Petition — Nationwide Life Insurance v. Collister
Supreme Court brief1979
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Supreme Co urt, U.S
FILED |
|
i
OCT 19 1978
Y 4 8 =6 6 6 L_MIGHAEL ReDax JR., CLERK
IN THE
Supreme Court of the United States
October TERM, 1978
No. 78-
NATIONWIDE LIFE INSURANCE ComPaNy, Petitioner,
vs.
Kazuxo Co.uister, Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
SUPREME COURT OF PENNSYLVANIA
Ropert KE. JENSEN
JOHN J. McMackIn, JR.
WINFIELD P. CRIGLER
WILLIAMS & JENSEN
A Professional Corporation
Suite 500
1101 Connecticut Avenue, NW
Washington, D.C. 20036
(202) 659-8201
C. Epwarp S. MitcHELL
MircHELL & MITCHELL
18 West Third Street
Williamsport, PA 17701
(717) 323-8404
Counsel for Petitioner
Pagss oy Brron S. ApAMs PrinTING, Inc., WASHINGTON, D. C.
TABLE OF CONTENTS
Page
I. Oprwrons BE1ow ...... ccc ccccccceccccccncees 1
SE) I og oo vos 6nk do wwad ss opeseesecenes 2
III. QUESTION PRESENTED ......----0 esse ee eeeeeeees 2
Whether it is a denial of due process of law
for a state supreme court to refuse to grant
petitioner an opportunity on remand to pre-
sent evidence to satisfy a newly adopted
unanticipated common-law standard, an-
nounced for the first time in the state supreme
court’s opinion in petitioner’s own case .... 2
IV. ConstitutionaL Provision INVOLVED ........-+-: 2
V. STATEMENT OF THE CASE ..........0- cece ee eecee: 3
VI. Reasons ror GRANTING THE WRIT ...........-.. 6
re eee Peed e RSS an eee ses ae ertesees 12
APPENDICES:
A. Opinion and Order of the Pennsylvania Court of
Common Pleas of Lycoming County ..........-. la
B. Opinion and Order of the Pennsylvania Court of
Common Pleas of Lycoming County ............ 6a
C. Order of the Superior Court of Pennsylvania .... lla
D. Opinion of the Supreme Court of Pennsylvania .. 12a
KE. Order of the Supreme Court of Pennsylvania Deny-
ing Application for Reargument ..............-- 44a
F. Excerpts from Appellee’s Petition for Reargument 45a
li TABLE OF CITATIONS
Page
CONSTITUTION :
a ae, SN De OE cnc kacctane ceakesuuas 2
CasEs:
Brinkerhoff-Faris Trust € Savings Co. v. Hil, 281
EE RED 56s cheep Sewes cc ansioesas capa eas 7,8
Collister v. Nationwide Life Insurance Co., No. 73-1914
(Pa. C.P. Lycoming County, Jan. 10, 1975) ...... 3, 4
Collister v. Nationwide Life Insurance Co., 236 Pa.
Super. Ct. 702, 347 A.2d 487 (1975) ............. 4
Collister v. Nationwide Life Insurance Co., —— Pa.
~ F* 8 §: Be errr rer 3, 4, 5, 8
Hamling v. United States, 418 U.S. 87 (1974) ...... 11, 12
McFadden v. American Oil Co., 215 Pa. Super. Ct. 44,
et A eee ce nade Os eae wes os 10
Saunders v. Shaw, 244 U.S. 317 (1917) ............. 7,11
Steelnack v. Knights Life Insurance Co. of America,
423 Pa. 205, 223 A.2d 734 (1966) ...........008. 4,9
Thomas v. Chesapeake Life Insurance Co., 226 Pa.
Super. Ct. 360, 313 A.2d 332 (1973) ............ 9
SraTUTEs:
a ee a ada vies bo 5 2 ease awe ds hak 2, 6
IN THE
Supreme Court of the United States
OcToBER TERM, 1978
No. 78-
NATIONWIDE LIFE INSURANCE CoMPANY, Petittoner,
vs.
Kazuko Co.uister, Respondent.
SS
PETITION FOR A WRIT OF CERTIORARI TO THE
SUPREME COURT OF PENNSYLVANIA
ss
Petitioner prays that a writ of certiorari issue to
review the judgment of the Supreme Court of Penn-
sylvania in the above case.
I. OPINIONS BELOW
The opinions and orders of the Pennsylvania Court
of Common Pleas of Lycoming County have not been
reported, and are printed in Appendices A and B,
beginning at la and 6a, respectively.
The order of the Superior Court of Pennsylvania
is reported at 236 Pa. Super. Ct. 702, 347 A.2d 487
(1975), and is printed in Appendix C at Ila.
The opinion of the Supreme Court of Pennsylvania
is reported at Pa. , 388 A.2d 1346 (1978),
—_ oes a
2
reh. denied, and is printed in Appendix D, beginning.
at 12a.
II. JURISDICTION
The order of the Supreme Court of Pennsylvania
sought to be reviewed, printed in Appendix D, begin-
ning at 12a, was entered on June 13, 1978. That court’s
order denying the timely petition for a rehearing,
printed in Appendix E at 44a, was entered on July
21, 1978.
The jurisdiction of the Supreme Court is invoked
pursuant to 28 U.S.C. § 1257(3).
III. QUESTION PRESENTED
The following question is presented for review:
Whether it is a denial of due process of law for a
state supreme court to refuse to grant petitioner an
opportunity on remand to present evidence to satisfy
a newly adopted and unanticipated common-law stand-
ard, announced for the first time in the state supreme
court’s opinion in petitioner’s own case.
IV. CONSTITUTIONAL PROVISION INVOLVED
United States Constitution, Amendment XIV, Sec-
tion 1 (1868):
Section 1. All presons born or naturalized in
the United States, and subject to the jurisdiction
thereof, are citizens of the United States and of
the State wherein they reside. No State shall make
or enforee any law which shall abridge the privi-
leges or immunities of citizens of the United
States; nor shall any State deprive any person of
life, liberty, or property, without due process of
law; nor deny to any person within its jurisdiction
the equal protection of the laws.
3
V. STATEMENT OF THE CASE
On or about September 24, 1972, Francis H. Col-
lister, husband of the respondent, applied to Nation-
wide Life Insurance Company (‘‘Nationwide’’), peti-
tioner, for a life insurance policy. Mr. Collister dis-
cussed the policy and its terms with Nationwide’s
agent, filled out and signed the application, paid a
$60.06 premium deposit, and received a ‘‘Conditional
Receipt.’”? The conditional receipt was emblazoned,
front and back, in plain language and in the largest
type to appear on the document (12 and 14 point)
with the provision that no insurance would come into
effect until after the applicant had taken a physical
examination and the company had accepted the appli-
cation.’ The application itself, likewise, clearly pro-
vided that no insurance would take effect until after
the completion of a required medical examination.’
Mr. Collister had not obtained a medical examina-
tion prior to his accidental death on November 4, 1972.
Respondent, wife of the decedent and the beneficiary
named in the application, instituted suit in the Penn-
sylvania Court of Common Pleas of Lycoming County
to attempt to recover proceeds under an insurance
contract she alleged was created by the application
and the conditional receipt. After deposition of Na-
tionwide’s agent and interrogatories propounded to
Nationwide, respondent moved for summary judgment
‘The conditional receipt is reprinted in Collister v. Nationwide
Life Insurance Co., Pa. , 888 A.2d 1346, 1356 (1978),
Appendix D at 3la-32a.
?The relevant provisions of the application are set out in
Collister v. Nationwide Life Insuranee Co., No. 73-1914, slip op.
at 1-2 (Pa, C.P. Lycoming County, Jan. 10, 1975), Appendix A
at la-2a.
4
and petitioner eress-moved therefor. Both parties sub-
mitted affidavits in support of their motions.
Applying legal standards set forth by the Supreme
Court of Pennsylvania for determining the existence
of a ‘‘temporary contract for insurance’’ in contro-
versies such as that presented by this case, the court
found that no contract existed: ‘‘The Court finds that
the language in the application and in the premium
receipt clearly specifies that a successful medical ex-
amination was a condition precedent to the existence
of an effective insurance contract.’ Collister v. Nation-
wide Life Insurance Co., No. 73-1914, slip op. at 5 (Pa.
C.P. Lycoming County, Jan. 10, 1975), Appendix A
at 5a. The established standard applied by the trial
court, and the standard upon which the case was pre-
pared and submitted, was one explicitly of the inter-
pretation of the language of the conditional receipt
and insurance application documents. See, id. at 3-5,
Appendix A at 3a-5a; and Steelnack v. Knights Life
Insurance Co. of America, 423 Pa. 205, 223 A.2d 734
(1966). The Superior Court of Pennsylvania affirmed
summarily. Collister v. Nationwide Life Insurance Co.,
236 Pa. Super. Ct. 702, 347 A.2d 487 (1975), Appendix
C at lla.
In an opinion that set forth a radically new stand-
ard for the resolution of suits based on applications
for insurance and conditional receipts pending suc-
cessful completion of a physical examination, the
Supreme Court of Pennsylvania reversed, establishing
as Penusylvania Jaw the proposition that whether or
not a contract of temporary insurance was created in
such circumstances must be determined by an analysis
of ‘‘the totality of the transaction involved,” Collister
v. Nationwide Life Insurance Co., Pa. ——, 388
4)
A.2d 1346, 1353 (1978), Appendix D at 25a, and the
“dynamics of the insurance transaction,’’ td., 388
A2d at 1354, Appendix D at 27a, so as to determine
the “reasonable expectation of the insured,”’ td., 388
A2d at 1253, Appendix D at 26a. Thus, the new
standard was a complete about-face from a standard
based on what the contractual document said to one
based on the reasonable expectations of the applicant
as determined by the totality of the transaction, re-
gardless of what the documents said. On the basis of
the ‘‘factual circumstances surrounding the instant
appeal,’’ the Pennsylvania Supreme Court found that
Nationwide had failed to establish by ‘‘elear and con-
vineing evidence”’ that it should prevail under the new
criteria, and directed the trial court to enter judgment
in favor of respondent. Id., 388 A.2d at 1354, 1359,
Appendix D at 27a, 30a.
In response to the Pennsylvania Supreme Court's
dramatie and unanticipated adoption of the new com-
mon-law test and that court’s failure to remand for
additional faetual presentation and findings, Nation-
wide promptly filed an Application for Reargument
contending, in part, that the court’s order to the trial
court to enter judgment against Nationwide deprived it
of an opportunity to present evidence to satisfy the
newly announced standard, thus denying it due process
of law as guaranteed by the Constitution of the United
States. This represented the first opportunity for peti-
tioner to raise its federal claim. (The relevant portions
of Nationwide’s Application for Reargument are set
out in Appendix F, beginning at 45a.) The Supreme
Court of Pennsylvania summarily denied petitioner's
Application for Reargument, without reference to the
federal question. Collister v. Nationwide Life Insur-
6
ance Co., supra, reargument denied, —— Pa. ——, 388
A.2d 1346 (July 21, 1978), Appendix E at 44a.
Nationwide now seeks a writ of certiorari from the
United States Supreme Court to the Supreme Court
of Pennsylvania to review that court’s order directing
that summary judgment be entered against petitioner.
The jurisdiction of this Court is invoked pursuant to
28 U.S.C. § 1257(38).
VI. REASONS FOR GRANTING THE WRIT
A. The Supreme Court of Pennsylvania Denied Petitioner Due
Process of Law by Refusing It an Opportunity to Present
Evidence to Satisfy a Newly Announced and Unanticipated
Common-Law Standard.
