Meier v. New Jersey Life Insurance

597 inoperability design. enees on the issue as related to Ante at 589. hope opinion lay my

I with this I can to rest differences with the Court on these matters. As Justice Clifford observed respect quandry posed by another case with his continu- ing majority colleagues: differences with a of his

The Talmud when are stone a man if, sober, tells are says you you you laugh knock teeth if men drunk, out; his two tell at if three you that, them; but go men tell to bed. that, you (1981) v. dissenting.] N.J. 79 [Lynch Rubacky, 65, Clifford, J., I sanguine my sodality shall be about the state of current area, with the Court in this trepidation but confess to some as I gathering portentous see may yet on the horizon issues that — upon —, E.g. break us. Wright, Commonwealth v. Pa. 354, 494 A.2d granted Pennsylva cert. sub nom. McMillan v. nia, U.S.-, (1985). 2d S.Ct. L.Ed. 47 Accord ingly, judgment I concur in the of the Court.

HANDLER, J., concurring in the result. WILENTZ, CLIFFORD, For —Chief Justice affirmance HANDLER, POLLOCK, O’HERN, GARIBALDI and STEIN— 7.

For reversal —None. MEIER, TRUSTEE, JUNE H. UNDER TRUST DATED NOVEMBER 25, 1978, COMPANY, INC., AND NORDLING DEAN ELECTRIC PLAINTIFFS-RESPONDENTS, v. NEW JERSEY LIFE INSUR- COMPANY, ANCE DEFENDANT-APPELLANT. Argued September February 1986. 1985 Decided Laurence argued B. Orloff appellant (Orloff, the cause for Lowenbach, Siegel, Stifelman attorneys; & Laurence B. Orloff Trembulak, and Alan briefs). G. on the Raymond Fleming argued J. respondents (Fuer- the cause for stein, Sachs, Maitlin, Fleming, Rosenstein & attorneys). opinion

The of the Court was delivered GARIBALDI, J. appeal issue in this is whether a life insurance was

in effect at the time of the insured’s death. Plaintiff June H. Meier was the owner and a beneficiary of a life insurance policy insuring husband, the life of her Frank. The was issued by defendant-appellant Jersey New Life Company Insurance (NJL). death, Prior to Frank Meier’s attempted June Meier had surrender We must determine whether her attempts Specifically, succeeded. we must decide whether the through was cancelled NJL’s apply policy’s failure to premium automatic provision (APL), loan through the surrender n policy, through or termination of the mutual consent. granted

The trial summary judgment court plain- in favor of tiffs-beneficiaries for the face amount of pre- judgment A majority Appellate interest.1 of the Division af- judgment. firmed the trial court’s Because of the dissent in the Division, Appellate 2:2-l(a)(2) pursuant defendant ap- Rule pealed right as a matter of to this Court. affirm We the judgment Appellate of the Division.2

I In 1977 issued policies, 133624, NJL two life insurance No. issue, 13331, the at and No. each the amount of $250,000, life on the of Frank policies originally Meier. These were owned Mr. Meier ownership but was transferred to Mrs. Meier agreement as trustee under a trust dated November 25, 1978. trustee,

As Mrs. Meier beneficiary was the substantial of policies.3 both payments policies Premium on each of these 11, quarterly May 11, 11, were due (February August and 11). In November each policy Frank Meier elected the automat- ic-premium-loanprovision. provision provides The APL that if premium, the pays insured misses a NJL automatically the amount due out loan or cash value of In the general, provisions APL are used avoid defaults. plaintiffs’ punitive damages 1The trial dismissed the court claims for Appellate counsel fees. dismissal was affirmed These Division. appeal. issues have raised not been on 15, 1984, 2By plain- Order dated November Court on reserved decision portions defendant-appellant’s tiffs’ motion to strike of with brief filed Court, allegedly dissenting opinion which raised issues in the outside Appellate deny plaintiffs’ We Division. motion. Inc., Nordling 3Co-plaintiff-appellant Company, Electric of Dean which executive, beneficiary Policy Frank Meier a named was an also was No. Nordling 133624 to of its the extent cash surrender value. was also named a assignee premiums. security collateral for its advancement Nordling, proceeds payments After these were made to balance of the was payable to Mrs. Meier. 1980, August paid premiums Until Mr. Meier on both policies 1980, August however, on time. Sometime in Mr. Meier’s insurance replace consultants advised him to the two policies policies NJL with equal another that had an face amount but lower cost. Mr. Meier followed this advice purchased policies.4 two other Subsequently, life insurance premium Mr. Meier payments made no further to NJL on either policy.5 applied provision NJL the APL in Policy No. issue, pay August at and December 11,1980, premium payments. quarterly premium The next was 11, 1981, due on February thirty-day grace and the end of the period pay premium 14, this was March 1981. There was policy sufficient cash value in the pay to use the APL to it. Meier, Sometime March 1981 designated June as the owner policy, steps commenced to surrender it for its cash 11, 1981, value. On March NJL received notice a from an 4 Generally policy the mere substitution of one life insurance for another policy. does not in itself effect a cancellation of the first See Northeast Ins. Co. Co., 1056, (Me. 1983); v. Concord Gen. Mut. Ins. 461 A.2d Providence Washington Co., 583, 479, Security Ins. Co. v. Mut. Ins. N.Y.2d 364 N.Y.S.2d (Ct.App.N.Y.1974); 324 N.E.2d 134 Milbank Co. Mut. Ins. v. State Farm Fire and Co., Casualty (S.D.1980). 294 N.W.2d 426 13331, Policy 5There was insufficient cash value in No. Mrs. Meier’s second 11, 1980, policy, 10, August premium, to cover the cost of the and on October 1980, Meier, Trustee, advising Policy NJL sent a letter to Mrs. her that No. lapsed. parties agree policy 13331) (Policy 13331 had All that this second No. remaining did in fact terminate before Mr. Meier’s death. The cash value in policy automatically purchase paid-up the second was used to reduced insur- provision policy. ance in accordance with the nonforfeiture paid-up Reduced insurance is that insurance that the available cash value in purchase premiums Generally a will at a time when are in default. a paid-up policy regarded merely original policy reduced "is as the reduced to an is, corresponding premiums paid, paid-up policy amount to the as a in the contract, stipulations nature of a continuation of the old at least so far as the applicable, independent thereof are rather than as a new and contract.” 6 G. Couch, Insurance, (rev.ed.1985). Couch on 2d 32:137 A similar ¶ nonforfeiture provision Policy though was in No. 133264 NJL never sent Mrs. Meier a notice lapse concerning policy. agent, insurance Feingold, 9, 1981, Sanford dated March which read: “Please be advised that captioned above policy has been In response surrendered.” message, to this NJL sent following Mrs. Meier the letter on March 1981: regret We to hear that wish to terminate you your policy. give studies of the reasons Industry why people up policies point

