# Ryman v. American National Insurance > California Supreme Court · August 30, 1971 · 5 Cal. 3d 620 URL: https://www.frixlaw.com/law-library/cases/9793039 ## Case - **Full name:** JAMES S. RYMAN, JR., Et Al., Plaintiffs and Appellants, v. AMERICAN NATIONAL INSURANCE COMPANY, Defendant and Respondent - **Court:** California Supreme Court - **Decided:** August 30, 1971 - **Citations:** 5 Cal. 3d 620; 96 Cal. Rptr. 728; 488 P.2d 32; 1971 Cal. LEXIS 274 - **Precedential status:** Published - **Opinion:** Concurring in part by Sullivan - **Judges:** Tobriner - **Cited by:** 11 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9793039 ## Opinion text *637 SULLIVAN, J., Concurring and Dissenting. I agree with the conclusion of the majority that, under the particular facts of this case, the company’s conduct upon receipt of the late-tendered premium constituted “acceptance of the premium . . . without requiring in connection therewith an application for reinstatement” (Ins. Code, § 10350.4) and, therefore, operated to reinstate the lapsed policy. However, I dissent from that portion of the opinion which goes on to hold, as an “independent ground”- of decision, that whether or not the company’s conduct constituted “acceptance” within the meaning of the policy and the Insurance Code, plaintiffs were entitled to reinstatement upon tender of the late premium because they were insurable at that time according to some objective standard. This holding reaches beyond the facts immediately before us to gratuitously determine issues which, in light of the majority’s primary holding, are not presented to us. In my view sound judicial policy should impel us to defer our consideration of those issues—ás well as the possible application thereto of our decision in Kennedy v. Occidental Life Ins. Co. (1941) 18 Cal.2d 627 [ 117 P.2d 3 ]—until appropriate factual circumstances present a concrete basis for such consideration and provide an opportunity for informed argument by counsel. Section 10350.4 of the Insurance Code sets forth the compulsory standard reinstatement provision which must be included 1 in all disability policies and was included in the policy here in question. That provision, which is fully set forth in footnote 5 of the majority opinion, delineates the two ways in which reinstatement of a lapsed disability policy may occur, depending upon whether or not the insurer requires the policy holder to submit an application for reinstatement. Thus, if the insurer does not require that such an application be submitted, the policy is reinstated upon its acceptance of the late-tendered premium. 2 However, if the insurer does require that an application for reinstatement be submitted, and issues a conditional receipt for the late tendered premium, then according to the compulsory provision the policy is reinstated (a) upon approval by the insurer of the completed application or, (b) in the absence of such formal approval, upon the insurer’s failure to give notice of disapproval within 44 days of the issuance of the conditional receipt. 3 *638 Briefly stated, the primary holding of the majority opinion is that in the particular circumstances of this case the conduct of the insured, as a matter of law, constituted acceptance of the late-tendered premium check without requiring an application for reinstatement. Accordingly such acceptance operated to reinstate the lapsed policy pursuant to the first method set forth in section 10350.4 and in the policy provisions. As indicated above, I agree with that conclusion.* ** 4 However, in the remainder of its opinion the majority proceed further to examine the case upon the assumption that the insurer’s conduct did not bring about reinstatement in the above way. Rather, part 3 of the opinion assumes that the insurer did not accept the late-tendered premium without requiring an application for reinstatement and concludes that nevertheless reinstatement of the policy was effectuated because the plaintiffs were insurable at the time they sent the late-tendered premium. It is an inescapable fact, although the majority would avoid emphasizing it, that the second ground of their decision is in reality a definitive interpretation of what I shall call for the sake of brevity the second part of the policy provision. (See fn. 3, ante, and accompanying text.) As I have pointed out, the essential ingredients of this part are: (a) the issuance of a conditional receipt for the late premium, and (b) the requiring of a completed application for reinstatement. Thus, in the context of a case involving the unconditional acceptance of the premium as a matter of law, the majority announce legal rules which will be fully applicable to cases wherein, unlike the instant one, the insurer does not accept the late-tendered premium unconditionally but rather, in accordance with the provision, issues a conditional receipt and requires that the insured fill out an application for reinstatement. Such an insurer reading the provision would certainly conclude that reinstate *639 ment would not occur until it either had approved the completed application or had failed to disapprove it within 44 days of the issuance of the conditional receipt. The majority, although holding as a matter of law that this second part of the reinstatement provision is not involved in the case at bench, unnecessarily embark on an extensive disquisition concerning it. The net effect of this is to instruct all insurers who may prudently decide to follow this portion of the reinstatement provision (i.e., by issuing conditional receipts and requiring applications for reinstatement) that their expectations in this respect are no longer justified and that such conditional receipt and reinstatement application will be of no effect whatsoever in a case where the insured is objectively insurable at the time he tenders his delinquent premium. Whether or not such a prudent insurer might be surprised to learn this in a concrete case in which his interests have been represented