Opinion
No. 28389
Decided April 23, 1941.
Contracts — Waiver of conditions precedent — Receipt and retention of consideration — Automobile accident insurance — Waiver of right to avoid policy — Acceptance of renewal premium and issuance of receipt therefor — Waiver of forfeiture right — Insured beyond inhibited age expressed in policy.
1. The receipt and retention of consideration, with knowledge that conditions precedent in a contract have been broken, constitute a waiver of such conditions so as to withdraw them from the terms of the contract.
2. Where an insurance company, at the time it renews an accident insurance policy for an additional year, has knowledge of existing facts which would invalidate the insurance contract from the time of its renewal, the acceptance of a renewal premium on such renewal contract and the delivery of a renewal receipt will constitute a waiver of the right of such company to avoid the policy on account of such invalidating facts.
3. Where an insurance company has knowledge of the fact that the insured is beyond the inhibited age expressed in its accident insurance policy at the time the policy is renewed for an additional year, but continues to treat the contract as of binding force by accepting and retaining a renewal premium from the insured until after he suffers an accident within the terms and the coverage of such policy, the right of forfeiture on account of the age of the insured is waived.
APPEAL from the Court of Appeals of Cuyahoga county.
The National Casualty Company, a Michigan insurance corporation, the insurer, on April 27, 1937, issued to Harry English, the insured, an automobile accident insurance policy for which he paid the insurer the sum of $12.50, representing the annual premium. By the terms of the policy, the insurer agreed to pay the insured certain indemnities in case of disability from bodily injury while operating, driving, riding in or cranking an automobile during the period from April 27, 1937, to April 27, 1938. Paragraph 20 of the "standard provisions" of the policy in question was as follows:
"20. The insurance under this policy shall not cover any person under the age of fifteen (15) years nor over the age of sixty-five (65) years. Any premium paid to the company for any period not covered by this policy will be returned upon request."
The original application for the policy in question disclosed that the insured was born March 4, 1873, and would become 65 years of age on March 4, 1938. On March 16, 1938, insured paid the insurer a further premium of $12.50 and the insurer on that date issued to him its official renewal receipt by the terms of which the insurer agreed to renew and continue in force the automobile accident insurance policy until April 27, 1939, subject to the conditions of the policy.
On July 9, 1938, while driving his automobile, insured received a bodily injury within the coverage of the policy. On July 16, 1938, insured notified the insurer of his injuries and in due time made proof of his claim. On December 23, 1938, the claim was rejected. The insured at no time made a request for the return of the premium for the policy year beginning April 27, 1938, but on December 23, 1938, the insurer tendered the insured a check for $14.35, apparently to cover premiums paid for the period beyond March 4, 1938, but the check was not cashed.
The insured brought suit in the Municipal Court of Cleveland to recover on the policy of insurance, alleging in his amended petition that "in consideration of a further premium of twelve dollars and fifty cents ($12.50) [paid] to defendant by plaintiff, there was issued to him an official renewal receipt by the terms of which defendant agreed to renew and continue in force until the 27th day of April 1939 said automobile accident policy of insurance." The insurer's answer "admits that said policy was renewed on March 16, 1938, for a further premium of $12.50 as alleged in the amended petition."
A jury was waived and trial was had to the court on an agreed statement of facts, resulting in a judgment for the insurer. The case was appealed on questions of law to the Court of Appeals which affirmed the judgment of the Municipal Court, one judge dissenting. The case is now in this court for review by reason of the allowance of a motion to certify the record.
Messrs. White Mierke, for appellant.
Messrs. Flynn Benesh, for appellee.
The question presented by the record may be stated as follows: Is the insurer estopped to deny liability under its insurance policy, because it issued the same with full and actual knowledge that the insured was, at the time the renewal premium on such policy was received and receipt issued, then beyond the age of 65 years; and because with such knowledge it retained such premium until after the insured, within the period covered by the premium, sustained personal injuries which were within the coverage and indemnity terms of the policy?
There is no question of concealment, misrepresentation or fraud on the part of either the insurer or the insured involved in this case. Both were fully conversant with all the facts as set up in the application and policy when the latter was first issued.
No waiver of condition as to age of the insured was necessary when the policy originally went into operation, because the insured did not arrive at the age limit until March 4, 1938. But since the insured had already reached the age limit on March 4, 1938, before the beginning of the renewal year of the policy on April 27, 1938, it required a waiver of the condition as to the age of the insured before the policy could go into effect for the second year. On no theory could the insurer accept the payment of premium and issue a renewal receipt for the year commencing after the insured had reached the age of 65 years, except by waiving the condition with reference to age. By this course of conduct, the insurer, having full knowledge of the facts, in effect said to the insured that the policy should go into effect notwithstanding the insured was then over 65 years of age.
The fundamental principles of the law of contracts solve this problem. There was no mistake or dispute as to the facts, and the parties were under the mutual duty to deal honestly with them. The insurance company which received the premium affirmed equally with the insured, the existence of a contract of insurance in return for the premium paid. The insured, by paying the premium in reliance on the mutually-assumed fact that a contract of insurance thereby came into existence, did an act detrimental to himself, but for such assumed fact. Hence, as between the parties, the fact — the existence of the insurance contract — must thereafter be conclusively held to be as thus mutually affirmed.
A party to a contract who, after discovery or knowledge of facts which would entitle him to rescind, treats the contract as a subsisting obligation and leads the other party to believe the contract is still in effect, waives his right to rescind. Nelson v. Chicago Mill Lumber Corp., 76 F.2d 17, 100 A.L.R., 87; Dobie v. Sears, Roebuck Co., 164 Va. 464, 180 S.E. 289, 107 A. L. R., 1026. Therefore, the receipt and retention of consideration after knowledge that conditions precedent have been broken, constitutes a waiver of such conditions so as to withdraw them from the terms of the contract. Crawford v. National Insurance Corp., 231 Ala. 636, 166 So. 721.
