Stonsz v. Equitable Life Assurance Society of the United States , 324 Pa. 97 ( 1936 )

I cannot concur in the majority opinion unless the law gives me the authority to rewrite the contract between the two parties to this suit and that authority the law gives to nobody. It is one of the oldest established principles of law that in order for a contract to come into being between two parties, the acceptance of an offer must be identical with the offer. As the principle is stated in 6 R. C. L., page 608, section 31: "There must be no variance between the acceptance and the offer." (Citing numerous cases.) 13 C. J., page 281, section 86, expresses the same principle in this language: "An acceptance to be effectual must be identical with the offer and unconditional. Where a person offers to do a definite thing, and another accepts conditionally or introduces a new term intothe acceptance [italics supplied], his answer is either a mere expression of willingness to treat or it is a counter-proposal,and in neither case is there an agreement [italics supplied]," (citing cases from 40 American jurisdictions, including Pennsylvania and the United States, and from five foreign jurisdictions, including England). In Jaxtheimer v. SharpsvilleBoro., 238 Pa. 42, 57, 85 A. 994, this court adopted the language of the last quotation as a correct statement of the law.

The majority opinion treats appellee's bid or offer for insurance as a severable one. It says: "Although he [the appellee] was not accepted as insurable for double indemnity, he was never rejected for disability coverage. The company by issuing the policy expressed its acceptance of appellee as insurable against disability on the terms thereincontained [these italics appear in the majority opinion]." There is not the slightest warrant or grounds for the assumption that the applicant made two offers or bids for insurance, one for "disability coverage" and one "for double indemnity" and yet that unwarranted assumption is the foundation of the majority opinion. If such assumptions can be judicially read into offers, the rule heretofore so universally respected, that an acceptance to be effective must be identical with the offer, will become meaningless verbiage and the entire law of contracts will soon reach a state of "confusion worse confounded." If that is to be the rule, A can offer to sell B two automobiles for $5,000 and if B replies, "I will take one at $2,500, a contract immediately springs into being between A and B for the purchase and sale of one automobile for $2,500, provided some court interprets A's offer as a "severable one."

The majority opinion says: "The offer [of appellee] was for a contract of insurance with severable provisions for death, accidental death and disability." If by "severable provisions" is meant that the offer for insurance consisted of three distinct or severable offers, the answer is that this is not so. If A says to an insurance company, "I want you to insure my house, my furniture and my garage" and the insurance company replies: "We will insure your home, but not your furniture and your garage," no contract has come into being between the parties. The offer in that case was not "severable" though the contract of insurance applied for, if granted, would contain distinct provisions for different coverages. If A applies for insurance on his house for $5,000 but for double that amount in case the house is destroyed by lightning, and the company tenders him a policy for $5,000, without the provision for double liability in case of destruction by lightning, no contract is consummated until A accepts the company's "counter offer" of the $5,000 policy without double indemnity in case of destruction of the property by lightning. It is scarcely necessary to cite authority for the proposition that if a policy issued by an insurance company varies from the policy applied for, no contract of insurance between the parties comes into being until the policy issued, which is in legal effect a counter-proposal, is accepted by the applicant. If authority is called for, see White v. Empire State Degree of Honor, 47 Pa. Super. 52, and Mutual Life Ins. Co. v. Young, 90 U.S. 85. In the former case the Superior Court of this State said: "The latter document [policy] contained conditions not embraced in the application and which affected the liability of the company and the character of the insurance. It is evident therefore that the relation between the defendant and the plaintiff's husband did not become that of insurer and insured until the assent of the latter was evidenced by the acceptance and retention of the certificate without objection." In the latter case, the Supreme Court of the United States said: "The receipt of the 5th of June was the initial step of the parties. It reserved the absolute right to the company to accept or reject the proposition which it contained. There was a necessary implication, that if it were accepted the response and acceptance were to be by a policy, in conformity with the terms specified in the receipt. . . . The applicant assented to the proposition contained in the receipt, but the company did not. . . . The mutual assent, the meeting of the minds of both parties, is wanting. Such assent is vital to the existence of a contract. The requisite assent must be the work of the parties themselves. The law cannot supply it for them. That is a function wholly beyond the sphere of judicial authority."

