Marva CHENEY, Plaintiff and Appellant, v. METROPOLITAN LIFE INSURANCE COMPANY, a New York domiciled insurance company duly qualified to do business in South Dakota; the South Dakota Public Employees Insurance System, 216 East Capitol, Pierre, Hughes County, South Dakota; Al Asher as Administrator of the South Dakota Public Employees Insurance System; and Linda Nill, as Administrator of the Life Insurance section of the Public Employees Insurance System, Defendants and Appellees.
No. 14482.
Supreme Court of South Dakota.
Argued Sept. 11, 1984. Decided June 19, 1985.
Rehearing Denied July 19, 1985.
369 N.W.2d 569
William P. Fuller of Woods, Fuller, Shultz & Smith, Sioux Falls, for defendant and appellee Metropolitan Life Ins. Co.
Roger L. Severns, Jr., Sp. Asst. Atty. Gen., Pierre, for defendants and appellees South Dakota Public Employees Ins. System, Al Asher and Linda Nill; Mark V. Meierhenry, Atty. Gen., Pierre, on the brief.
This is an appeal from a summary judgment dismissing an action for declaratory judgment, mandamus and other relief, by appellant, Marva Cheney, to collect life insurance benefits. We affirm.
The facts of this case are before us by stipulation and are not in dispute.
Appellant was the widow of Julian Cheney. Julian Cheney took office as the South Dakota Commissioner of School and Public Lands on January 3, 1983, and thus became a state employee, eligible to join the state employees’ group life insurance plan. Cheney died January 16, 1983.
Marva Cheney died subsequent to the initiation of this action. By stipulation and order, William B. Cheney and Luke A. Cheney, as co-trustees of the Marva Cheney Trust, were substituted as parties plaintiff.
Appellee, Metropolitan Life Insurance Company, hereinafter called Company, is the underwriter for the State Insurance Group Life Insurance Plan, which is administered through its agent, South Dakota Public Employees Insurance System, hereinafter called System, also an appellee.
Cheney signed and submitted, on January 3, 1983, the necessary application requesting to be insured for three times his basic annual earnings, which were rounded out at $102,000.00. The application authorized the State of South Dakota to make the necessary payroll deductions to cover the premium. Appellant wife was designated as the beneficiary.
There is an insurance contract, or master policy, between Company and System which was issued January 1, 1973. Page 1 of this policy states: “The provisions hereinafter contained, including those in the Exhibits, are part of this Policy as fully as if recited over the signatures hereto affixed.” Under “Eligibility and Effective Dates of Insurance” this policy, Page 2, Section 2, reads as follows:
A. Eligibility.---Each Employee shall be eligible for insurance hereunder on his own account as set forth in the Exhibit applicable to him.
B. Effective Dates of Insurance. - The insurance on account of any Employee ... shall become effective as set forth in such Exhibit.
The Schedule of Exhibits lists only one exhibit, namely, Certificate Form G.3300A, F, 1KE, 31, 2XYA, as applicable to all employees. In regard to this certificate, Section 7, Page 6 of the policy reads:
Certificates. - The Insurance Company will issue to the Employer, for delivery to each Employee insured hereunder, an individual certificate which shall state the insurance to which such Employee is entitled under this Policy and to whom benefits are payable, and which shall summarize the provisions of this Policy principally affecting the Employee. The word “certificate” as used in this Policy includes certificate riders and certificate supplements, if any.
This certificate, entitled “Group Insurance Certificate,” sets out an employee‘s eligibility for insurance and the effective date thereof as follows:
Each Employee employed subsequent to January 1, 1973 shall be eligible for insurance under the Group Policy on his own account on the first warrant date for the payroll deduction for the contribution required by the Employer toward the cost of his insurance under the Group Policy next following the date of his employment.
. . . .
The insurance on account of any Employee who makes such request on or before the date of his eligibility for such insurance shall become effective on the date of his eligibility for such insurance provided he is actively at work on such date. The insurance on account of any Employee who makes such request after the date of his eligibility for such insurance and on or before the thirty-first day following the date of his eligibility for such insurance (or on or before the thirty-first day following the date of his return to active work if he is not actively at work on the date of his eligibility for such insurance) shall become effective on the next following warrant date following the date of such request, provided he is then actively at work....
Company furnished to System a manual entitled “Group Insurance Administration Manual” which sets forth general information and procedures to be followed in administering the group insurance program. Chapter II of the manual covers eligibility and effective dates of the employee life insurance as follows:
Eligibility Date. - The warrant date of the first payroll deduction for the cost of the employee‘s insurance following the date of his employment.
Effective Date.-1. Same as “Eligibility Date” if the card was signed on or prior to the eligibility date.