following causes: 1. The does not policyholder understand the fully valuable economic “tool” represented by 2. cannot be Temporarily, premium payments made because of unemploy- ment, unusual medical or some other expenses economic set back. originally 3. The was “oversold”. change 4. A in insurance needs. terminating The reaction of because of of the above reasons is a any one, can be avoided costly a careful reevaluation of the reasons why originally was adjusting purchased perhaps, suit ones current needs. [sic] you If after due your policy, please still wish to surrender consideration, complete the enclosed cash surrender and return it to our with form office we will release Upon the cash value to receipt you promptly. itself added.) (Emphasis Mrs. Meier returned the executed cash surrender form to form, NJL. The surrender which was back-dated to March actually was executed Mrs. Meier on March 24. NJL received it on March 1981. The form reads as follows: I HEREBY THAT THE REQUEST CASH SURRENDER VALUE OF POLI- CY NUMBER 133624, WHICH WAS ISSUED ON THE LIFE OF Frank Meier, BE PAID TO ME. I CERTIFY THAT I AM LEGALLY COMPETENT TO EXECUTE THIS INSTRUMENT, THAT THIS CONTRACT IS NOT NOW ASSIGNED TO ANY PERSON OTHER THAN THE THAT UNDERSIGNED, NO PROCEEDINGS IN BANKRUPTCY OR INSOLVENCY THE INVOLVING UNDERSIGNED ARE NOW PENDING. RELEASE, SURRENDER, CANCEL, 1 DO HEREBY FULLY DIS- Denmlle, Jersey, CHARGE AND TERMINATE SAID CONTRACTAT New MARCH, (CITY) (STATE) THIS 10 DAY OF added.) (Emphasis 1981. 27, 1981, On March acknowledged NJL receipt of the “re- surrender,” quest but asked that Mrs. Meier also return the policy. per provisions “As contract requested by and as recent letter, policy itself must prior be returned to release of Policy a Lost Mrs. Meier NJL also sent values.”

surrender policy. locate the could not in the event that she Agreement Meier, 9, 1981, to Frank April another letter on NJL sent may expect to receive a said, us when we “Please advise which above, copy of which is enclosed.” specified reply to the letter of March 1981. referred to the NJL letter This statement memoran- April on 1981. In an internal Frank Meier died 6, 1981, Fiore, Manag- dum, Joseph and NJL Claims May dated er, following: wrote ($250,000). this This for the full face amount of be made policy Claim may However, value to an APL. to 2/81 and had sufficient process was

policy paid caused the surrender of the which policy holder policy requested (Empha- surrender was on RPU. The insured died be placed before effective. added.) sis document, on placed was According to another NJL 8, 1981, (RPU) May but effec- on made paid-up reduced status February 1981. tive from executed a Lost June Meier was never found. 30, 1981, her conjunction with Agreement on October

Policy position NJL took for the face amount of claim placed on RPU status and Policy 133624 had been No. Nordling Meier and checks to Mrs. December 1983 tendered letter Mrs. Meier a value. NJL never sent equal to the RPU placed on reduced policy had advising her that this first been Policy, status, respect to her second as it had done with paid-up litigation followed. 13331.6 This No. prior Appellate held that and the Division

Both the trial court nonpayment lapsed not for death the had to the insured’s or terminated it surrendered premium, nor had been Appellate dissenting judge in the Division consent. The mutual was surrendered the issue of whether did not reach terminated; lapsed had for he concluded or upon the communica- nonpayment premiums because based 6See at 604 n. 5. supra

607 received, tions it properly apply NJL did not the APL to the February 1980, premium payment. disagree. We

II In determining prior whether insured’s death the lapsed had nonpayment premiums, for must look we first to language the of the insurance contract. Policy No. 133264 provides: requested application

AUTOMATICPREMIUM LOAN—If in the for this request grace or written filed at the Home Office before the end of the period, any premium remaining unpaid paid automatically due and mil be by premium subject a loan and will be to the Loan Provisions pay due, premium If the loan value is not sufficient to the entire amount of the quarterly premium paid automatically. the semi-annual or shall be If the loan pay quarterly premium, premium is value not sufficient to the no automatic premium provision loan shall be made and the shall remain in default. This may any upon proper request be made at time written made to ineffective added.) Company (Emphasis at its Home Office. undisputed It provision; Frank Meier chose the APL premium 11,1981; that a February was due that the end of the grace period 14, 1981; was March and that there was sufficient cash value in the pay February premium. to Further, premium if the paid, had been unless termi- otherwise surrendered, nated or would have in effect remianed on the date of the insured’s death. agrees obligation apply

NJL it had an to the APL provision However, pay February premium.7 to because Appeals recognized 7The District Court of of Florida has that when an provision pay premium, insured elects an automatic loan a fails to duty pay premium insurer has a to out of the accumulated dividends and the cash surrender value. Massachusetts Mut. Ins. Co. v. Pinellas Cent. Life Co., (Fla.Dist.Ct.App.1965). Bank & Trust 175 So.2d See 45 C.J.S. dividends, values, 623(d) (1946) (generally Insurance cash and in some § policies pay instances loan values of life insurance should be used to a forfeiture). premium prevent in default in The court further wrote order pay premium lapse that an insurer who failed allowed Id.; might beneficiary. be to the insured liable or his Northwestern Mut. cf. Omaha, (8th Cir.1959) Ins. F.2d Co. v. United States Nat. Bank Life (insurer nonpayment premium of a cannot forfeit life insurance for 608 it the note from the

of the communications that received —first 11,1981, agent, Feingold, on March and then insurance Sanford from Meier on March the executed cash surrender form Mrs. 26, argues effectively that revoked the APL 1981—it the owner provision. provides “may provision

