Moore v. Palmetto State Life Ins. Co.

Oxner, Justice.

In an action to recover the amount of a policy of accident insurance applied for by her husband in which she was to be named as beneficiary, respondent was awarded judgment against appellant insurance company for $1,000.00. The major question for determination is whether the evidence is sufficient to sustain the judgment.

On March 3, 1951, respondent applied to one of appellant’s agents for a policy of accident insurance on her life and also submitted an application for a similar policy for $1,000-.00 on the life of her husband, who was a truck driver engaged in long distance hauling. Each application was accompanied by a deposit of 20‡ for which receipt was given, wherein it was stated:

“It is understood that this deposit will be returned if the application is not approved by the company.”

The insurance company offered testimony to the effect that the application for the policy on the life of respondent’s husband was declined on March 19, 1951, because he was engaged in a hazardous occupation, and that notice to that effect was sent to the district office with direction to notify the applicant of the rejection and refund the deposit. One of the agents also testified that about six weeks later, respondent was notified of the rejection of her husband’s application and there was tendered to her the deposit of 20‡.

The foregoing testimony of the agent was denied by respondent who testified that she was never notified of the rejection of the application until after her husband was accidentally killed on June 3, 1951. Her testimony as to what transpired after the filing of the application on March 3, 1951, was as follows:

“The next time I saw an. agent of Palmetto State Life Insurance Company was five weeks later. Mr. Newell came to my house collecting on some life insurance I already had and on a policy like that on myself. He brought my policy back that day.

“Q. Now what was said, if anything, in regard to the policy for which this application was written? A. I asked him where was my husband’s policy like mine, did it not come back. Pie said, ‘No, I haven’t heard anything from it, but I’m not sure whether it will go through or not. We just wrote worlds of them and haven’t had time to get them all back.’

“Q. We wrote worlds of them and I have not had time to get them all back. Was anything else said with regard to that policy on that date? A. Except that I asked him did he want to just put that on my premium or let it stand. He said to let it stand and in a few days he’d see.

“Q. When was the next time that you transacted with anyone ? A. It was five weeks because at the time I took out this policy I only had a small life insurance policy and they only collected every five weeks.

“Q. What was said at that time with regard to your policy, the policy in question here, the one for which application was given? A. I asked him that day if my husband’s policy had come in. He said it didn’t. I said, ‘Do you want to put it on my premium?’ He said, ‘Let it stand. There was some policies came in. I’m pretty sure it might have come in that bunch.’ I told him my husband said that if it wasn’t going through, he wanted to take out the insurance with another company. He said, ‘I’ll let you know in a few days.’

“Q. Did he let you know ? A. No, he did not.

“Q. When was the next time you saw or heard anything from the agent of the Palmetto State Life Insurance Company? A. On Saturday morning after my husband was buried the Monday morning.

“Q. When was your husband killed? A. June 3rd.

“Q. You heard from them on what day? A. Saturday morning following that.

“Q. Who came to see you? With whom did you talk? A. I don’t remember his name. At that time I was in the bed. My niece went to the door. She told me it was the Palmetto Insurance agent.

“Q. Did you hear the conversation? A. Yes, I heard him tell her he was collecting for the Palmetto State Life Insurance Company. She came into the house and told me and I gave her the money. I told her that before you say anything to him about his being dead, unless he mentions it to you about the policy, first, you ask him did he bring the policy before you tell him he is dead. She went back and asked him. Pie told her to tell me that Mr. Newell wasn’t with the company any more, the man that wrote the policy. He would have the manager to come to see me about it Monday morning.

“Q. What happened then? A. Instead of waiting until Monday morning, he left and was gone about 30 minutes and comes flying in there with a statement saying my husband was turned down because of being a truck driver at the time he took that out.”

Timely motions were made by appellant for a nonsuit and a directed verdict upon the ground that no policy was ever issued. These motions were refused and the case submitted to the jury, resulting in a verdict for respondent in the sum of $1,000.00. Thereafter the trial Judge likewise refused a motion by appellant for judgment non obstante veredicto.

