APPEAL from the Appellate Court for the First District; heard
in that court on appeal from the Circuit Court of Cook County;
the Hon. DONALD McKINLAY, Judge, presiding.
MR. JUSTICE SOLFISBURG DELIVERED THE OPINION OF THE COURT: The defendant, Preferred Risk Insurance Company, was allowed leave to appeal to review the decision of the appellate court (60 Ill. App.2d 170,) affirming a declaratory judgment that the plaintiff is entitled to avail herself of the benefits under an uninsured motorist coverage clause of an auto insurance policy issued to plaintiff's decedent by Preferred Risk.
Defendant, Preferred Risk, contends that plaintiff can not avail herself of the uninsured motorist coverage since the injuries and resultant death of plaintiff's decedent were caused by an auto accident involving a third party covered by a policy of bodily injury insurance. The critical issue posed on this appeal is whether or not the third party, John Mimms, was insured for liability with Adams Mutual Insurance Company at the time of the accident.
On June 22, 1962, at 5:00 P.M. John Mimms completed an application to Adams Mutual Insurance Company for automobile liability insurance at the Iberra Insurance Agency, applying for coverage commencing at 12:01 A.M. on June 22, 1962. The application was mailed to Adams that day and received by John Van Gundy, vice president and underwriting manager of Adams, on June 25, 1962. The application contained a statement by Mimms that he had no prior accidents. It is not disputed that Iberra Insurance Agency had no authority from Adams to issue a binder for auto liability insurance to Mimms and was not acting as agent for Adams. On June 25, 1962, the application was processed and approved by Adams and on June 26, 1962, policy No. 26187 was mailed to Iberra bearing an effective date of June 22, 1962, 12:01 A.M. On June 22, 1962 at 10:00 P.M. plaintiff's intestate, John Carroll, while driving his car, was involved in a fatal accident with John Mimms. Thereafter Adams recovered the policy from Iberra. There is no evidence that Mimms ever paid a premium on the policy, and there is no question but that no policy existed by binder or otherwise at the time of the accident.
The relationship between an applicant and an insurer requires good faith on the part of the applicant because of the peculiar character of the insurance contract. The applicant has an obligation imposed by law to notify the insurer of any changed condition materially affecting the risk during the pendency of the application for insurance. Western and Southern Life Insurance Co. v. Tomasun, 358 Ill. 496; Stipcich v. Metropolitan Life Insurance Co. 277 U.S. 311, 72 L.Ed. 895.
In the Stipcich case the United States Supreme Court referring to the rule of continuing obligations stated at 277 U.S. 316: "But the reason for the rule still obtains, and with added force, as to changes materially affecting the risk which come to the knowledge of the insured after the application and before delivery of the policy. For, even the most unsophisticated person must know that in answering the questionnaire and submitting it to the insurer, he is furnishing the data on the basis of which the company will decide whether, by issuing a policy, it wishes to insure him. If, while the company deliberates, he discovers facts which make portions of his application no longer true, the most elementary spirit of fair dealing would seem to require him to make a full disclosure." Earlier, in the same opinion, the court said. "But there is no contention here that the parties contracted exclusively on the basis of conditions at the time of the application. Here, both by the terms of the application and familiar rules governing the formation of contracts, no contract came into existence until the delivery of the policy, and at that time the insured had learned of conditions gravely affecting his health, unknown at the time of making his application."
Palmer v. Bull Dog Auto Insurance Ass'n, 294 Ill. 287, involved a similar problem. In Bull Dog the plaintiff applied for an automobile theft policy and sent the application and premium to the insurer. The loss occurred, as in the case at bar, after the application was mailed, but prior to acceptance by the insurer. The court held that the loss was not covered by the policy, stating at pages 291-292: "`Where a loss occurring before the risk attaches is known only to the applicant and he obtains a policy without disclosing the fact of loss the policy is void, even though the contract be given a date prior to the loss.' (I Joyce on Insurance, 2d ed., sec. 107.) The risk could not have attached to the auto under this contract until the application had been accepted on August 8 by the attorney in fact, and that was after the auto had been stolen. * * * An application for insurance is not itself a contract but is a mere proposal, which requires acceptance by the insurer through someone actually or apparently authorized to accept the same, or to give it effect as a contract. (I Cooley's Briefs on Insurance, 413.) In Merchants' Ins. Co. v. Paige, 60 Ill. 448, a marine insurance policy was obtained on goods shipped on a vessel lost two days prior to the date of the policy. This loss was known to the insured at the time but he failed to inform the agent, and it was decided that the particular agent effecting the insurance should have been informed; that knowledge by the company of the loss did not necessarily arise from the fact that the daily papers received at the company's office on the day the policy was issued contained a notice of the loss, and that notice to one agent of the company did not necessarily import a notice to the other."