The that an APL be made any upon proper request at time made to the ineffective written explanation company at its Home Office.” There is no further proper request. party constitutes The assert what written Joslin ing proof. that the is cancelled has the burden of Co., 195, (1930) (burden v. Hudson Cas. Ins. 8 N.J.Misc. 197 on company prove the defendant insurance to that it had issued a it); Dill v. plaintiff plaintiff to and that had cancelled Co., 923, Lumbermen’s Mut. Ins. S.C. 50 S.E.2d (1946). (1948); 45 C.J.S. Insurance § (“Please cryptic Feingold message be advised that surrendered.”) captioned policy the above has been is insuffi proof Feingold cient to meet this burden. No was offered agent. agent’s authority An was insured’s insurance scope subject determined his rank and the matter entrust ¶ Couch, on Insurance 2d Couch ed to him. G. 26A:66 (rev.ed.1984). fact, unclear, appears In it while the record is most, Feingold and, general agent merely was a for NJL at soliciting agent Soliciting agents for Meier. are authorized only to applications, accept premiums, solicit and receive policies. They authority, express implied, deliver have no or Couch, supra, provisions waive of a contract. 4 G. at 26A:71. § Moreover, Feingold there is no evidence as to who authorized advise the that the was surrendered. potentially question A more difficult is whether Mrs. Meier’s cash-surrender form constituted sufficient notice to NJL to when it a sufficient amount of dividends to cover the possesses payment has not insured directed insurer use dividends for another purpose). Although revoke the APL. the surrender form was dated March it not was mailed until March 24 and not received days NJL until March expiration twelve after the grace period.

NJL relies on the fact that as a matter of internal procedure, process it did not days APL’s until fifteen after the expiration grace period.8 However, an insurer cannot to advantage pay use its own its failure to premium a under an provision APL Co., on time. Haut v. Franklin 242 Ins. A. Life (Pa.1968). 2d 440 An insured penalized cannot be for an company’s insurance procedures. internal grants N.J.S.A. 17B:25-3 opportunity pay insureds the to premiums their with a low rate of thirty days interest within premiums after the are due. If pays premium the insured grace period, within the company the insurance will not consid er policy to be in pointed default. As one court has out correctly circumstances, under similar “it would seem ... rea sonable for policy expect owner to that the APL would ‘automatically’ pay ‘premium a remaining unpaid,’ due and required by grace period.” within the Pack v. Co., Progressive (1945) Mo.App. Ins. 239 187 S.W.2d501 Life (the kept existence of an APL full force and effect at the time despite of the insured’s death the insured’s failure to pay premium.) In Board Trustees Unitarian Church v. Nationwide of Co., Super. (App.Div.1965),

Ins. 88 N.J. the defendant company argued insurance that one of the reasons that the life insurance at issue was in default an was because of premium. overdue Appellate opinion Division in an written (later by Judge Justice) argument Sullivan found this to be of significance provision no since the APL included an notify payment 8NJL did not Mrs. Meier of the use of the APL for of the August premiums days days respectively 11 and November 11 until 43 expiration grace period. after the of the pay the cash value of adequate was to the overdue premium. Other courts also have construed APL clauses to impose obligatory requirements company on an insurance apply premium prior expiration grace loan of the period. Co., F.Supp. Poe v. Penn Mut. Ins. Life (D.Ark.1940); Couch, 6 G. Couch on Insurance 2d 32:162 § (rev.ed.1985).

Moreover, as a matter adopt it makes sense to a rule protect both company. By the insured and the insurance choosing provisions, APL they insureds believe that are obtain- ing timely payment premiums. automatic When an insured days expiration dies sixteen after the grace period, his company successfully insurance should not be able to claim policy lapsed accounting department because its did not apply the APL days until four after his death. To allow companies proce- insurance to determine their own internal they provision dures when will APL use an would create confusion for purpose provision. insureds and defeat the

Therefore, regardless we hold that of an insurance com pany’s procedures, internal unless the receives written in conformity prior notice that is with the insurance contract expiration grace period, of the provided and there is sufficient loan or policy, cash value the it must use the APL pay unpaid premiums to the day due no later than the last of grace period. prior the If expiration grace period, to the of the however, company timely proper the does receive a written request provision to cancel APL policy, pursu either the or the policy, ant to the clear terms of the it should not use the APL. holding penalize realize that We will some insureds having premium applied policies they automatic loans to because, Meier, they provide wish to cancel like Mrs. fail will to timely proper the insurance with written notice. Nevertheless, protection this rule will offer fair to both in companies provide sureds and insurance both with clear-cut guidelines.

Here, company prior expiration since the proper the APL not receive notice to revoke grace period did obligated pay February premium the on or provision, it was to Thus, grace period. March the end of the before nonpayment premiums.9 Unless lapse due to did not policy, terminated her it Meier otherwise surrendered or Mrs. in effect on the date of the insured’s death. remained

Ill coverage To whether an insured has surrendered determine again In successfully, we must look to the terms of long Jersey, it has been established that while insurance New nature, ordinary con policies they are contractual are not parties are contracts of adhesion between 'who not tracts but Co., Metropolitan equally situated. Allen v. Ins. N.J. Life (1965).10 doctrine because apply Courts the adhesion interpretation holding with NJL’s own of the contract. 9This is consistent was in default or continued as NJL never advised June Meier that (Policy paid up No. reduced insurance as it had done with her second 13331). position supra at 604 n.5. NJL did not take the that the See option premium lapsed because the owner had revoked the APL and no had short, April. paid Frank Meier’s death in In NJL’s actions was until well after agent’s subsequent receipt notice and the executed cash surrender request” accepted "proper as a written form do not reflect that it had them provision APL ineffective. make the party only proposition. The adhesion offer a take-it-or-leave-it 10Contracts of agree complete reject seeking may either adherence or the service Farnsworth, negotiate is no freedom to terms. E. contract in total. There (1982). seeking sign Generally, person insurance must 4.26 § Contracts fact, agreement procure insurance. In the first use of in order to standardized dealing with the formation of of adhesion" was in an article the term “contract Patterson, Policy,” Delivery of a Life-Insurance contracts. “The insurance Note, (1919), Law Alternative to the cited in "A Common Harv.LRev. Expectations in the Construction of Insurance Con of Reasonable Doctrine tracts," (1982). 57 N.Y.U.L.Rev.1175 n.15 evaluating apply insurance con the adhesion doctrine when Some courts Young, unequal bargaining strength parties. E. J. tracts because of Lee, Interpretation: and Trends" Contract Issues Lewis and J. “Insurance (1975). Ins.L.J. 71 1975 612 unequal bargaining power parties. of compa Insurance possess expertise

nies all the unilaterally prepare complex varied and policies. Judge insurance As Learned Hand Co., stated v. Gaunt John Hancock Mut. Ins. 160 Life (2d Cir.), denied, 849, F.2d 599 cert. 91 U.S. S.Ct. (1947): L.Ed. 1858 signs, charged,