The Court should grant certiorari in this case to
remedy a glaring deprivation of a fundamental federal
constitutional right. Moreover, the importance of this
case goes far beyond the fact that petitioner has been
denied an opportunity to present evidence in its de-
fense. At issue are the constitutional limits of the
procedures of appellate courts, both state and federal,
regarding opportunity for presentation of evidence
on remand after a radical change in the applicable
law by an appellate court. The denial of due process
present in this ease may often recur; it affects the
daily administration of justice in our courts. This
Court should clearly establish, in the modern context,
the constitutional standards applicable to the facts of
this case and to this aspect of appellate procedure
generally.
When the Supreme Court of Pennsylvania, follow-
ing its radical and dramatic change in the test for
determining whether a given transaction resulted in
the formation of a contract for ‘‘temporary”’ insur-
7
ance, directed the trial court to enter judgment against
petitioner, it effectively ruled that Nationwide would
never have an opportunity to present evidence to meet
the new test. The court determined the existence of a
contract, under a test looking to the ‘totality of the
transaction,’ on a record formed in ignorance cf the
new standard and of the relevance of a myriad of
theretofore irrelevant facts. In so doing, the court
denied to Nationwide ‘‘due process of law—using that
term in its primary sense of an opportunity to be
heard and to defend its substantive right.’? Brinker-
hoff-Faris Trust & Savings Co, v. Hill, 281 U.S. 673,
678 (1930).
It is certainly within the province of the Pennsyl-
vania Supreme Court to rewrite the state common law
of contracts, but it is emphatically a denial of due
process of law for that court to refuse petitioner its
day in court under the rewritten standard. Saunders
v. Shaw, 244 U.S. 317 (1917) ; Brinkerhoff-Faris Trust
d& Savings Co. v. Hill, supra. In Saunders, supra, the
Supreme Court of Louisiana had directed entry of
judgment against an intervening defendant on the
basis of a finding of fact that the trial court, in accord-
ance with his contention, had held immaterial, and
about which accordingly he had not presented rebuttal
evidence. This Court found a denial of due process
‘because the ease has been decided against him with-
out his ever having had the proper opportunity to
present his evidence.’’ Id., 244 U.S. at 319, Similarly,
in Brinkerhoff-Faris, supra, Judgment was entered
against the petitioner by the Supreme Court of Mis-
souri for failure to exhaust his administrative reme-
dies, even though prior to the decision by the Missouri
Supreme Court in that case, the administrative body
8
in question had been consistently held not to have the
power to give the relief requested. This Court said:
We are of opinion that the judgment of the Su-
preme Court of Missouri must be reversed, because
it has denied to the plaintiff due process of law—
using that term in its primary sense of an oppor-
er to be heard and to defend its substantive
right.
* * * *
[While it is for the state courts to determine
the adjective as well as the substantive law of the
state, they must, in so doing, accord the parties
due process of law. Jd., 281 U.S. at 678, 682.
The change in common-law standard by the state
appellate court in this case is a model of the kind of
change of legal standard which broadens the scope of
potentially relevant facts: a change from a standard
focusing on the language of relevant documents to
determine the intent of the parties to a contract to
one focusing on ‘‘the totality of the transaction in-
volved’? and the ‘‘dynamies of the insurance trans-
action’’ to determine the ‘‘reasonable expectation of
the insured.’’ Collister v. Nationwide Life Insurance
Co., supra, 388 A.2d at 1353, 1354, Appendix D at
25a, 27a, 26a. Under the new standard, contrary to the
old, the totality of extrinsic transactional evidence is
relevant regardless of what the docvments say and how
unambiguously they may say it.’ Zd., 388 A.2d at 1353,
’ Indeed, it may be that under the standard created by the Court,
the language of the conditional receipt is irrelevant: ‘‘The con-
clusion we reach here is not determined by the language of the
conditional receipt, but by the dynamics of the transaction viewed
in its entirety. .. . Any conditions which the insurer has placed
within the body of the receipt are .. . irrelevant to the trans-
action that has already been completed.’’ /d., 388 A.2d at 1354,
Exhibit D at 27a-28a.
9
Appendix D at 25a-26a. Only twelve years prior to its
decision in this case, the Pennsylvania Supreme Court,
presented with parallel facts but a considerably less
clear conditional receipt, examined the receipt, found
that ‘‘[n]othing in the . . . language [of the receipt]
indicates that the insurance coverage was to be delayed
until the medical examination took place ... ,’’ and
admonished the insurer thus: ‘‘If the insurance com-
pany had wished to make the taking of a medical
examination a condition precedent to the contract, it
should have done so with explicit language.’’ Steelnack
v. Knights Life Insurance Co. of America, supra, 423
Pa. at 207, 208, 223 A.2d at 735.
In response to the directive from the Pennsylvania
Supreme Court in Steelnack, petitioner revised its
application and conditional receipt forms. Petitioner’s
total compliance with the standard enunciated in Steel-
nack was so evident on the face of the relevant docu-
ments that the trial court, citing Steelnack, granted
petitioner’s summary judgment motion, and the Su-
perior Court of Pennsylvania affirmed per curiam.
Pennsylvania appellate courts had applied the tradi-
tional language-oriented standards to temporary con-
tracts of insurance allegedly created by conditional re-
ceipts as recently as two years before this action was
originally brought. See, Thomas v. Chesapeake Life
Insurance Co., 226 Pa. Super. Ct. 360, 313 A.2d 332
(1973), citing Steelnack, supra.
The denial of due process in this case is rendered
particularly acute by virtue of the summary judgment
posture of the case in the trial court. This case pre-
sents an opportunity for this Court to establish basic
constitutional standards regarding opportunity to form
a factual record in this context. The Supreme Court
10
of Pennsylvania directed entry of judgment against
Nationwide on the basis o£ a record which was prepared
for submission on cross motions for summary judg-
ment. Summary judgment, under the Pennsylvania
rule, like the federal rule, is appropriate only where
there exists no genuine issue of material fact. More-
over, it is the rule in Pemasylvania, as elsewhere, that
the burden of establishing that no material fact exists
lies with the party in favor of whom judgment is to
be granted. F.g., McFadden v. American Oil Co., 215
Pa. Super. Ct. 44, 257 A.2d 283 (1969). Petitioner
submits that this Court should adopt the rule that, in
this context, judgment should never be directed on the
basis of a record prepared for summary judgment
under a previously held standard that did not encom-
pass issues of fact which are material under the new
standard. Under an adversary system such as ours, a
record cannot satisfy due process unless it was pre-
pared by parties with reason and opportunity to ad-
dress all material issues. Without such an opportunity,
it would be mere happenstance if the record were com-
plete or adequate—and a reviewing court could not
know if that happenstance had occurred.‘ Application
‘The record in this case is an example of a record which is
patently inadequate with respect to once irrelevant, but now cru-
cial, facts. For instance, the record below indicates that there were
two other witnesses present when the application and conditional
receipt was executed: the applicant’s spouse and a disinterested
third party. Certainly their evidence as to what transpired at
that time could be crucial in determining the reasonable expecta-
tion of the deceased. The record also indicates that the deceased
had made earlier application for insurance to Nationwide. Circum-
stances surrounding that transaction are relevant to the reason-
able expectation of the applicant with respect to the transaction
in question, Finally, the record indicates that deceased was told
that no insurance would be in force until such time as he had a
11
and amplification of the principle set forth in Saunders
v. Shaw, supra, is required:
Probably the majority of the [Louisiana ] Supreme
Court thought that it was so plain on the uncon-
troverted facts that the case was within the [newly
announced] principle .. . that to remand it would
be an empty form—a mere concession to techni-
eality. It may turn out so, but we do not see in
the record an absolute warrant for the assumption
and therefore cannot be sure that the defendant’s
rights are protected without giving him a chance
to put his evidence in. Id., 244 U.S. at 319.
This case presents an opportunity for this Court to
establish with clarity important constitutional stand-
ards governing the process of justice in our appellate
courts, both state and federal. It must be definitively
affirmed that appellate courts cannot themselves be
the instruments of a denial of due process. What Jus-
tice Brennan said of this Court in his dissent in Ham-
ling v. United States, 418 U.S. 87 (1974),’ speaks elo-
quently to this case and to the need for clear standards
to protect against the kind of injustice worked in this
case:
Ours may be the final voice, but that is the greater
reason for meticulous discharge of our responsi-
physical examination. Under the new test, when that information
was given is crucial. Because the timing of that information was
not relevant under the prior standard, it is not even addressed
in the record. The record fairly begs for development of these
facts.
‘ Hamling differs from the present case in that in Hamling, de-
spite the c.ange from ‘‘national’’ to ‘‘local”’ standards for the
determination of obscenity, petitioner at trial had ‘‘full latitude
in rebutting every factual issue dealt with i) the Government 's
ease.’’ Id., 418 U.S. 110, n. 11.
12
bility to dispense evenhanded justice. The least
to which petitioners are entitied is... a remand
for a new trial. Jd., 418 U.S. at 152.
CONCLUSION
The decision of the Supreme Court of Pennsylvania
represents a fundamental denial of due process with
serious implications for the process of justice in our
appellate courts. This Court should grant certiorari
to establish vitally needed standards governing the
application of the principle of due process to appellate
procedure.
Respectfully submitted,
Rosert E. JENSEN
JoHN J. McMackin, JR.
WINFIELD P. CRIGLER
WILuiaMS & JENSEN
A Professional Corporation
Suite 500
1101 Connecticut Avenue, NW
Washington, D.C. 20036
(202) 659-8201
C. Epwarp 8. MitrcHELL
MitcHeLL & MitcHELL
18 West Third Street
Williamsport, PA 17701
(717) 323-8404
Counsel for Petitioner
APPENDIX
la
APPENDIX A
In THE Court or Common PLEas
or Lycomina County, PENNSYLVANIA
No. 73-1914
Kazuxo Co.uuister, Plaintiff,
vs.
Nationwipe Lire Insurance Company, Defendant.
Opinion and Order
[Order Entered January 10, 1975]
Before the Court are cross motions for summary judg-
ments under Rule 1035 of the Pennsylvania Rules of Civil
Procedure. The plaintiff brought the action to recover on &
life insurance contract which plaintiff claims was in effect
at the time of her husband’s death.
The uncontradicted facts are these: The decedent signed
an application for life insurance with the defendant com-
pany on September 24, 1972. The application was for
$10,000.00 whole life with double indemnity for accidental
death plus $22,500.00 level term or a total coverage of
$42,500.00 in the event of accidental death. The decedent
was 32 years of age and a long distance truck driver earn-
ing $12,000.00 per year. He was married and the father of
two children. He had one other $10,000.00 life insurance
policy, one automobile liability policy with accidental death
benefit of $5,000.00 and a collision automobile policy, all
with the defendant company.
The application for insurance included the following pro-
visions:
“5 (a) Have you been informed that medical examina-
tion is required for this application (answered yes by
the applicant).
2a
(b) Do you understand that the company has the
right to require medical examinations in which event
this application is not complete until such medical ex-
amination is made (answered yes by the applicant).”
Immediately above the signature in the application was the
following:
“The insurance hereby applied for shall not be consid-
ered in force unless a policy shall have been issued by
the company, received and accepted by me, and the first
full premium paid thereon during the lifetime and con-
tinued insurability of the proposed insured... ; except
that if the first full premium on the premium payment
basis selected herein for the insurance applied for is
paid to an authorized agent of the company on the date
this application is signed, and the receipt attached to
this application and bearing a corresponding printed
number is delivered and if the following acts are com-
pleted, (a) receipt by the company of a fully completed
application which includes fully completed medical ex-
aminations, ... the said insurance shall take effect and
be in force from the date of the last medical examina-
tion. ... Unless all acts required are completed, no in-
surance shall take effect hereunder.”
