Hilfiger v. Transamerica Occidental Life Insurance , 256 Va. 265 ( 1998 )

Present: All the Justices
JAMES A. HILFIGER
v. Record No. 980074 OPINION BY JUSTICE ELIZABETH B. LACY
September 18, 1998
TRANSAMERICA OCCIDENTAL LIFE
INSURANCE COMPANY
UPON QUESTIONS OF LAW CERTIFIED BY THE UNITED STATES
COURT OF APPEALS FOR THE FOURTH CIRCUIT
Pursuant to our Rule 5:42, the United States Court of
Appeals for the Fourth Circuit certified three questions of
Virginia law to this Court regarding the enforceability of a
life insurance policy. The questions involve the application
of Va. Code §§ 38.2-302 and -319. We accepted the questions
by order entered February 13, 1998.
The facts, as presented in the certification order, are
as follows. * On January 28, 1995, James A. Hilfiger (Hilfiger)
filled out an application for a life insurance policy with
Transamerica Occidental Life Insurance Company (Transamerica)
seeking insurance upon the life of his father, Paul L.
Hilfiger. On the application form, Hilfiger answered all
questions on his father's behalf, and where the form required
the "signature of proposed insured," Hilfiger signed his
father's name. Deborah C. Highsmith, a Licensed Resident
*
Because the federal district court granted summary
judgment in favor of Transamerica Occidental Life Insurance
Company, the facts are presented in the light most favorable
Agent of Transamerica, signed the application as a "witness to
all signatures." Highsmith knew that Hilfiger was signing the
application on behalf of his father.
Hilfiger's father did not see the life insurance
application, nor did he give Hilfiger written consent to sign
his name. However, Hilfiger claims that he spoke to his
father about the policy, and that his father gave him oral
authorization to take out the policy. The application named
Hilfiger as the sole beneficiary for the policy.
In May 1995, Hilfiger's father underwent a medical
examination in connection with the life insurance application.
At the medical examination, Hilfiger's father signed a form
entitled "PART II of an Application for Insurance to the
Transamerica Occidental Life." This form did not identify the
type of insurance applied for, who the proposed beneficiary
was, or the amount of coverage sought. Transamerica issued
the insurance policy on October 9, 1995.
On November 13, 1995, Hilfiger's wife, Donna C. Hilfiger,
became a broker for Transamerica. Shortly thereafter, she
executed an amendment to the insurance policy as a
Transamerica resident agent. As with the original
application, Hilfiger signed his father's name to the form.
to Hilfiger. United States v. Leak, 123 F.3d 787, 794 (4th
Cir. 1997).
2
Hilfiger's father did not see the document, but Hilfiger
asserts that he discussed the amendment with his father. Nine
days after the amendment was executed, Hilfiger's father
became ill. He died four days later on December 3, 1995.
Transamerica refused to pay the proceeds of the life
insurance policy. Hilfiger filed a motion for judgment
against Transamerica in the Circuit Court of the City of
Virginia Beach seeking the proceeds of the policy, additional
damages, and costs. Transamerica removed the case to the
United States District Court for the Eastern District of
Virginia and later filed a motion for summary judgment. The
federal district court granted Transamerica's summary judgment
motion, concluding that the execution of the policy did not
comply with Code § 38.2-302 and, therefore, was void.
Hilfiger appealed to the Court of Appeals.
In certifying the questions to this Court, the Court of
Appeals stated that the answers would be determinative of the
proceeding pending before it. We address the three questions
in order.
I.
The Court of Appeals first asks:
Whether the son's signing his father's name as
"proposed insured" violates Va. Code § 38.2-302,
where the son discussed the policy with his father,
had verbal authorization to apply for the policy,
and his father later submitted to a medical
3
examination and signed a form entitled "PART II of
an Application for Insurance to the Transamerica
Occidental Life?"