A man must indeed read what he and he is if he does but not; insurers who seek words of common an impose upon esoteric speech significance intelligible to their craft, must bear the burden of only any resulting confusion. at [Id. 602.] Gaunt, Judge In Hand established the doctrine of expectations. doctrine, reasonable Under this courts will en only force the restrictions and in an the terms insurance con objectively tract that are consistent with the expec reasonable average tations of the insured. Jersey Di New See Orio v. Co., 257, 269, (1979). Ins. 79 N.J. Professor Robert Mfrs. of Keeton Harvard Law School describes doctrine “a judicial regulation measure of insurance contracts.” “Insur Interpretation: ance Trends,” Contract Issues and 1975 Ins. (quoting Lawyers L.J. ‘Wayfaring “Insurance View Fool’ Doctrine,” (July 24, 1971). Insurance Advocate 21 adopted

Our principle giving courts have effect to the “objectively expectations” reasonable of the insured for the purpose rendering “fair interpretation” a of the boundaries coverage. Orio, 269; insurance Di at v. N.J. Allen Metropolitan Co., (1965); Ins. 44 N.J. at 305 Kievit Life Co., Loyal (1961). v. Ins. Protective 34 N.J. 482-83 In Life Kievit, we stated: When members of the of insurance entitled to public are purchase policies they measure of broad fulfill their reasonable protection necessary expecta- subjected tions. should not be to technical or to They encumbrances hidden their be should construed their

pitfalls policies favor end liberally coverage ‘to full afforded extent fair will any interpretation allow.’ at [Id. 482.]

Application of this doctrine leads to basic tenet of insurance in interpreting any law that ambiguities insurance contracts against should be construed the insurer and in favor of the Allen, insured.11 As we stated in company expert complex The is in its field and its varied and instruments are prepared by unilaterally prospective it whereas the assured or assured is a layman provisions practices. justifiably places unversed in insurance and He heavy knowledge good company reliance on the and faith of the and its representatives they, turn, correspondingly heavy responsibili- in and are under ty expectations may justly to him. His reasonable in the transaction not be properly governing interpretative frustrated and courts have molded their principles uppermost consistently with that in mind. Thus we have construed strictly against interpretations terms the insurer and where several were permissible, we have chosen the one most favorable to the assured. [44 N.J. at 305.]

With the expectations doctrine of reasonable and this principle mind, of construction in concept we now examine the given right of surrender. Where the insured is the under a life insurance to surrender accept the its cash value, right surrender continuing such constitutes offer on part that, the of the insurance accepted by when the insured, rights parties fixes the without further action on See Board Trustees Unitarian part company. the of of Co., N.J.Super. Church v. Nationwide Ins. at 139 Board Trustees is the (App.Div.1965). leading Jersey New of key question, ease this area. There the as framed the Division, Appellate option was “when is the considered as Id. A similar having accepted question been or exercised?” posed in this case. Trustees, Board

In stop paying the insured decided to Id. premiums policy. on his life insurance at 138. He informed Church, beneficiary, payments, that it could continue the ambiguities 11One commentator notes as another reason to resolve the favor of the insured: insurance, i.e., very purpose spreading nature of individual community, injects risks over the entire into the insurance contract an public ordinary element of interest not common to the contract which normally only parties affects hereto. Note, Terms,” Policy “Insurance-Construction of 1954 Wis.L.Rev. (1954). paid-up insurance, convert or surrender the for its Id. The cash value. Church decided to surrender the (Nationwide) Company Id. Nationwide Insurance sent required signatures Church a surrender form that beneficiary. policy provided, insured and the Id. The as in case, Policy that must to company “the be returned the for surrender.” Id.

The the signed Church mailed form to the and he insured it and sent it the Church. signed back to Id. The Church then policy the form and mailed the form and the to Nationwide on November Unbeknownest the 26. Id. to either Church or to Nationwide, insured had died the on November 1962. Id. The Church policies. then demanded the full face value of the request Nationwide the only refused tendered instead policies. cash of surrender value at 139. Id. position signature Nationwide’s was that the insured’s on the acceptance par- and thus fixed the surrender form constituted ty’s rights Appellate and liabilities before The his death. disagreed. Division The court “the policy provided stated that upon value, election receive the cash surrender it had to Therefore, be returned to the for surrender.” “an option essential condition exercise was the of of ” delivery added). policy (emphasis to Nationwide. Id. of The court of policy concluded the surrender after the insured’s death was based on a mistake of mutual fact and legally binding therefore the surrender was not on the benefi- ciary. Id. us,

In the case NJL and the before dissent contend that Mrs. effectively Meier her surrendered when NJL received her signed cash-surrender form on March 1981. NJL further argues physical delivery that the of was necessary only precedent as a not payment, condition its as a condition however, precedent Plaintiffs, argue to its surrender. that the surrender become did not effective the terms of because delivery required physical insurance contract the surrender was effective. to NJL before in physical delivery of is common requirement Couch, on Insurance Couch options. 6 G. insurance surrender (rev.ed.1985). 2d 32:194 § contrary authority,