Coincidental with his application the decedent paid a
$60.06 premium which was one month security and one
regular premiutn, adding up to two months premium. The
company issued the applicant-decedent a release form
which bore in all capital letters the following title:
“CONDITIONAL FIRST LIFE PREMIUM RE-
CEIPT: NO INSURANCE WILL BECOME EFFEC-
TIVE PRIOR TO POLICY DELIVERY UNLESS
THE ACTS REQUIRED BY THIS RECEIPT ARE
COMPLETED. NO AGENT OF THE CUMPANY IS
AUTHORIZED TO CHANGE ANY ACT RE-
QUIRED.”
3a
The receipt contained the following language:
‘‘If the sum indicated above equals the first premium
on the premium payment basis elected in the applica-
tion for the insurance applied for and if the following
acts are completed, (a) receipt by the company of a
fully completed application which includes fully com-
pleted medical examinations . . . the said insurance
shall take effect and be in force subject to the provi-
sions of the policy applied for from the date of the last
medical examination, or if no medical examination is
required, the insurance shall take effect on the appli-
eation date. Unless all acts required are completed, no
insurance shall take effect hereunder.”
The decedent had not obtained a medical examination prior
to his death in an automobile accident on November 4,
1972. (The decedent had made previous application for life
insurance with the defendant sometime in September of
1971 and a physical examination was made by defendant’s
physician on September 23, 1971. The report of that exam
was attached to the plaintiff’s affidavit; it shows that the
decedent was apparently insurable on that date in Septem-
ber of 1971).
Plaintiff contends that in accepting the premium pay-
ment by plaintiff’s decedent, the defendant thereby issued
a temporary insurance contract between the deceased and
the defendant, terminable in the event of failure of the
applicant to pass the medical examination. The defendant
contends that the above quoted language made completion
of the medical examination a condition precedent to the
existence of coverage. The issue presented is whether de-
cedent’s failure to obtain the required medical examination
constitutes a failure of a condition precedent to the exist-
ence of the insurance coverage.
Plaintiff relies on Steelnack v. Knight’s Life Insurance
Co., 423 Pa. 205 (1966) and Thomas v. Chesapeake Lafe In-
ta
surance Co., 226 Pa. Super 360 (1973) for the proposition
that payment of advance premiums provides temporary
insurance coverage for the decedent.
In Thomas, the insured made application for insurance
in February 1968 and in May of the same year the company
declared him unacceptable for the class and at the rate at
which he had applied. The applicant was determined to be
overweight, but he was eligible for a special premium class
at an increased rate. The applicant was directed to sign
the new policy and an amendment to the original applica-
tion. The applicant died before signing the new policy or
paying the higher premium. The Court, in an Opinion by
Judge Speath, ruled that the decedent was not covered
under a temporary contract of insurance because one of
the terms set forth in the binder as precedent to the exist-
ence of an effective insurance contract, was not satisfied.
The Steelnack case dealt with an applicant who switched
his application from one form of insurance to another form.
The company requested that he take a medical examination,
but before a date could be arranged, he was killed in an
auto accident. The binder in Steelnack read as follows:
‘*First: if a full first premium... has been paid at the
time of making such application, and declaration of
such payment is made therein, the insurance, subject
to the terms and conditions of the policy contract ap-
plied for and in use by the company at this date shall
take effect on the date hereof provided: ... (3) the
applicant is on this date a risk acceptable to the com-
pany under its rules, limits, and standards on the plan
and for the amount applied for and at the rate of pre-
mium declared paid; and (4) the applicant is on this
date in good health; otherwise the payment evidenced
hereby shall be returned upon demand and surrendered
of this receipt.”
423 Pa. at 207. The binder made no reference to a medical
examination. There was nothing to indicate that insurance
5a
coverage was to be delayed unti! a medical exam took place.
The Court determined the requested medical exam to be a
condition subsequent, which would terminate coverage in
the event the applicant was found unacceptable. The Court
did note on page 208:
“Tf the insurance company had wished to make the
taking of a medical examination a condition precedent
to the contract, it should have done so with explicit
language. It did not do so.”
The Court finds that the language in the application and
in the premium receipt clearly specifies that a successful
medical examination was a condition precedent to the ex-
istence of an effective insurance contract. The Court notes,
however, that the application was signed on or about Sep-
tember 24, 1972, and the death occurred forty-one days
later on November 4th. During this period the defendant
company was in possession of the premium deposit paid
by the applicant. It is not clear to the Court whether an
issue of fact exists as to who had the burden of arranging
the medical examination, the Company or the applicant. A
reargument should be scheduled, limited to that issue.
ORDER
Anp Now, January 10th, 1975, for the limited purposes
set forth in the above Opinion, it is directed that reargu-
ment on the cross motion for suminary judgment be sched-
uled for the 4th day of February, 1975, at 2:30 P.M. in
Court Room No. 2.
By The Court
/s/ Tuomas C. Ravp
Thomas C. Raup, J.
ec: Ambrose Campana, Esq.
C. Edward Mitchell, Esq.
Anthony Wernert, Court Administrator
6a
APPENDIX B
In THE Court or Common P.eas
oF Lycomina County, PENNSYLVANIA
No. 73-1914
KazuKko CoLuisTEr, Plaintiff,
vs.
Nationwipe Lire Insurance Company, Defendant.
Opinion and Order
[Order Entered March 13, 1975]
Before the Court are cross motions for summary judg-
ment under Rule 1035 of the Pennsylvania Rules of Civil
Procedure. The plaintiff brought the action to recover on a
life insurance contract which plaintiff claims was in effect
at the time of her husband’s death. The facts are stated in
an earlier opinion dated January 10th, 1975. In that Opin-
ion the Court held that the undisputed facts disclosed that
a successful medical examination was a condition precedent
to the existence of an effective insurance contract. How-
ever, the Court was uncertain as to whether a genuine issue
of material fact existed as to whether the insurance com-
pany or the applicant had the burden of arranging the
medical examination. Re-arguments were held and this
opinion is addressed to that limited issue.
The Court notes preliminarily that at the initial argu-
ment on the summary judgment motions, when counsel and
the Court were focusing on the issue of whether or not a
medical examination was a condition precedent to the ex-
istence of an insurance contract, the plaintiff’s attorney
twice acknowledged that there was no issue of fact as to
who had the burden to obtain the medical examination and
that in fact the burden rested on the applicant. The issue
aoa
7a
was raised by the Court for the purpose of reargument
because of the finality of an Order allowing summary
judgment and because of concern that the issue had not been
fully considered at the earlier date.
The language of the application for insurance and of the
conditional receipt issued to the applicant by the company,
would appear to place the burden on the applicant to ob-
tain the medical examination. The following warning in
bold face type appears in each document:
“TMPORTANT—The company reserves the right to
require a medical examination. Until you can provide
proof that you are insurable, the company provides no
insurance.
If you are requested to have an examination, don’t de-
lay. Make arrangements promptly. There is no insur-
ance until a satisfactory medical examination has been
made and all the conditions of this receipt are com-
pleted.” (emphasis added)
Supplementing the language of the contract documents
themselves, is the deposition of the insurance agent who
negotiated the application, a Mr. Demchak, and a supple-
menting affidavit from the same individual. The following
is the relevant excerpt from the deposition (page 10):
“Q. Now, continuing along with the application, going
to I think it is the third page where you had signed it,
Mr. Demchak, and I think it is question No. 9 or block
No. 9, ‘Answer if medical examination is required for
proposed insured. . .’, it would be the ‘Agent’s Certifi-
cate’ part of the application there?
A. Yes, I see it.
Q. In handwriting it says, ‘Will go to nearest author-
ized examiner.’?
A. Yes.
———
8a
Q. Now, would Mr. Collister’s or any other applicant’s
personal physician be an authorized examiner?
A. No, he would have to go to an examiner that is
approved by, that has been working for Nationwide
that would have been listed as an approved examiner.
Q. Was Doctor James L. Wilson, was he an authorized
examiner?
A. I am not sure. I have a complete book of examiners.
Q. The reason I asked that question and mentioned
that specific name was that page 2 of the Application
under block No. 9, under ‘Names and addresses of
Physicians and Hospitals’ you have written there
‘Soldiers & Sailors Hospital, Wellsboro, Pa., Doctor
James L. Wilson, Wellsboro, Pa.’?
A. Mr. Collister had gone for a physical, I believe they
required it every year at Taynton Trucking where he
was employed, Wellsboro, Penna.
Q. They require an annual physical?
A. Yes.
Q. Did Mr. Collister say to you that Doctor Wilson was
the fellow who annually...
A. I don’t know about annually, but he was the one
he went to the last time there.”
The supplementing affidavit of Mr. Demchak provides:
“1. He is the salesman for the defendant who negoti-
ated with Francis H. Collister, the applicant in the
above-captioned matter.
2. He informed the applicant that it would be necessary
for the applicant to obtain a medical examination as
part of the applicant’s application.
9a
3. He informed the applicant to obtain the medical ex-
amination from Dr. James L. Wilson, Wellsboro, Pa.
4. He informed the applicant to schedule the medical
examination himself since he was a long distance truck
driver and had an uncertain schedule.”
The plaintiff’s attorney notes an apparent conflict be-
tween the Demchak deposition and affidavit and suggests
that this conflict raises a genuine issue of material fact for
a jury’s decision. The conflict is that in the deposition the
agent does not say that a particular doctor was mentioned
as an authorized examiner, and in fact the agent expresses
uncertainty as to whether Dr. Wilson was an authorized
examiner; where, as in the affidavit, the agent states that
“he informed the applicant to obtain the medical examina-
tion from Dr. James L. Wilson, Wellsboro, Pa.” It is ap-
parent to the Court that there is a discrepancy between
these two statements but the Court does not consider that
the discrepancy raises a genuine issue of material fact.
Whether one accepts Mr. Demchak’s statement as given in
the deposition or as given in the affidavit, the burden would
still be on the applicant to obtain the medical examination.
The plaintiff has been given an opportunity to submit
conflicting depositions, affidavits or documentary evidence,
and has been allowed an opportunity to redepose Mr. Dem-
chak; however, no such evidence has been submitted to the
Court.
The Court finds, based on the data presented in support
of the cross motions for summary judgment, that no genu-
ine issue of material fact exists; that a medical examination
was a condition precedent to the existence of an insurance
contract; and that the burden was on the applicant to ob-
tain that examination. No such medical examination was
obtained.
—
10a
ORDER
Anp Now, March 13th, 1975, for the reasons set forth in
the foregoing Opinion and in the Opinion of this Court dated
January 10th, 1975, the plaintiff’s Motion for Summary
Judgment is denied, and the defendant’s Motion for Sum-
mary Judgment is granted. The defendant is directed to
return to the plaintiff the premium deposit submitted by
the plaintiff’s decedent, together with interest thereon.
By The Court,
/s/ Tuomas C. Raup
Thomas C. Raup, Judge
ec: Ambrose R. Campana, Esq.
C. Edward S. Mitchell, Esq.
Court Administrator
lla
APPENDIX C
Superior Court oF PENNSYLVANIA
No. 1020 October Term, 1975
KazuKo Co..ister, Appellant,
Vs.
Nationwive Lire Insurance Company, Appellee.
Appeal from the Court of Common Pleas
of Lycoming County, Pennsylvania
Decided November 13, 1975
Before: Watkins, President Judge and Jacoss, Horr-
MAN, Cercone, Price, Van per Voort and Spat, Justices.
Order
Per CuriaM.
Judgment affirmed.
l2a
APPENDIX D
Sypeaun Court or PENNSYLVANIA
No. 244 January Term, 1976
Kazuxko Couuister, Appellant,
vs.