At common law, a policy of insurance taken out on the
life of an insured without the insured's knowledge or consent
by someone other than the insured was usually held void as
against public policy. 1 Bertram Harnett & Irving I. Lesnick,
The Law of Life and Health Insurance § 3.04[1][a] (1997). The
reason for this rule was the risk to the insured that a
beneficiary would be tempted to "hasten by improper means the
time when he will receive the benefits of the policy." Wood
v. New York Life Ins. Co., 336 S.E.2d 806, 809 (Ga. 1985);
Hopkins v. Hopkins, 614 A.2d 96, 100 (Md. 1992).
Code § 38.2-302(A) codifies this common law principle,
stating in pertinent part that:
No contract of insurance upon a person shall be
made or effectuated unless at the time of the making
of the contract the individual insured, being of
lawful age and competent to contract for the
insurance contract (i) applies for insurance, or
(ii) consents in writing to the insurance contract.
The statute provides the requisite protection for an insured
by identifying two alternative conditions for creating a valid
contract of life insurance. The specific conditions
identified by the General Assembly reflect an intent to
require unequivocal evidence that an insured approved the
creation of a contract of insurance on his or her life. With
4
this purpose in mind, we conclude that the facts in this case,
as recited in the certification order, do not establish proof
of either condition.
First, the evidence in this case, that Hilfiger's father
knew about the policy and orally authorized Hilfiger to apply
for the policy, does not constitute an application for the
policy by the insured as required by the statute.
At one time, the insured's knowledge of the policy alone
was sufficient to establish compliance with the requirements
of the Code. Former Code § 38.1-330, the predecessor to Code
§ 38.2-302, provided in relevant part that "[n]o contract of
insurance upon the person . . . shall be made or effectuated
unless . . . the individual insured . . . applies therefor,
has knowledge thereof, or consents thereto . . . ." In 1986,
however, the General Assembly eliminated the phrase "has
knowledge thereof," leaving the two current alternative
conditions as the only means of creating a valid contract of
life insurance. Acts 1986, ch. 562.
We also conclude, as Hilfiger acknowledges, that orally
authorizing another to take out a policy does not alone
constitute "applying" for the policy. If oral authorization
alone were enough to satisfy the application requirement, the
written consent alternative would be rendered superfluous.
5
Wren v. New York Life Ins. Co., 493 F.2d 839, 841 (5th Cir.
1974)(interpreting a similar statute).
Nevertheless, Hilfiger asserts that the application prong
of the section was satisfied in this case because his father
"materially participated" in the application process by
providing a medical history and submitting to a medical
examination. We disagree. "Material participation" in the
application process is not synonymous with applying for the
policy. As we have said, the purpose of the conditions
required for a valid contract of life insurance is to
eliminate any doubt that the insured knew about and agreed to
the issuance of the insurance contract. Here, providing
medical information in conjunction with the issuance of an
insurance policy did not reflect consent to the contract of
insurance.
For the same reason, we reject Hilfiger's contention that
his father's signature on the medical examination form
qualified as a consent in writing to the insurance contract.
The insured's signature on the medical form affirmed only that
the information provided on the form was correct. Although
the form itself stated that it was a part of an application
for insurance, it contained none of the terms of the contract.
It was not, and could not have been, a written consent "to the
insurance contract" as required by Code § 38.2-302.
6
For these reasons, we conclude that the facts of this
case do not satisfy either alternative required by Code
§ 38.2-302 for the creation of a valid contract of life
insurance. Accordingly, we answer the first question in the
affirmative.
II.
In the second certified question the Court of Appeals
asks:
Whether the insurance policy should be enforced
on behalf of the beneficiary despite the violation
of § 38.2-302, in light of Virginia Code § 38.2-
319's provision that "[a]ny insurance contract made
in violation of the laws of this Commonwealth may be
enforced against the insurer?"
We answer this question in the negative. If Code § 38.2-
319 required enforcement of a policy issued in violation of
Code § 38.2-302, the protection for an insured intended by
Code § 38.2-302 could never be realized, and Code § 38.2-302
would be meaningless. Code § 38.2-319 does not compel such a
result.