Although cases it has been held several there is some policy provision requiring the surrender of the in order obtain that a death, condition, is a for failure to fulfill which before the cash surrender value request. defeats the insured’s (1967); see also Interstate 1317, 1320 Annot. 15 A.L.R. 3d Life (1944) Jackson, Ga.App. v. & Accident Co. S.E.2d delivery policy; (insurer cancel without refused to died); Equitable insured policy was effect when therefore Germantown, Cir.1938) (3d v. 94 F.2d Ins. Co. Iowa Life request for cash value without the (sending of written Ins. v. Dur surrender); Franklin Co. complete not did Life ham, (announcement in (Tex.Ct.App.1961) 2d 104 351 S .W. surrender where to cancel did not effect tention insured and he company to execute release instructed insurance insurer first). policy in the the requirement placed is died This Thus, may waive its the insurer for its own benefit. insurer v. 32:195. But see Gram Id. delivery. at right physical § York, 375, 91 N.E.2d 307 300 N.Y. Ins. Co. New Mut. of Life policy in manner not (1950) (insured attempts to surrender who continuing offer accepting insurer’s policy in is not provided for counteroffer, must surrender, which be giving rather a but of provision is policy’s If surrender by the insurer. the accepted binding on the insured delivery, it is physical in terms of stated ¶ Couch, 67:271; supra, at enforced). 17 G. strictly be and will (1946). Insurance C.J.S. § required delivery policy of a is physical

Whether or not policy depends ulti of the complete surrender to effectuate a policy In the language in the contract.12 specific the mately on physical policy surrender will without its abandon the 12Amere intention to Couch, supra policy. n. 5. G. at 67:290 ¶ the not terminate issue, only the clauses discuss or at surrender termination as are follows: cash this CASH VALUE —The value of at time when there is no any policy the table of nonforfeiture values. This in in default shall be as stated premium policy may be surrendered cash surrender value. its If this is policy for or if surrendered within after date of default it is sixty-two days premium surrendered within after a while Extended thirty-one days policy anniversary Term Insurance Life is effective, or Insurance cash value this Paid-up shall not less than the value as date be cash of such premium

policy or default as of such anniversary. SURRENDER Surrender of this CASH VALUE —The value is cash policy paid by The surrender value will be less value indebtedness. any company upon request the owner's written surrender added.) (Emphasis therefore, policy, explicitly NJL not does state it requires whether return as a condition precedent payment conjunc or to surrender. The use of the plaintiffs’ tion “and” interpretation favors that the requires Furthermore, return notice and in order to surrender. “surrender,” NJL policy physical delivery calls the surrender physical delivery has been defined as the Annot., conjunction supra, with a written request. 15 A.L.R.3d However, there specific 1317. is no definition the NJL of “surrender.” The for a calls surrender but does not say Thus, how a can effectively be surrendered. we ambiguous conclude that the NJL is contract to whether the physical delivery precedent of the policy is a condition to its effective surrender.

Accordingly, ambiguous language must be con against strued Loyal Co., NJL. Kievit v. Protective Ins. Life supra, language If as to precisely N.J. at 475. unclear when occurs, termination it keep must be construed to Id., Moreover, force. NJL’s own with respect actions policy are with physical delivery consistent its belief that the

617 necessary was before it was surrendered effective- ly.13

Specifically, actions before Mr. Meier’s death did not NJL’s policy as surrendered. In its March 13 letter which treat the Meier, stated: a cash surrender form to Mrs. NJL it sent policy, please complete you your If after consideration still wish to surrender your cash surrender form and return it to office vnth the the enclosed added.) (Emphasis itself. this letter expectation any person who read The reasonable surrendered, that the was not and to would have been policy, the insured would have to return both the surrender the day If Mr. Meier had died the after form and the letter, beneficiary anyone argue that his receipt of this would policies? of the not entitled to the full face values was Moreover, upon form, receipt Policy of the cash surrender a Supervisor Service from NJL sent Frank Meier a letter ac- knowledging receipt “request to surrender” and requesting per provisions” “as contract itself before prior the “release of surrender values.” At no time to Mr. Meier’s death did NJL advise the insured that the contract was request merely surrendered. Instead it refers to the Meier’s that, request “a to surrender.” that it did not death confirm

NJL’s actions after Mr. Meier’s prior to his death. NJL’s policy as surrendered consider the Fiore, Mr. Meier’s think that at Manager, Joseph did not Claims In death, effective. accordance the surrender of the was Couch, supra, at 26:21 n.5: ¶ G. in 4 13Asstated upon provi- placed a the construction is bound An insurance scope acting agent within agent provided policy by its sion of the agent can although provision that no authority; apparent his actual or power parole his policy by not affect does change any terms of language therein. of doubtful construction the insurer to bind company to theory insurance estoppel hold an on have relied courts Some 215, Bailey, 55 Del. Co. v. Ins. interpretation. agent's Mutual its Benefit Life Co., N.J.Super. 512-13 (1963); Ins. 35 Northern Mattia v. A.2d 757 190 (1947); 98 Unger, 177 P.2d Okl. v. (App.Div.1955); Ins. Co. Atlas Life (1920); Ass’n, 103 S.E. W. Va. Mut. v. Masonic Edwards Life (Ct.App.Tex.1935). Lewis, S. W. 2d v. Ins. Co. & Accident National Life therewith, policy paid marked up” NJL the as “reduced and not It paid-up surrendered. tendered the reduced amount and not the cash-surrender value to the beneficiaries. If the surrendered, had been NJL would have tendered the cash-sur- render not placed value and on RPU status. In addition, it never advised Mrs. it placing Meier that was nonpayment on RPU status of premiums, because of itas did her policy (Policy 13331). by with second No. These actions employees, NJL’s clearly experienced reading own more lay persons, insurance contracts than confirm the conclusion language concerning that the contract surrender was unclear ambiguous. and

IY Finally, these facts that also establish there was no mutual Indeed, parties consent between the to terminate the principles applicable to apply surrender likewise to termi- Appellate nation. The Division held that: While Frank and June Meier intended have to terminate the may policy they were thwarted intention to return the or by requirement agreements. execute the lost Their efforts to find the before Frank Meier’s death were unsuccessful. There no was mutual consent terminate the policy. agree. We