Nationwipe Lire Insurance Company, Appellee.
Decided June 13, 1978
Reargument Denied July 21, 1978
Before: Eacen, O’Brien, Rosperts, Pomeroy, Nix and
MANDERINO, Justices.
Opinion for the Court filed by Justice ManpERINo.
Dissenting Opinion filed by Justice Pomeroy.
Opinion
MANDERINO, Justice.
On or about September 24, 1972, appellant’s husband
applied to appellee Nationwide Life Insurance Company for
life insurance in the amount of $10,000.00, with double in-
demnity for accidental death, plus $22,500.00 level term
insurance. Appellee, through its agent, accepted $60.66 [sic]
from appellant’s husband at the time of the application.
This amount represented a two-month premium payment on
the above described insurance. In exchange for this pay-
ment appellee’s agent gave appellant’s husband a ‘‘condi-
tional receipt.’’
On November 4, 1972, appellant’s husband, was killed in
an automobile accident. At the time of appellant’s husband’s
death Nationwide had neither issued the policy applied for
13a
nor had it rejected the application. Nor had appellant’s hus-
band taken the medical examination required by the word-
ing of the application. Subsequent to appellant’s husband’s
death, Nationwide denied liability, asserting that certain
conditions contained in the application and in the condi-
tional receipt (namely the taking of the medical examina-
tion) had not been fulfilled by the applicant.
The case was submitted to the trial court through appel-
lant’s complaint, Nationwide’s answer, appellant’s reply to
appellee’s answer, and the deposition of appellee’s agent.
Appellant then filed a motion for summary judgment and
appellee filed a cross-motion for summary judgment. Both
motions contained affidavits in support thereof. On the
basis of these documents, the trial court ruled that a condi-
tion precedent to the insurance coverage claimed had not
been fulfilled. Accordingly, the trial court denied appel-
lant’s motion for summary judgment and granted appel-
lee’s. On appeal, the Superior Court affirmed per curiam.
Collister v. Nationwide Life Insurance Co., 236 Pa. Super.
702, 347 A.2d 487 (1975). Appellant’s petition for allowance
of appeal was granted, Appellate Court Jurisdiction Act of
1970, Article IT, § 204, 17 Pa.C.S.A. § 211.204(a), and this
appeal followed.
Appellee contends that no insurance was in force as of
November 4, 1972, the date of decedent's death, because the
application and the “conditional receipt” each provided that
there would be no insurance coverage unless a completed
medical examination was received by the insurer. Since no
medical examination was obtained by the applicant prior
to his death, Nationwide argues that the application was
never completed and that completion of the application was
an unfulfilled condition precedent to the insurance coverage
claimed.
Appellant argues before us, as she did below, that a con-
tract of insurance came into being between appellant’s hus-
band and Nationwide at the time Nationwide accepted the
l4a
application form and the first premium payment. This trans-
action, urges appellant, created a temporary insurance con-
tract that provided insurance coverage for the period of
time extending from acceptance of the premium deposit
until Nationwide either rejected the application because of
the applicant’s uninsurability or accepted the application
and issued the policy applied for. For the reasons that
follow, we agree with appellant.
At the outset, we note that temporary contracts of in-
surance affording coverage pending issuance of the formal
policy by the insurer are well known in the insurance *=
dustry. See 12 Appleman, Insurance Law and Practice,
§§ 7221-7233 (1943); 1 Couch on Insurance 2d, §§ 14:26-
14:46 (1959). Contracts for interim insurance, such as ap-
pellant argues was in effect between Nationwide and her
husband at the time of his death, have also been recognized
as valid in Pennsylvania. For example, in McAvoy Vitrified
Brick Co. v. North American Life Assurance Co., 395 Pa.
75, 149 A.2d 42 (1959), we held that an application for in-
surance coverage, a deposit premium receipt, and an “in-
terim assurance certificate,” constituted a contract to pro-
vide temporary insurance for the period of time between
the delivery of the certificate and the subsequent decision of
the insurer at its home office of whether to issue the policy
applied for or reject the application. Like Nationwide here,
the insurer in McAvoy, argued that its liability was subject
to a condition precedent; in that case the alleged condition
precedent was the insurer’s good-faith determination that
the applicant was an insurable risk.
The McAvoy court considered the conflicting points of
view before arriving at its conclusion that a contract of
temporary insurance existed. Quoting from the California
Supreme Court’s decision in Ransom v. Penn Mutual Life
Ins. Co., 43 Cal.2d 420, 274 P.2d 633 (1954), we said,
“The courts in several jurisdictions have construed
clauses similar to the one involved here. A number of
ida
decisions have held, in accordance with defendant’s
view, that no contract of insurance exists until the in-
surer has been satisfied as to an applicant’s accepta-
bility, and that the provisions that the insurance shall
be in force from the date of the application means that,
if and when the company is satisfied, the contract shall
be considered to relate back and take effect as of that
date. (Citations omitted.)
On the other hand, a number of courts have held that
the provisions to the effect that the insurance shall be
in force from the date of the application if the pre-
mium is paid gives rise to a contract of insurance im-
mediately upon receipt of the application and payment
of the premium, and that the proviso that the company
shall be satisfied that the insured was acceptable at the
date of the application creates only a right to termi-
nate the contract if the company becomes dissatisfied
with the risk before a policy is issued.’” (Citations
omitted. )
395 Pa. at 87-88, 149 A.2d at 48.
Similarly, in Stonz v. Equitable Life Assurance Society,
324 Pa. 97, 102, 187 A. 403, 405-406 (1936) we said:
“The cases previously cited indicate a trend in the
courts to construe the conditions liberally, and to treat
receipts similar in wording to the one before us as
hinding during the interim regardless of the ultimate
action of the carrier on the application. These deci-
sions are based upon the assumption that if the receipt
meant anything, no other result could have been in-
tended by the parties, for unless the insured was to be
protected against injury or death during the interim
period there would be no advantage to him in paying
his premium in advance. As was said in Albers v. Se-
curity Mutual Life Ins. Co., supra: ‘If the company did
not intend that there should be insurance effective
pending the date of the application and the date of the
owes
l6a
approval of the risk and the issuance of the policy, then
the company would be charging and obtaining the full
amount of the premium for one year, while the period
of actual insurance would be as many days less than
one year as there were days intervening between the
date of the application and the approval.’ In other
words, the insured would be paying for something
which he did not receive.” (Emphasis in original.)
The courts of several other jurisdictions have also recog-
nized the validity of temporary insurance contracts. See,
e. g., Smith v. Westland Life Ins. Co., 15 Cal.3d 111, 123
Cal.Rptr. 649, 539 P.2d 433 (1975); Damm v. National Ins.
Co. of America, 200 N.W.2d 616 (N.D.1972) ; Toevs v. West-
ern Farm Bureau Life Ins. Co., 94 Idaho 151, 483 P.2d 682
(1971): Turner v. Worth Ins. Co., 106 Ariz. 132, 472 P.2d
1 (1970); Simpson v. Prudential Ins. Co., 227 Md. 393, 177
A.2d 417 (1967); Allen v. Metropolitan Life Ins. Co., 44
N.J. 294, 208 A.2d 638 (1965) ; Ransom v. Penn Mutual Life
Ins. Co., 43 Cal.2d 420, 274 P.2d 633 (1954).
The rationale of these cases is succinctly stated in Smith
v. Westland Life Ins. Co., supra, 123 Cal.Rptr. at 655, 539
P.2d at 439:
“In establishing for California a rule of temporary
insurance, we acknowledged the existence in this coun-
try of two distinct but contradictory lines of authority
on this question. (Ransom v. Penn Mutual Life Ins.
Co., supra, 43 Cal.2d at pp. 423-424, 274 P.2d 633.) We
chose to align California with those jurisdictions rec-
ognizing temporary insurance, for a number of rea-
sons: First, we found the language of the conditional
receipt to be ambiguous and susceptible of the inter-
pretation that coverage would be provided immediately
subject to the insurance company’s right to terminate
coverage if it did not choose to issue the policy applied
for. Resolving this ambiguity against the insurer, we
held that coverage arose immediately upon completion
of the application and payment of the premium. Sec-
ond, noting that the insurance company drafted the
language of the conditional receipt, we reasoned that
if the insurer intended to condition its liability under
the policy upon its prior approval of the application, it
could have easily used clear and unequivocal language
to indicate its intention. Third, we concluded that an
ordinary person paying the premium at the time he
applied for insurance and receiving in return a receipt
which stated that coverage was to be effective as of the
date of application, had a reasonable expectation that
he would secure the benefit of immediate coverage.
Finally, we noted the obvious advantage gained by the
insurance company in receiving payment of the pre-
mium at the time of application. We therefore con-
cluded that it would be unconscionable to allow the
insurer, who had required from the applicant payment
of the first premium, to escape the obligation of cover-
age which the applicant could reasonably assume and
expect that the insurer was thereby undertaking.”
As we said in McAvoy, supra, 395 Pa. at 80-81, 149 A.2d
at 44-45.
“The problem is not a new one. A substantial volume
of litigation has come before the courts arising out of
situations in which one who has applied for lite insur-
ance and paid a premium has died or suffered a change
of physical condition before the issuance of the policy.
We are all familiar with the usual practice of insurance
agents to accept initial premium payments with app-
lications for the issuance of policies which cannot, in
the very nature of the business, be made available until
some time later. The policy itself, when issued, em-
bodies the contract. But in the meantime, between the
initial payment of premium and the issuance of the
policy, what is the contractual relationship, if any?”
18a
See also Smi** v. Westland Life Ins. Co., supra, 123 Cal.
Rptr. at 656, 539 P.2d at 440.
In Toevs v. Western Farm Bureau Life Ins. Co., 94 Idaho
151, 483 P.2d 682 (1971), the court noted:
“Three documents, all unilaterally prepared by the
insurance company, are involved, viz., the application,
conditional premium receipt, and the specimen policy.
The three share the common characteristics of employ-
ing confusing and complicated language which is sus-
ceptible of various interpretations »nd meanings. The
specific ambiguity involves the date upon which insur-
ance coverage is to begin. Each of these documents
when read alone is confusing; when all three are taken
together the task becomes three times as difficult. Thus
the provisions of the contract existing between the
Western Farm Bureau Life Insurance Company and
Adelle R. Toevs were confusing and ambiguous. It has
long been the rule of this Court that a contract should
be construed most strongly against the party prepar-
ing it.” (Footnote omitted.)
Id. at 153, 483 P.2d at 684.
Furthermore, we recently stated in Brakeman v. Potomac
Ins. Co., 472 Pa. 66, 72, 371 A.2d 193, 196 (1977).
“The rationale underlying the strict contractual ap-
proach [in cases involving insurance contracts] re-
flected in our past decisions is that courts should not
presume to interfere with the freedom of private con-
tracts and redraft insurance policy provisions where
the intent of the parties is expressed by clear and un-
ambiguous language. We are of the opinion, however,
that this argument, based on the view that insurance
policies are private contracts in the traditional sense,
is no longer persuasive. Such a position fails to recog-
nize the true nature of the relationship between insur-
3
’
19a
ance companies and their insureds. An insurance con-
tract is not a negotiated agreement; rather its condi-
tions are by and large dictated by the insurance com-
pany to the insured.”
To accept the insurer’s argument that its liability is con-
tingent on a condition precedent permits the insurer to
hold itself immune from liability while it considers whether
to accept or reject the risk, as in McAvoy, or, as in the in-
stant case, during the period between receipt of the appli-
cation and premium deposit and the date of the medical
examination, while at the same time enjoying the benefits
that flow from immediate collection of the premium. See,
Turner v. Worth Ins. Co., 106 Ariz. 132, 472 P.2d 1 (1970).