By its own terms, Code § 38.2-319 applies to a contract
of insurance which is "made" in violation of a law of the
Commonwealth. Code § 38.2-302 declares that if the statutory
requirements are not met, no life insurance policy can be
"made or effectuated." Thus, in the absence of compliance
with the provisions of Code § 38.2-302(A), no contract of
7
insurance is created, and any policy issued under those
circumstances must be void ab initio. Wood, 336 S.E.2d at
809, 811-12 (interpreting a similar statute). Contra Jackson
Nat'l Life Ins. Co. v. Receconi, 827 P.2d 118, 131 (N.M.
1992).
Here, no contract of life insurance was "made or
effectuated" because there was no compliance with Code § 38.2-
302(A). Therefore, Code § 38.2-319 does not require
enforcement of the insurance policy issued by Transamerica in
this case.
III.
Finally, the Court of Appeals asks:
Whether an insurance company can be estopped to
rely on § 38.2-302 because its agent knew about the
incorrectness of the signature on the application?
Estoppel is an equitable principle that prevents one
"whose action or inaction has induced reliance by another from
benefiting from a change in his position at the expense of the
other." Employers Commercial Union Ins. Co. of America v.
Great American Ins. Co., 214 Va. 410, 412, 200 S.E.2d 560, 562
(1973). Hilfiger argues that Transamerica should be estopped
from relying on Code § 38.2-302 to avoid payment on the life
insurance policy because it is charged with the knowledge of
its agents, both of its agents knew that the insured did not
sign the application form, and both agents failed to inform
8
Hilfiger of the consequences of that omission. This failure,
Hilfiger asserts, prevented him from taking the appropriate
corrective measures to secure a valid life insurance policy
for his father.
We have addressed the application of equitable estoppel
in the context of enforcing insurance policies against an
insurer. Id.; Reserve Life Ins. Co. v. Ferebee, 202 Va. 556,
118 S.E.2d 675 (1961); New York Life Ins. Co. v. Eicher, 198
Va. 255, 93 S.E.2d 269 (1956); Gilley v. Union Life Ins. Co.,
194 Va. 966, 76 S.E.2d 165 (1953). And, as Hilfiger points
out, we have applied the doctrine to enforce an insurance
policy based on imputing to the insurer its agent's knowledge
of false statements on the application. See Gilley, 194 Va.
at 974, 76 S.E.2d at 170. These cases all involved the level
of knowledge and complicity of both the agent and applicant in
supplying such false information. None of these cases,
however, involved consideration of whether the equitable
doctrine of estoppel should be applied in a manner which
negates a significant public policy codified by the General
Assembly.
Jurisdictions addressing that situation have not been
unanimous in their conclusions or rationales. One court
applied equitable estoppel based on the theory that the
statutory requirements for a valid life insurance contract
9
reflect a public policy to protect the insured and the
beneficiary, rather than to preserve the public order and
morals and, therefore, the statutory requirements can be
waived by the beneficiary. Adam Miguez Funeral Home, Inc. v.
First Nat'l Life Ins. Co., 234 So. 2d 496, 499 (La. Ct. App.
1970). Another court concluded that the failure to apply
equitable estoppel under these circumstances would allow
insurers to perpetrate a fraud upon policyholders by accepting
premiums on a policy, knowing that the policy was void from
the beginning. Holmes v. Nationwide Mut. Ins. Co., 244
N.Y.S.2d 148, 153 (1963).
In contrast, equitable estoppel has not been applied in
these circumstances on the theory that its application would
invite beneficiaries and insurers' agents to create a binding
contract of insurance on the life of another in direct
contravention of the policy addressed by the common law and
statutes in imposing requirements for a valid policy. Hunt v.
Pyramid Life Ins. Co., 732 S.W.2d 167, 169 (Ark. Ct. App.
1987); Time Ins. Co. v. Lamar, 393 S.E.2d 734, 735-36 (Ga. Ct.
App. 1990).
