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Action on insurance policy; equitable cross-action. Fulton Superior Court. Before Judge Alverson. May 5, 1959.
DUCKWORTH, Chief Justice.
1. Equity will not reform a contract because of a mistake unless the mistake is mutual, or a mistake by one and fraud by the other party thereto. Where, as here, the intention of both the insurer and the insured as to the amount of premium is expressed in the application--as corrected by the insurer as therein authorized--to be $302.90 per quarter, a mistake of the scrivener of the insurer in writing into the policy at another place the amount of the premium as being $750.48 per year, instead of what the insurer claims to have been intended, to wit: $750.48 per quarter, is obviously the unilateral mistake of the insurer alone, and there is neither mutuality nor fraud that would authorize reformation to conform with what the insurer claims to have been intended.
2. Construction of ambiguous contracts is the duty of the court, and it is only after application thereto of the pertinent rules of construction, and they remain ambiguous, that extrinsic evidence is admissible to explain the ambiguity. An applicable pertinent-rule for construing an insurance contract that is ambiguous because it contains contradictory clauses as to the amount and method of payment of the premium is that the clause most favorable to the insured must be adopted. When this pertinent rule is applied to the conflicting clauses in the present policy, the clause fixing the premium at $302.90 per quarter must prevail, and by it the intention is clear, and extrinsic evidence is inadmissible to explain it. By the terms of the policy the admitted payments of this premium made available extended term insurance of more than a year from the date the premium payment was defaulted, and hence the full amount of the policy was in force when the insured died on April 24, 1957, after the default on February 1, 1957.
This action arises out of a contract of insurance, and this court has jurisdiction by reason of the cross-bill of exceptions, which assigns as error the order of the trial court sustaining general demurrers to an amendment to the answer, which constituted an equitable cross-action. The plaintiff in error in the main bill brought her action, as beneficiary, against the insurance company, the defendant in error, on a contract of life insurance in the amount of $100,000, which she alleges was in full force and effect at the time of the death of her husband, the insured, and for interest from the date of demand, which was refused. The insurer answered denying liability, because the policy had lapsed for non-payment of premiums; and by way of crossaction alleged and prayed for equitable relief to have the policy reformed to correct an error of the scrivener, which was allegedly a mutual mistake of the parties resulting from a clerical error, the policy as written showing the due date as August 1 of each year, whereas the due dates should have been August 1, November 1, February 1, and May 1 of each year, and the premium as shown on the face of the policy, $750.48 as the quarterly premium instead of the annual premium. Demurrers were filed to the equitable cross-action, and, after a hearing, sustained. The cross-bill of exceptions of the insurance company, as plaintiff in error, excepts to this judgment.
The case proceeded to trial, and at the conclusion thereof the court directed the verdict for the insurer, and the plaintiff filed her motion for new trial, which was thereafter amended, and after a hearing was denied. The exception in the main bill is to this judgment.
It is unnecessary to set forth the contentions of the amended motion for new trial. However, a concise statement of the material portions of the policy is necessary for an understanding of the opinion. The application for insurance, signed by the insured and attached to and made a part of the policy, which is also attached as an exhibit to the defendant's answer, shows an application for $100,000 of life insurance under plan "A. S. P.", with a premium of $294.33 payable quarterly, with an automatic premium loan, and acceptance of the policy constituting a ratification by the insured of any correction or addition to the application by the company. The company had corrected this application by changing the kind of policy to "APC", with no automatic premium loan, a premium of "$302.90," payable quarterly, and issued "on ACL Basis." The ratification of these changes by the insured reads as follows: "My acceptance of any policy issued on this application will constitute a ratification by me of any correction in or addition to this application made by the company." The entire policy was submitted in evidence, and, under the policy loans provisions for automatic cash loans, is found the following excerpt: "Upon request made in the application or upon subsequent written request received by the Company . . . the Company will lend, on the sole security of this Policy, a sum not exceeding the then cash value as determined from the Table of Non-Forfeiture Values, less any existing indebtedness on account of this Policy and accrued interest thereon, if any." The Table of Non-Forfeiture Values for each $1,000 of insurance for one year at age 39, which applied to the insured, showed the following: Cash or Loan--$17.59; Paid-Up Insurance--$40; Extended Insurance--2 years 79 days. Under Non-Forfeiture Values, are found the following excerpts: "Values given in the Table of Non-Forfeiture Values are for a Policy free of indebtedness and for lapses occurring with premium paid for completed policy years, proportionate allowance being made in determining values from said table for the fractional part of a policy year's premium that has been paid." . . . " Non-Forfeiture Options. Any one of the following non-forfeiture options, the values of which are stated [in the Table] . . . may be elected by written request received by the Company at its Home Office not later than sixty days after the due date of any premium in default and prior to the death of the Insured: Cash Value. The cash value of the Policy will be paid upon surrender of the Policy; or . . . Extended Term Insurance. The Amount of Insurance will be continued as extended term insurance from the due date of the premium in default. Automatic Option. If no election is made within sixty days after the due date of a premium in default, the Policy will be automatically continued as extended term insurance. Under Effect of Indebtedness on Non-Forfeiture Options is found the following: "Any indebtedness under this Policy shall be deducted from the cash surrender value otherwise payable and from the amount of insurance extended under the extended insurance option. The amount of paid-up insurance and the term of extended insurance shall be reduced to such as the cash surrender value less indebtedness will provide at the attained age of the insured."