In the instant case when the applicant received the policy dated July 6th and accepted it, there first came into being a contract of insurance between him and the company. The receipt dated June 28, 1927, cannot avail plaintiff for it vouchsafed him insurance from that date only on condition, i. e., "provided the applicant is on this day, in the opinion of the Society's authorized officers in New York, an insurable risk under its rules." This condition was never complied with. The applicant was accepted as a "risk" which the company would insure by the type of policy it issued to him in July but not such a "risk" as it would insure by the type of policy applied for. An applicant might be a good "insurable risk" from a medical standpoint but by reason of the hazards of his employment he might be an undesirable "risk" for a company to insure against death, with a double indemnity provided for in case he came to his death through accidental means. For example, aviators though possessed of good health are not "good insurable risks." In the instant case the applicant was never accorded by the defendant the status of "an insurable risk" under a policy containing a double liability clause. In other words, his employment as a miner made him a risk that defendant would not insure under the kind of policy he requested. The company was willing to accept him as "an insurable risk" only under the kind of policy it delivered to him on July 11th. Furthermore, the receipt also stated that the insurance "shall take effect as of the date of this receipt, provided . . . the application is otherwise acceptable on the plan and for the amount and at the rate of premium applied for." The fact is the application was not so "acceptable on the plan and for the amount and at the rate of premium applied for." If by "plan" is merely meant a twenty payment life plan, that condition was complied with, and if by "amount" is merely meant the face amount of the policy, that condition was complied with. But the policy applied for was a policy on his life "for $10,000 . . .with double accident," and at a certain rate. The company refused to issue him such a policy. The policy applied for required a semi-annual premium of $223.19. The policy the company executed on July 6th and delivered on July 11th was for a different premium. When an "acceptance" of an offer varies from the offer as to "price," no contract comes into being. See 13 C. J., page 282, and Minneapolis Ry. Co. v. Columbus RollingMill Co., 119 U.S. 149. Even if the argument that applicant's offer was severable was a valid one (which it decidedly was not), the change in the premium named in the "offer" and the premium specified in the "acceptance" or, correctly speaking, the counter-offer, shows there was no meeting of the minds on the June 28th "offer" and hence no contract was ever entered into embodying the terms of that offer.

Plaintiff in this case had, of course, the burden of proof, and, before he could recover, it was incumbent upon him to prove that the conditions of the receipt had been complied with, to wit, that he was on June 28th such "an insurable risk" that the company later approved his application for the insurance applied for. This he failed to do. If the receipt which had been given the plaintiff on June 28th had been anunconditional "binding receipt," he would have an enforceable contract against the defendant, but the receipt given him was aconditional one and it is well settled that "if the receipt is so conditioned that no liability shall attach until the principal approves the risk, the acceptance is merely conditional, and is subordinate to the act of the company in approving or rejecting. Also, in life insurance a binding slip or receipt does not insure of itself, but when properly executed it protects the applicant against sickness or changes in health pending acceptance, if the risk is finally accepted, although, if the risk is validly refused, the slip ceases eo instanti to have any effect. And a receipt for a life insurance premium which states that if the application is approved the insurance will be in force from the date of the medical examination does not put insurance in force, pending a decision upon the application. [Citing Northwestern M. L. Ins. Co. v. Neafus,145 Ky. 563, 36 L.R.A. (N. S) 1211, 140 S.W. 1026]": Couch's Cyclopedia of Insurance Law, vol. 1, sec. 91, pp. 164-5.