Viewing insurance contracts (including contracts for tem-
porary insurance) as contracts of adhesion, the courts have
accordingly imposed more stringent requirements upon the
insurer. For example, some courts have ruled that because
of the adhesionary nature of insurance documents (includ-
ing conditional receipts similar to that at issue here) an
insurer who wishes to avoid liability must not only use clear
and unequivocal language evidencing its intent to limit
temporary coverage, but it must also call such limiting
conditions to the attention of the applicant. Absent proof
of such disclosure, coverage will be deemed to be that which
wou'd be expected by the ordinary layperson, namely, com-
plete and immediate coverage upon payment of the pre-
mium. In Smith v. Westland Life Ins. Co., supra, 15 Cal.
3d 111, 123 Cal.Rptr. 649, 5389 P.2d 433 (1975), the court
stated :
“(T]he applicant [in Young v. Metropolitan Life Ins.
Co., 272 Cal.App.2d 453, 77 Cal.Rptr. 382] applied for
life insurance under a plan providing double indemnity
in the event of accidental death. He paid the premium
at the time of application and received a conditional re-
ceipt which expressly and unambiguously stated that
if the applicant died before the company had approved
20a
the policy, the company would pay the benefits
by the policy, not including accidental ng
Young died before his application was approved The
insurer claimed that its liability under the policy was
limited by the terms of the conditional receipt.
While the court found that the language of the ap-
plication and receipt clearly made company rnd
a condition precedent to the insurer’s full liability un-
der the policy, the court nevertheless ruled that the
company must be held liable to the full extent under the
policy applied for, including accidental death benefits
unless it satisfied the burden of proving that the provi-
sions limiting the company’s liability were called to
the applicant’s attention or that the applicant had read
them. In so holding, the court reasoned that ‘the ver
acceptance of an advance premium by the carrier ine
naturally toward an understanding of immediate cover
age though it be temporary and terminable . fs
short, to the ordinary layman, payment of the insur-
ance premium constitutes payment for immediate pro-
tection, and it is unlikely that he would carefully read
the fine print contained in a receipt unless he was given
the incentive to do so by the earrier’s agent.” (Cita
tions omitted.) (Emphasis in original.) .
Py an analogous situation, we have also concluded that
= adhesionary nature of insurance documents is such that
€ insured is under no duty to read the policy sent by the
company. Rempel v. Nationwide Life I
6 asl eee fe Ins. Co., 471 Pa. 404,
In another related context, the Supreme Court of N
Jersey has held that an insurance company has a dut
disclose to the insured policy provisions which might be t
variance with the reasonable expectations of the icacd
Bowler v. Fidelity and Casualty C
250 A.2d 580 (1969), Ce SD Sh a ee ee
ee nn ee
2la
“In situations where a layman might give the control-
ling language of the policy a more restrictive interpre-
tation than the insurer knows the courts have given it
and as a result the uniformed insured might be inclined
to be quiescent about the disregard or non-payment of
his claim and not to press it in timely fashion, the com-
pany cannot ignore its obligation. It cannot hide be-
hind the insured’s ignorance of the ‘aw; it cannot con-
ceal its liability. In these circumstances it has the duty
to speak and disclose, and to act in accordance with its
contractual undertaking. The slightest evidence of de-
ception or overreaching will bar reliance upon time
limitations for prosecution of the claim.”
Id. at 327, 250 A.2d at 588.
Quoting from Bollinger v. National Fire Ins. Co., 25 Cal.
2d 399, 405, 154 P.2d 399, 403 (1944), the Bowler court con-
tinued, stating,
“<The insurance policy incorporated by reference in
the complaint is of the usual complexity. While courts
are diligent to protect insurance companies from fraud-
ulent claims and to enforce all regulaticns necessary to
their protection, it must not be forgotten that the pri-
mary function of insurance is to insure. When claims
are honestly made care should be taken to prevent tech-
nical forfeitures such as would ensue from an unrea-
sonable enforcement of a rule of procedure unrelated
to the merits.’ ”
Id. at 331, 250 A.2d at 589-590.
Having concluded that the insurer violated its duty to dis-
close to the insured that his claim was about to be barred
by the statute of limitations, the Bowler court refused to
apply the statute as a bar to the claim.
Thus, the reasonable expectations of the insured clearly
became the important consideration once the courts had
22a
decided that normal contract principles were no longer ap-
plicable in insurance transactions. As recognized in Smith
v. Westland, supra, 15 Cal.3d 111, 123 Cal.Rptr. 649, 539
P.2d 433 (1975), citing Ransom v. Penn Mutual, supra, 43
Cal.2d 420, 274 P.2d 633 (1975):
“am ordinary person who pays the premium at the
time he applies for insurance is justified in assuming
that payment will bring immediate protection, regard-
less of whether or not the insurer ultimately decides to
accept the risk.”
Recognition of the reasonable expectations of the insured
forms the basis of the New Jersey court’s decision in Allen
v. Metropolitan Life Ins. Co., supra, 44 N.J. 294, 208 A.2d
638 (1965):
“Although he knew that his application might ultimately
be rejected, he undoubtedly assumed there was interim
coverage in the event he died, for that was the very
reason he had paid the $576.42 in advance. Indeed, if he
was not so covered what justification could the com-
pany fairly advance for having taken that large sum
from him; surely not the insubstantial collateral ad-
vantages which it now asserts or the protection against
accidental death which he could have purchased sep-
arately for a relatively insignificant amount.”
Id. at 306, 208 A.2d at 645.
The Allen court further stated,
“In Metropolitan Life Insurance Company v. Grant
[268 F.2d 307 (9 Cir. 1959)], the court applied Ran-
som [v. Penn Mutual Life Ins. Co.] to a case in which
the applicant had paid his premium in advance under
an application provision that if it ‘is approved at the
Company’s Home Office for the class, plan, and amount
of insurance herein applied for, then the insurance in
accordance with the terms of the policy applied for
23a
shall be in force from the date hereof.’ A medical exam-
ination was to be made but the applicant died acci-
dentally before the date scheduled for the examination.
The company rejected the application and refused pay-
ment contending that wnder the language here, which
differed from that in Ransom, there was no tnterim
coverage. This contention was rejected by the Court
of Appeals for the Ninth Circuit which pointed out that
Ransom did not turn on language niceties but on the
view that where the company has taken the premium
in advance while using language calculated to induce
such payment, it should not be permitted to escape the
obligation which the ordinary applicant would reason-
ably believe had been undertaken by the msurer.’’ (Em-
phasis added.)
Id. at 308, 208 A.2d at 646.
Furthermore, conditional receipts, such as was used in the
instant case, tend to encourage deception. As stated by the
court in Toevs v. Western Farm Bureau Life Ins. Co.,
supra, 94 Idaho 151, 154, 483 P.2d 682, 685 (1971).
“We do not mean to imply affirmative misconduct by
the soliciting insurance agent. We suggest only that
if nothing is said about the complicated and legalistic
phrasing of the receipt, and the agent accepts an ap-
plication for insurance together with the first premium
payment, the applicant has reason to believe that he is
insured. Otherwise, he is deceived.”
See also Prudential Ins. Co. of America v. Lamme, 83 Nev.
146, 425 P.2d 348 (1967).
Similarly, in Smith v. Westland Life Ins. Co., supra, the
court said,
“
. our decision .. . is fortified by the consideration
recognized in Ransom [v. Penn Mutual Life Ins. Co.,
24a
supra] that it is unconscionable for an insurance com-
pany to hold premiums without providing coverage.
Payment of the premium causes the applicant to be-
lieve he is immediately covered and hence reduces the
likelihood that he withdraw the application during the
period of investigation.” (Citations omitted.)
“Furthermore if they [sic] company accepts the appli-
vation and issues a permanent policy, it is thereby able
to earn premiums from the earliest date possible. In
any event the company has the use of the money during
the period of investigation.’’ (Citations omitted.)
123 Cal.Rptr. at 659, 539 P.2d at 443.
The unconscionable result of allowing an insurer to re-
fuse to provide the insurance coverage for which it had
been paid on the basis of its claim that a “prompt notice”
clause contained in che policy was breached, played also a
sign ficant part in our recent decision in Brakeman v. Po-
tomac Ins. Co., 472 Pa. 66, 371 A.2d 193 (1977). Quoting
from Cooper v. Government Employees Ins. Co., 51 N.J.
86, 93-94, 237 A.2d 870, 873-874 (1968), we said:
“[A]lthough the policy may speak of the notice provi-
sion in terms of ‘condition precedent,’ . . . nonetheless
what is involved is a forfeiture, for the carrier seeks,
on account of a breach of that provision, to deny the
insured the very thing paid for. This is not to belittle
the need for notice of an accident, but rather to put the
subject in perspective. Thus viewed, it becomes unrea-
sonable to read the provision unrealistically or to find
that the carrier may forfeit the coverage, even though
there is no likelihood that it was prejudiced by the
breach. To do so would be unfair to insureds.”
Id. at 74, 371 A.2d at 197,
25a
Because the insurer is in the business of writing insur-
ance agreements, the recent trend in insurance cases has
been away from strict contractual approaches towards a
view that insurance policies (and other insurance contracts )
are no longer private contracts in the traditional sense (if
they ever were). The traditional contractual approach fails
to consider the true nature of the relationship between the
insurer and its insureds. Only through the recognition that
insurance contracts are not freely negotiated agreements
entered into by parties of equal status; only by acknowledg-
ing that the conditions of an insurance contract are for the
most part dictated by the insurance companies and that the
insured cannot “bargain” over anything more than the
monetary amount of coverage purchased, does our analysis
approach the realities of an insurance transaction. See
Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193
(1977).
We believe that the proper resolution of questions such
as that presented by the instant appeal depends upon an
analysis of the totality of the transaction involved. It is not
enough simply to say that a contract for temporary insur-
ance coverage is subject to the same rules of interpretation
as any other insurance contract. To be sure, any ambiguity
in the written words will be construed liberally in favor of
the insured and against the insurer, e. g., Burne v. Franklin
Life Ins. Co., 451 Pa. 218, 226-27, 301 A.2d 799, 804 (1973),
and if the language of the application and conditional re-
ceipt, when so read, indicates an intent on the part of the
insurer to provide interim insurance, then such benefits will
be awarded by the court. That, however, is not the end of
the examination. In situations where the circumstances of
the transaction do not indicate that the insurer intended to
provide interim insurance, but nevertheless show that the
insurer accepted payment of the first premium at the time
it took the application, it is then up to the insurer to estab-
lish by clear and convincing evidence that the consumer
tiie
26a
had no reasonable basis for believing that he or she was
purchasing immediate insurance coverage.
The reasonable expectation of the insured is the focal
point of the insurance transaction involved here. E.g.,
Beckham v. Travelers Ins. Co., 424 Pa. 107, 117-18, 225 A.2d
532, 537 (1967). Courts should be concerned with assuring
that the insurance purchasing public’s reasonable expecta-
tions are fulfilled. Thus, regardless of the ambiguity, or
lack thereof, inherent in a given set of insurance documents
(whether they be applications, conditional receipts, riders,
policies, or whatever), the public has a right to expect that
they will receive something of comparable value in return
for the premium paid. Courts should also keep alert to the
fact that the expectations of the insured are in large
measure created by the insurance industry itself. Through
the use of lengthy, complex, and cumbersomely written
applications, conditional receipts, riders, and policies, to
name just a few, the insurance industry forces the insur-
ance consumer to rely upon the oral representations of
the insurance agent. Such representations may or may
not accurately reflect the contents of the written docu-
ment and therefore the insurer is often in a position to
reap the benefit of the insured’s lack of understanding
of the transaction. As stated by the New Jersey Supreme
Court in Allen v. Metropoiitan Life Ins. Co., supra, 44 N.J.