Considering the testimony, as we must in the light most favorable to respondent, we have this situation:

Application for the policy was made on March 3,1951. Although appellant contends that it did not write accident policies on long distance truck drivers and its agents had been so instructed, respondent was not notified of this fact and the application was not rejected until March 19th, or about sixteen days after it was received. About three weeks after this rejection, upon inquiry by respondent as to the status of the application, the agent said that he had not “heard anything from it”. Respondent then asked what should be done with the premium deposit, and was told by the agent “to let it stand and in a few days he’d see.” About two or three weeks prior to the death of her husband, respondent again inquired as to whether the policy had been issued and was advised by the agent that some policies had come in and that he was “pretty sure it (the policy) might, have come in that bunch.” Respondent then told him that her husband had said that if the application “wasn’t going through, he wanted to take out the insurance with another company”, to which the agent replied: “I will let you know in a few days”. Respondent heard nothing further until after the death of her husband when she was notified that the application had been rejected and was tendered the deposit of 20‡.

It must be conceded that there is no evidence of formal acceptance of the application or the issuance of a policy by appellant. The crucial questions are whether there was an implied acceptance and whether the circumstances are such as to estop appellant from asserting that there was no contract of insurance.

“An application for life insurance is a mere offer or proposal and until accepted, no contractual relationship exists between the applicant and the insurance company.” Keller v. Provident Life & Accident Ins. Co., 213 S. C. 339, 49 S. E. (2d) 577, 582. In order to constitute a contract, there must be “either an actual acceptance, or such circumstances as may imply acceptance, or estoppel from denying acceptance.” McGrath v. Piedmont Mutual Insurance Co., 74 S. C. 69, 54 S. E. 218, 220. “Contracts may be implied from circumstances as well as by written papers and oral agreement, and insurance contracts are no exception to the rule as numerous cases, textbooks, and digests clearly attest.” Reck v. Prudential Insurance Company of America, 116 N. J. L. 444, 184 A. 777, 778.

“There is a conflict in the authorities as to whether legal obligations arise only after a contract of insurance has been made, or whether in certain circumstances a legal duty arises, from the relationship created during the negotiations between an applicant for insurance and the insurance company, to act promptly upon the application, and to inform the applicant whether the offer is accepted or rejected.” Bekken v. Equitable Life Assurance Society of United States, 70 N. D. 122, 293 N. W. 200, 209. This decision contains an extended review of the cases. According to one view, mere delay or inaction, however unreasonable, by an insurance company in acting upon an application cannot afford a basis of liability. The authorities supporting this view state that insurance companies are under no duty to act upon applications, or to accept or reject them within a reasonable time. It is said that if there is no contract, there is no duty. One of the leading cases supporting this view is Munger v. Equitable Life Assurance Society of United States, D. C., 2 F. Supp. 914. The other view is that an insurance company is under a legal duty to take prompt action on an application for insurance and give timely notice to the applicant of its action, particularly where a deposit on the premium has been made, and that under certain circumstances an insurance company may incur liability for negligent delay in acting upon an application or in failing to notify the applicant after his application is rejected.

In Insurance Law and Practice by Appleman, Volume 12, Section 7226, it is stated:

“The more liberal, and probably the better rule, is to the effect that an insurance company obtaining an application for insurance is under a duty to accept it or to reject it within a reasonable time, and is liable if it delays unreasonably in acting thereon. It must also act with reasonable promptness in delivering a policy. And even though it appears that the insurer may have rejected the application, if it delays unduly in notifying the applicant of such rejection, it may be held liable as if it had accepted the risk. By failure to act upon an application duly made, the period of delay may be so unreasonable as to estop the insurer from denying liability. A retention of the application and premium payment for an unreasonable and unwarranted length of time may raise an inference of acceptance.

“Principles of fair dealing would require that where the applicant has paid the first premium for the protection which he desires that the insurer act upon the application within a reasonable time. Since insurance companies are held to a broader legal responsibility than are parties to purely private contracts, having solicited and obtained an application for insurance, and having received payment of a premium, they are bound either to furnish indemnity or decline to do so within a reasonable time. If it intends to decline the policy, it must manifest its intention by return of the premium within a reasonable time.”

In American Life Insurance Company of Alabama v. Hutcheson, 6 Cir., 109 F. (2d), 424, 427, the Court said:

“It is the general rule that mere delay in passing upon an application for insurance is not sufficient in and of itself to amount to acceptance even though the premium is retained. Misselhorn v. Mutual Reserve Fund Life Ass’n., C. C., 30 F. 545; 32 C. J. 1106. But an acceptance may be implied from retention of the premium and failure to reject within a reasonable time.”

