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Hanes v. Roosevelt Nat'l Life Insur. Co.





Appeal from the Circuit Court of Jefferson County; the Hon. Donald E. Garrison, Judge, presiding.


Plaintiff, David Earl Hanes, brought this action to recover a monthly annuity benefit due him under an annuity policy written by the defendant, Roosevelt National Life Insurance Company of America (Roosevelt). The defendant filed a counterclaim to have the policy reformed because of a scrivener's error regarding the amount of the monthly benefit due the plaintiff. The trial court entered judgment for the plaintiff, ruling against the defendant on its counterclaim. The defendant contends on appeal that the trial court erred in failing to grant reformation where the evidence showed that the plaintiff intended to purchase a standard annuity policy but, through a clerical error in the defendant's home office, was issued a policy containing an erroneous annuity refund factor. We find, upon an examination of the record, that the defendant has set forth sufficient facts to justify reformation of the policy in question. We accordingly reverse the trial court's judgment denying reformation as being against the manifest weight of the evidence.

In December 1974 the plaintiff purchased an annuity policy from Roosevelt known as its "Spirit of '76 Annuity." This policy, comprised of three parts, included a retirement annuity, an endowment or investment benefit, and a decreasing term life insurance benefit. In the policy as issued, the annuity refund factor used to compute the monthly income due the annuitant upon retirement was erroneously typed in as $40.79 per $1,000 of cash value at normal retirement age rather than as $5.75 as printed in the table of annuity options contained within the policy. The amount of $40.79 represented the total monthly income due the annuitant when computed with the refund factor of $5.75 per $1,000 of cash value. Upon maturity of the policy in December 1981, the plaintiff sued to enforce the policy as written, contending that he intended to purchase an annuity based on the $40.79 factor and that the mistake, if any, was a unilateral one on the part of the insurer, barring reformation of the policy.

The facts surrounding the execution of the policy are not substantially in dispute. Plaintiff Hanes testified at trial that he met with the defendant's agent, Kenneth Holland, on one occasion prior to issuance of the policy. At that time he and agent Holland discussed the amount of the life insurance coverage and the cash value of the endowment benefit upon maturity but did not specifically discuss the amount of the monthly annuity payment or the annuity factor used to compute this amount. The plaintiff stated that he did not know prior to delivery of the policy what his monthly annuity payments would be. He understood, however, that he had different settlement options available to him under the annuity and had asked questions concerning these options. By the terms of the policy, the monthly annuity payment would vary depending upon the option chosen.

Based on this information the plaintiff made and signed an application in which he designated the "installment refund annuity" as his settlement option. The policy was delivered to him along with a set of figures which showed the cash value of his annuity after seven years. The plaintiff testified that when he received his policy, he noted the $40.79 refund factor typed on the schedule page of the policy, mentally applied the policy formula, and realized that his benefit would be $270 to $280 per month. He did not refer to the table of annuity options containing the correct factor for his age and annuity option until directed to do so in correspondence with the company in December 1981.

Kenneth Holland, testifying for the defendant, confirmed that he did not specifically discuss the terms of the annuity options with the plaintiff prior to issuance of the policy except to point out to him that there were different options available under the annuity. Holland stated that the transaction in question was unusual in that the plaintiff paid for the policy, which was set up for annual or semi-annual premium payments, with a lump-sum "advance" payment of $11,082. The plaintiff made a down-payment on the policy when he submitted his application and made a final payment six months after the policy took effect.

Roosevelt employee John Schaertl testified that the policy was otherwise a standard policy consisting of retirement annuity, endowment, and life insurance benefits. Under the annuity option specified by the plaintiff in his application, the retirement annuity benefit should have been figured with a refund factor of $5.75 for a total monthly benefit of $40.79. The error in the plaintiff's policy occurred when the front page of the policy was manually typed from the plaintiff's application after it had been approved by the defendant's underwriting department.

At the close of the evidence the trial court ruled for the plaintiff and against the defendant on the defendant's counterclaim for reformation. The court found that the defendant had failed to prove, as alleged in its counterclaim, the existence of an oral agreement regarding the amount of the monthly payment and a mutual mistake of fact in the policy as written.

On appeal the defendant contends that the evidence clearly showed the parties' mutual intent that the plaintiff receive the standard monthly benefit under the policy. This intent was manifested, it contends, by the plaintiff's submission of an application in which he selected the defendant's "installment refund annuity" as his annuity option and the defendant's acceptance of this application. Since both parties expected the policy to contain the actuarily correct annuity factor and since the policy as written did not reflect this intent, it is the defendant's contention that the trial court erred in failing to grant reformation as requested.

• 1-3 The law is well settled that a court may reform an insurance policy where the contracting parties make a mistake and the policy fails to express the real agreement between them. (State Farm Mutual Automobile Insurance Co. v. Hanson (1972), 7 Ill. App.3d 678, 288 N.E.2d 523; Stoltz v. National Indemnity Co. (1952), 345 Ill. App. 495, 104 N.E.2d 320.) To reform an insurance policy on the ground of mutual mistake, the party seeking reformation must establish a mutual mistake of fact which was in existence at the time the policy was executed. He must prove, in essence, that both parties intended to say a certain thing but, because of a mutual factual mistake, said something different. (State Farm Mutual Automobile Insurance Co. v. Hanson.) This proof must be of a clear and convincing nature, and a mere preponderance of the evidence is insufficient to justify reformation. 31 Ill. L. & Prac. Reformation of Instruments sec. 17 (1957).

• 4 In the instant suit for reformation, the defendant bore the burden of proving the parties' mutual intent regarding the amount of the monthly benefit due the plaintiff under the annuity. While the evidence showed that the parties did not specifically discuss this amount during negotiations for the policy, the plaintiff made and signed an application in which he requested one of the defendant's standard annuity options. Witnesses for the defendant testified that the defendant intended to issue a policy in accordance with the plaintiff's application but that the policy as written contained an error regarding the monthly annuity benefit. Thus, the availability of reformation in the instant case lies in inferring from the plaintiff's act of applying for the policy an intention to apply for the defendant's standard policy amount. (See Covington, Reformation of Contracts of Personal Insurance, 1964 U. Ill. L.F. 548, 552-53 (hereinafter Covington, Reformation of Contracts).) We believe, from a consideration of the record and relevant case law, that such an inference is justified in the instant case and that the defendant should have been granted reformation of the policy.

While we have found no Illinois cases in which this approach was expressly adopted, the case of Metropolitan Life Insurance Co. v. Henriksen (1955), 6 Ill. App.2d 127, 126 N.E.2d 736, provides support for our view that, in a case involving reformation of an insurance policy because of a scrivener's error, the insured's intent to obtain a standard policy can be inferred from his act of applying for the policy. In Henriksen the insured had applied for a standard plan of insurance designated in the insurer's rate book as L.P.R. or "Life with Premium Reduced." Under this plan the insured had the right to elect one of four mathematically equivalent options at the end of 20 years. In the policy as issued, however, a scrivener's error in the description of one of the options provided a benefit which was "manifestly incongruous" with the other options.

In holding that there had been a mutual mistake of fact justifying reformation of the policy, the court noted that "the written application executed by the [insured] was never disaffirmed by him" (6 Ill. App.2d 127, 134-35, 126 N.E.2d 736, 740.) The insurer's underwriter had approved this application for the plan of insurance designated in the rate book and had issued a policy thereon. The court stated:

"When [the insured] received the policy in response to his application, he either did or did not notice the error. If he did not notice it, the mistake was mutual. If he did notice it and said nothing, he was guilty of such inequitable conduct as to amount to ...

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