Unpublished Disposition, 872 F.2d 427 (9th Cir. 1987)

MEMORANDUM^* 

Wayne and Helen Freeman appeal a district court's order granting summary judgment to NN Investors Life Insurance Co., Inc. (the Company). The Freemans claim that Mr. Freeman had coverage under an insurance policy with the Company when he injured himself in an accident. We affirm.

FACTS AND PROCEEDINGS BELOW

On June 1, 1981, Wayne Freeman met in his home with Steve Endicott, an insurance salesman for the Company, to discuss purchasing a health insurance policy for himself and his family. Endicott's procedure contemplated showing Mr. Freeman five documents in connection with this discussion: (1) a specimen "Certificate of Insurance," (2) a specimen "Certificate Schedule," (3) an "Enrollment Application for Insurance," (4) a document entitled "Confirmation of Presentation," and (5) a document entitled "Presentation and Application Review."

The specimen Certificate of Insurance was a printed form that stated the terms of the Company's policy. The specimen Certificate Schedule was a blank schedule that included spaces for entering the name of the insured, the aggregate amount of coverage, the name and effective date of the policy, and various other related information.¹  The Enrollment Application for Insurance explained the application process and asked various questions about the health and age of the applicant and his family. The Confirmation of Presentation and the Presentation and Application Review briefly summarized the application and the policy.

Mr. Freeman, with Endicott's assistance, filled out the Enrollment Application at the June 1, 1981 meeting and gave Endicott a check for $1,220.75. Mr. Freeman admits that Endicott read the Presentation and Application Review to him aloud.²  Mr. Freeman also admits that he signed either the Confirmation of Presentation or the Presentation and Application Review at the June 1 meeting, but that he cannot remember which one. Mr. Freeman signed the other document at a meeting in a parking lot in Phoenix several days later without reading it.

On June 8, 1981, Mr. Freeman severely injured himself in an automobile accident. On June 19, 1981, unaware of the accident, the Company issued Mr. Freeman a Certificate of Insurance and a completed Certificate Schedule. When Mr. Freeman later asked the Company to pay his medical expenses, which now amount to approximately $45,000, the Company informed him that his policy did not cover the accident because it did not take effect until June 19, 1981. The Company based its position on language in the Enrollment Application stating that coverage "shall not be effective until a certificate has been actually issued," and language in the Presentation and Application Review stating that "you are an applicant until the enrollment application is received by and approved by the company and the certificate is issued. The coverage does not go into force until its effective date...."

On November 17, 1986, the Freemans sued the Company in an Arizona state court. The Company removed the action to the United States district court below. The district court granted summary judgment to the Company on July 13, 1987, and the Freemans timely appealed.

JURISDICTION

The district court had diversity jurisdiction under 28 U.S.C. §§ 1332(a) & 1441(a) (1982).³  This court has jurisdiction under Sec. 1291.

STANDARD OF REVIEW

This court reviews a grant of summary judgment de novo. See Ashton v. Cory, 780 F.2d 816, 818 (9th Cir. 1986).

INSURANCE CONTRACTS UNDER ARIZONA LAW

At the outset we should examine the manner in which Arizona courts approach insurance agreements.⁴  The Company, on one hand, maintains that ordinary notions of contract law provide the guiding principles. To support its position, the Company has cited some admittedly dated Arizona cases saying, generally, that a court cannot fasten liability upon an insurer that it has not contracted to assume, see McCollum v. Insurance Co. of N. Am., 132 Ariz. 129, 132, 644 P.2d 283, 286 (App.1982); Rodemich v. State Farm Mut. Auto. Ins. Co., 130 Ariz. 538, 539, 637 P.2d 748, 749 (App.1981), and, more specifically, that an insurer cannot be required to provide immediate coverage if its appropriately worded application forms precludes such coverage, see Acacia Mut. Life Ass'n v. Berry, 54 Ariz. 208, 214-15, 94 P.2d 770, 772 (1939); Cain v. Aetna Life Ins. Co., 135 Ariz. 189, 195, 659 P.2d 1334, 1340 (App.1983); Pawelczyk v. Allied Life Ins. Co., 120 Ariz. 48, 53, 583 P.2d 1368, 1373 (App.1978).