It general is well-established as a rule neither the power rescind, cancel, insurer nor any the insured has or by surrender abandon a contract except of insurance virtue statute, of contract, some terms the mutual consent parties through agreement, an extraneous or a reserved power in the contract like that of unilateral cancellation. 17 G. ¶ Couch, supra, Here, at 67:1. no statute14 or contract15 terms 14 N.J.S,A. regulations give 17:29C-1 for rules notice to provides only insureds of unilateral cancellation insurers: 17:29C-1. written notice Policy provision; In addition to the law, conferred him other powers upon by any Banking Commissioner and Insurance authorized hereby empow- directly addressed termination insureds. Since we have plaintiffs determined that the were not in nonpay- default for premiums, ment of party neither was in breach. The dissent argues that Mrs. Meier’s actions were sufficient unilaterally cancel the insurance contract. It is well-established that the right of an insured to cancel an insurance unilaterally must be determined from the terms of the contract. 17 G. Couch, supra Here, at provision 1167:44. there no in the is provides contract that for unilateral cancellation of the contract by the Therefore, insured.16 termination of the could only through arise the mutual parties. consent of the

The elements of a contract present must be in order to establish a by consent, termination mutual id. at 67:205, and party alleging § that a cancellation has oc curred, defendants, in this case the has the proof. burden of Joslin Co., v. Hudson 195, (1930); Cas. Ins. 8 N.J.Misc. 197 Dill v. Co., 593, Lumbermen’s Mut. Ins. 213 S.C. 50 S.E.2d 923, (1948). 926 minds,

There meeting assent, must be a or mutual termination, constitute a valid Pennsylvania Mut. Ins. Co. Life Ashton, (10th v. Cir.1937); 93 F.2d 565 Merchant & Bankers regulation ered to direct, rule or as hereinafter by that insurance provided, organized organized under companies laws of this State or to do business in State, shall include of insurance provisions policies written such State, in this by any 30 written notice company whereby days’ given; (1) shall be insured, to the of the cancellation of such any policy; (2) designated mortgagee and, not named any therein as the insured of (3) the cancellation of and, interest such any insured, of policy; intent not to renew such L. c. 131, § 1, 3, eff. any 1968. July regulation A similar Rhode Island was held not to when an insured apply Liguori initiated the termination of his insurance. v. Aetna Cas. & Co., Sur. (1978). R.I. 875, 384 A.2d 308 concerning 15The in the are those only provisions cash surrender values, reprinted at 616. supra allege 16Defendant did not that the cancelled properly plaintiffs unilaterally the policy. Downs, Guaranty Co. v. (1937), Fla. 175 So. party knowledge and each must act facts, with of the material Co., Pennsylvania 568; Mut. Couch, Ins. 93 F.2d at 17 G. Life ¶ 67:205. supra, at Incomplete negotiations do not effect a cancellation. Co., 923; Dill v. Lumbermen’s Mut. Ins. 50 S.E.2d 45 C.J.S. In proposal by surance 444. Thus a mere the insured to cancel § accepted by his company, insufficient unless it is and a mere premi offer the insurance to return the um acceptance will not effect a cancellation unless there is an Co., the insured. v. McCollum New York Mut. Ins. Life (Sup.Ct.1889). N.Y.S. 249

In the express absence of an contrary provision in contract, agreement an for the mutual termination of a contract of may any Couch, insurance be made in form. 17 G. ¶67:205. supra, at agreement The writing, need not be in no set form of words necessary. is at Similarly, Id. 67:209. § since a by termination upon mutual consent is par based intent, ties’ it is immaterial whether by that intent is manifested by words or conduct. Id. at 67:210. §

In harmony general with the principles of contract law, the agreement mutual termination dependent can be made upon a condition. If satisfied, that condition is not it necessar ily follows that no policy termination occurs and the continues in force. Id. at parties may 67:216. The make the surrender § policy of the precedent a condition to termination. Id. at ¶ agreement 67:220. Where the subject to one or more conditions, it is necessary all that such conditions be satisfied. accepted If only part, Id. the conditions are not satisfied and there is no mutual consent.17 requests 17Where the insured immediate cancellation and the insurer re sponds precedent, with a list of conditions the insurance contract has not been House, 52, Ga.App. cancelled. Atlantic Am. Ins. Co. v. Huddle 237 S.E. Life policy A provision provides that for the termination explicit. of an insurance contract should policy be Here the provision advising contained no the insured how he could termi provisions nate. policy From the on “surrender” and the communications of the company, insurance it is reasonable to requirements conclude that the for termination were the same surrender, as those namely, for written notice physical delivery policy.18 policy. However,

Mrs. Meier wished to terminate the by she was advised company insurance that in order to do so, she had to deliver to the insurance either the physical policy policy upon request, or a lost form. Based proceeded she policy look for the without success. Since she policy form, never returned the or a lost she did not fulfill the imposed. conditions for termination that NJL Ac cordingly, minds, there meeting was no and as a matter well-recognized principles contract and insurance there was no termination by of the contract mutual consent. The inwas effect at the time of Frank Meier’s death. (1977) (life

2d insurance did not have cancellation provision agreement). must be cancelled mutual 18 InAmerican Ins. v. Park, Co. 266 So.2d cert. Liberty Ala.App. (1972), Ala. 266 So.2d denied, 289 a fire insurance provided it be "shall cancelled at time at the of the insured ...” Id. at 889. any request agent insured, however, was advised the insured’s that the would have be surrendered before the could be cancelled. The physically agent bring insured advised the he would in the as soon as he had time. A fire occurred before the insured delivered the The court held that the policy. was not cancelled. It reasoned that: The new cancellation was the and said [by procedure proposed company] insured, Pack, was communicated to the and was proposal orally agreed him, insured in the terms for he to the new accepted proposed agent he, cancellation he informed in when procedure appellant’s effect, the cancellation insisted the insurer’s accepted procedure upon by agent bring and would in the for cancellation when he had time to do so. Id. at 890. 622 complexity

Because of the of insurance contracts and expertise companies, of insurance obligation it is the companies unambiguous those to draft clear and contracts. In policies, their companies insurance should set forth precisely terminate, may effectively how an insured surrender or cancel case, his In this adversely failure to have done so company; affected the insurance in other situations the insured may injured party. precise be the think draftmanship We more will benefit both insureds and insurers.

