Opinion
May 14, 1969. Certiorari Denied by Supreme Court January 19, 1970.
1. Insurance
Although part of definition of "retirement," in policy covering persons owing mortgagee under installment mortgages, relating to cessation of gainful employment could be said to be ambiguous in that it lead to result that no payments would be due if insured ceased gainful employment even though due to disability, policy provision governing termination of payments and providing, inter alia, that insurer would not pay benefits after date on which insured mortgagor attained retirement, was not ambiguous, in view of construction placed on such provision by insurer itself.
2. Contracts
Acts of practical construction placed upon contract by parties themselves are binding and may be resorted to to remove ambiguity or unecertainty.
3. Evidence
Ambiguity not relevant to issue before court which has been removed by construction placed upon contract by party against whom enforcement of contract is sought cannot be basis for allowing parol evidence touching separate and independent provision of contract.
4. Evidence
Where ambiguity is confined to particular provision of writing, extrinsic evidence must be confined to such provision.
5. Evidence
Policy insuring persons owing mortgagee under installment mortgages and providing that insured was retired in sense of policy when he reached age 65 and that no benefits would be paid beyond retirement was not ambiguous; thus trial court, in action by insured against insurer for recovery of disability benefits allegedly due after he reached age 65, erred in admitting evidence of mortgagee's letter to insured calling attention to certain benefits in policy, and prospectus furnished by insurer, where insured did not charge mistake or fraud and policy did not refer to prospectus.
6. Insurance
It is court's duty to give effect to policy considered as whole and reject no part of it which may, by reasonable interpretation, be saved.
On Petition to Rehear7. Insurance
Where nothing in pleadings, in action by insured mortgagor against insurer for recovery of disability benefits allegedly due after insured reached age 65 under policy covering persons owing mortgages under installment mortgages, suggested to insurer that it was being charged with fraud or that accident or mistake was made in delineating coverage afforded by contract, insured's prayer for general relief could not be said to constitute basis for charging fraud, accident or mistake.
FROM HAMILTONAction by insured mortgagor against insurer for declaratory decree and recovery of disability benefits allegedly due after insured reached age 65 under master policy covering persons owing mortgagee under installment mortgages. The Chancery Court, Hamilton County, M.B. Finkelstein, Chancellor, held the insurer bound to continue paying benefits after age 65, and insurer appealed. The Court of Appeals, McAmis, P.J., held that policy providing that insured was retired in sense of policy when he reached age 65 and that no benefits would be paid beyond retirement was not ambiguous; thus trial court erred in admitting evidence of mortgagee's letter to insured calling attention to certain benefits in policy, and prospectus furnished by insurer, where insured did not charge mistake or fraud and policy did not refer to prospectus.
Reversed and dismissed.
Craig Cook and Noone, Stringer Bowles, Chattanooga, for appellant.
Ray Siener, Chattanooga, for appellee.
This is an action for a declaratory decree and for a recovery of disability benefits alleged to be due under a certificate of insurance issued under a master policy held by Chamberlain Company Realtors. The master policy covers persons owing the Chamberlain Company under installment mortgages and provides generally for payment of monthly installments in event the mortgagor becomes totally disabled.
The specific issue before the Chancellor was whether the disability benefits continue after age 65. On this issue the Chancellor considered a prospectus issued by the Company and a letter written by Chamberlain Company as agent for the Company, along with the policy provisions and found the policy ambiguous. Accordingly, the Chancellor held the insurer bound to continue paying benefits after age 65.
On September 7, 1957, when complainant was 57 years of age he mortgaged his home to the Chamberlain Company for $9,400.00 payable over a period of 25 years. At that time the Chamberlain Company had a group policy covering its mortgagors in Volunteer State Life Insurance Company. The Volunteer policy was later cancelled and on July 1, 1965, it was replaced by a policy in defendant American Home Assurance Company.
On or before July 1, 1965, the Chamberlain Company wrote its borrowers, including complainant, advising them of this change and calling attention to certain changes in benefits which it considered more favorable under the new policy. The letter enclosed a prospectus furnished by defendant and a certificate which was to be returned at the borrower's election. Complainant thereafter paid the required premiums under the new certificate until he became totally disabled on October 15, 1965.
The Company made monthly payments of benefits from that date until May 10, 1968, when the insured became 65, but refused to make further payments. This suit resulted.
After defining "Retirement" as "attainment by the Insured Mortgagor of 65 years of age or ceasing to be gainfully employed" the certificate in pertinent part provides:
"The Company will continue to pay the daily benefits for so long as the Insured Mortgagor is so disabled, but in no event beyond the earliest of the following dates: (1) 25 years from the effective date of insurance of the Insured Mortgagor; (2) the date the Insured Mortgagor attains retirement; (3) the original expiration date of the Insured Mortgagor's indebtedness with the Mortgagee or the date on which said indebtedness is terminated by reason of prepayment, renewal, refinancing or otherwise." (Emphasis ours)
In the absence of a charge of mistake or fraud or a policy reference to the prospectus, the first assignment that the Chancellor erred in admitting in evidence the letter of Chamberlain Company and the Company's prospectus must be sustained, unless the policy provision in question is found to be ambiguous.
In Knickerbocker Life Insurance Company v. Heidel, 76 Tenn. 488, at p. 497, the Supreme Court said:
"It is the prospectus which contains the clause relied on (by the insured). The statements of the prospectus, unless made a part of the contract, would merely be representations, like the representations in relation to the dividends, and could only be looked to on the question of fraud which would avoid the contract. The reference to the prospectus on the back of the policy would not change the result, for the obvious reason that it does not show an intent that the prospectus should form a part of the contract."