As the record stands, plaintiff on June 28th applied for a certain type of life insurance policy. On July 6th the company refused to give the applicant the policy applied for and on July 11th it tendered him a different policy. This the applicant accepted. This policy went into effect on July 11th,for the date a contract goes into effect is the date it isexecuted, delivered and accepted unless it expressly providesotherwise. The majority opinion says: "It must be noted that the original offer named June 28th as the date at which the coverage should commence." The fact is, as the record shows, the appellee applied for insurance on that date and the receipt given him declares that the insurance shall go into effect on that date only if the precise policy applied for is issued. The policy applied for was never issued. Therefore, the insuranceapplied for never went into effect. A counter-offer in the form of a different kind of policy was on July 6th made the appellee and accepted by him on July 11th. The novel argument is made in the majority opinion that June 28, 1927, must be the effective date of the policy executed July 6, 1927, because "where a counter-offer is made changing some of the terms of the original offer, those terms which are not expressly altered are presumed to be the same: See Gray v. Foster Mahon, 10 Watts 280; Cosgrove v. Wodward, 49 Pa. Super. 228. Therefore the alleged counter-offer made by appellant and accepted by appellee, since it did not provide a new effective date, adopted the date of the previous offer by incorporation." The fallacy in this argument is obvious. In his "offer" of June 28th appellee asked for a certain specific kind of insurance policy. By making the offer on June 28th the implication was that he wished the policy, if issued, to go into effect on that date. The agent of the company gave a receipt which specifically declared that the policy would go into effect on that date only if the offer wasaccepted as made. It was not so accepted. A counter-offer was made in July and it carried also an implication of exactly the same force as the implication of appellee's "offer" of June 28th, to wit, that the policy counter-offered in July would go into effect on the date of its execution, if accepted by appellee. It was so accepted on July 11th. The two cases referred to in the above quotation from the majority opinion, instead of supporting the position they were cited to support, actually undermine it. In Gray v. Foster Mahon, above cited, the offeree added a material modification to the contract submitted before he signed it; the paper thus altered was taken and acted on by the offeror. It was held that he agreed to the modification. In the instant case, the offeror (the appellee) was not given a policy dated June 28th; he was given a policy executed July 6th, 1927, and which provided for semi-annual premiums to be paid July 6th and January 6th of each year. July 6, 1927, was in law the policy's effective date, unless it was otherwise specified and it was not otherwise specified. InCosgrove v. Woodward, cited by the majority opinion, the Superior Court simply held that when defendants cabled plaintiffs: "We confirm the purchase," it "completed the contract" and was not affected by later cables. In other words, as soon as the minds of the parties met, a contract between them came into being. In the instant case, the minds of the parties did not meet, until the insurance company tendered the appellee a policy different from the one he applied for, and executed July 6, 1927, and the appellee accepted it. Then and not until then was appellee "covered" by appellant's policy of insurance.

On June 30th, when plaintiff was injured, there was no policy in effect between himself and the defendant. The receipt dated June 28th only provided in substance that the policy, if any, to be issued to the applicant would go into effect on June 28th if certain things happened. These never happened. Therefore the insurance did not take effect as of the date of June 28, 1927.

The majority opinion lays great stress upon the fact that the applicant paid the agent the premium called-for by the insurance policy applied for. It needs but little reasoning and no citation of authority to show that an offer to buy something, accompanied by a deposit of the price one is willing to pay for that something, does not obligate the offeree to accept the offer and enter into contractual relations with the offeror. A valid sales contract can be entered into without the actual payment of any price and conversely the payment of a "price" does not make a contract until the offer which the price accompanies is accepted. If A offers to buy a home from B for $1,000 and deposits $1,000 with B, the deposit does not "close the contract." The receipt issued by the agent, in the instant case, to the applicant states as distinctly as is possible in language, that the "semi-annual premium of $223.19" was received only on "proposed insurance," for which an "application" was made, and that the insurance applied for would take effect "as of the date of this receipt" "provided the applicant is on this day in the opinion of the Society's authorized officers in New York, an insurable risk under its rules and the applicant is otherwise acceptable [1] on the plan, and [2] for the amount, and [3] at the rate of premium applied for; otherwise the payment evidenced by this receipt shall be returned on demand. . . ." That receipt made it crystal clear to the holder of it that his payment of the semi-annual premium was not a finality and did not put into effect on June 28, 1927, any insurance on the applicant until his application had been accepted by the home officers of the company, precisely on the terms he applied for. While the applicant was not "covered" by insurance while the officers of the company were deliberating as to whether or not they would accept his application in all its terms, his payment of the semi-annual premium on June 28th would bring him some benefit if the application was later accepted and the effective date then made June 28, 1927. That earlier effective date would form an earlier basis for computing the surrender and loan values of the policy, and if his "age rating" changed during the period intervening the date of application and the date of acceptance, he would obviously benefit by the earlier effective date. But whether he benefited or not, his payment of the semi-annual premium on June 28th could not bind the company to insure him on that date unless the company agreed so to be bound and that it did not do, as we have pointed out, except on conditions which remained unfulfilled.

