Bek v. Zimmerman , 285 Mich. 224 ( 1938 )

Elmer Zimmerman, the defendant, was a truck owner performing services for the Works Progress Administration. Before he could secure work from such administration, he was required by the government to have liability insurance on his truck. He applied for such insurance in defendant company and secured a certificate from the company to present to the government showing that he carried liability insurance. According to the terms included in the policy, he was to pay for the insurance in three instalments due 30, 60 and 90 days after the date of issuance of the policy on March 25, 1936. The policy had certain peculiar features, among them, provisions having the following effect:

1. Zimmerman was to receive insurance for the first month without paying anything whatever until the end of that period.

2. Failure to make payments to the company on the due date thereof automatically terminated any and all coverage after such due date.

3. On the payment of the full amount of any payment after its due date, the policy again became effective, but only from and after the time of such payment.

4. In case of default in the payment of the first instalment, all coverage was void from the commencement date of the policy.

The total premium of $32 was required to be paid in three instalments: $11 on April 25, 1936; $11 on May 25, 1936; $10 on June 25, 1936. Zimmerman paid the first instalment on April 29, 1936, the second payment was made June 16, 1936. On June 27, 1936, Zimmerman had an accident with his truck. The third instalment was never paid.

It is the contention of the garnishee defendant that because the payment of the first instalment was four days in default, Zimmerman was not insured between March 25, 1936, and April 29, 1936, by virtue of the provisions in the policy automatically terminating the insurance on default. However, it is contended that the policy was again effective on April 29, 1936.

Defendant further claims that because of Zimmerman's default in payment due May 25, 1936, the insurance was again automatically terminated but became effective again on June 16, 1936, when the second payment was made. During the period from May 25, 1936, to June 16, 1936, it is claimed that no insurance was in effect, and because Zimmerman did not pay the third and final instalment of $10 on June 25, 1936, it is claimed that there was no insurance in effect on June 27, 1936, the day of the accident.

According to the theory of the garnishee defendant, although Zimmerman paid instalments amounting to $22 on the annual premium of $32, he was only insured intermittently for a period of 37 days of the three-month period from March 25, 1936 to June 25, 1936, or in other words, Zimmerman paid more than two-thirds of the premium of a yearly period, but only received insurance protection for approximately one-twelfth of a yearly period.

The statute, however, recognizes the fact that insurance rates are based upon the period of time during which the insured is protected. It provides that no policy of automobile coverage can be issued or delivered unless there be contained within the policy a provision whereby it shall be cancelled at the request of the insured, in which case the company shall upon demand and surrender of the policy, refund the excessive assessment or premiums above the customary rates for the expired time. 3 Comp. Laws 1929, § 12461 (Stat. Ann. § 24.298).

The policy provides that it may be cancelled at any time upon five days' written notice. If cancelled by the insured he receives a refund of excess premium paid for the period of the policy's existence on the basis of the customary short rate cancellation table; if cancelled by the company, the insured receives a refund on a pro rata basis. If it be considered that the policy were in effect the entire three months prior to June 25, 1936, the insured, upon cancellation on such date by the company, would be entitled to a refund of everything he had paid in premiums in excess of $8, the pro rata amount. But although he has paid more than twice the amount necessary to insure himself for the three months period, and although the insurance company, according to its contentions, gave him only approximately 37 days' protection during that time, it is claimed that by virtue of the peculiar technical stipulations of the contract prepared by the insurance company he was not insured at the time of the accident. And the claim is made that the insured was not protected for three months and two days in spite of the fact that the amount of premium paid by him, according to the short rate cancellation table of the insurance company, would have insured him for a period of six months.

To hold that the insurance was not in effect on June 27, 1936, seems an unreasonable construction of the contract and one strongly against the insured, and consequently contrary to the rule governing the construction of such contracts. Although the contract provides that on payment of the full amount of any payment after its due date, the policy shall become effective, it does not specify for how long a period it becomes effective.