The rule of the Heidel case is generally approved by the authorities:
"Representations made in a prospectus, circular, or other papers issued by insurer or its agent are generally construed not to be a part of the contract evidenced by a policy, especially where the prospectus or paper, containing the representations is not referred to, or attached to, the policy, or where, although attached there is no reference in either the policy or the paper to the other; or where the representation or illustration was made by an agent without proper authority therefor. However, there is authority to the contrary, as where the representation or illustration is made and attached to the policy as an inducement to insured to accept the policy, and is understood by him to be a part of the contract." 44 C.J.S. Insurance sec. 299, p. 1202. See also 29A Am. Jur. 968, Insurance Section 1913.
We turn then to the question: Is the material portion of the certificate ambiguous? We think not, though we agree with the Chancellor that that part of the definition of "Retirement" relating to cessation of gainful employment may be said to be ambiguous, since it can be construed as contrary to the whole purpose of the policy, namely, to provide insurance for installment payments when the insured is not gainfully employed and, if strictly applied, would lead to the absurd result that where the insured ceases gainful employment even though due to disability no payments would be due.
However, the Company, has never relied upon this absurd construction of the policy. On the contrary it has removed any doubt as to its meaning by paying all benefits accruing between the date disability commenced and the insured's 65th birthday.
The acts of practical construction placed upon a contract by the parties themselves are binding and may be resorted to to remove an ambiguity or uncertainty. Restatement, Contracts 32, Comment C; Daily v. Minnick, 117 Iowa 563, 91 N.W. 913; 17 Am.Jur.2d 418, Contracts, Section 78.
The only remaining question is whether there is any ambiguity relevant to the insured being retired, in the sense of the policy definition, when he attained age 65. We can find none.
That portion of the definition of "retirement" which says it shall mean "attainment by the Insured Mortgagor of 65 years of age" can only mean that when the insured reaches that age he is retired in the sense of the policy. The next following paragraph expressly states that no benefits will be paid beyond retirement. Though payment of benefits might be cut off before retirement under provisions (1) and (3), supra, benefits in no case would be payable after the date of retirement due to the insured having reached age 65.
An ambiguity not relevant to the issue before the Court and which has been removed by a construction placed on the contract by the party against whom enforcement of the contract is sought cannot in our opinion be the basis for allowing parol evidence touching a separate and independent provision of the contract.
The rule is that where the ambiguity is confined to a particular provision of the writing the extrinsic evidence must be confined to such provision. Stewart v. Phoenix Ins. Co., 77 Tenn. 104, 110; Achen v. Pepsi-Cola Bottling Co. of Los Angeles, 105 Cal.App.2d 113, 233 P.2d 74; Universal Film Exchanges, Inc. v. Viking Theatre Corp., 161 A.2d 610, 400 Pa. 27; Patton v. Crews, Tex.Civ.App., 264 S.W.2d 467; 32A C.J.S. Evidence sec. 959(1), p. 384.
If we are correct in holding there is no ambiguity relevant to retirement at age 65, it follows that the agent's letter and the prospectus were improperly admitted.
And this provision of the contract being plain and unambiguous must be given effect. It is our duty to give effect to the policy considered as a whole and reject no part of it which may, by a reasonable interpretation, be saved.
"An insurance policy and its endorsements are to be read as a whole, all provisions of the policy being construed together, rejecting no part of the policy which may, by a reasonable construction, be saved. Laurenzi v. Atlas Ins. Co., 131 Tenn. 644, 176 S.W. 1022; Holmes v. Elder, 170 Tenn. 257, 265, 94 S.W.2d 390, 104 A.L.R. 1282; Bank of Commerce Trust Co. v. Northwestern Nat. Life Ins. Co., 160 Tenn. 551, 559, 26 S.W.2d 135, 68 A.L.R. 1380; Colley v. Pearl Assur. Co., 184 Tenn. 11, 195 S.W.2d 15; Park Corp. v. Great American Indemnity Co., 187 Tenn. 79, 83, 213 S.W.2d 12; 29 Am.Jur., Insurance, Sec. 162; Blashfield Cyc. of Auto. Law Practice, Sec. 3521." English v. Virginia Surety Co., 196 Tenn. 426, 430, 268 S.W.2d 338, 340.
In the view indicated it becomes unnecessary to consider the question of waiver upon which the Chancellor relied in part in holding the insurer liable for benefits beyond age 65.
It results the decree must be reversed and the suit dismissed. Since, apparently, the ambiguity in the policy relating to retirement upon the policy holder ceasing to be gainfully employed at least partially brought about this litigation, in the exercise of our discretion, costs of both counts will be adjudged to the American Home Assurance Co. and surety on its appeal bond.
Cooper and Parrott, JJ., concur.
ON PETITION TO REHEAR
Patrick C. Garner has filed an earnest Petition to Rehear again relying on the ambiguity discussed in our original opinion and insisting that under his prayer for general relief he is entitled to rely upon fraud, accident or mistake.
The purpose of a pleading is to define the issues to be tried and to apprise the adverse party of the charges made against him. There is nothing in the pleadings to suggest to defendant that it was being charged with fraud or that an accident or mistake was made in delineating the coverage afforded by the contract. The prayer for general relief can not be said to constitute a basis for charging fraud, accident or mistake. We fully set forth our view as to the alleged ambiguity in the original opinion. Nothing new has been brought to our attention by the petition to rehear.
We gave the case our most careful consideration upon the original hearing and after further consideration are satisfied the correct result was reached.
The Petition must be denied at the cost of petitioner.
Cooper and Parrott, JJ., concur.