We are persuaded that the better rationale is not to
apply equitable estoppel to enforce a life insurance policy
issued in contravention of Code § 38.2-302. That statute was
not enacted for the protection of the beneficiary but to
10
protect the insured against potentially improper motives of
the beneficiary. Thus, contrary to the conclusion reached
elsewhere, we conclude that a beneficiary is not entitled to
waive the statutory requirements. As we have already stated,
applying Code § 38.2-319 to enforce a contract which Code
§ 38.2-302 renders void ab initio eliminates the very purpose
of the statute. To apply equitable estoppel in these
circumstances also:
would permit the unreasonable result that [the
conduct of an insurance company or its agent] would
breathe life into an insurance contract which the
General Assembly [for reasons of individual and
public protection] intended to have no life, and
would frustrate the strong public policy that no
contract for life insurance should be made unless
the insured applies for or consents in writing to
the contract.
Lamar, 393 S.E.2d at 736 (citing Wood, 336 S.E.2d at 812).
Accordingly, we answer the third certified question in
the negative.
First certified question answered in the affirmative.
Second certified question answered in the negative.
Third certified question answered in the negative.
JUSTICE KINSER, with whom JUSTICE KOONTZ joins, dissenting.
I would construe Code § 38.2-302(A) differently from the
majority and would, therefore, answer the first certified
question in the negative. I agree that the statute identifies
“two alternative conditions” for making a valid life insurance
contract, allowing a proposed insured either to apply for life
11
insurance or to consent to such a contract. However, as I
understand the majority’s position, a proposed insured’s oral
authorization combined with “material participation” in the
application process does not constitute “applying” for the
insurance contract. I disagree. 1
The part of Code § 38.2-302(A) at issue provides that no
life insurance contract is made or effectuated unless “the
individual insured . . . (i) applies for insurance, or (ii)
consents in writing to the insurance contract.” The statute
fails to define “applies;” therefore, the term must be “given
its ordinary meaning, given the context in which it is used.”
Dep’t of Taxation v. Orange-Madison Coop. Farm Serv., 220 Va.
655, 658, 261 S.E.2d 532, 533-34 (1980). “The context may be
examined by considering the other language used in the
statute.” City of Virginia Beach v. Bd. of Supervisors of
Mecklenberg County, 246 Va. 233, 236-37, 435 S.E.2d 382, 384
(1993).
Examining the language chosen by the legislature, I find
it significant that the phrase “in writing” appears after the
disjunctive “or” and immediately following “consents” and that
the two phrases, “applies for insurance” and “consents in
1
Notably, the majority states only what action is
insufficient to apply for a life insurance contract and fails
to delineate or define specifically the requirements necessary
to apply for insurance under Code § 38.2-302(A).
12
writing,” are separately identified by the designations “(i)”
and “(ii).” As a general rule, “proper grammatical effect
will be given to the arrangement of words in a sentence of a
statute,” Harris v. Commonwealth, 142 Va. 620, 624, 128 S.E.
578, 579 (1925), and a presumption exists that the General
Assembly understood basic rules of grammar when drafting the
statute. Frere v. Commonwealth, 19 Va. App. 460, 464, 452
S.E.2d 682, 685 (1995). Fundamental rules of grammar require
the placement of a phrase so as to indicate clearly what the
phrase modifies. John C. Hodges et al., Harbrace College
Handbook 249 (12th ed. 1994).
Applying this rule to Code § 38.2-302(A), the phrase “in
writing” modifies “consents,” the word immediately preceding
the phrase, and does not modify “applies.” But see Alleman v.
Lincoln Nat’l Life Ins. Co., 636 F.2d 1195, 1196 (10th Cir.
