holding that construction of ambiguous contracts rests essentially upon the principle of effectuating the reasonable expectations of the ordinary applicant
How later courts described this case
- holding that construction of ambiguous contracts rests essentially upon the principle of effectuating the reasonable expectations of the ordinary applicant
- contract of insurance immediately created upon receipt of the application and payment of the premium is not terminated until the insurer has actually rejected the application and by appropriate notice communicated such rejection to the insured and refunded the premium payment to the insured
- holding premiums without providing insurance is “unconscionable”
- where contract for temporary insurance arises due to acceptance of initial premium and issuance of conditional receipt, temporary insurance can be terminated only by notice of rejection and refund of the premium
Written by the judges who cited it.
The opinion
CLARK, J.
I dissent.
The unequivocal rejection of the insurance application more than one month after acceptance of the first month’s premium, coupled with the promise to return the premium, prevented any reasonable expectation of continued temporary insurance coverage. Any ambiguity was eliminated. By requiring return of premium as a condition to terminate the policy, the majority contravenes all authority considering the question and frustrates the obvious intentions of the parties.
A party exercising the right to terminate a contract is not required to return consideration at the time of communicating the rescission. (Civ. Code, §§ 1691, 1693; Neet v. Holmes (1944) 25 Cal.2d 447, 457 [ 154 P.2d 854 ]; McCall v. Superior Court (1934) 1 Cal.2d 527, 535 [ 36 P.2d 642 , 95 A.L.R. 1019 ]; Gantner v. Johnson (1969) 274 Cal.App.2d 869 [ 79 *127 Cal.Rptr. 381 ]; Rest., Contracts, § 480; 12 Williston, Contracts (3d ed. 1970) p. 108 et seq.; 5 Corbin, Contracts (1960) p. 607 et seq.)
More specifically, insurance decisions hold that return of premium is not a condition precedent to cancellation of an insurance contract. (Jensen v. Traders & General Insurance Co. (1959) 52 Cal.2d 786, 799 [ 345 P.2d 1 ]; Mangrum & Otter v. Law U. & R. Ins. Co. (1916) 172 Cal. 497 , 498 et seq. [ 157 P. 239 ]; 17 Couch on Insurance (2d ed. 1962) p. 539; 7 Williston, Contracts (3d ed. 1970) § 920, p. 605 et seq.) These authorities make it abundantly clear that no public policy requires the premium’s return as a condition precedent to cancellation of express insurance; our majority proposes no public policy demanding stricter standards for the termination of implied temporary insurance.
It is anomalous to hold that an express policy of insurance may be cancelled by notification alone but that termination of implied temporary insurance requires something more. It is not surprising that all authority confronting this problem, including five decisions purporting to apply California law, has recognized temporary insurance may be terminated without return of the premium, termination becoming effective either on the insurer’s uncommunicated determination to reject the application or on notice of rejection to the applicant. (Metropolitan Life Insurance Company v. Wood (9th Cir. 1962) 302 F.2d 802, 803 (purporting to apply California law); Metropolitan Life Insurance Company v. Grant (9th Cir. 1959) 268 F.2d 307, 310 (same); Koorstad v. Washington Nat. Ins. Co. (1967) 257 Cal.App.2d 399, 405 [ 64 Cal.Rptr. 882 ]; 1 Wernecke v. Pacific Fidelity Life Ins. Co. (1965) 238 Cal.App.2d 884, 886-888 [ 48 Cal.Rptr. 251 ]; 2 Brunt v. Occidental Life Ins. Co. (1963) 223 Cal.App.2d 179, 186 [ 35 Cal.Rptr. 492 ]; 3 Service v. Pyramid Life Insurance Co. (1968) 201 Kan. 196 [ 440 P.2d 944, 960 ]; McLean v. Life of Virginia (1971) 11 N.C.App. 87 [ 180 S.E.2d 431, 433 ]; Littell v. Republic-Franklin Ins. Co. (1965) 1 Ohio App.2d 524 [ 205 N.E.2d 580, 585 ]; Leube v. Prudential Ins. Co. of America (1947) 147 Ohio St. 450 [ 72 N.E.2d 76, 78 ]; Stonsz v. Equitable Life Assur. Soc. (1936) 424 Pa. 97 [ 187 A. 403, 406 , 107 A.L.R. *128 178 ]; Colorado Life Co. v. Teague (Civ.App.Tex. 1938) 117 S.W.2d 849, 854 ; Starr v. Mutual Life Ins. Co. of New York (1905) 41 Wash. 228 [ 83 P. 116, 118 ]; see also, 9 Couch, Insurance (2d ed. 1962) § 39:207, pp. 562-563; Meyer, Life and Health Insurance Law (1972) § 5:14, pp. 126-127; 44 C.J.S., Insurance (1945) §230(3), pp. 966-967; 43 Am.Jur.2d (1969) Insurance, § 218, pp. 278-279; Anno., Temporary life, accident or health insurance pending approval of application or issuance of policy (1948) 2 A.L.R.2d 943 , 982; Note, Life Insurance Receipts: The Mystery of the Non-Binding Binder (1954) 63 Yale L.J. 523 , 532.) 4
Although dissents were filed in two of the above cases, neither contended that the premium’s return is a necessary condition precedent to effective termination of temporary insurance.