The Freemans, on the other hand, point out that the Arizona Supreme Court recently decided to read insurance contracts so as to give effect to the reasonable expectations of a layman. See Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 390-92, 682 P.2d 388, 395-97 (1984) (en banc). This reduces the emphasis on the objective manifestations of the negotiating parties and increases the importance of the understanding of the party seeking insurance coverage. This shift of focus, however, should not permit the coverage seeker unreasonably to assume that when the term "X" is brought to his attention in a reasonable manner that it means "Y" or anything other than "X." To tolerate unreasonable ignorance of the written and spoken word by the coverage seeker encourages both carelessness and fraud.

We do not believe that Arizona law tolerates unreasonable ignorance. Although it is true that the Arizona Supreme Court has not made entirely clear how to use the reasonable expectations approach to determine when a consumer's coverage begins,⁵  we find that cases in other jurisdictions that agree with the approach of Darner to provide useful guidance. These cases have required insurers who do not intend to provide coverage immediately upon accepting a premium to establish that the consumer had no reasonable basis for believing that he was purchasing such coverage. See, e.g., Smith v. Westland Life Ins. Co., 15 Cal.3d. 111, 122-23, 123 Cal. Rptr. 649, 657-58, 539 P.2d 433, 441-42 (1975) (in bank); Collister v. Nationwide, 479 Pa. 579, 594, 388 A.2d 1346, 1353 (1978), cert. denied, 439 U.S. 1089 (1979). This has meant that an insurer must go beyond its written documents and specifically call the provisions limiting coverage to the attention of the applicant. See Smith, 15 Cal. 3d at 123, 123 Cal. Rptr. at 657, 539 P.2d at 441. Assuming that the Arizona courts would go as far as Smith and Collister, we thus must decide (1) whether the Company called the pertinent provisions in its documents to Mr. Freeman's attention, and (2) whether those provisions were so unambiguous that Mr. Freeman had no reasonable expectation of immediate coverage. Put another way, we must decide whether has the insurance company adequately has shown that any expectation of immediate coverage was unreasonable.

CALLING PROVISIONS TO MR. FREEMAN'S ATTENTION

The Company, as discussed above, argues that two statements in its documents show that it did not intend to provide Mr. Freeman with immediate coverage. The Company argues that it brought the first of these statements to Mr. Freeman's attention because it appeared in the Enrollment Application which Endicott and Mr. Freeman filled out together. The Company argues that it brought the second statement to Mr. Freeman's attention because it appeared in the Presentation and Application Review which Endicott read aloud to Mr. Freeman.

The Company, admittedly, has produced no evidence that Endicott singled out the two statements as especially important or that Mr. Freeman signed the Presentation and Application Review at the June 1 meeting. Nevertheless, even after Darner, we believe that the Company, through Endicott, took sufficient steps to make these provisions known to Mr. Freeman. See Darner, 640 Ariz. at 394, 682 P.2d at 399 (stating the reasonable expectations approach can help a court interpret ambiguous provisions in an insurance contract but should not "set a premium on failure to read"); see also Evenchik v. State Farm Ins. Co., 139 Ariz. 453, 458-59, 679 P.2d 99, 104-05 (App.1984) (reasonable expectations rule does not permit court to rewrite insurance policy).