294, 302, 208 A.2d 638, 642 (1965) :
“Much of the difficulty may be laid at the doorstep of
the life insurance industry itself for, despite repeated
cautions from the courts, it has persisted in using lan-
guage which is obscure to the layman and in tolerating
agency practices which are calculated to lead the lay-
man to believe that he has coverage beyond that which
may be called for by a literal reading. The reports are
replete with instances where company agents, as here,
obtained payment of the full annual premium in ad-
vance on the broad representation that there would be
interim coverage pending the company’s investigation
of the application and its action thereon.”
27a
Courts must examine the dynamics of the insurance trans-
action to ascertain what are the reasonable expectations of
the consumer. See, e. g., Rempel v. Nationwide Ins. Co.,
471 Pa. 404, 370 A.2d 366 (1977). Courts must also keep in
mind the obvious advantages gained by the insurer when
the premium is paid at the time of application. An insurer
should not be permitted to enjoy such benefits without giv-
ing comparable benefit in return to the insured.
Turning then to the factual circumstances surrounding
the instant appeal, we hold that the insurer has failed to
establish by clear and convincing evidence that appellant’s
husband could not have entertained a reasonable expecta-
tion that appellee was obligating itself to provide insurance
coverage beginning with appellee’s acceptance of the first
premium payment. Appellee has argued that the language
of the “conditional receipt” gave notice to appellant’s hus-
band that no insurance was to take effect until successful
completion of the required medical examination. (The re-
ceipt is attached as an appendix to this decision). The con-
clusion we reach here is not determined by the language of
the conditional receipt, but by the dynamics of the trans-
action viewed in its entirety.
In the instant situation, appellant’s husband could rea-
sonably have believed that the “conditional receipt” was
what it purported to be; i. e., a receipt given to evidence
that he had paid the first two months premium. Placement
on a “receipt” of contract terms and conditions is not a
procedure calculated to inform the customer of the content
of those terms and conditions, but rather, tends to lull the
customer into a failure to observe them. To the ordinary
consumer, a receipt is considered only to be evidence that
money has been paid as part of the insurance purchasing
transactions, and as such is often not taken note of when
signed by a trusted advisor in the presence of the consumer.
At best, the consumer may possibly glance at the receipt to
ascertain that the correct dollar amount has been entered
28a
on the blank space provided or that the document is signed
by the person receiving the money. Frequently, the cus-
tomer is given such a receipt while still engaged in conver-
sation with the agent, and always, the receipt is given after,
or simultaneously with, payment of the initial premuim.
Any conditions which the insurer has placed with the body
of the receipt are therefore irrelevant to the transaction
that has already been completed. The payment of money
does not indicate a continuation of contract negotiations,
but rather their completion. The payment marks the begin-
ning of performance, which generally occurs after the con.
tract has been entered into. At that point, the consumer is
put in a position, of either accepting the receipt as a receipt
and nothing more, or put in a position in which he must ask
the insurance agent to remain silent so that he, the con-
sumer, might have an opportunity to read and study the
document. Furthermore, the consumer might be reluctant
to read the document aware that such conduct might imply
a mistrust of the person with whom he has already made an
agreement, generally after lengthy and personal discus-
sions.
Appellee also contends that their agent informed appel-
lant’s husband that a medical examination was necessary.
Appellee has not estabished by clear and convincing evi-
dence, however, that their agent told the decedent that he
was paying money upon application for insurance coverage
that would not begin until successful completion of the med-
ical examination. The fact that he informed appellant’s hus-
band that a medical examination was required by the in-
surer does not affect our conclusion therefore.
An often stated objection to construing a “conditional re-
ceipt” so as to create interim or temporary insurance is
that affording such present insurance coverage may allow
one who is in fact an uninsurable risk to secure coverage
for as long a period of time as it takes the insurer to dis-
cover that the applicant is not an acceptable risk. Citing
Prudential Ins. Co. of America v. Lamm., supra, 83 Nev.
Ritts.
YR £0 Vv MOC MICS Wilner CAO heolctily ites tothe, ange
29a
146, 425 P.2d 346 (1967), the court in Damm v. National
Ins. Co. of America, 200 N.W.2d 616 (N.D.1972) dismissed
this objection stating that insurance companies have a
choice either to accept the risk sometimes involved in the
use of conditional receipts, or the insurance company could
forego the advantages derived from the customer’s payment
of a premium deposit upon application, and write “C.0.D.”
insurance. The court in Prudential, supra, explained
“C.0.D.” insurance as follows:
“Absent a contrary agreement (the conditional receipt,
for example) payment of the initial premium and de-
livery of the policy are usually concurrent acts, there-
by creating a period between the signing of the appli-
cation by the applicant and the delivery of the policy
during which no money has been advanced to the in-
surance company, and no insurance is in effect. This
is called ‘COD’, or ‘cash on delivery’ insurance.
Prudential Ins. Co. of America v. Lamme, supra, Foot-
note 4, 425 P.2d at 348.”
(As quoted in Damm v. National Ins. Co. of America,
supra, 200 N.W.2d at 620.)
The insurance industry is regulated by the Common-
wealth in order to provide protection to the insurance buy-
ing public. See “The Insurance Department Act of 1921,”
Act of May 17, 1921, P.L. 789, art. I, § 102, (40 P.S. §1 et
seq.), and “The Insurance Company Law of 1921,” Act of
May 17, 1921, P.L. 682, § 102 (40 P.S. § 341 et seq.). If in-
surers wish to protect themselves from liability during the
interim period between the taking of the application and
approval (or between the application and successful com-
pletion of a required medical examination), all that need be
done is to delay acceptance of the applicant’s money until
that time. If, on the other hand, the insurer wishes to enjoy
the substantial benefits it receives by securing the custo-
mer’s cash at the time of the taking of the application, it
30a
must return what the customer can reasonably expect that
the insurer is selling: i. e., immediate coverage. Alterna-
tively, the insurer could inform the prospective applicant,
before any money changes hands, that it does not intend
to give the customer anything in return for advance pay-
ment, and that the customer is actually paying money now
for nothing because no insurance will take effect until ap-
proval. Such notification would have to be given before the
consumer paid the initial premium in order to avoid plac-
ing that consumer at the psychological disadvantage of
having to ask for a return of the premium if he or she is
dissatisfied with such terms. Furthermore, any such notice
must be made in a manner calculated to bring the facts of
the transaction—that the customer is paying money now,
but getting nothing until later—to the customer’s attention
in no uncertain terms. As such, the notice could not be
printed on a receipt.
Only after such an unequivocal showing that the con-
sumer is to be given no immediate benefits in return for his
or her cash payment can a court say that the insurer has
sustained its burden of establishing by clear and convinc-
ing evidence that the consumer could not reasonably have
expected to receive immediate coverage in return for the
payment of the required premium. The insurer has failed to
show this here, and we therefore vacate the order of the
Superior Court, reverse the order of the trial court, and
remand the matter to the trial court with instructions that
it enter an order in favor of appellant.
Jones, former C. J., did not participate in the consid-
eration or decision of this case.
Pomeroy, J., filed a dissenting opinion.
ick: CS cot Tb
3la
Appendix to Opinion
FRONT
This receipt must not be detached unless settlement of the
first full premium has been made by the Applicant at the
time of application and such premium amount meets the
Company’s minimum Premium rules.
CONDITIONAL FIRST LIFE PREMIUM RECEIPT: NO INSURANCE WILL
BECOME EFFECTIVE PRIOR TO POLICY DELIVERY UNLESS THE ACTS
REQUIRED BY THIS RECEIPT ARE COMPLETED. NO AGENT OF THE
COMPANY IS AUTHORIZED TO CHANGE ANY ACT REQUIRED,
No. 308531
PE SO chu sne eee Kreck ek phate iew a wacadees
enn i ane ee Essa ceenasn Me Ao ,
ek eM atNE A oleh Ae amaEe 8 Dollars ($.......... )
in connection with an application for Life Insurance in
NationwipE Lire Insurance Company, Columbus, Ohio,
which application bears the same date and printed number
as this receipt.
If the sum indicated above equals the first full premium
on the premium payment basis selected in the application
for the insurance applied for and if the following acts are
completed, (a) receipt by the Company of a fully completed
application which includes completed medical examina-
tions, if any required by the Company’s published under-
writing rules because of the age of the Insured or the
amount of insurance applied for and {b). completion of
all investigation by the Company and the Company is
satisfied that the Proposed Insured and (without prejudice
to the Proposed Insured) each person proposed for cover-
age under the Family Rider or the Children’s Rider
(whichever is applicable and if applied for) is insurable
and qualified under the Company’s published rules, limits
and standards on the plan and for the amount applied for
and at the premium specified herein, the said insurance
32a
shall take effect and be in force subject to the provisions
of the policy applied for from the date of the last medical
examination, or if not medical examination is required,
the insurance shall take effect on the application date. Un-
less all acts required are completed, no insurance shall
take effect hereunder.
In any event, the amount of insurance becoming effective
under the terms of this receipt is hereby limited to the
extent that in the event of the death of the Proposed In-
sured the total liability of the Company shall not exceed
$100,000, said amount to include any life insurance then
in force with the Company and any benefits payable by
the Company as a result of accidental death.
If the application is declined the amount evidenced by
this receipt shall be refunded.
(Agent must sign here)
SES AEOR CELE AEES CASE NRERATASESLAESD MER Agent
Notice: This receipt is not valid for any premium for
the insurance applied for except the first full premium
thereon which in no event shall exceed one annual premium
for such insurance together with the premium for interim
term insurance, if any.
REVERSE
IMPORTANT
The Company reserves the right to require a medical
examination. Until you can provide proof that you are in-
surable, the Company provides no insurance.
If you are requested to have an examination, don’t delay.
Make arrangements promptly. There is no insurance until
a satisfactory medical examination has been made and all
the conditions of this receipt are completed.
Sab ded tai eb ak Pe uisiedtné is xe aed ea’ SN, Tera Pa eA SOME CRE oe
33a
Pomeroy, Justice, dissenting.
I emphatically dissent. Once again the Court, without
justification in the facts of the case at hand, ignores the
clear and unambiguous language of an insurance contract
and dictates a result unsupported by the agreement of the
parties.
In so doing the Court begins with a discourse concern-
ing the evils perceived to be inherent in insurance con-
tracts, particularly the practice common among life insur-
ance companies of accepting premium payments before the
effective date of coverage (i.e., prior to completion of a
required medical examination.) Then, following a review
of the ‘‘totality of the cireumstances”’ in light of the **dy-
namics of the transaction”, the majority, assuming a gratu-
itous regulatory role over the insurance industry in Penn-
sylvania,’ concludes that the ‘‘reasonable expectations’’
"There are legitimate reasons for requiring payment of premi-
ums in advance of coverage attaching. As Professor Williston has
observed :
‘During the period when the applicant’s offer (applica-
tion) is outstanding and unaccepted by the company, the
offeror (applicant) has the power to revoke his offer. Should
he do so, the company not only loses its expected underwriting
profit but is also out the cost of the medical examination and
related expenses of securing and processing the application.
Such costs are particularly burdensome where a considerable
volume of the company’s business consists of applications for
policies in small dollar amounts.’’ IX Williston on Contracts,
§ 902A, at 197-199 (3rd ed. 1963).