and his arguments advanced, surely he must be astonished to make the discovery in the instant case. To take a specific example from among the many that may be conjured up, suppose that the insured sends his late-tendered premium on January 1; that the insurer receives the premium on January 2 and immediately sends to its insured a conditional receipt and an application for reinstatement together with a letter advising the insured that under the compulsory reinstatement provision in the lapsed policy the application must be filled out and submitted to the insurer before the policy can be reinstated; that the former insured receives the letter, conditional receipt, and application on January 3; and that on January 4, before the insured has filled out the application, he has an accident and suffers injuries. In such a case the insurer, relying upon the plain language of the provision (see fn. 3, ante), would deny liability. But to little avail: the majority have decided that case already. If the insured was insurable according to some objective standard on January 1, the insurer’s attempt to insist upon evidence of insurability in accordance with the compulsory provision will be just that much wasted effort. Suppose that the accident occurred on January 25, the application for reinstatement having languished on the insured’s desk since it was received on January 3. Again the result required by the opinion of the majority in this case is clear: if the insured was insurable on January 1, he is covered. Suppose that on January 2, the day it receives the late-tendered premium, the insurer determines that it will no longer insure heavy smokers, and that the former insured is a heavy smoker. If I understand the majority correctly, they would hold that the former insured was covered—even though *640 the application remained untouched on his desk when he suffered a heart attack on January 25. I offer no present opinion on the merits of the hypothetical cases suggested. Those cases are not before us. I do maintain that we should refrain from announcing, as an “alternative holding” wholly unnecessary to the determination of the instant case, a broad rule which has the effect of deciding all such cases in advance. Surely we should not be so insensitive to future arguments which may be made to the effect that, in the circumstances-of a particular case, the plain language of the compulsory reinstatement provision retains some legal vitality. In their eagerness to announce a broad rule of universal application, the majority grievously overstate the holding of our decision in Kennedy v. Occidental Life Ins. Co., supra, 18 Cal.2d 627 . That holding, properly stated, is simply this: When an insured has a contractual right of reinstatement under the terms of his policy, and he fulfills all of the conditions made requisite to the exercise of that right by such policy terms, the policy is revived and reinstated eo instanti even though the insurer’s normal routine for approval is not yet,completed. In Kennedy the conditions of reinstatement required by the policy were the submission to the insurer within five years of default of (1) satisfactory evidence of insurability, and (2) all overdue premiums plus interest. The insured complied with these conditions before he died, and we held that the lapsed policy was thereupon reinstated. “When the insured has paid all overdue, premiums with interest and has furnished in good faith and satisfactory form all the evidence of insurability required by the insurer, the original policy is revived and the insurer having received all he bargained for in that policy, should be liable for any loss thereafter occurring to the same extent as if the policy had never lapsed.” (Italics added.) ( 18 Cal.2d at p. 634 .) By an interesting process of reasoning the majority transform this modest holding into an instrument of wholesale decision-making. First, rather than looking to the terms of the policy in question in order to determine what are the applicable conditions of reinstatement, they assume that the conditions of reinstatement in the instant case are identical to those in Kennedy , i.e., (1) providing evidence of insurability, and (2) payment of premiums. 5 Second, recognizing that the first of these conditions was not *641 here met, the majority conclude that this omission was excused or justified because the insurer failed to give adequate notice that an application would be required,* **** 6 and, moreover, because in any event the insistence upon an application-fer reinstatement containing evidence- of insurability “attributes an undue significance to the reinstatement application form rather than the substantive factor of insurability.” (Majority opn., ante, p. 634; original italics.) Third and finally, the majority conclude that because the policy holders in the instant case were insurable when they sent their premium, the lapsed policy was reinstated at that moment. The sum of this reasoning is a rule of exaggerated simplicity which exhibits little resemblance to its alleged forbear: When one formerly insured under a lapsed policy of insurance tenders all premiums which would have been due under that policy, and the former insured is “objectively insurable” at that time, the policy is reinstated immediately. The fact that the Insurance Code and the compulsory reinstatement provision give the insurer an option either (1) to accept the late-tendered premium unconditionally, or (2) to issue a conditional receipt for the late-tendered premium and demand that an application be submitted—this fact, the majority say, is irrelevant. Although, they assure us, the company remains free to require its insured to complete formal applications for reinstatement evidencing insurability (see majority opn., ante, p. 634, fn. 14), the failure to submit such an ápplication is of no moment whatsoever if the insured is “objectively insurable” when he sends his check. Thus, whereas under Kennedy an insured might be careful to fulfill all