Discussion of the numerous decisions of this court, holding that reformation therein was authorized--but every one of them stating that mutuality was essential to reformation, in the absence of fraud--cited by counsel for the company, is unnecessary further than to say that they, because of their facts, are wholly inapplicable here. Despite both established rules of law and the expressed provision of the policy, that the contract is the intention of the parties and cannot be altered by extrinsic evidence, counsel cite much evidence, admitted over objections on the trial, for proof of the intention of the parties as to what the premium should be, retaining a deadly silence as to the contrary intention expressed in the application part of the policy which they do not seek to reform. Then they refer to the automatic cash loan paragraph of the policy and firmly assert that it provides that the insurance company would lend the full cash value, at interest, "to be applied each quarter on the total premium then due in the amount of $750.48." There is simply not a word of the quoted language in the policy, nor is there any language that even hints at such. No grounds for reforming the policy as sought were shown, and the judgment of the court dismissing the cross-action, which is excepted to in the cross-bill, must be affirmed.
2. We believe that an interpretation of the insurance contract according to established rules will decide every question raised in the main bill of exceptions. The face of the contract shows undeniably that it contains two repugnant or contradictory clauses which fix the amount of the premium. In Wood v. Phoenix Ins. Co., 199 Ga. 461 (34 S. E. 2d 688), this court had for construction a contract of sale of property, in which the consideration was stated in different amounts, and in an opinion prepared by Chief Justice Bell it was held that extrinsic evidence was admissible to explain the ambiguity. But in McCann v. Glynn Lumber Co., 199 Ga. 669, 679 (34 S. E. 2d 839), in an opinion also prepared by Chief Justice Bell, it was said: "The construction of a contract, if needed, being a question of law for the court, as well as a duty that rests upon the court, there can be no ambiguity within the rule to which we have referred, unless and until an application of the pertinent rules of interpretation leaves it really uncertain which of two or more possible meanings represents the true intention of the parties. " (Italics ours.)
A pertinent rule for interpreting insurance contracts which contain contradictory clauses or other ambiguities is that they must be construed favorably to the insured and against the insurer. A statement of this rule as applied to contradictory clauses in an insurance contract is found in Hodges v. Planters & Peoples Mut. Fire Assn. of Ga., 37 Ga. App. 203 (1) (139 S. E. 362), as follows: "Of two inconsistent clauses appearing in the body of an insurance policy, the one more favorable to the insured will be adopted." This rule is stated in 29 Am. Jur. 183, 166, as follows: "Likewise, if there are conflicting or repugnant clauses in an insurance policy, the court will construe them in favor of the insured, so as to prevent a forfeiture." Cited to support this statement among other authorities, are Norwich Union Fire Ins. Soc. v. Cohn, 68 F. 2d 42, 94 L. R. A. 494; writ of certiorari denied in 291 U. S. 665 (54 S. Ct. 440, 78 L. Ed. 1056); and our own decision in Massachusetts Benefit Life Assn. v. Robinson, 104 Ga. 256 (30 S. E. 918, 42 L. R. A. 261).