In adopting the more libral rule, the Court of Appeals of the 9th Circuit in Coffey v. Polimeni, 188 F. (2d) 539, 542, said:

“Counsel argue that, assuming negligence, the correct rule is that no action will lie against an insurance agent for delay in acting on an application where no breach of legal duty to obtain insurance appears. They concede that this view is at variance with the general trend of authority and with the great bulk of the decisions dealing immediately with the subject. A few commentators and an occasional judge have criticized this line of decisions as unorthodox or unsupported by reason, but they appear to us to announce a salutary rule. The thought they stand for is that the agent or company owes the applicant for insurance what amounts to a legal obligation to act with reasonable promptness on his application, either by providing the desired coverage or by notifying the applicant of the rejection of the risk so that he may not be lulled into a feeling of security or put to prejudicial delay in seeking protection elsewhere. Implicit in the cases is a recognition that these transactions are fundamentally unlike ordinary commercial or business dealings where mere profit is the stake, so prone is the failure of insurance protection to result in irretrievable disaster to the individual. Those engaged in the insurance business understand perfectly the peculiar urgency of the need for prompt attention in these matters.”

In discussing this subject, the Court of Appeals of Louis1 iana in Harding v. Metropolitan Life Insurance Co., 188 So. 177, 182, stated:

“It is quite true that an insurance company is entitled to a reasonable time within which to investigate and to act upon an application and that, if death occurs before it has acted and before the expiration of that reasonable period, no liability results. But when that reasonable period expires — and what is a reasonable period must depend upon the facts in each case — and it fails to communicate its rejection to the applicant and also fails to return the amount conditionally paid with the application, surely the applicant, for a time at least, may assume that his application has been accepted and that shortly his policy will make its appearance. Just how long he may rely upon this assumption is a matter which also must be determined by the facts of each case. An ignorant laborer, having no knowledge of the insurance business, may, for a considerable time, assume, from the retention of his premium and the failure to communicate rejection of his application, that the application has been approved and that the policy will be forthcoming. We recognize, of course, that sooner or later, if no policy is received, the applicant may be under the duty to inquire and to investigate to ascertain why he has not received it, and, after the lapse of too long a time, it may be that it would be proper to say that his own failure to investigate should be held to be negligence on his part. But, as we have said, if the company retains his money and fails to advise him that it has rejected the application, he may, for a reasonable period, rely upon those facts, and, acting upon that reliance, fail to attempt to place his insurance elsewhere. If he does so rely and a loss occurs, it may properly be said that the fact that he has made no other attempt to secure insurance is properly chargeable to the negligence of the company in failing to communicate to him the facts which — had he known them— would have prompted him to secure insurance elsewhere.”

We have been unable to find any decision of this Court passing upon the precise question which has been discussed. However, it was stated in Keller v. Provident Life & Accident Ins. Co., supra: “Upon the filing of an application, it is the duty of the insurer to act upon it with reasonable promptness and, in the meantime, to refrain from doing anything reasonably calculated to mislead the applicant.”

Without undertaking to formulate any general rule as to the circumstances under which liability may arise on account of the negligent delay in acting on an application for insurance, or on account of the failure within a reasonable time to refund the premium and notify the applicant that his application has been rejected, it is our view that the facts in this case are sufficient to sustain liability on the theory of an implied acceptance of the application. Here there is more than a mere delay in failing within a reasonable time to notify the applicant that his application was rejected. After such alleged rejection, appellant through its agent assumed an attitude wholly inconsistent with that fact. It continued for a long period of time to retain the premium deposit and two or three weeks prior to the death of the applicant, the agent, when advised by respondent that her husband wished to take out insurance elsewhere if the application was not going through, stated that he would let her know “in a few days”. Surely under these circumstances, after hearing nothing further from the company for a period of two weeks, an acceptance could be reasonably implied.