COVERAGE UNDER MR. FREEMAN'S CONTRACT

The Freemans maintain that, even if the two statements in the Enrollment Application and the Presentation and Application Review were brought to Mr. Freeman's attention, the Company cannot rely upon them because they conflict with four other statements in the documents suggesting that coverage would begin immediately. The Freemans invoke the familiar canon of construction that all ambiguities in an insurance contract be construed against the insurer, see Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 534, 647 P.2d 1127, 1132 (en banc), cert. denied 459 U.S. 1070 (1982), and that, if the insurer wants to exclude immediate coverage, it must do so in clear and unequivocal language, see Cain v. Aetna life Ins. Co., 135 Ariz. 189, 195, 659 P.2d 1334, 1340 (App.1983); Sanchez v. Connecticut Gen. Life Ins. Co., 681 P.2d 974, 977 (Colo.App.1984).

We reject this line of reasoning. First, the Freemans contend that the Certificate of Insurance indicated that coverage would begin immediately by stating: "The insured individual's insurance shall take effect upon completion of the enrollment application, payment of the applicable premium to the Company, and approval by the Company of such evidence of insurability as it may require." They say that the insured expected the policy to take effect when he completed the application and paid the premium because the Company requested no evidence of insurability and thus had no such evidence to approve.

The Company responds that "evidence of insurability" includes evidence contained in the application, which it must check after receiving the application, and any evidence that it might obtain in a consumer investigation. The Freemans reply that an ordinary, reasonable applicant would not think that the application itself constituted such evidence and, moreover, that the Company never conducted a consumer investigation. We find the Company's position more convincing. Even if the language of the application did not make clear what the term evidence of insurability included, the passage quoted by the Freemans makes clear that the consumer must await some sort of approval before his coverage begins.

Second, the Freemans seek to create an ambiguity by use of a blank in a specimen form. They contend that the Certificate of Insurance made the starting date ambiguous by saying: "Insurance under this Certificate shall become effective on the Certificate Date set forth on the Certificate Schedule." They argue that this statement created confusion because the Certificate Date on the specimen Certificate Schedule that Endicott showed Mr. Freeman was blank. We reject this argument because the Company correctly points out that it could not complete an actual certificate schedule until it had obtained the appropriate information from Mr. Freeman. A blank specimen schedule simply cannot mean that an applicant's coverage will commence immediately.

Third, the Freemans contend that the Confirmation of Presentation created an ambiguity by its language "if any material information is omitted from the application, it could provide the basis for the Company to refuse coverage and to refund all of my premium as though my coverage had never been in force." They contend that this statement implies that a consumer's coverage is immediate provided he does not withhold information. The words "never been in force," says the Company, mean that the Company can withdraw its approval after it issues a Certificate. We believe that a reasonable consumer would read the words that way. It is clearly the more natural meaning.

Fourth, the Freemans, focusing on what is the proper antecedent of a pronoun, contend that even the statement in the Presentation and Application Review quoted by the Company leaves the starting date of coverage ambiguous. The statement reads: " [Y]ou are an applicant until the enrollment application is received by the Company and the Certificate is issued. Coverage does not go into force until its effective date...." (emphasis added). The Freemans argue that the antecedent to the word "its" could be the enrollment application. The word "Coverage" is the proper antecedent. A reasonable applicant would so read it.

In sum, the Company's warning sufficed. True, the Company could have stated in bold letters: "You are warned that coverage does not begin immediately." Although it did not say this, we hold that the documents did not "contain language susceptible to the interpretation that coverage is to be provided immediately." Cain, 135 Ariz. at 195, 659 P.2d at 1340.

COSTS AND SANCTIONS

The Company has asked for costs, pursuant to Ariz.Rev.Stat.Ann. Sec. 12-341.01 (West 1982), and sanctions, pursuant to Fed. R. Civ. P. 11. Both seem inappropriate. No Arizona case had ruled specifically on all of the issues raised in this appeal and the Freemans' arguments had some merit. The "reasonable expectations" approach that Arizona courts have adopted for interpreting insurance contracts, for better or worse, invites parties to bring suits of this sort. This is part of the social costs of protecting the consumer of insurance protection.

AFFIRMED.