The majority opinion twice cites, in support of its conclusion that the receipt in the instant case effected temporary insurance from its date, the case of De Cesare v.Metropolitan Life Ins. Co., 278 Mass. 401, 180 N.E. 154. That case wholly fails to sustain the majority position. In that case a receipt was issued to the applicant acknowledging the payment of premiums, which would be returned to him "(a) if application is declined, or (b) if a policy is issued other than as applied for and applicant declines to accept it." The receipt also states: "No insurance is in force on such application unless and until a policy has been issued thereon and delivered in accordance with the terms of such application except that when such advance payment is equal to the full first premium on the policy applied for and such application is approved at the Home Office of the Company for the Class Plan and Amount of insurance and at the rate of Premium as so applied for, then the amount of insurance applied for will be in force from this date, but no obligation is assumed by the company unless and until such application is so approved." Theapplication was approved during the lifetime of the applicant at the home office for the class plan and amount of insurance and at the rate of premium so applied for. Approval followed interms of the receipt, and therefore, of course, under the terms of the contract assented to by both parties, the insurance was held to be effective from the date the receipt bore. In the instant case the company refused to issue the policy applied for and therefore the condition subsequent which and only which would have clothed the receipt with the status of an insurance protection to the applicant from June 28, 1927 (its date), never attained fulfillment.

Nor does the case of Albers v. Security Mutual Life Ins. Co.,170 N.W. 159 (S.D.), cited in the majority opinion, support the position it is invoked to support. The "binding receipt" in that case contained no "proviso" at all in any way similar to the express proviso in the present case. On the contrary, paragraph 4 of the application read as follows: "That the company shall incur no liability under this application until it has been received and approved and a policy has been issued thereon, not until the premium has actually been paid to and accepted by the company, or its authorized agent during my life and good health notwithstanding any recital of such payment in the policy itself; provided that when the premium has been paid in advance to an authorized agent of the company and the company's binding receipt has been given by such agent the liability of the company shall be as stated therein." The last clause of this application plus the company's "binding receipt" given the applicant, showed that a contract for temporary insurance coverage had been entered into.

Reynolds v. Northwestern Mutual Life Ins. Co., 189 Iowa 76,176 N.W. 207, is also cited in the majority opinion. In that case the receipt issued to the applicant incorporated the following items of the application: ". . . (2) that if the amount of such premium is paid to the said company's agent at the time of making this application the insurance (subject to the provisions of the said company's regular form of policy for the plan applied for) shall be effective from the date of my medical examination therefor and such a policy shall be issued and delivered to me or my legal representatives, provided the said company in its judgment shall be satisfied as to my insurability, on the plan applied for, on the date of such medical examination; and (3) that if said company shall not be so satisfied the amount of the premium paid shall be returned." The court declared that the receipt would be binding from its date if the applicant was found to be an insurable risk as of the date of his examination. Those were the terms of the agreement and when the company found that the applicant was not an insurable risk as of that date, the application was properly rejected. The applicant having died before any policy was issued, it was held that at the date of his death he was not "covered" by the insurance applied for.

The case of Starr v. Mutual Life Ins. Co. of New York,41 Wn. 228, 83 P. 116, is no authority for the position the majority take. In that case a "binding receipt" was issued on payment of the first premium which was to make the insurance effective from the date stated thereon "provided this application shall be approved and the policy duly signed by the secretary at the head office of the company and issued." The policy was actually returned to the agent for delivery but the applicant having died before approval, the agent refused to deliver the policy. The court held that a binding contract of insurance was operative between the parties, for the applicant had been adjudged by the company's officers as an insurable risk and a policy had been issued to him. Nothing remained to be done by the company. The agent had been directed to make manual delivery of the policy to the insured. That he had failed to do so did not alter the fact that a valid contract of insurance existed between the company and the applicant.

In Hart v. Travelers' Ins. Co., 236 App. Div. (N.Y.) 309, 258 N Y Supp. 711, also cited in the majority opinion, the company, in its "binding receipt" issued to the applicant, declared that "such insurance shall be in force from the date of this receipt" but reserved the right to disapprove such application. The applicant died the day after the issuance of the receipt and before the company had manifested any disapproval of the application. It was held that under the facts of that case the insurance was in effect at the time of the applicant's death. That case differs from the one at bar in that the language of the two respective receipts differed widely and in the instant case the receipt clearly set forth that the policy applied for would go into effect June 28, 1927, only upon certain conditions subsequent, and these, as is undisputed, were never fulfilled.

