Claudette Friez v. National Old Line Insurance Company

703 F.2d 1093 Claudette FRIEZ, Plaintiff-Appellee, v. NATIONAL OLD LINE INSURANCE COMPANY, Defendant-Appellant. No. 82-3255. United States Court of Appeals, Ninth Circuit. Argued and Submitted Jan. 6, 1983. Decided April 11, 1983. James A. Poore, Butte, Mont., for defendant-appellant. Thomas F. Joyce, Burgess, Joyce & Whelan, Butte, Mont., for plaintiff-appellee. Appeal from the United States District Court for the District of Montana. Before KILKENNY, WALLACE and SCHROEDER, Circuit Judges. SCHROEDER, Circuit Judge: 1 Old Line Insurance Company appeals from the district court's judgment allowing recovery on a $12,000 life insurance policy. The policy application, completed on December 15, 1977, contained the following health question: "Do you know of any impairment, disease or disorder now existing in your health or physical condition?" The insured, Mr. Friez, answered "no." The application also contained a "good health" clause which provided: "I understand and agree that there shall be no insurance in force until the policy hereby applied for is issued and delivered to me during my lifetime and good health and the first premium is paid by me in which event the insurance shall…

Old Line Insurance Compahy appeals from the district court’s judgment allowing recovery on a $12,000 life insurance policy. The policy application, completed on December 15, 1977, contained the following health question: “Do you know of any impairment, disease or disorder now existing in your health or physical condition?” The insured, Mr. Friez, answered “no.” The application also contained a “good health” clause which provided: “I understand and agree that there shall be no insurance in force until the policy hereby applied for is issued and delivered to me during my lifetime and good health and the first premium is paid by me in which event the insurance shall be effective as of the Date of issue stated in the policy.” The policy was issued on January 5, 1978.

When Mr. Friez died on February 21, 1978, Old Line refused to pay the death benefits specified in the policy; it returned the premiums paid by Friez and cancelled the policy. The company argues that the policy was void under Montana law on two grounds. First, Old Line argues that pursuant to the above “good health clause,” the insured’s good health at the time the policy was delivered was a condition precedent to…

dissenting:

We review the district court’s interpretation of state law based upon the clearly wrong standard. Camacho v. Civil Service Commission, 666 F.2d 1257, 1262 (9th Cir. 1982); S.A. Empresa De Viacao Aerea Rio Grandense v. Boeing Co., 641 F.2d 746, 752 (9th Cir.1981); C.R. Fredrick, Inc. v. Borg-Warner Corp., 552 F.2d 852, 856 (9th Cir. 1977). I conclude that the district court’s interpretation of the Montana case law clearly is in error. We are bound to follow decisions of the highest state court in resolving diversity cases. Erie Railroad v. Tompkins, 304 U.S. 64, 78 , 58 S.Ct. 817, 822 , 82 L.Ed. 1188 (1938); Stoddard v. Stoddard, 641 F.2d 812 (9th Cir.1981).

The district court held that the “good health” clause in the insurance policy was not a condition precedent, finding that it “merely establishe[d] that during the interim period between initial application and payment of the first premium the applicant was not provided coverage under the insurance contract.” The district court found an “inherent ambiguity” in the good health provision and construed it against the insurer.

Two Montana Supreme Court decisions, however, dictate a finding that the good health clause…