For reversal -- Chief Justice Weintraub, and Justices Burling, Jacobs, Francis, Proctor, Hall and Schettino. For affirmance -- None. The opinion of the court was delivered by Schettino, J.
This appeal is from a Superior Court, Chancery Division summary judgment in favor of the plaintiff on cross motions in an action brought by a beneficiary of a 20-year term life insurance policy. The trial court's opinion is reported at 56 N.J. Super. 185 (Ch. Div. 1959). We certified the matter on our own motion while the appeal was pending in the Appellate Division.
The case presents two issues for consideration. The first involves the determination of the date on which the contract of insurance required that the crucial premium payment had to be made. After argument on that point, we requested reargument and briefs on the question of whether the payment of that premium was excused under the waiver of premium provision of the policy.
On September 24, 1956 defendant's agent delivered to the insured the policy dated September 21, 1956 for which he
had applied earlier in that month and under which he had agreed to make payments quarterly. He thereupon paid his initial quarterly premium.
The insured died on April 22, 1958 at which time it is alleged by defendant that the policy had lapsed because of the failure to pay the premium due on March 21 of that year before the expiration of the 31-day grace period provided for in the policy. The grace period provision states that the policy would remain in force and that if death occurred within that period, the amount of the premium, if unpaid, would be deducted from the amount payable to the beneficiary.
The policy provides that the first premium was payable at the beginning of the first policy year and subsequent ones were payable on the quarterly anniversary of the first policy year's date which in this policy was stated to be September 21, 1956. The application for insurance which is expressly made a part of the policy provides that the policy shall not take effect until delivered to the insured and first payment has been made during insured's lifetime while in good health in which event "such policy shall be deemed effective as of the beginning of the first policy year as shown on such policy."
Defendant urges that the effective date is September 21, 1956 -- the date on which the policy was executed by its officers; that therefore the quarterly premium payment was due on March 21, 1958 and that the 31-day grace period ended on April 21, 1958. Thus, as the death occurred on April 22, 1958 the policy had already lapsed.
Plaintiff counters that the effective date was September 24, 1956, the date on which the policy was delivered by defendant's agent to the insured and the first premium paid, which date, under the contract, actually marked the beginning of insurance coverage; that the due date of the last premium was March 24, 1958 and therefore that the death occurred within the grace period which would have ended on April 24, 1958.
The trial court found an ambiguity in the insurance contract. It referred to the rule of construction that when a contract contains ambiguous language, it will be construed against the party who drew it and held that "The more liberal rule should be called into play in order to avoid the forfeiture which the Court of Chancery seeks to avoid, and to do so is also in accordance with the 'almost unanimous holding of all courts that insurance contracts must be liberally construed in favor of a policyholder or beneficiary thereof, wherever possible, and strictly construed against the insurer in order to afford the protection which the insured was endeavoring to secure when he applied for the insurance.'" Among the authorities cited were: Snyder v. Dwelling House Insurance Co., 59 N.J.L. 544 (E. & A. 1896); Yannuzzi v. United States Casualty Co., 19 N.J. 201, 207 (1955); Schneider v. New Amsterdam Cas. Co., 22 N.J. Super. 238, 243 (App. Div. 1952); 13 Appleman, Insurance Law & Practice (1943), § 7401, p. 50; 1 Couch, Insurance 2 d (Anderson ed. 1959), § 15:73, p. 776. It found for plaintiff.
We understand that life insurance is offered on two bases here pertinent. The applicant may submit the premium with his application and if the policy issues, it is dated as of the date of the application and coverage is provided retroactively to that date. Alternatively, the applicant may omit to submit the premium with the application, in which event the policy bears the date of its actual issuance, even though by virtue of other provisions the insurance does not become effective until the policy is delivered and the first premium is paid during the life and good health of the assured. The second procedure was the one here used, and the time interval between the date fixed in the policy (the date of issuance by the company) and the date of actual insurance coverage (the date the first premium is paid) represents the margin of success or failure of the claimant.
If the time for payment of subsequent premiums is measured from the date the policy bears, then obviously the
insured has received no protection for the time period between that date and the date on which the insurance coverage in fact began, notwithstanding that he paid a premium for that interval. On the other hand, an insured may profit by the "predating" in other respects, to wit, the running time under the incontestability clause (State Mut. Life Assur. Co. v. Stapp, 72 F.2d 142, 145-146 (7 Cir. 1934)) or suicide clause. Schwartz v. ...