When defendant neglected to pay the full instalment on April 25, 1936, the insurance automatically terminated according to the terms of the contract; and all coverage from March 25, 1936 to April 25, 1936, was void because of this retrospective provision. Until April 29, 1936, when payment of the first instalment was made, Zimmerman, therefore, was not insured. What, then, did the payment of April 29, 1936, cover? It certainly did not apply to any period before that time. To give any reasonable construction to the contract, it must be held that if defendant received any insurance whatever through payment of the instalment on April 29, 1936, it must have been for a period following such payment. The contract of insurance is silent on the effect of a payment made after default of the first instalment. Considering, then, that this payment was for a subsequent period, it must have been for a month's insurance, if the first three instalments are considered as covering monthly periods, until the total annual premium is paid; or such payment must cover a subsequent period equivalent to a term based upon the percentage of the annual premium which was actually paid. Eleven dollars, the amount of the payment, being 34 per cent. of the annual premium, the period during which the insurance would be in effect, would be between 65 and 70 days, as computed according to defendant insurance company's short rate table.

If, on the other hand, it be considered that the payment made April 29, 1936, was for a month of insurance, the protection to defendant lasted until May 29, 1936. No payment was then made until June 16, 1936; and, consequently, under this theory no insurance would have been in effect in the interim. But the payment of June 16, 1936, could have only a prospective effect, and under the theory of coverage from month to month it would cover such a period dating from the second payment and expiring July 16, 1936.

If the payments made be considered for prospective periods equivalent to a term based on percentage of annual premium paid, defendant's two payments, totalling $22, would have insured him continuously from April 29, 1936, to October 29, 1936, a period of six months, according to the short rate tables of the insurance company — including, of course, the time at which the accident occurred. It makes no difference whether the payments be considered for monthly periods or for periods equivalent to a term based upon the percentage of the annual premium paid as far as the liability of defendant insurance company is concerned. Under either, it would be liable to Zimmerman for payment of the damages resulting from the accident of June 27, 1936.

Because of the ambiguity and uncertainty in this contract with reference to the effect of past due payments, especially the payment after default of the first instalment, the chief question involved is the proper construction to be given the terms of the policy; and it does not seem reasonable to hold that when one of the instalments is paid after a default, it shall become effective only until the next payment specified in the contract is due. In such case the insured would be paying for a period of default in which he received no insurance.

In Fallis v. Massachusetts Bonding Ins. Co.,210 Mo. App. 579 (243 S.W. 217), the court had occasion in a case involving ambiguity, similar to that in this contract, to construe the terms of an accident insurance policy. The policy provided for monthly premiums with the proviso that upon failure to pay the instalments, the policy would lapse and that payment of any past due premium would not continue the insurance in force beyond the first day of the succeeding month, which was the date on which the succeeding instalment was due. It appeared that the payment due on October 1st was not made until October 29th. No payments were made during November and the assured had an accident on November 21st. In holding that the payment on October 29th reinstated the policy until November 29th, the court said:

"The policy provided that the payment of past due premiums should not reinstate the policy beyond the first day of the next succeeding month. It also provided that after lapse a payment of premium should reinstate it from date of payment only. To give these provisions literal construction and enforce them strictly against the insured would mean that if the monthly payment was not paid on the first of the month or within 10 days of grace allowed, the policy would lapse and remain without force until another payment and if that payment was not made until the last day of the month, the insured would then pay the full month's premium for insurance for one day. This construction is so unreasonable that it condemns itself."

With regard to the period of time covered by past due payments, the court said:

"The only reasonable construction to be given the provision that the payment of past-due premium shall not reinstate the policy beyond the first day of the next month is that payments are required to be made in advance on the first of the month and are past due after that date, but after the policy has been in force for three months, 10 days of grace will be allowed and if a monthly payment is made within that time, that payment, although past due since the first of the month, will only extend the insurance to the first day of the next month. We think a proper construction of this policy to be that as long as the premium for a subsequent month was paid within the preceding month or on the first day of the next month or within 10 days' grace allowed, the policy was kept in force, but when the days of grace expired without a payment being made, the policy lapsed and a subsequent payment cannotbe held to cover a period of time during the lapse when thepolicy was not in force for that would require the insured topay something for nothing and would therefore be withoutconsideration. There can be no premium past due or otherwise tocover a time when the policy was not in force, therefore, the only time there could be a past due premium would be after the first of the month and during the days of grace. The other provision of the policy that a payment after lapse should reinstate the policy from the date of payment only, necessarily required that such payment shall apply to the future and not the past, and hence, the reinstatement would fix a new datefrom which the months would be counted, and would supersede theprovision that each month should mean a calendar month. This construction of the policy is reasonable and fair to both parties and we think is fully sustained by the authorities in this State.

