the court said:

‘So, here, the controlling consideration is one of fact: Was there substantial testimony to support the jury's finding that the disease suffered by appellee resulted in continuous, necessary, and total loss of all business time, ‘business time’ meaning ability to engage in sustained effort of a character sufficiently substantial to negative the idea that there was not a total loss of power reasonably to continue the business or profession.' Pacific Mut. Life Ins. Co. v. Riffel, 202 Ark. 94, 149 S.W.2d 57, 59.

The interpretation put upon the clause by the high court of a sister state is of course not controlling here. It is, however, an impressive demonstration that the clause does not carry a clear and unambiguous meaning that gainful employment is a prerequisite to recovery notwithstanding total disability, as defendant suggests. No California case interpreting the exact point has come to our attention, but in Cobb v. Pacific Mutual Life Ins. Co., 4 Cal.2d 565, 51 P.2d 84, the defendant's noncancellable income policy furnished the basis for the action. The court said in its opinion, 4 Cal.2d at page 567, 51 P.2d at page 85:

‘By its terms the company obligated itself to pay indemnity on account of disability resulting from sickness or accidental means, at the rate of $250 per month for the period throughout which such disability ‘consists of continuous, necessary and total loss of all business time.’ * * * That the disabling effects of said disease [sleeping sickness] have rendered the insured totally and permanently incapacitated within the terms of the policy and constitutes a continuous loss of ‘business time,’ and that its course is progressive and cannot be cured or arrested, is conclusively established by all of the medical testimony in the case * * *'. (Emphasis ours.)

The same clause then, when brought to the court's attention in the Cobb case, seems to have received a construction quite contrary to defendant's contention here. As treated by the court the ‘loss of ‘business time” was only a fact question incident to the extent of the incapacity, and was determined by the character of the disability. Whether Paragraph 25 was before the court does not appear specifically, nor is it apparent that the insured was either retired or employed gainfully. The court did hold that upon paying the premiums and suffering the described disability the indemnity was payable ‘provided he made no fraudulent misrepresentations nor withheld any material information from the company's medical examiner as to the state of his health, or made any statement as to facts which were not true and which, if fully and truthfully given, would have probably caused said company to reject said applicant as not being an acceptable or desirable risk.’

Plaintiff here has met every requirement under the policy as stated in the last quotation from the Cobb case. Before the company renewed the policy in 1946 affording the insurance in question, it had full and truthful information from plaintiff of a disability requiring his discharge from the army. If gainful employment was essential, and retirement a ground of exclusion, it became the duty of the company to deny renewal or at least pursue the inquiry, DiPasqua v. California Western States Life Ins. Co., 106 Cal.App.2d 281, 235 P.2d 64; Weir v. New York Life Ins. Co., 91 Cal.App. 222, 266 P. 996; Johnson v. Life Ins. Co. of Georgia, Fla., 52 So.2d 813, and cases there cited. Circumstances putting the insured on notice may not be deliberately disregarded. (See Zeldman v. Mutual Life Ins. Co. of New York, 269 App.Div. 53, 53 N.Y.S.2d 792, 794.) More than that, before renewal the insured asked the company for its interpretation of the policy on the matter of his incapacity. The company found no reason for exclusion at that time. The record discloses neither fraud nor concealment, or want of fair dealing on his part.

Paragraph 25 is an exception or exclusion to the obligation of the contract and, as such, must be construed ‘strictly against the insurer and liberally in favor of the insured. Mah See v. North American Accident Ins. Co., 190 Cal. 421, 424–425, 213 P. 42, 26 A.L.R. 123; Pacific Heating & Ventilating Co. v. Williamsburg City Fire Ins. Co., 158 Cal. 367, 369–370, 111 P. 4.’ Arenson v. National Automobile & Casualty Ins. Co., 45 Cal.2d 81, 286 P.2d 816, 818.

The same rule of construction applies because of the ambiguity of the paragraph. Arenson v. National Automobile & Casualty Ins. Co., supra. When tested by the understanding of the ordinary person the inference that it only applies where the insured has been ‘actually employed’ is at least equally tenable with the inference defendant would have us draw. In such case, the words of Justice Marks, approved and adopted by the Supreme Court in Narver v. California State Life Ins. Co., 211 Cal. 176, 180, 294 P. 393, 395, 71 A.L.R. 1374, are authoritative. He writes:

‘It is a well-recognized rule of law that if any uncertainties or ambiguities appear in an insurance policy which may be solved by either one of two reasonable constructions, the one which is most favorable to the insured and which will give life, force, and effect to the policy should be adopted. The insurance company, having prepared the policy and all documents used in connection with its issuance, should not be heard to put such a construction upon an ambiguity caused by it, as will defeat the policy and take from the beneficiary the very purpose and object of the insurance, if a reasonable construction upholding the insurance can be had that does no violence to the language used and the clear intention of the parties.’

Here, the company could have easily made the meaning plain and did not.

Judgment affirmed.

BURCH, Justice pro tem.

BARNARD, P. J., and GRIFFIN, J., concur.

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