conditions of reinstatement set forth in the policy, under the instant case he need no longer be so concerned: if he is healthy when he sends his check, he is insured. The majority express grave concern that any contrary rule would have “unconscionable” and “inequitable” results. They point out that if insurability is not determined as of the moment when the former insured submits his past due premiums, the insurer “ha[s] it both ways” because he has the benefit of the premium without the risk of loss. In other words, if an insured-against risk does not materialize during the review period the insurer retains the premium as if there had been coverage during the period, *642 but if such a risk does materialize the insurer simply declines to reinstate. I would make two brief observations concerning this problem. In the first place we cannot overlook the fact that the compulsory reinstatement provision here in issue is embodied in a statute adopted by the Legislature. That statute says in plain language that if the'insurer does not unconditionally accept a late-tendered premium but instead issues a conditional receipt therefor and requires an application for reinstatement, the policy is to be reinstated upon approval of the completed application or, lacking such approval, upon the forty-fifth day following the issuance of the conditional receipt unless the insured has disapproved the application. The statute also says that “Any premium accepted in connection with a reinstatement shall be applied to a period for which premium has not been previously paid, but not to any period more than 60 days prior to the date of reinstatement.” Taken together, these provisions appear to authorize just what the majority fear. What needs to be emphasized, however, is that these are statutory provisions which must be upheld unless they are unconstitutional. Secondly, assuming that our Kennedy decision can be read to state principles of constitutional dimension, that holding would be applicable in itself (i.e., without the strained extension which the majority propose) to forbid the disapproval of any application for reinstatement which demonstrated insurability on the date of its submission to the insurer. This would not, however, cover the case which the majority seem to have in mind— i.e., the case wherein the former insured suffers injury before he submits his application for reinstatement but after he tenders his late premium. In conclusion I would emphasize that I express no present opinion on the substantive issues which the majority have seen fit to reach. It is my view that this case, which involves the insurer’s unconditional acceptance' as a matter of law of a late-tendered premium, is not the case to announce broad principles—necessarily of constitutional dimension—governing factual situations wherein the insurer effectively insists upon his statutory, right to be provided a completed application for reinstatement. When a proper case does arise we should then avail ourselves of the informed argument of counsel on both sides of the issues in order to determine the extent to which the reinstatement provision made compulsory by section 10350.4 of the Insurance Code is valid. Wright, C. J., and McComb, J., concurred. In an exception not here applicable the statute declares that the last sentence of the compulsory provision may be omitted from a noncancellable policy. “If any renewal premium be not paid within the time granted the insured for payment, a subsequent acceptance of premium by the insurer . . . without requiring in connection therewith an application for reinstatement, shall reinstate the policy. “[I]f the insurer . . . requires an apnlication for reinstatement and issues a conditional receipt for the premium tendered, the policy will be reinstated upon approval *638 of such application by the insurer or, lacking such approval, upon the forty-fifth day following the date of such conditional receipt unless the insurer has previously notified the insured in writing of its disapproval of such application.” I agree generally, of course, with the majority’s underlying rationale but I cannot endorse all of the language used by them. For example, I am not in accord with the majority’s terse dismissal of the insurer’s argument that the realities of large, modern insurance companies necessitate some time-lag in processing premium payments. While I recognize that the statute makes no provision for retention of tendered premiums, pending a decision by the insurer as to whether it will require a formal application, I am not about to join in an unsympathetic rejection of defendant’s point on the simplistic basis that defendant is big by its own choice and must take the consequences. Bigness is a business fact of life—in banking, merchandising and a host of other activities including insurance—and the conduct of business should be fairly evaluated in the totality of these circumstances. Reference to the terms of the policy—specifically the compulsory reinstatement clause—would of course reveal that the conditions of reinstatement differ according to whether or not the insurer requires that an application for reinstatement be sub *641 mitted. If the insurer accepts the late-tendered premium without requiring such an application, evidence of insurability is not a condition of reinstatement, and the party is insured from the date of accentance whether or not he is insurable at that time. If the insurer issues a conditional receipt and demands that an application for reinstatement be submitted, then evidence of insurability is a condition of reinstatement if the application requests such evidence, as presumably it wiE. The difference between this conclusion and the majority’s first alternative holding (I.e., that the insurer’s conduct constituted acceptance of the late-tendered premium without requiring an application for reinstatement) is elusive to say the least. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9793039. Public record. Not legal advice.