I am of the opinion that this Court has neither the responsibility
nor the expertise to balance such considerations with those con-
flicting considerations favoring coverage of an applicant pending
approval of the application. The General Assembly has properly
seen fit to establish an Insurance Department to oversee the opera-
tion of insurance companies in this state. See the Insurance Com-
pany Law of 1921, Act of May 17, 192i, P.L. 789, § 1, 40 PS. § 1,
et seq. Accordingly, I agree with the rationale of the Wisconsin
34a
of the applicant require a finding that temporary insurance
was in effect from the date of signing the application and
payment of the premium. Thus the problem in deciding an
insurance claims seems no longer to be one of ascertaining
what the contract as written means, but of somehow divin-
ing the ‘‘reasonable expectation’’ of the insured as to
what the contract should mean.
Initially, it is important to note that we are not here
dealing with a lengthy and complex document which is
arguably incomprehensible to the average layman. Rather,
we are dealing with a short and explicit form of premium
receipt presented and explained to the applicant when he
signed the application and made a payment on account of
initial premium. As will be noted from the text of the re-
ceipt attached to the majority opinion, the top line of the
paper declares in capital 12-point letters that ‘‘NO IN-
SURANCE WILL BECOME EFFECTIVE PRIOR TO
POLICY DELIVERY UNLESS THE ACTS REQUIRED
BY THIS RECEIPT ARE COMPLETED.”’’ The main
text of the receipt, in 10-point type, then details the two
steps to be completed, and plainly states that the insurance
‘*shall take effect and be in force ... from the date of the
last medical examination’’ from which insurability is deter-
mined. This ‘is followed by the warning that ‘* Unless all acts
Supreme Court which, when faced with a similar contract, con-
cluded :
‘It is not within the province of this court to determine
what coverage, in its good conscience, the life insurance in-
dustry should be required to offer... . That function [the
regulation of insurance companies] is vested by the legislature
in the office of the Commissioner of Insurance. We do not
have the power to create a new contract for the parties. Thus,
while we may not approve of such a sales device as a condi-
tional receipt and would like to see interim insurance afforded,
we are powerless to so legislate.’’ Brown v. Equitable Life
Ins. Co. of Iowa, 60 Wis.2d 620, 630, 211 N.W.2d 431, 436
(1973).
a)
35a
required are completed, no insurance shall take effect
hereunder.’’ On the reverse side of the receipt form, under
the heading ‘‘IMPORTANT”? appears a final admonition
to the application. It is in 14-point type, repeated here for
the sake of completeness:
‘‘The Company reserves the right to require a medical
examination. Until you can provide proof that you are
insurable, the Company provides no insurance.
‘‘Tf you are requested to have an examination, don’t
delay. Make arrangements promptly. There is no in-
surance until a satisfactory medical examination has
been made and all the conditions of this receipt are
completed.’’
There is no dispute that the applicant in this case, the
plaintiff’s husband, was advised by the agent and knew
that he had take a physical examination. (R. 12a, 34a). He
was also told that there would be no coverage until the
physical examination had been approved at the home office
of the company. (R. 38a). But all this language of the
receipt, says the Court, and the fact that this applicant was
given an oral rendering of its provisions, is unimportant
and irrelevant; the applicant is not obliged to read the re-
ceipt, and its language has nothing to do with the case.
The outcome is not determined by the language of the
agreement, whether read or not, but by ‘‘the dynamics of
the transaction viewed in its entirety’? (opinion of the
Court, ante at 1354.
A dozen years ago this Court declined to hold that under
the particular contract then before it, the taking of a med-
ical examination was a precondition to coverage. We stated
flatly that ‘‘[iJf the insurance company had wished to
make the taking of the medical examination a condition
precedent to the contract, it should have said so with ex-
plicit language.’’ Steelnack v. Knights Life Insurance Co.
of America, 423 Pa. 205, 208, 223 A.2d 734, 735 (1966). As
36a
I see it, the insurance company in the case at bar has
carefully heeded that admonition, but to no avail.? _Ignor-
ing the carefully explicit and unambiguous language of the
receipt here involved, the Court concludes that Francis
Collister, the applicant, was covered despite his failure
to obtain a medical examination.
The Court’s decision is contrary to the clear weight of
authority elsewhere.’ While reliance is placed on a num-
2 Indeed, only last year Mr. Justice MANDERINO, writing for him-
self and two other members of the Court, emphasized the impor-
tance of clarity of language in an application form:
‘‘The application form . . . could be prepared in large type
in terms easily understood by the insured so that reliance on
the agent’s representations would not be necessary. The in-
surance company might adopt a practice whereby an insured
is required to sign the policy and acknowledge the receipt of
a clear and comprehensible notice of at least the main cover-
age provided either as contained in the policy document or
separately. These examples only serve to illustrate why we are
not persuaded that the insurance company 1s helpless to avoid
or severely limit the possibility of fraudulent claims. We have
very little sympathy for Nationwide’s alleged concerns in view
of the fact that its procedures necessitate reliance by a con-
sumer on the representations of the insurance agent.’’ Rempel
y. Nationwide Life Insurance Co., 471 Pa. 404, 412, 370 A.2d
366, 369-370 (1977).
* See, e. g.. Machinery Center, Inc. v. Anchor Nat. Life Ins. Co.,
434 F.2d 1 (10th Cir. 1970) ; Scheinman v. Phoenix Mutual Life
Ins. Co., 409 F.2d 999 (7th Cir. 1969) ; Cortez v. Life Ins. Co.,
408 F.2d 500 (Sth Cir. 1969) ; Thompson v. Occidental Life Ins.
Co. of Cal., 90 N.M. 620, 567 P.2d 62 (1977) ; Brown v. Equitable
Life Ins. Co. of Towa, 60 Wis.2d 620, 211 N.W.2d 431 (1973) ;
United States Ins. Co. of America v. Collins, (D.C.App. 1973),
305 A.2d 527; Fabrizio v. Fidelity & Guaranty Ins. Co., 27 Utah
2d 248, 494 P.2d 953 (1972); Borer v. Security Indus. Life Ins.
Co., (La.App.1971), 245 0.21 5, writ refused, 258 La. 575, 247
So.2d 394 (1971) ; Cannon »». Southland Life Ins. Co., 263 Md. 463,
283 A.2d 404 (1971); Adams v. State Capital Life Ins. Co., 1l
N.C.App. 678, 182 S.E.2d 250 (1971); Cavello v. Metropolitan
Life Ins. Co., 312 N.Y.S.2d 438, 34 A.D.2d 682 (1970) ; Elliott v.
37a
ber of recent cases in other jurisdictions, examination of
the cited opinions reveals that without exception those
cases were concerned with complicated and ambiguous
legal terminology. The following excerpts will illustrate
the point: ‘‘While some of the language tends to support
the company’s position, it does no more than produce an
ambiguity, and the ambiguity must be resolved against
defendant [insurance company].” Ransom v. Penn Mu-
tual Life Ins. Co., 43 Cal.2d 420, 274 P.2d 633, 636 (1954) ;
‘‘They [insurance companies] have nevertheless failed to
clarify the language used in such receipts so as to elimi-
nate patent ambiguities .. .’’, Smith v. Westland Life Ins.
Co., 15 Cal.3d 111, 121, 123 Cal.Rptr. 649, 656, 539 P.2d
433, 440 (1975) ; ‘‘Thus the provisions of the contract .. .
were confusing and ambiguous .. . [t]he contract is to be
construed in favor of the insured.’’ Toevs v. Western
Farm Bureau Life Ins. Co., 94 Idaho 151, 153, 483 P.2d 682,
684 (1971); ‘‘. .. and, if there is an ambiguity involved,
it will be decided in favor of the insured.’’ Turner v. Worth
Ins. Co., 106 Ariz. 132, 134, 472 P.2d 1, 3 (1970); ‘‘. . . if
nothing is said about the complicated and legalistic phras-
ing of the receipt... the applicant has reason to believe
that he is insured.’’ Prudential Life Ins. Co. of America v.
Lamme, 83 Nev. 146, 149, 425 P.2d 346, 348 (1967); ‘“Thus
we have consistently construed policy terms strictly
against the insurer and where several interpretations are
permissible, we have chosen the one most favorable to the
assured.’’ Allen v. Metropolitan Life Ins. Co., 44 N.J. 294,
305, 208 A.2d 638, 644 (1965); ‘*. . . particularly where the
language expressing the extent of the coverage may be de-
Interstate Life & Acc. Ins. Co., 211 Va. 240, 176 S.E.2d 314
(1970) ; Employers Protective Life Assur. Co. v. Gatlin, 246 Ark.
244, 437 S.W.2d 811 (1969); Marshall v. Bankers Life & Cas. Co.,
(Tex.Civ.App.1968), 425 S.W.2d 45; Woodmen of World Life
Ins. Soc. v. Etheridge, 223 Ga. 231, 154 S.E.2d 369 (1967) - Mor-
gan v. State Farm Life Ins. Co., 240 Or. 113, 400 P.2d 223 (1965) ;
Adolf v. Union N. L. Ins. Co., 170 Neb. 38, 101 N.W.2d 504 (1960).
38a
ceptive to the ordinary layman... .’’ Bowler v. Fidelity
and Casualty Co. of N. Y., 53 N.J. 313, 327, 250 A.2d 580,
587 (1969). Accord: McAvoy Vitrified Brick Co. v. North
American Life Assurance Co., 395 Pa. 75, 149 A.2d 42
(1959).
I have no quarrel with this line of authority, for I am in
complete agreement with the general proposition that in-
surance contracts should be interpreted strictly against
the drafters and that the ambiguities with which such con-
tracts are frequently replete must be resolved in favor of
the insureds. But in the simple, brief document now before
us, there is simply no ambiguity or confusingly technical
or convoluted phraseology. It is not the function of a court
to rewrite express and unambiguous terms in a contract to
comport with what that court might deem a fairer result
in a particular situation. See Corbin on Contracts, § 599,
p. 268 (1960). This presumably elementary aspect of the
law of contracts is not changed because the contract per-
tains to insurance. See, e. g., Penn-Air, Inc. v. Indemnity
Insurance Company of North America, 439 Pa. 511, 517,
269 A.2d 19, 22 (1970). Thus a leading authority on insur-
ance law applies it to receipts such as the one before us:
‘(In accordance with the general rule of construc-
tion, a binding receipt which is ambiguous is to be
construed in favor of the insured. Any doubt as to
whether a binder receipt issued for the initial premium
pending an application for a life insurance policy oper-
ates to put the insurance into immediate effect must
be resolved against the insurer.
‘““The rule of construction of a binding receipt in
favor of the insured applies only when there is in fact
an ambiguity to be interpreted. In accordance with the
general rule of construction, the court is not authorized
to rewrite the terms of a binder which is clear.’’ 1
Couch on Insurance 2d, § 14:36, at 616 (1959) (foot-
notes omitted).
39a
Couch’s statement represents the general rule, acknowl-
edged in Pennsylvania as elsewhere: *
‘‘There are numerous cases that read similarly
worded conditions in binders as subsequent and find
temporary coverage regardless of insurability. See,
e. g., Wood v. Metropolitan Life Ins. Co., 302 F.2d 802
(9th Cir. 1962) (applying Ransom v. Penn Mutual Life
Ins. Co., 43 Cal.2d 420, 274 P.2d 633 (1954)); Metro-
politan Life Ins. Co. v. Grant, 268 F.2d 307 (9th Cir.
1959); Law v. Hawaiian Life Ins. Co., 51 Haw. 288,
459 P.2d 195 (1969); Allen v. Metropolitan Life Ins.
Co., 44 N.J. 294, 208 A.2d 638 (1965); Prudential Ins.
Co. v. Lamme, 83 Nev. 146, 425 P.2d 346 (1967). Some
of the holdings turn on the ambiguities in the language
of the binders. It is a universal rule of construction
that ambiguities are to be resolved against the insurer.