In the actual computation of the periods during which the insurance was made effective by past due payments, the court found:

"January and February, 1919, were both paid, then there was no other payment until May 19, 1919. The policy had therefore lapsed and was reinstated May 19, 1919. The payment at that time carried it to June 19, 1919. On June 3, 1919, a payment of $8.45 was made. This carried the policy to August 6, 1919, and the policy not having been reinstated for three months and no other payment having been made, the policy lapsed on that date. The next payment was August 22, 1919, and the policy was reinstated on that date. This payment covered two months and extended the policy to October 22, 1919."

Insurance is a business deeply affected with a public interest. It transcends the concept of private contract. Insurance policies in many matters of substance and detail must conform to statute. The business and transactions of insurance companies are subject to supervision by the commissioner of insurance. The public has an especial interest in automobile accident insurance. It is required by statute that for the protection of the public in certain cases, citizens be obliged to carry policies of such accident insurance.

In this case such interest is emphasized because of the fact that the insured was a Works Progress Administration contractor and according to the regulations of such administration, it was necessary before he be employed by the Federal government that he show the fact of his having been insured for such liability, as resulted in the instant case. Without such policy of insurance he would have been unable to secure a contract with the government. It was only because of the government's reliance on the representations that he was insured that his contract of employment was entered into. It would largely defeat the objectives of casualty insurance, from the public standpoint, if through deceptive and intricate provisions the public would be obliged to pay for insurance during a period in which such insurance was of no force and effect, and lose protection when it might reasonably be supposed the insurance were in effect.

While it is entirely proper to include provisions of suspension during which time the insured is not covered because of nonpayment of premium, it would be contrary to public policy to require a citizen to pay for insurance which he does not actually receive, due to uncertain and ambiguous terms of the policy; and a construction leading to such result should be avoided if possible. It is inconceivable that any citizen would knowingly agree to pay for a year's coverage of insurance on the understanding that during that time, with the exception of a few months, he might receive no insurance protection whatever. When the first payment was past due, no insurance was in force during the period covered by such instalment, or thereafter during the period of default. The insurance had been terminated according to the contract. But the insurance company chose to accept payment of the first instalment on April 29, 1936. Upon payment by Zimmerman and acceptance by the insurance company of such first instalment, after the insurance had been terminated and after the insurance for the period between March 25, 1936 and April 25, 1936 had become void, the contract must be construed in such a way that both the coverage and payment date prospectively from the time the said payment was made. For it is obviously the intent of the parties that the insurance company receive nothing whatever in premiums for any time in which the insurance is not in effect. This intention is clearly indicated by the provision that on termination of the insurance by the company, the insured is entitled to receive and the company is obliged to pay back a pro rata amount of the insurance premium.

The trial court found that the contract was uncertain and construed the terms thereof to give protection to Zimmerman during the period in which the accident occurred. This was a proper and reasonable construction of the contract and the court was not in error in its construction thereof.

The issues in the instant case were raised by affidavit of garnishment and disclosure denying indebtedness to the principal defendant. According to statute the affidavit is to be considered the declaration, and the disclosure the plea. 3 Comp. Laws 1929, § 14867 (Stat. Ann. § 27.1865). Plaintiff demanded trial of the statutory issue so framed.

It is unnecessary for plaintiff to file written interrogatories. These are for plaintiff's benefit, and presumably are asked for, when, after the filing of disclosure, the plaintiff is uncertain as to whether an indebtedness exists, or desires further information for the purpose of the trial. Otherwise, trial of the statutory issue on affidavit and disclosure would be meaningless. The statute provides that on filing disclosure the matter of such affidavit shall be considered as denied, except so far as the same shall be admitted by the disclosure; and a statutory issue shall thereupon be deemed framed for the trial of the question of garnishee defendant's liability to plaintiff. It is unnecessary to search outside the language of the statute for the intention of the legislature. The proceeding was a proper one to ascertain and fix the liability of garnishee defendant.

Judgment should be affirmed, with costs to plaintiff.

POTTER, J., concurred with McALLISTER, J.