1981) (holding that writing provision in Utah statute, which
states that “[n]o life . . . insurance contract . . . shall be
made . . . unless . . . the individual insured . . . in
writing applies therefore [sic] or consents thereto,” modifies
not only “applies” but also “consents”). By choosing not to
modify “applies” with the phrase “in writing,” the General
Assembly intended not to restrict the method by which an
individual can apply for insurance. See Forst v. Rockingham
Poultry Mktg. Coop., Inc., 222 Va. 270, 278, 279 S.E.2d 400,
13
404 (1981) (“When the General Assembly uses two different
terms in the same act, it is presumed to mean two different
things.”). Moreover, when the General Assembly has intended
for a proposed insured to apply for insurance in writing, it
has so stated. See Code § 38.2-3737(A) (“No contract of
insurance upon a debtor shall be made or effectuated unless
. . . the debtor . . . applies for the insurance in writing
. . . .”). Thus, the General Assembly knows what language to
use when it wants to condition the making of an insurance
contract upon submission of a written application.
Therefore, in my view, under the provisions of Code
§ 38.2-302(A), consent to an insurance contract must be in
writing, but the act of applying for insurance is not confined
to any particular form. In other words, the mode of applying
for a life insurance contract is not limited to a written
application personally signed by the proposed insured. Accord
Walker v. Jackson Nat’l Life Ins. Co., 20 F.3d 923, 924-25 (8th
Cir. 1994) (holding that insured can apply for insurance
without signing application). 2
2
An example of a statute that plainly requires a
written application signed by the insured is Mass. Gen. Laws
Ch. 175, § 123 (1998). This section states that “[n]o life
company shall issue any policy of life or endowment insurance
. . . except upon a written application therefor signed or
assented to in writing by the person to be insured . . . .”
14
While rules of grammar are not permitted to defeat the
purpose of a statute, Harris, 142 Va. at 624, 128 S.E. at 579,
construing “applies” to denote more than the narrow meaning of
an application signed by the proposed insured does not thwart
the common law principle that Code § 38.2-302(A) embodies. A
proposed insured’s signature on an application form is not
critical to proving that the individual applied for insurance
if other facts evidence the proposed insured’s intent to
apply. See Walker, 20 F.3d at 925 (finding that signature of
insured on insurance application was not crucial to proving
his knowledge of policy and identity of beneficiary); Crump v.
Northwestern Nat’l Life Ins. Co., 236 Cal. App. 2d 149, 155
(1965) (holding insured’s signature not essential where
insured’s agent prepared application and insured later
ratified insurance contract). In other words, if the facts
show that the proposed insured acted with the purpose of
obtaining life insurance, then no risk exists of “allowing one
person to have insurance on the life of another without the
knowledge of the latter.” Walker, 20 F.3d at 925.
In the instant case, the actions of Hilfiger’s father
show that he applied for insurance as contemplated by the
provisions of Code § 38.2-302(A). Because the district court
granted summary judgment to Transamerica, the facts and
inferences must be construed in the light most favorable to
15
Hilfiger. United States v. Leak, 123 F.3d 787, 794 (4th Cir.
1997). See also Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 249 (1986) (“at the summary judgment stage the judge’s
function is not . . . to weigh the evidence and determine the
truth of the matter”). The facts show that Hilfiger orally
discussed the policy with his father and that the father
verbally authorized his son to obtain the policy. As the
United States Court of Appeals for the Fourth Circuit stated
in its certification order, “we can infer that the insured
father ‘authorized’ Hilfiger to sign for him and provided the
answers which Hilfiger filled in on the application forms.”
Moreover, the father underwent a medical exam during which he
signed a form titled “Part II of an Application for Insurance
to the Transamerica Occidental Life.” Thus, the evidence
shows not only oral authorization, but also undisputed overt
actions on the part of the father that not only corroborate
his oral authorization but also establish his participation in
the application process. This is not a case of mere oral
authorization, which, as the majority observed, would render
the written consent alternative superfluous.
Given these facts, I conclude that Hilfiger’s signing his
father’s name as the “proposed insured” does not violate Code
§ 38.2-302. As the majority stated, “[T]he purpose of the
conditions required for a valid contract of life insurance is
16
to eliminate any doubt that the insured knew about and agreed
to the issuance of the insurance contract.” That purpose is
fulfilled in this case.
Accordingly, for these reasons, I dissent. 3
3
Because I would answer the first certified question in
the negative, I need not address the remaining two questions.
17