Restrictions by an insurance company on its own powers are ineffectual as against acts of estoppel. It is not in the power of the company to abolish the law of estoppel or waiver by such means. Dick v. Equitable Fire Marine Ins. Co., 92 Wis. 46, 65 N.W. 742; Firemen v. Norwood, 69 F., 71; Northern Assurance Co. of London v. Grand View Bldg. Assn., 101 F., 77, 80; Gandy v. Orient Ins. Co., 52 S.C. 224, 29 S.E. 655; Ohio Farmers Ins. Co. v. Cochran, 104 Ohio St. 427, 135 N.E.) 537. The tender of the premium by the insured constituted an offer on his part to renew the policy for another year and this offer was subject to acceptance or rejection by the insurer. By the acceptance and retention of the premium, the insurer exercised that option. It would be inequitable and unjust to allow it to retain the premium and to delay exercising this option until injury occurred to the insured and then elect to escape liability under the policy. If no injury had resulted to the insured until the expiration of the year covered by the premium paid, clearly the insured could not recover the premium on the theory that the policy was ineffective and void. For the same reason the insurer could not retain the premium on a gamble that no liability would occur, and then escape liability after an injury occurs by claiming that a condition precedent had been broken.
These principles are amply supported by the authorities. The general rule applicable here is stated in 29 American Jurisprudence, 611, Section 807, as follows:
"It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with the known facts, and the insurer is estopped thereafter from asserting the breach of such conditions. The law is charitable enough to assume, in the absence of any showing to the contrary, that an insurance company intends to execute a valid contract in return for the premium received; and when the policy contains a condition which renders it voidable at its inception, and this result is known to the insurer, it will be presumed to have intended to waive the condition and to execute a binding contract, rather than to have deceived the insured into thinking he is insured when in fact he is not, and to have taken his money without consideration." See, also, Ins. Co. v. Brodie, 52 Ark. 11, 11 S.W. 1016, 4 L.R.A., 458; Hartford Fire Ins. Co. v. Redding, 47 Fla. 228, 37 So. 62, 67 L.R.A., 518, 110 Am. St. Rep., 118; Ohio Farmers Ins. Co. v. Vogel, 166 Ind. 239, 76 N.E. 977, 3 L.R.A. (N.S.), 966, 117 Am. St. Rep., 382, 9 Ann. Cas., 91; Commonwealth Casualty Co. v. Arrigo, 160 Md. 595, 154 A. 136, 77 A. L. R., 1250; Midland Motor Co. v. Norwich Union Fire Ins. Soc., 72 Mont. 583, 234 P. 482; Forward v. Continental Ins. Co., 142 N.Y. 382, 37 N.E. 615, 25 L.R.A., 637; Leisen v. St. Paul F. M. Ins. Co., 20 N.D. 316, 127 N.W. 837, 30 L.R.A. (N.S.), 539.
It is also a well settled rule of law that an insurer, which, with knowledge of the facts which would entitle it to treat the policy as no longer in force, receives and accepts a premium on a policy, is estopped to take advantage of the forfeiture. The insurer cannot treat the policy as void for the purpose of defense to an action to recover for a loss thereafter accruing, and at the same time treat it as valid for the purpose of earning and collecting further premiums. 29 American Jurisprudence, 653, Section 857; Southern States Life Ins. Co. v. Dunckley, 226 Ala. 588, 148 So. 320; Fire Assn. of Philadelphia v. Eldridge, 191 Ark. 1135, 89 S.W.2d 722; New England Mutual Life Ins. Co. v. LeVey, 264 Mich. 282, 249 N.W. 854; Millis v. Continental Life Ins. Co., 162 Wn. 555, 298 P. 739.
The case of Western Casualty Co. v. Aarons, 85 Colo. 591, 277 P. 811, is in point, holding that an accident policy issued to a person over 60 years of age in violation of a provision of the policy was not void ab initio, since the age-limit provision was a restriction for the insurer's benefit and could be waived or ignored by it; and that the insurer having accepted premiums on the policy after it was aware that the insured had arrived at the age of 60 years, thereby waived its right to avoid the policy on that ground. To the same effect are the cases of Smith v. Liberty Life Ins. Co., 118 Neb. 557, 225 N.W. 688; Cook v. National Fidelity Casualty Co., 100 Neb. 641, 160 N.W. 957.
The exact question here presented has not previously been before this court, but principles applicable to this case have been announced in the following cases: Mutual Life Ins. Co. v. French, 30 Ohio St. 240; Natl. Surety Co. v. Bohn, 125 Ohio St. 537, 547, 182 N.E. 506; Shields v. Supreme Council of the Royal Arcanum, 123 Ohio St. 31, 173 N.E. 731; Ohio Farmers Ins. Co. v. Cochran, supra.
Cases not resulting in an estoppel against an insurance company, where premiums have been paid and accepted after an age limit has been reached, may be found relating to group insurance contracts between an insurer and employer for the benefit of the latter's employees, and relating to some mutual insurance company contracts where a member, because he is alike insurer and insured, is bound by the written terms of the policy, but the holdings in these cases are inapplicable to the case at bar.
The judgment of the Court of Appeals is reversed and final judgment is awarded to the insured against the insurer for the sum of $800 with interest from September 16, 1938.
Judgment reversed and final judgment for appellant.
WEYGANDT, C.J., TURNER, WILLIAMS, MATTHIAS, ZIMMERMAN and BETTMAN, JJ., concur.