Was Julian Cheney covered under the State Employees’ Group Life Insurance Plan on the date of his death, January 16, 1983?
Appellant contends that Section 7, Page 6, of the policy and
Appellant contends that the three items referenced in
The certificate states that it is a summary of the policy provisions concerning eligibility and effective dates and other provisions of the group policy and is not a contract of insurance, and that the group policy alone constitutes the contract under which the insurance is provided. Appellant agrees that the certificate is a part of the policy to the extent provided by the policy itself, but argues that a summary can create no conditions of eligibility. As previously noted, the policy contains no effective date provision, but refers to the certificate for such date.
Where the certificate contains provisions which are not contained in the master policy itself, the certificate is consistently construed to be an integral part of the policy. The certificate herein is the identical certificate which was held to be a part of the group life insurance policy by this court in Halverson v. Metropolitan Life Ins. Co., 286 N.W.2d 531 (S.D. 1979). The court, in Halverson, stated:
The certificate involved here contains several substantive terms and conditions which cannot be found in the master policy and without which the policy of insurance is incomplete. The certificate contains the only provisions relating to eligibility, effective dates of coverage (which contains the requirement for proof of insurability), extended death benefits, conversion rights, cessation of insurance, and the schedules of insurance.
“Every insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended, or modified by any rider, endorsement or application lawfully made a part of the policy.”
“Words used are to be understood in their ordinary sense....”
We reject appellant‘s argument that Section 7, Page 6 of the policy and
Since the policy contains no provision for an effective date, such provision in the certificate applies.
We next consider appellant‘s argument that insurance coverage was in force on Cheney at the time of his death under governing relevant statutes and under the express terms of the policy itself.
Appellant also contends that there is ambiguity as to the meaning of the term “warrant date.” As a contract of adhesion, the policy with its certificate is subject to certain rules of construction. In case of doubt as to meaning, it will be interpreted against the insurer who furnished or prepared the policy. 43 Am.Jur.2d Insurance § 283 (1982).
Its provisions, however, “are to be read and understood according to the natural and obvious import of the language, without resorting to subtle and forced construction for the purpose of either limiting or extending their operation.” 43 Am.Jur.2d Insurance § 282 (1982). See also 44 Am.Jur.2d Insurance § 1871 (1982); Vern Eide Buick, Inc. v. United States Fidelity & Guaranty Co., 273 N.W.2d 116 (S.D. 1978); Cramer v. American Alliance Ins. Co., 72 S.D. 509, 37 N.W.2d 192 (1949).
The first payroll period after Cheney‘s employment on January 3, 1983, was the period ending January 14, 1983. Cheney died January 16, 1983. The salary warrants for the pay period ending January 14, 1983, for the Department of School and Public Lands employees, including Cheney, were printed on January 20, 1983. The date on the warrant which is cashed by employees is January 25, 1983, which is the fourth Tuesday of the month and the established date when all state employees received their warrants for their pay for the payroll period ending January 14, 1983.
The warrant is printed with a detachable “stub” which contains payroll data and information for the employee, such as base pay, regular and overtime hours worked, employer contributions and payroll deductions. The stub carries two dates: one is the date of issue, which is the same as the warrant date of issue; the other shows the payroll period ending date. The stub shows that, pursuant to authorization, the amount of $39.15 was deducted from Cheney‘s pay for life insurance.
Appellant contends that “the first warrant date for the payroll deduction,” or as worded in the administrative rule, “the first warrant date a deduction is made,” is the payroll period ending date on the stub, i.e., January 14, 1983.
For the sums which shall be found due from the state the state auditor shall issue warrants payable at the state treasury which shall be numbered consecutively and each shall specify the date of the issue, the fund on which it is drawn, and the name of the person to whom payable; and the number, date of issue, and the name of person to whom payable, of each warrant, shall be entered upon a record and shall be carefully preserved by the auditor in his office.
The only statutorily required date is the date affixed to the warrant, and that is the warrant date. The warrant date is not the pay period ending date shown on the stub.
A “warrant” is an order by which the drawer authorizes one person to pay a particular sum of money. Black‘s Law Dictionary 1756 (4th Ed. 1951).
A state warrant is an order by the auditor upon the treasurer for the payment of the amount due as ascertained by the auditor. People v. Gibbs, 413 Ill. 154, 108 N.E.2d 446 (1952).
The warrant in this case was the first paycheck issued to Cheney following his employment. January 25, 1983, was the first warrant date, the only warrant date, and, thus, the date that any insurance coverage would have taken effect had Cheney lived.