V Appellate Division held that the trial properly court plaintiffs allowed the prejudgment recover interest. The law Jersey in long prejudgment New has may been that interest liquidated run damages, on right, not as a matter of but equitable accordance principles. with Manning Eng’r Inc. v. County Comm’n, (1976); Hudson Park 71 N.J. 159 Bak- Corp. Prods., (1976); A-Lun v. Bldg. Alcoa 131 N.J. Inc., Deerhurst Estates v. Super. Meadows Homes 64 N.J. denied, (App.Div.1960), (1961); Pressler, N.J. certif. Rules, (1985). Current N.J. Court Comment R. 4:42-11 In this case, $250,000. liquidated amount due is a claim of It is of import good no that the pay defendant faith did not policy proceeds plaintiffs. to the NJL had the use of the proceeds during litigation, the course depriving of this plaintiffs money of the they to which were entitled. We find prejudgment properly interest was awarded.

VI conclusion, In Policy we hold that No. 133624was in effect at decision, reaching time of Frank Meier’s death. In we find that applied provisions pay NJL should have the APL February premium prior expiration grace Moreover, period. language we policy regarding find ambiguous. surrender and termination to be This determina- only reading tion is on not our based of the terms but also of respect the actions NJL with Accordingly, prior death, we find that to the insured’s the policy was not effectively surrendered or terminated mutual consent. We also prejudgment properly find that interest was awarded. We therefore judgment Appellate affirm the of the Division.

CLIFFORD, J., dissenting. The anything cataclysmic Court has not done in really mean, case. I it not upside has turned insurance law down or anything damage like that. the today’s So inflicted decision (I greet is greater minimal it with serenity, probably, than will the company, defendant insurance an judg- whom adverse $256,133.05 plus $59,619.35 ment of pre-judgment interest “minimal”). may not be viewed as my But it seems to me that colleagues gone have way out of their wrong to reach the result. strain The shows. I file therefore this little dissent.

I The question Court first holds that “did not lapse due to nonpayment premiums,” ante at 611 (footnote omitted), “[ujnless and that otherwise [the owner] or terminated policy, surrendered her it remained in effect on the date of the death.” Ante at 611. agree insured’s I with propositions. those majority then decides that to the extent that the

language “surrender,” ambiguous, language deals with is wherefore we must look to of parties the conduct determine whether this had been or termi- surrendered Although policy language nated. I would not characterize touching “ambiguous” surrender as so much as non-existent (the speaks contains no definition of “surrender” and only value”), agree surrender I with “cash nevertheless here, revealing Court what is really controls what most intent, insured, parties’ conduct owner, Meier, company, June and of the defendant Jersey New (NJL). Company Life Insurance that the majority On score concludes that NJL’s actions confirm it did not consider the surrendered, 617; ante at policy having been and as as against terminated, policy the contention that the was the Court says: Since never returned the or a lost she not [the owner] policy form, did policy Accordingly, fulfill the conditions for termination NJL there was imposed. meeting well-recognized no of the and as matter minds, of and contract

insurance there was of no termination the contract principles mutual by consent. The was in at effect the time of Frank Meier’s death. [Ante at 621.] With those critical conclusions to surrender and termination of policy, agree. the I not at do all

II background parties’ The put perspective. facts the conduct in I following consider the to be the essential facts. question,

1. The in by issued NJL on the life of Frank Meier $250,000, in the face amount of was owned wife, plaintiff insured’s June Meier.

2. (APL) The premium contained an automatic loan provision, under processed which were automatically loans premiums of unpaid amount and the owner was of notified the policy’s “draw-down” in value.

3. payments Premium quarter. came due each For 1980 11, payments 11, those February May August 11, were due on August 1980, November 11. As of premiums had paid been was full force and effect. 4. Commencing premium with the payment August on due 11, 1980, NJL premium payments. received no further explanation for consultants, this is clear: Meier’s insurance planning who rendered estate services and in fact had sold and policies, serviced the NJL policies recommended that those be replaced by policies of equal cost; face amount but at lower hence, August premium-due on date the NJL policies, Meier became insured Executive Life Insurance Company $250,000 York in (which New the amount of was course, paid, death). Significant after Meier’s regard in this is the reminder to Meier from consultants, his insurance on 6, 1980, November payments “be sure that Jersey to New Life subject policy] for are consequence discontinued.” In [the foregoing decision, conscious premiums business due August on 11, 1980, 11 and November paid by were not owner paid by but were operation of the APL provision. The transactions, owner was notified of these each of which drew down the value of the to the extent of about $3500. apparent

5. It is that policy the insured and the owner concerned, alarmed, became by if not continuing use of cash premiums values pay to on policy they that already had replaced with an policy affording Executive Life the same dollar amount coverage. The record does not inform us precisely when precisely who precisely said what to precisely whom; 11, 1981, but on March 31-day grace period before the payment 11, for February 1981, quarterly premium had expired, letter, NJL 9, received a one-sentence dated March 1981, Feingold from Sanford Agency, informing company policy question (The that the in “had been surrendered.” Court labels this message “cryptic,” as ante at 608. There is noth- ing cryptic about it—it unmistakably everyone as clear—but agrees, surely it fails if its intention was to effect surrender as received.) of the date it was 13,1981, letter,

6. On together March NJL sent a form with form, owner, urging a cash-surrender her to intention, expressed reconsider her in the March 9 communica- Feingold tion from Agency, policy. Sanford terminate reads, pertinent part, The form letter as follows: If after due consideration still wish to surrender you your policy, please the enclosed cash surrender form and return it to our office with the complete itself. we will release the cash value to Upon receipt you promptly. accompanying letter, 7. The cash-surrender form the form signed by Meier, completed by June was received NJL on form, obviously March 1981. That backdated to March (within grace period February premium), for the or completed copy owner, on a different somehow obtained Feingold was sent to NJL the same Agency Sanford with request “signed request that the for cash surrender value” “process[ed] quickly possible.” be as The cash-surrender reads, form in full: I that the cash surrender value of number hereby request

which was issued on the life of Frank be Meier, to me. paid legally I I am to execute this certify competent instrument, assigned undersigned, contract is not now other than the any that no person proceedings involving undersigned or are now bankruptcy insolvency pending. discharge I do release, surrender, and terminate said hereby cancel, fully contract at New this 10 Denville, 1981. Jersey, day March, thereupon, 27, 1981, 8. NJL acknowledged receipt on March “request surrender” the It also told the released, insured that before the “surrender values” could be itself would have to be returned to the or a policy agreement lost “Upon receipt executed and returned. form, either the or the all prompt- values will be released ly.”

