37 N.Y.2d 463 (1975)

When an insurance policy endorsement is ambiguous regarding the continuation of double indemnity provisions after conversion to paid-up insurance, the ambiguity must be resolved in favor of the insured.

Summary

Simon sued Aetna Life Insurance to recover double indemnity benefits under two converted life insurance policies. The policies had been converted to paid-up insurance. The central issue was whether the double indemnity provisions remained in effect after the conversion. The Court of Appeals held that the ambiguous endorsement regarding the conversion must be interpreted in favor of the insured, thereby maintaining the double indemnity coverage. The court reasoned that the endorsement language was unclear and, under established insurance law principles, ambiguities are construed against the insurer.

Facts

The insured, Simon, held two life insurance policies with Aetna. Simon and Aetna mutually agreed to convert the policies to paid-up insurance through an exchange of letters. Aetna issued an endorsement for each policy, reducing the face value but stating it was “payable at the same time and under the same conditions as this policy but without further payment of premiums.” A dispute arose after a claim was filed as to whether the double indemnity provisions of the original policies remained in effect after the conversion.

Procedural History

The lower court ruled in favor of Simon, finding that the double indemnity provisions were still in effect. The Appellate Division affirmed this decision. Aetna appealed to the New York Court of Appeals.

Issue(s)

Whether, upon conversion of life insurance policies to paid-up insurance via an ambiguous endorsement, the double indemnity provisions of the original policies continued in existence?

Holding

Yes, because the ambiguous language of the endorsement must be construed against the insurer, Aetna, and in favor of the insured, Simon, thereby preserving the double indemnity coverage.

Court’s Reasoning

The Court of Appeals found that the endorsement was, at best, ambiguous regarding whether the “election made by the owner” pertained to the insured’s rights under a surrender or lapse clause (which would eliminate double indemnity) or was an election that preserved the original policy terms. The court highlighted that Aetna did not claim any default in premium payments, which supported the interpretation favoring the insured. The court relied on the established rule of contract construction that ambiguities in insurance contracts are resolved against the insurer: “even if the intention of the parties with respect to the election contained in the endorsement was found to be ambiguous, such ambiguity, under established rules of construction, must be resolved in favor of the insured.” The court cited Thomas J. Lipton, Inc. v Liberty Mut. Ins. Co., 34 NY2d 356, 361; Walters v Great Amer. Ind. Co., 12 NY2d 967, 968-969; Sincoff v Liberty Mut. Fire Ins. Co., 11 NY2d 386, 390-391 to support this principle. This approach ensures that insurance contracts are interpreted fairly, protecting policyholders from unintended loss of coverage due to unclear policy language.