APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
503 N.E.2d 853, 151 Ill. App. 3d 842, 105 Ill. Dec. 13 1987.IL.74
Appeal from the Circuit Court of Kendall County; the Hon. James W. Cadwell, Judge, presiding.
JUSTICE INGLIS delivered the opinion of the court. LINDBERG, P.J., and HOPF, J., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE INGLIS
Defendant, the Franklin Life Insurance Company, appeals from the trial court's order directing a verdict in favor of plaintiffs, Evelyn E. Schoger, Grant H. Schoger, and Grant H. Schoger and Sons, Inc.
This action arose out of a dispute over whether the insured, Grant H. Schoger, was entitled to a waiver of premiums due to total disability. On October 20, 1966, Grant Schoger was insured by two policies issued by defendant. Both policies were for a face amount of $100,000, and both policies were 10-year term policies. Both named Grant H. Schoger and Sons, Inc., as the beneficiary. The policies had an expiry date of October 12, 1976. Both policies contained supplemental agreements whereby the company agreed to waive the premiums upon the total disability of the insured, subject to the conditions contained in those agreements. An extra charge for this benefit was included in the annual premiums. On October 11, 1976, Grant H. Schoger and Sons, Inc., applied to convert the policies under option A of the exchange privilege provision contained in each policy. The exchange provision allowed the owner of the policy to request, before the expiry date of the policy, that the policy be exchanged for an individual life or endowment policy. The exchange was to be allowed without evidence of insurability. The paragraph further provided:
"If an Accidental Death Benefit provision is attached to this policy, then a similar provision without increase in amount may be attached to the new policy, without evidence of insurability. If a Waiver of Premium Disability Benefit provision is attached to this policy and if at the time of exchange the Insured is not totally disabled, as defined in such provision, then a similar provision providing for benefits on total disability resulting from bodily injury or disease occurring after issue of the new policy may be attached to the new policy, without evidence of insurability, provided the premium period of the new policy is at least 20 years. If exchange is made under Option A below, neither the Accidental Death Benefit nor the Waiver of Premium Disability Benefit may be attached if the Insured's attained age exceeds the age for which such benefits are available on a new policy."
The company exchanged the term policies for two whole life policies, effective October 12, 1976. Each policy contained a clause regarding a waiver of premium disability benefit. The corporation elected to exchange the policy under option A, which stated that the policy was to begin on the date of exchange. Option B, which was not chosen by plaintiff corporation, allowed an exchange to be made whereby the effective date of the new policy was to be considered the same as that of the original policy. Ownership of the policy was eventually changed to Evelyn Schoger.
On November 10, 1978, Grant Schoger notified the defendant of his total disability, which began on October 26, 1975. On January 2, 1979, the defendant denied plaintiff's request for a waiver of premiums on the whole life insurance on the basis that the insured's total disability began prior to the effective dates of the whole life insurance. The waiver of premium provisions in each policy specifically restricted the benefit to disabilities which occurred after the payment of the first premium "for this Agreement" and also specifically excluded coverage for disabilities which resulted "from bodily injury or disease occurring before the date of issue of the policy if the policy was issued in exchange for any other policy or policies" and disabilities which began while the policy was not in force.
Plaintiffs brought suit, arguing that as the term policies were converted as a matter of right into the whole life policies, each of the term policies and the whole life policies was part of a single agreement. Therefore, plaintiffs argue that the insured's disability did not occur before the date of the issue of the policy since the date of the policy would be that of the original effective date of the term policy. The court granted plaintiffs' motion for a directed verdict on this count. Alternatively, plaintiffs moved for a directed verdict on count II of their complaint, which alleged that under the term policies' provisions they were entitled to have the last premium of each term policy waived due to the insured's total disability. Upon waiver of the last premium, they were then entitled to automatic issuance of a new policy upon expiry of each term policy. The trial court did not rule on this motion. Defendant moved for a directed verdict as to counts III and IV of plaintiffs' complaint, and the trial court granted the defendant's motion. Plaintiffs do not appeal from that order.
On appeal, plaintiffs urge this court to uphold the trial court's finding that the whole life policies were a continuation of the term policies such that the language in the whole life policies referring to the date of issue of the policy and referring to payment of the first premium of "this agreement" would be interpreted to relate back to the term policies. Under such an interpretation, the waiver of premium benefit would apply because the disability would have occurred after payment of the initial premiums for the term policies and the disability would have occurred while the policy was in force and subsequent to the date of issue of the term policies. Defendant argues that the whole life policies were separate and distinct from the term policies, and, as such, the language in the whole life policies must be found to exclude the disability of the insured's from the waiver of premium benefit since the insured's disability began before October 12, 1976, the effective date of the whole life policies.
The parties do not cite, nor have we found, any Illinois cases dealing with a similar issue. However, many States have considered the issue of whether a policy issued pursuant to a conversion clause is a separate policy or whether the two policies from a single contract. In Commonwealth Life Insurance Co. v. Jackson (Ind. App. 1982), 432 N.E.2d 1382, 1391, the court held that the second policy was merely a continuation of the original policy, relying on the fact that the second policy issued without any questions as to insurability and without a break in the coverage. The court considered many cases from other jurisdictions, indicating that if the new policy is identical to or substantially the same as the first, the two policies are to be considered as one agreement. 432 N.E.2d 1382, 1388.
We are well aware that in making a determination as to whether a contract is ambiguous, the court must construe the policy in its entirety and give effect to every part of the policy. Where an ambiguity exists in an insurance contract, that ambiguity will be construed against the insurance company. (Weeks v. Aetna Insurance Co. (1986), 150 Ill. App. 3d 90, 501 N.E.2d 349.) We must agree that if the whole life policies were a continuation of the term policies, an ambiguity would exist. The ambiguity would arise from the provision indicating that a policy exchanged for the original policy would not contain a waiver of premium disability benefit if the insured was totally disabled at the time of exchange and the provision indicating that the insured was entitled to a waiver of premiums if his disability began after the issue date. Construing the ambiguity against the insurance company, we would be ...