We are further of the opinion that the facts of this case are sufficient to reasonably warrant the conclusion that appellant by its conduct is estopped to assert that there was no contract of insurance. Some authorities hold that estoppel can never create a right although it may be urged for the protection of a right. We have held that the doctrine of waiver “cannot be successfully invoked to create a primary liability, or a liability for a benefit not contracted for at all.” Hodge v. National Fidelity Insurance Co., 221 S. C. 33, 68 S. E. (2d) 636, 640. But we have not gone that far with reference to estoppel. In Ellis v. Metropolitan Casualty Insurance Co. of New York, 187 S. C. 162, 197 S. E. 510, it was held that where elements of estoppel exist, an insurer may be precluded from asserting that a loss was not within the terms of the policy.

Assuming, as appellant contends, that respondent was not misled into believing that the policy had been issued, there is abundant evidence to show that she was misled into believing that the application was still being considered, although appellant now says that the application was promptly rejected. Under these circumstances, respondent’s husband would naturally not apply for the same insurance in some other company until informed of the action which appellant had taken. During all of this period of approximately three months, the applicant was deprived of the use of his deposit. The fact that the amount was exceedingly small does not affect the principle involved.

It is true that the breach of duty in this case may have been that of the agent in failing to carry out the directions of appellant to notify respondent of the rejection and refund the premium deposit, but this does not change the result. The company selected this agent and cannot be heard to complain that he did not carry out its instructions.

Finally, it is suggested, that if respondent has any cause of action, it is in tort and not ex contractu. Assuming, as a number of cases hold, that respondent could have maintained an action ex delicto, we think under the facts of this case she also had a right to bring an action in contract. It has been so held. Harding v. Metropolitan Life Ins. Co., supra. La. App., 188 So. 177; American Life Insurance Company of Alabama v. Hutcheson, supra, 6 Cir., 109 F. (2d) 424; Reck v. Prudential Insurance Company of America, supra, 116 N. J. L. 444, 184 A. 777; Dyer v. Missouri State Life Ins. Co., 132 Wash. 378, 232 P. 346. In American Life Insurance Company of Alabama v. Hutcheson, supra, the Court, in answering a contention that an action ex contractu could not be maintained, said: “In the instant case the appellant solicited the applicant, and if the applicant was not notified of rejection within a reasonable time, under the rule of the cited case, acceptance is implied, and a contract exists, so that appellant’s contention that appellee should have grounded this action in tort instead of in contract is untenable.”

It may not be amiss to state that it is doubtful whether appellant was prejudiced by the form of action, for in those jurisdictions permitting tort actions, the legal consequences seem to be the same. In the recent case of Man v. Policyholder's Nat. Life Ins. Co., N. D., 51 N. W. (2d) 853, 865, the Court said: “The next assignment of error on the motion for a new trial is that the jury gave excessive damages under the influence of passion and prejudice. Defendant contends that the evidence at the most justified only a return of the premium paid. There is no merit to that assignment. If there was evidence to warrant holding the defendant negligent in failing to act on the application, it necessarily was liable for the loss suffered by the plaintiff which was the amount of the insurance applied for.”

For the foregoing reasons, we think the motions for non-suit, directed verdict and judgment non obstante veredicto were properly denied.

The only other question raised by the exception relates to the charge. It is contended that the Court erred in charging the jury as follows:

“I charge you, Mr. Foreman and Gentlemen, that the mailing of a policy of insurance to the general agent of the insurer is a constructive delivery of the policy, if the other terms and conditions of the contract are met, and it was mailed to the agent with the intention that it would be delivered.”

Appellant says: “Though the charge was correct as an abstract statement of law, it was error to so charge in this case, because there was no evidence showing or tending to show that a policy of insurance had been mailed or even issued on the application.”

It is true that there is no evidence that a policy was ever issued or mailed to the general agent, but appellant is not in position to complain of this instruction because during the trial of the case its counsel stated that it was a question for the jury as to whether or not the policy had been issued. This is shown by the following colloquy between appellant’s counsel and the Court occurring at the conclusion of the charge:

“Mr. Mays: Your Honor, in the matter of denying acceptance I think you should charge the jury that the defendant was not required to deny anything until something has been proven by plaintiff to be denied. As to whether or not the policy was issued, that is a question for the jury to find.

“The Court: I think I have stated that.”

All exceptions are overruled and the judgment below affirmed.

Fishburne and Stukes, JJ., concur. Baker, C. J., and Taylor, J., dissent.