Any other interpretation of the effective date of coverage would result in a “subtle and forced construction.” However attractive it might be to liberally construe a statute to avoid a result that may appear harsh, we will not so act when such action would do violence to the plain language of the statute. Burns v. Kurtenbach, 327 N.W.2d 636 (S.D. 1982); Johnson v. Herseth, 246 N.W.2d 102 (S.D. 1976). The same reasoning applies to construction of the insurance policy here under consideration, where the plain language of the policy and its certificate leaves no ambiguity as to the intended effective date of coverage.
The payroll period from which the premium is deducted, the act of deducting the premium, premium due date, and grace period are all matters which have been argued and considered. They do not change the effective date of coverage, which was January 25, 1983.
Count II of appellant‘s complaint asserts that appellees are estopped from asserting, or must be deemed to have waived, any contention that Cheney‘s coverage was not effective on the date of his death, because they had a duty to furnish him a certificate and failed to do so. Appellant argues that Cheney should not be held to the terms of a certificate which Cheney was never given.
The summary judgment of the trial court is affirmed.
WOLLMAN and MORGAN, JJ., and WUEST, Circuit Judge, Acting as Supreme Court Justice, concur.
HENDERSON, J., dissents.
BERNDT, Circuit Judge, sitting for FOSHEIM, C.J., disqualified.
HENDERSON, Justice (dissenting).
I respectfully dissent.
Under the majority opinion, the heirs of Julian and Marva Cheney will receive $39.15-the premium deducted from Julian Cheney‘s earnings for his work period end-
RATIONALE I.
WARRANT DATE/PAYROLL DATE
In the 1966 Legislative Assembly, the insurance industry prevailed upon the Legislature, and were successful, to inaugurate group life insurance policies in South Dakota. The general scheme developed was to permit group life insurance in South Dakota, but precluded any type or kind of a group policy to be issued unless it conformed with the requirements set forth by state statute.
On January 3, 1983, Julian Cheney, deceased, became the South Dakota Commissioner of School and Public Lands. On this date, Julian Cheney enrolled in, joined, and subscribed to the State Employees’ Group Life Insurance Plan by completing an application which authorized the deduction of premiums from his paychecks.3 Julian Cheney continued in the people‘s employ and on January 14, 1983, his first pay peri-
od ended and he became entitled to his salary. This is not disputed. Julian Cheney was entitled to his salary up to this point and Metropolitan Life Insurance Company had earned an insurance premium.4 However, because of the State‘s payroll system, Julian Cheney would not actually receive his paycheck or warrant for nearly two weeks.5 In the administrative hiatus between payroll earned and payroll paid, however, Julian Cheney died (January 16, 1983) and because he was not there to receive his first paycheck, the Metropolitan Life Insurance Company and the South Dakota Public Employees Insurance System seek to deny insurance coverage even though a $39.15 deduction for life insurance was withheld from this paycheck. A right to prevail is here obfuscated and lost by an administrative hiatus, namely, a gap created by the thousands of checks which must be printed for state employees. Volume and the computer world are vaulted over justice and humanity. My sense of fairness and that which was sought to be accomplished by state statute-to give all state employees and constitutional officers life insurance-regardless of their health-is offended. Jus est ars boni et aequi. Law is the science of what is good and just.
Because I would interpret “warrant date,” if indeed such a date is controlling, germane and valid to the resolve of this case, to mean the payroll ending date, I would reverse the summary judgment of
RATIONALE II.
UNCONSCIONABLE/CONTRACT OF ADHESION
This Court now takes the position that this insurance policy and the certificate is a contract of adhesion. I agree with its rationale. However, I disagree with the application of the rule wherein the majority opinion states that “[i]n case of doubt as to meaning, it will be interpreted against the insurer who furnished or prepared the policy“; for, indeed, in this case, the majority interprets this contract and the certificate against the insured rather than the insurer. I fully appreciate that the majority takes the position that it is adopting this rule in favor of the insurer because the majority believes there is no doubt as to the meaning in these insurance instruments. I must respectfully disagree that there is no doubt as to their meaning. Writing for the majority of this Court in Rozeboom v. Northwestern Bell Telephone Co., 358 N.W.2d 241, 244-45 (S.D. 1984), I expressed:
North Dakota, our sister state, has not been timorous in recognizing contracts of adhesion. In applying the concept to grain purchase contracts, that state‘s highest court in Farmers Union Grain Terminal Ass‘n v. Nelson, 223 N.W.2d 494, 497 (N.D. 1974), stated:
(1) A contract is construed most strongly against the party who prepared it * * *
(2) An agreement which is essentially a “contract of adhesion” should be examined with special scrutiny by the courts to assure that it is not applied in an unfair or unconscionable manner against the party who did not participate in its drafting.