Mutual Ife Ins. Co. v. Hurni Packing Co., 263 U.S.
167, 44 S.Ct. 90, 68 L.Ed. 235 (1923). In the present
case, however, there are no ambiguities in the binder,
and we cannot read any into it.’’ Thomas v. Chesa-
peake Life Ins. Co., 226 Pa.Super. 360, 367, 313 A.2d
332, 335 (1973).
*See e. g., Scheinmann v. Phoenix Mutual Life Ins. Co., 449
F.2d 999 (7th Cir. 1969); Cortex v. Life Ins. Co., 408 F.2d 500
(8th Cir. 1969) ; Taylor v. New York Life Ins. Co., 324 F.2d 768
(10th Cir. 1963); Essex County State Bank v. Fireman’s Fund
Ins. Co., 331 F.Supp. 931 (D.N.J.1971). Thompson v. Occidental
Life Ins. Co. of Cal., 90 N.J. 620, 567 P.2d 62 (1977); Brown v.
Equitable Life Ins. Co. of Iowa, 60 Wis.2d 620, 211 N.W.2d 431;
rene v. Union N. L. Ins. Co., 170 Neb. 38, 101 N.W.2d 504
40a
Because no ambiguities existed in the receipt in the case
at bar, the majority errs in reaching a result contrary to
the obvious intent of the agreement.°
One of the means used by the majority to justify the
result reached in this case is to characterize an insurance
contract as ‘‘adhesive’’. As I understand it, a ‘‘contract of
adhesion’’ is one where the superior bargaining power of
one party denies to the other party any opportunity to
bargain in a meaningful way over terms and conditions of
the contract. See generally Restatement (Second) of Con-
tracts §§ 231-237 (Tent. Draft No. 5, 1971). In the case
before us, however, the majority acknowledges the general
availability of ‘‘C.0.D.’’ insurance, from which it appears
that the present applicant was free to demand immediate
coverage or to patronize another insurance company. Thus
the ‘‘adhesive” quality which is often present was not in
fact an element in the situation before us. The fact that the
receipt form, like the application, was a standard form
‘By the same token, it is improper for a court to purport to
find an ambiguity where none exists and then to apply the rule of
construction which resolves ambiguities against the drafter of the
document. As the Supreme Court of Oregon succinctly stated in
Morgan v. State Farm Life Ins. Co., 240 Or. 113, 400 P.2d 223
(1965) :
‘*Admittedly, there have been cases in which a theory of
constructive ambiguity has been employed in the absence of
any ambiguity. [citations omitted]. Nevertheless, we are un-
able to decide the case at bar on the basis of a fiction which
we deem inapplicable. The literal meaning of the receipt in
this case is that the insurer engaged to insure the insured, if
he turned out to be insurable, and, in that event, the insur-
ance would be in effect from the date of application. Such
contracts have not been declared to be illegal in this state.
Accordingly, this is the contract the parties made, and we
are not at liberty to create a new contract for the parties.”’
240 Or. at 116-17, 400 P.2d at 224-25.
4la
contract does not in and of itself make the arrangement
adhesive.*®
Even if the contract before us could properly be charac-
terized an adhesion contract, that is not an end of the
matter; there is still an agreement in effect between the
parties and a court must determine the extent, if any, to
which it will be enforced. The idea that an adhesion con-
tract may be wholly or in part unenforceable is one to be
implemented with restraint, for it involves a judicial deter-
mination of public policy; it is not meant to be a device
which enables a court to randomly impose its sense of jus-
tice on a market place dependent on supply and demand in
arriving at contractual terms.
As I understand its opinion, the majority does not pur-
port to base its refusal to enforce the terms of the receipt
solely on the ground of its alleged adhesive quality. Rather,
* Insurance contracts are only one type of standard form con-
tracts which have become pervasive in recent years. This phe-
nomenon is thus described by Professor Slawson:
‘*Standard form contracts probably account for more than
ninety-nine percent of all the contracts now made. Most per-
sons have difficulty remembering the last time they contracted
other than by standard form; except for casual oral agree-
ments, they probably never have. But if they are active, they
contract by standard form several times a day. Parking lot
and theater tickets, package receipts, department store charge
slips, and gas station credit card purchase slips are all stand-
ard form contracts.
‘Moreover, standard forms have come to dominate more
than just routine transactions. For individuals, if not quite
yet for corporations, form contracts are in common use for
even such important matters as insurance, leases, deeds, mort-
gages, automobile purchases, and all of the various forms of
consumer credit. The contracting still imagined by courts
and law teachers as typical, in which both parties participate
in choosing the language of their entire agreement, is no
longer of much more than historical importance.’’ W. Slaw-
son, Standard Form Contracts and Democratic Control of
Lawmaking Power, 84 Harv.L.R. 529 (1971).
a
42a
the fact that an insurance contract is said to be adhesive
in nature is used to reach the startling conclusion that ‘‘the
insured is under no duty to read the policy,’’ Opinion of
the Court, ante at 1351. A consequence of this, in turn, is
that what governs the rights and duties of the parties inter
se are not the provisions of the document as written, but
‘‘the reasonable expectations of the insured,” id. at 1352;
that becomes ‘‘the important consideration’’ [id.], ‘‘the
focal point of the insurance transaction,’’ [id. at 1353. ]
Thus courts are adjured to examine the ‘‘dynamics’’ of
that transaction to ascertain the reasonable expectation
of the applicant. ‘‘The conclusion we reach here is not
determined by the language of the conditional receipt, but
by the dynamics of the transaction viewed in its entirety.’’
Opinion of the Court, ante at 1354. Those dynamics are
then found to be that the applicant ‘‘could reasonably
have believed’’ that the receipt ‘‘was what it purported to
be, viz., evidence of payment of the first two months pre-
mium, and nothing more.” We are left te infer the conse-
quence that the applicant reasonably expected that he was
obtaining immediate coverage.
I must confess that the strained argument of the major-
ity str kes me as a complete tour de force. While the doc-
trine of ‘‘reasonable expectations’? has found acceptance
and indeed has validity in some situations in insurance liti-
gation, it has no place in the case at bar. The idea of recog-
nizing ‘‘reasonable expectations’? of an applicant or an
insured does not mean that a claimant on a policy is en-
titled to every benefit imaginable within a contractual
framework. Rather, the approach is an equitable one, meant
to guard against the use of complex and confusing qualifi-
cations and exceptions by insurers to defeat the reason-
able expectations of the average layman entering into an
insurance transaction. See R. Keeton, Insurance Law
Rights at Variance with Policy Provisions, 83 Harv.L.R.
961 (1970). But, as Professor Keeton has noted:
43a
‘‘Thus, not only should a policyholder’s reasonable
expectations be honored in the face of difficult and
technical language, but those expectations should pre-
vail as well when the language of an unusual provi-
sion is clearly understandable, unless the insurer can
show that the policyholder’s failure to read such lan-
guage was unreasonable.
‘*TIt is important to note, however, that the principle
of honoring reasonable expectations does not deny the
insurer the opportunity to make an explicit qualifica-
tion effective by calling it to the attention of a policy-
holder at the time of contracting, thereby negating
surprise to him.’’ R. Keeton, supra at 968.
Here, contrary to the assertions of the majority, the appli-
cant was informed both that a physica] examination was
necessary and that the physical examination as well as
approval by the home office were prerequisites to coverage.
Thus, any expectations to the contrary could hard!y be
deemed reasonable.
In sum, in the insurance dispute at bar, there is nothing
whatever to suggest any fraud, deception or overreaching
on the part of Nationwide, and nothing to support the
position that the applicant could reasonably have enter-
tained any expectations other than those which the receipt
unambiguously set forth. I would affirm the order of the
courts below.
44a
APPENDIX E
SupreME Court or PENNSYLVANIA
Eastern District
No. 244 January Term, 1976
Kazuxo Co..ister, Appellant,
vs.
Nationwive Lire Insurance Company, Appellee.
Decided June 13, 1978
Reargument Denied July 21, 1978
Order
“July 21, 1978.
Petition denied.
Per Curiam.”
OE Ee ae ERS nO,
45a
APPENDIX F
SuPREME Court OF PENNSYLVANIA
No. 244 January Term, 1976
Kazuko Co.uister, Appellant,
VS.
Nationwipe Lire Insurance Company, Appellee.
Decided June 13, 1978
Reargument Denied July 21, 1978
Extracts from Appellee’s Petition for Reargument
[Filed June 26, 1978]
II. Pornts or Law anp Facts OveRLOOKED oR MISAPPRE-
HENDED By Your HonoraBLeE Court.
A. In its decision to direct the Court of Common Pleas
of Lycoming County to enter summary judgment in favor
of Appellant, without giving Appellee, Nationwide, the op-
portunity to present evidence, the Majority overlooked or
misapprehended the following points of law:
1. A person shall not be deprived of property with-
out due process of law. Constitution of the United
States, Amendment V....
46a
Ii. Statement or Reasons Retiep Upon For ALLOWANCE
oF REARGUMENT.
A. The Majority adopts new standards for the resolu-
tion of suits on insurance applications and receipts but the
direction to enter summary judgment in favor of Appel-
lant denies Nationwide the opportunity to present evidence
relevant to the newly adopted tests.
The majority opinion reverses the law of Pennsylvania
as set forth in Steelnak v. Knights Life Insurance Co., 423
Pa. 205, 223 A.2d 734 (1966) and Thomas v. Chesapeake Life
Insurance Co., 226 Pa. Superior Ct. 360, 313 A.2d 332
(1973), which required that suits on life insurance appli-
cations and receipts be decided by the language of the docu-
ments. The majority opinion adopts the standard that such
suits be resolved by “an analysis of the totality of the
transaction involved” (Slip Opinion at 17) and the “reason-
able expectation of the insured” (Slip Opinion at 18) as
determined by the “dynamics of the transaction viewed in
its entirety’’ (Slip Opinion at 20). The majority opinion
specifically states that its decision is not determined by
the language of the conditional receipt involved. (Slip
Opinion at 20).
Having adopted the new standards for the decisions of
suits on applications and receipts, the Majority holds that
Nationwide has “failed to establish by clear and convincing
evidence that Appellant’s husband could not have enter-
tained a reasonable expectation that Appellee was obli-
gating itself to provide insurance coverage beginning with
Appellee’s acceptance of the first premium payment” (Slip
Opinion at 20) and that Nationwide did not establish by
clear and convincing evidence that “their agent told the
decedent that he was paying money upon application for
insurance coverage that would not begin until successful
completion of the medical examination.” (Slip Opinion at
22).
eae ee ee ee ee
47a
The aforesaid determinations concerning the evidence
submitted by Nationwide, when applied to the new stand-
ards adopted by the Majority, may support the reversal of
the summary judgment in favor of Nationwide. These de-
terminations do not, however, nor do any factual determi-
nations contained in the record, support the direction by
the Majority that summary judgment be entered in favor of
Appellant.
At the time the record in this case was prepared, the
test of the “reasonable expectation of the insured” had not
yet been adopted by your Honorable Court. Consequently,
now that the Majority has adopted this new test, before
summary judgment should be entered against Nationwide
on the basis of the new test, Nationwide should be given the
opportunity to present evidence in support of the require-
ments of the new test. Dunn v. Merck & Co., Inc., 463 Pa.
441, 345 A.2d 601 (1975); Brubaker v. Reading Eagle Co.,
442 Pa. 63, 221 A.2d 190 (1966). To direct summary judg-
ment against Nationwide in the present posture of the
record without receiving evidence relevant to the newly
adopted tests, is to deny Nationwide due process of law.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.