With this array of authorities stating "a pertinent rule of construction," is there left a reasonable doubt as to what this court's duty is when confronted with this policy containing two conflicting and repugnant clauses that state the premium and manner of payment differently, the one fixing the amount at $750.48 payable yearly--which if adopted might render the policy void--and the other fixing the amount at $302.90 payable quarterly, which if 'adopted will preserve the policy and avoid a forfeiture? In our original opinion we took the portions of these two clauses most favorable to the insured, and while not now holding that this was wrong, we prefer to rest our ruling upon the acceptance of one entire clause to the exclusion of the other. The judicial reasoning upon which the rule rests, requiring courts to adopt of two conflicting clauses the one most favorable to the insured, is squarely bottomed upon the cardinal rule requiring effectuation of intent. The insurer is presumed to have intended that the clause most favorable to the insured be effective else it would not have inserted it in the policy it issued, and the insured is presumed to have chosen and intended to accept that which is most favorable to' him. The clause fixing the amount of the premium at $302.90 payable quarterly is more favorable as to time of payment and preserves the contract and avoids a forfeiture, while the other clause might render this contract void.
Thus, when the pertinent rule for construing an insurance policy is applied, the contradiction vanishes, and this contract becomes plain and unambiguous in so far as the amount of the premium and time of payment are concerned--which is $302.90 payable quarterly. The defendant's answer admits that the insured paid the first quarterly premium of $302.90 on August 1, 1956, and the second quarterly premium of $302.90 on December 14, 1956, thus showing payment of the premium for one-half of a year. The policy provides that, if the premium for a year is paid, and the policy lapses for non-payment, it will be extended as term insurance for 2 years and 79 days, and that, when the premium has been paid for less than a year, the extended insurance is for a proportionate period, which is in this case one-half, or 1 year and 39 and 1/2 days. The default in premium payment causing the policy to lapse as alleged in the answer, which is an admission that it had been in force, was on February 1, 1957, and the insured died April 24, 1957, in less than 3 months, which was clearly within the extended term insurance for over one year. Thus it is obvious than the policy was and is in force for the full amount thereof.
But the defense is, that the company under the automatic cash loan clause paid over eight hundred dollars on the premiums falling due on August 1 and November 1, and hence these loans with interest equalled the cash value of the policy and, under the terms of the policy, only such extended term insurance as the cash value less debts will purchase is available--consequently there was no expended insurance. Were the statement of facts correct, counsel's conclusions would be correct here. This argument is advanced and urged in the face of the indisputable fact that the entire amount of the premium is $302.90 as stated in the policy, and the answer admits that the insured paid this amount, thus leaving no part of the premium to be paid by the company under the automatic cash loan clause. The facts demand a decision that the claim of a loan and hence an indebtedness is unfounded.
Finally, counsel say that, when we follow controlling law and apply it to the policy their client wrote, we are giving it an unreasonable construction because the insured would thereby have obtained $100,000 insurance on his life for one-half a year by paying only $605.80 plus a cash value of $878.50; thus making his insurance come free together with $272.70 cash above what he paid. We agree with counsel that the policy is unreasonable, but it is the handiwork of the insurer and not this court. Our reply to such argument is similar to our replies to similar argument in Lloyd Adams, Inc. v. Liberty Mutual Ins. Co., 190 Ga. 633, 640 (10 S. E. 2d 46): "Though admittedly the provisions of the amended section inevitably lead to a legal absurdity, this court has no choice but to take such an unambiguous law as it stands; and if it is absurd, so rule." And in Cox v. Zucker, 214 Ga. 44, 60 (102 S. E. 2d 580), we said, "The movant asserts that our ruling is absurd because we uphold but restrict his use of this driveway to the expressed and unqualified limitation which he had written into his own deed. If there is an absurdity, it is his and not ours."
From what we have ruled it follows that parol evidence was inadmissible to vary the terms of the policy, and the legal evidence in the case demanded a verdict in favor of the plaintiff. It was error to deny the motion for a new trial.
Judgment affirmed on the cross-bill and reversed on the main bill. All the Justices concur.
Smith, Field, Doremus & Ringel, Sam F. Lowe, Jr., Alex W. Smith, Jr., contra.
Powell, Goldstein, Frazer & Murphy, Robert E. Coll, B. D., Murphy, for plaintiff in error.
Saturday May 23 00:37 EDT

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