Absent an express unequivocal disclaimer, temporary, insurance is implied from the filing of an application and paying the premium. This is so because delivery of the application and the premium leads a reasonable man to believe he is insured at that moment. (Ransom v. Penn Mutual Life Insurance Co. (1954) 43 Cal.2d 420 [ 274 P.2d 633 ].)
Because temporary insurance is provided only impliedly—not expressly—-the implication should be rejected when the circumstances fail to warrant it. The reason for implying temporary insurance having been terminated, the insurance itself should be terminated. Only one month’s premium having been paid in the instant case, no reasonable basis existed to assume that temporary insurance coverage would exceed the one-month period, the latter expiring prior to Smith’s death. Moreover, once unequivocal rejection—coupled with a promise to return premium —is communicated to the applicant, no basis exists for believing that *129 insurance will continue. The majority concedes—as it must—the insurer unequivocally communicated its rejection of Smith’s application, and promised to return the premium. 5
I would affirm the judgment.
McComb, J., and Richardson, J., concurred.
“‘[I]t will be deemed the parties intended the insurance to be effective forthwith, subject to termination upon notice from the company that the applicant is not insurable.’ ”
After setting forth the language quoted in Koorstad , the court again returned to the subject—“upon payment of the premium requested he is insured until the company advises him it is not satisfied he is insurable under the plan selected.”
“[P]laintiff is covered from the date of his application (and premium payment) until the company expressed its dissatisfaction as to his acceptability.”
The majority claims some authority for a “view that actual refund of the premium is required in order to effectively terminate temporary coverage (see, e.g., Reck v. Prudential Ins. Co. of America (1936) 116 N.J.L. 444 [ 184 A. 777, 778 ], cited with approval in Allen v. Metropolitan Life Ins. Co. (1965) 44 N.J. 294 [ 208 A.2d 638, 647 ]).” (Ante, p. 119, see also p. 123.) Neither case involved rejection of an application prior to death. Moreover, in speaking of return of the premium the court in Reck refers to failure to return premium within a “reasonable” time as giving rise to insurance—rather than dealing with the question before us: termination of insurance already in force. The court in Allen , although discussing the Reck holding, fully approved the principles of Life Ins. Co. of No. America v. De Chiaro (1961) 68 N.J.Super. 93 [ 172 A.2d 30 ], after quoting from- that case the usual rule, “ ‘if he paid the advance premium, he would enjoy protection until his application is either accepted or rejected.'" (208 A.2d at pp. 647-648.) Thus, neither holding nor dicta of the New Jersey cases supports the view that return of premium is a necessary condition precedent to termination of temporary insurance.
The majority states, ante, at page 117. “the record contains substantial evidence to support the trial court’s finding that on the evening before Smith’s death,. Westland . . . informed him that the company refused to issue the policy applied for and promised to refund his premium. Therefore, we must assume for purposes of this appeal that before he died Smith received unequivocal notice of the rejection of his application.”