While Mimms executed the application for insurance on June 22, the day of the fatal accident, the application was not received by Adams until June 25. Pursuant to ordinary contract principles, the application did not become an offer until it was communicated to the offeree, Adams, more than two days after the undisclosed fatal accident. It is essential to the existence of an offer that the proposal by the offerer be made known to the offeree. (Restatement of Contracts, § 23; 17 C.J.S., Contracts, sec. 38.) On the application Mimms answered in the negative to the question, "Has the applicant or any other person been involved in an automobile accident while operating any private passenger type automobile resulting in any damage to any property, including his own, or in bodily injury or death, during the preceding 36 months?" We feel that the answer to this particular question must be considered a continuing representation that there has been no intervening material change in the risk from the date of the application to the time the policy is issued. Strangio v. Consolidated Indemnity & Ins. Co. (9th cir.) 66 F.2d 330.
The record does not indicate that John Mimms actively misrepresented to Adams Mutual Insurance Co. any portion of his application for insurance but there is no evidence that Mimms did notify the insurer of the fatal accident prior to the issuance of the policy. Defendant insists that plaintiff has failed to prove a lack of knowledge on the part of Adams, but Van Gundy, vice-president in charge of the underwriting department of Adams, testified that he first became aware of the accident between Mimms and plaintiff's intestate on Wednesday, June 27, 1962, the day after the application had been processed and mailed to the Iberra Agency. The record shows that Adams Mutual immediately sent one of their employees to regain physical possession of the policy from the Iberra Agency. On Thursday, June 28, 1962, Adams voided the policy on all their records. There is certainly a reasonable inference that Adams would not have issued the policy had they been aware of the accident of June 22. Based upon the record it was proper for the trial court to conclude from the evidence in the record that Adams was unaware of the accident before issuing the antedated policy. We do not believe the plaintiff must completely negative any possibility of knowledge in this situation. Merchants' Insurance Co. v. Paige, 60 Ill. 448.
Insurance policies have traditionally called for good faith, openness and candor on the prospective insured's part, and to reduce this standard would seriously alter and disrupt the purpose of insurance. Since we believe the trial court could find from the record that the prospective insured, John Mimms, failed to apprise Adams Mutual of the fatal collision, the refusal to grant Mimms retrospective coverage was legally proper.
We have carefully examined the cases cited by defendant to support its conclusion and we find them factually inapposite. Most of the cases cited involve the authority of the agent to issue a binder and a construction of the term, "not valid unless countersigned." (Simons v. American Fire Underwriters, 203 S.C. 471, 27 S.E.2d 809; Union Marine & General Insurance Co. v. Holmes, 249 Ala. 294, 31 So.2d 303; Pruitt v. Great American Insurance Co. 241 N.C. 725, 86 S.E.2d 401; Burdick v. California Insurance Co. 50 Idaho 327, 295 P. 1005; McKee v. Continental Insurance Co. 191 Tenn. 413, 234 S.W.2d 830.) Others involve a predated policy covering the destruction of property without the knowledge of either the insured or the insurer.
In the present case Iberra was the agent of Mimms and had neither apparent nor actual authority to bind the risk. The material increase in the risk due to the fatal collision was known to Mimms but unknown to the insurer prior to the issuance of the policy. We, therefore, conclude that the issuance of the policy without disclosure of the increased risk was not effective and Mimms was an uninsured motorist at the time of the collision with plaintiff's intestate.
Defendant earnestly argues that this conclusion permits an insurance company to collect a premium for a period without providing coverage. We must concede that this is true, and it may be said that predating an insurance policy without a binder is illusory and ought to be condemned. However, there is no evidence that Mimms ever paid a premium and there is some indication that the premium was to be financed. We feel that this is a legislative and regulatory matter that may be remedied in those areas and not by a judicial distortion of basic contract principles or by overruling the Illinois decisions in the Bull Dog and Western & Southern Life Insurance cases.
Although not bearing on the issues on this appeal we note that commencing January 1, 1963, the major casualty companies have broadened their uninsured motorist coverage by enlarging the definition of "uninsured vehicle" to include an automobile on which liability insurance was written but the insurer has denied coverage.
We therefore conclude that at the time of the collision resulting in the death of plaintiff's intestate Mimms was an uninsured motorist within the meaning of Preferred Risk's policy. The judgment of the ...