9. Before the policy agreement was located or the lost signed returned, 13, 1981, April and Frank Meier died on eighteen days NJL had received the form by executed after “release, surrender, cancel, Meier June which she did fully discharge subject policy. and terminate” the

Ill From rights the facts recited above I would conclude that the parties 26, 1981, of the were fixed as of March the date NJL policy received the cash-surrender form executed the owner. By the unequivocally terms of that document June Meier relin- quished rights policy, all further interest in and under the in consideration of the cash surrender value. observes, correctly

As the Court given right the insured is the under a life-insurance to surrender [w]here policy right the its cash surrender such constitutes a continu- value, accept ing offer on the of the insurance when part which, company, accepted by rights fixes the of the without further action on the of the insured, parties part company. [Ante at 613.] Alas, despite foot, encouraging step right on the the Court immediately in briarpatch “ambiguous policy stumbles language.” Specifically, it declares that a that does not “ambiguous define “surrender” physical as to whether the delivery precedent of the is a condition to its effective surrender.” Ante at 616. And once the touchstone ambi- guity dredged up, has predictable been conclusions snow- (here, language non-language) against ball: construe the perpetrator, termination, against construe it surrender or keep force, construe it to etc., etc., voila, there you physical delivery have it: is a condition precedent proposition to surrender —a that the trial court cor- rectly rejected out of hand. support

In manifestly propositions of these dubious the ma- (the jority opinion hearkens March 13 letter back NJL’s letter), “please reconsider” and asks: argue If Mr. Meier had died the after of this would letter, day receipt anyone that his was not entitled to the full value of beneficiary policies? [Ante at 617.] nobody presumes any make

Of course not. And such conten- rejection by no-weight make-weight. is a tion. Its Court try way: day it this if the insured had died the after But release, surrender, cancel, fully “I receipt, on March form, discharge any and terminate said contract” is there doubt beneficiary nothing that his was entitled to under the exactly sought— entitled to what she and that the owner was is, effect, the cash-surrender value? That this case. Or, perhaps point, way: more to the if the insured had company continued, not died and the had after March to apply APL keep in effect or otherwise reduce value, its anyone would contend that the insured was not entitled the full cash-surrender value as of March 26? Sure- íy not. point,

But to return to our ambiguity: reference what could wwambiguous be more than the executed release-surrender-ter- mination-cancellation form? plainly How more could the owner express her earnest wish company depleting cease policy’s what was left of value continuing its resort to provision? the APL acceptance How could her of what the Court concedes ongoing expressed is NJL’s offer be more straightforwardly than it is on the executed form? point

At rights parties 1981—the were —March accepted established. The owner had company’s offer—and this was a simple, matter of offer-and-acceptance basic rather than, majority suggests as the in its my mischaracterization of position, unilateral cancellation of the insurance contract. NJL then told the owner that in fulfillment of her now-estab- right value, lished cash-surrender or a lost policy agreement would have to be furnished —a classic exam- ple precedent of a condition payment of a matured claim. No amount of ineptness after-the-event part on the (of personnel plenty), which there was short of something that novation, would work a change legal positions could parties they stood on March 26.

IV foregoing For the propositions I have marshalled no authori- ty, may as the reader have observed. I make the immodest assumption plain that so propo- common-sensical are those authority required. sitions that no Not that the authorities them; do not exist—the briefs are crammed with but there is support no need to resort to them for of the conclusion that

629 when, case, policy gives unequivocal owner of a policy, notice of surrender of a life-insurance that notice is sufficient to constitute exercise then and there of the cash-sur- option, physical delivery render is no more precedent payment than a condition of the cash-surrender value. is, however, authority

There one that should be rescued from treatment majority subjects abusive to which the it. Board Co., Trustees Unitarian Church v. Nationwide Ins. 88 of of N.J.Super. (App.Div.1965), 136 heavily, is relied on at ante 613-14, delivery proposition for the is a condi- precedent First, tion to surrender. we do not know what the policy language Second, was in Unitarian Church. the case is plainly distinguishable are, all, on its facts—and we after in an area by exquisite fact-sensitivity characterized in that case —for the insured died the cash-surrender form and the before had even company; rights parties been mailed to the of having death, been fixed as of the date of the insurance obligated was of pay course the face amount of the receipt before of the cash-surrender form and Third, fact, the decision was based on mutual mistake of fourth, language nowhere hinted at in this case. And relied pure on in Unitarian Church is dictum. note, however, agreeable my I

On more would add voice to majority’s encouragement precise draftsmanship” of “more Indeed, contracts, precise of more of insurance ante at 622. general. Always articulation in I am all for that. have been. See, Ass’n, e.g., Corp. Jersey Underwriting v. New 86 N.J. (1981) (the should, (concurring opinion) through insurer * * * “perceptive competent the use of its counsel skilled explicit expression,” in the craft of mold its forms to * * * judicial interpretation”); “accommodate the realities of Lee, 156, 167(1984) (dissenting opinion) see also State v. 96 N.J. public (bemoaning precision the “woeful lack of in our dis course”); Madison, Madison, Township at Inc. v. Oakwood (1977) opinion) (quoting (concurring 636-37 E. N.J. (1976) (“We

Newman, are all safer when Tongue A Civil knowing our what language specific. improves is It chances add, however, on.”)). I that even going would hasten part though prescience on the insurer’s a remarkable level specifically might language in the produced have here, dispute, thereby obviating the addressed the situation right language does not affect result. absence of such however, compa- interpretation, the insurance the Court’s Given ny may give be well advised to another look. V judgment Appellate I would Division and reverse entry judgment in the cause to the trial court for remand agree an parties If the are unable to on favor defendant. premium coverage up to March adjustment of the to reflect I appeal, on this would leave an issue nowhere addressed question simple calculation—to the trial resolution of that —a court. and Justices For Justice WILENTZ Affirmance —Chief O’HERN,

HANDLER, POLLOCK, GARIBALDI and STEIN— 6. CLIFFORD—1.

For reversal and remandment —Justice

Case Details

Case Name: Meier v. New Jersey Life Insurance

Court Name: Supreme Court of New Jersey

Date Published: Feb 3, 1986

Citation: 503 A.2d 862

Court Abbreviation: N.J.