I have not found in the court reports of any jurisdiction a single judicially sanctioned departure from the rule that payment of the first premium on a policy of insurance and the giving by the company's agent of a conditional receipt does not protect the applicant with insurance from that date unless apolicy is issued in exact accordance with the application or unless temporary coverage is expressly provided for in the receipt. No such temporary coverage was provided for in the instant case. When a policy issued differs from the policy applied for, insurance takes effect from the date the substitute policy offered is accepted by the applicant. InState ex rel. Equitable Life Assurance Society v. Robertson, 191 S.W. 989, the form of receipt given was identical with the form given in the instant case. There the Supreme Court of Missouri said: "What was Kempf's proposition to the company? An application for insurance . . . on the plan stated in his written application; and the receipt given by the latter . . . provides that it is to take effect as of its date, but only upon condition [the same as in the instant case]. . . . The company rejected Kempf's application for the insurance on the terms as presented to it, and made a counter proposition to him. . . . The contract of insurance [evidenced by the receipt] was conditional, depending upon the company's acceptance of his as an insurable risk, and its approval of his application for the insurance aspresented to it by him [italics supplied]." To the same effect are the decisions and opinions in the following cases:Gonsoulin v. Equitable Life Assur. Soc., 152 La. 865,94 So. 424; McNicol v. New York Life Ins. Co., 149 Fed. 141;Ætna Indemnity Co. v. Crowe Coal Mining Co., 154 Fed. 545; MacKelvie v. Mutual Ben. Life Ins. Co., 287 Fed. 660;Cooksey v. Mutual Life Ins. Co., 73 Ark. 117, 83 S.W. 317; Longv. New York Life Ins. Co., 106 Wn. 458, 180 P. 479; NewYork Life Ins. Co. v. McIntosh, 86 Miss. 236, 38 So. 775; Fieldv. Missouri State Life Ins. Co., 77 Utah 45, 290 P. 979;Marks v. Hope Mutual Life Ins. Co., 117 Mass. 528; and Haynesv. Midland Natl. Life Ins. Co., 60 S.D. 212, 244 N.W. 110.

The circumstance that the application signed on June 28th was attached to the policy executed July 6th, does not affect the fact that the policy delivered was not the policy applied for. The application was attached to the policy because the data it contained served an important function in bringing about the contractual relation which in July came into being. The "mind" of the applicant on June 28th was not "met" by the "mind" of the insurer on July 6th. The only meeting of the minds of the respective parties was when the applicant accepted the insurance policy tendered him on July 11th. That policy's effective date could not, unless it was therein expressly provided, be earlier than the date it bore, to wit, July 6th, 1927. Under that policy plaintiff can recover nothing for injuries he received six days before it was executed.

There is nothing ambiguous in the receipt issued to plaintiff on June 28, 1927. In unmistakable language that receipt declared that insurance should take effect on that dateif the applicant was a "risk" that defendant's authorized officers in New York would accept for the kind of policy applied for and provided that the application is otherwise acceptable on the plan and for the amount and at the rate of premium applied for. These conditions were not met. The situation is exactly as though the company had said to the plaintiff: "If we give you the precise policy you ask for, its effective date will be June 28, 1927; if we tender you a different kind of policy and you accept it, its effective date will be the date it bears." The company did not give him the policy he asked for; it gave him a different policy, dated July 6, 1927. That was its effective date. The policy expressly provided that its semi-annual premiums should commence July 6, 1927. When plaintiff accepted this policy that was the first time the minds of the parties to this negotiation had come to a concurrence upon the precise stipulations of a definite contract of insurance. Unfortunately plaintiff was injured before the policy went into effect. If he had been injured after the policy went into effect, no one would question the fact that the effective date of the policy was July 6th. For example, if the policy in question were a ten-year "term policy" and plaintiff received an injury on June 30, 1937, he would clearly be within the coverage of the policy and could successfully resist any contention that the policy went into effect June 28, 1927, and therefore expired on June 28, 1937, two days before the supposed 1937 accident giving rise to his claim.

It is true that we have recognized the rule that "if doubt exists as to the meaning of the language used in an insurance policy, it should be resolved in favor of the insured" (Levinton v. Ohio Farmers Ins. Co., 267 Pa. 448, 110 A. 295), but as this court well said in Urian v. Scranton Life Ins. Co.,310 Pa. 144, 151, 165 A. 21: "In a number of cases elsewhere, the court created the 'doubt' by a species of argument which would not be tolerated in any other kind of contract, and then, having thus found the 'doubt,' resolved it 'in favor of the insured.' . . . A rule which is paramount [is], 'where language is clear and unambiguous it cannot be construed to mean otherwise than what it says.' . . . Our judicial system provides for an interpretation of contracts made by the litigants, and not to the making of contracts for them."

The language of the conditional receipt pleaded by plaintiff as the foundation of his claim is clear and unambiguous. Our function is to interpret it, not to attempt to re-write it for either party's benefit. In my judgment, the only interpretation of which it is logically and grammatically susceptible, legally bars plaintiff's recovery.