INSURANCE--Effective Termination--Temporary Contract of Life Insurance Requires Both Notice and Refund of Premium for Termination

Plaintiff Dolores Smith appealed from a judgment in a favor of the Westland Life Insurance Company after a nonjury trial. Mrs. Smith, as the widow and administratrix of the estate of her husband, sought recovery of $10,000 under a temporary life insurance contract. Mr. Smith had paid the first month’s premium and received a conditional receipt, also known as a binder or a binding receipt, from a soliciting agent of Westland on April 8, 1963. However, due to the hazardous nature of Smith’s employment as a railroad laborer, Westland issued him a modified policy, with increased premiums, on April 24. Smith refused to accept the amended policy or to pay the additional premium to the soliciting agent. On May 17, Westland, through its general agent, again submitted the proposed policy to Mr. Smith. When he refused it, the general agent told him that his premium would be refunded. The following morning, Smith died in an automobile accident. The trial court concluded that the conditional receipt created a provisional contract granting temporary life insurance. The Supreme Court of California reversed the judgment. This Case Note argues that, based on the facts of this case, the final result reached by the Smith court is both equitable and fair. If the insurance company does not feel that an applicant is an insurable risk under the original terms of the insurance contract, it should bear the risk of making him clearly aware of that fact. Implicit in the return of premium rule is the broader mandate that notification be clear and unambiguous