Bell prepared the contract in question. This State should examine this contract with an impartial but critical eye in determining whether it is unconscionable against Rozy, who did not participate in its drafting. In Bekken v. Equitable Life Assur. Soc., 70 N.D. 122, 143, 293 N.W. 200, 212 (1940), the North Dakota Supreme Court applied the term “contract of adhesion” to insurance contracts.
Neither Julian Cheney nor the thousands of state employees, past or present, prepared the Master Policy or the Certificate. Rather, both were prepared by Metropolitan Life Insurance Company. Special rules of construction are applicable to insurance policies for they are contracts of adhesion. 43 Am.Jur.2d Insurance § 282 (1982). Here, we have an insurance policy called a group insurance policy. It was the insurance company which drew the group insurance policy and the certificate in such fashion that it has triggered this litigation. In case of doubt as to meaning, the group insurance policy should be interpreted against Metropolitan who prepared the policy and the certificate. This Court should not adopt a construction or interpretation
RATIONALE III.
CERTIFICATE
By express language of the Master Policy and by virtue of the language in
Metropolitan, beyond the language of the statute, seeks to impose additional conditions by way of (a) eligibility, and (b) the effective date of the insurance as to the individual employee. The majority permits this imposition. Furthermore, the majority opinion permits the “first warrant date” to be the crucial and determining factor for the basis of its ultimate decision. By placing in the certificate of insurance a statement that the “eligibility for such insurance shall become effective on the date of his eligibility for such insurance provided he is actively at work on such date” and then wrapping it with another condition
The validity of imposing such conditions in the certificate cannot be moored to
Moreover, Section 7 of the Master Policy expresses that the Certificate “shall summarize the provisions of this Policy principally affecting the Employee.”
This certificate contains only a summary of the provisions of the Group Policy. It is not a contract of insurance. The insurance is subject in every respect to the provisions of the Group Policy which alone constitutes the contract under which the insurance is provided. (Emphasis supplied mine.)
In sum, the insurance company has weaved in language which is totally unauthorized by law, and upon which it now relies, to escape liability under the group coverage policy. The System, which is supposed to be looking out for the employees, permitted language to creep into the certificate which was simply not authorized by the law of this state or the Master Policy. Thus, Cheney and his heirs are not bound by “the first warrant date” phraseology. Our state legislature‘s duty is to mirror the will of the people. This is accomplished by
legislative enactments which experience debate and formality. The insurance company and the System, substantively indenturing between themselves, should not be permitted to vitiate the will of the elected representatives of the people by private parchment-involving public employees and elected officials-employing words which veto legislative pronouncement.
RATIONALE IV.
ESTOPPEL
Insurance companies can be estopped from relying on policy provisions relating to the effective date of the policy. 45 C.J.S. Insurance § 674(b) (1946). This rationale is not a pioneer effort in an uncharted wilderness. Thus, assuming arguendo that the policy here in question was not in effect at Julian Cheney‘s death per the warrant date phraseology argument, I would nevertheless hold that the System and Metropolitan were estopped from denying the effective date of coverage because (a) Cheney was a constitutional officer; (b) as such, he was eligible for coverage under the State Employees’ Group Insurance policy; (c) he made application and was enrolled in the State Employees’ Group Insurance Plan; (d) the insurance premium was deducted from his check; and (e) Cheney‘s money was held in trust by the System for Metropolitan and thus was in the constructive possession of the latter.
The complaint filed herein alleged estoppel and for the foregoing reasons and under the facts of this case, I would hold the System and Metropolitan estopped from denying coverage. The System and Metropolitan cannot treat the group insurance contract as valid for the purpose of deducting and collecting premiums, and invalid for the purpose of indemnity. See 15 Appleman, Insurance Law and Practice § 8496, at 273 (1985); Spurlin v. Ranier, 457 S.W.2d 491, 492 (Ky. 1970); Home Ins. Co. of New York v. Caudill, 366 S.W.2d 167, 170 (Ky. 1963).
I do not relate my latter statement solely to the deduction and holding in trust of Cheney‘s premium, but, rather, the thou-
Notes
The amount of Thirty-Nine Dollars Fifteen Cents ($39.15) so deducted by the System from the decedent‘s pay for the work period ending January 14, 1983 is currently being held by the System for payment either to Metropolitan or the Plaintiff as may be ordered by the Court.
The amount of Thirty-Nine Dollars Fifteen Cents ($39.15) so deducted from Mr. Cheney‘s pay for the work period ending January 14, 1983 was transferred by the employer to the premium holding account of the System.
Except as provided in
Except as provided in