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AGO 1964 No. 123 - September 29, 1964
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John J. O'Connell | 1957-1968 | Attorney General of Washington


INSURANCE ‑- HOSPITAL AND MEDICAL PLANS ‑- LICENSED CHIROPODIST ‑- SERVICES ‑- INCLUSION IN POLICY ISSUED AFTER JUNE 12, 1963.

Chapter 87, Laws of 1963 (RCW 48.20.390 and RCW 48.21.130) which includes the services of a licensed chiropodist under hospital-medical policies issued after June 12, 1963, applies to policies issued prior to that date but which are renewable at the option of the insurance company thereafter.  The act does not apply to noncancellable disability or guaranteed renewable disability policies negotiated prior to the effective date of the act.

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                                                              September 29, 1964

Honorable Lee I. Kueckelhan
Insurance Commissioner
Insurance Building
Olympia, Washington

                                                                                                              Cite as:  AGO 63-64 No. 123

Dear Sir:

            By letter previously acknowledged you have requested the opinion of this office on a question which we paraphrase as follows:

            Whether chapter 87, Laws of 1963 (RCW 48.20.390 and RCW 48.21.130) applies to disability insurance contracts originally issued prior to the effective date of the act and renewed subsequent to the effective date of the act?

            We answer your question as set forth in the analysis.

                                                                     ANALYSIS

            Chapter 87, Laws of 1963, provides:

            "There is added to chapter 79, Laws of 1947 and to chapter 48.20 RCW a new section to read as follows:

            "Notwithstanding any provision of any disability insurance contract, benefits shall not be denied thereunder for any medical or surgical service performed by a holder of a license issued pursuant to  [[Orig. Op. Page 2]] chapter 18.22 RCW provided that (1) the service performed was within the lawful scope of such person's license, and (2) such contract would have provided benefits if such service had been performed by a holder of a license issued pursuant to chapter 18.71 RCW.

            "There is added to chapter 79, Laws of 1947 and to chapter 48.21 RCW a new section to read as follows:

            "Notwithstanding any provision of any group disability insurance contract or blanket disability insurance contract, benefits shall not be denied thereunder for any medical or surgical service performed by a holder of a license issued pursuant to chapter 18.22 RCW provided that (1) the service performed was within the lawful scope of such person's license, and (2) such contract would have provided benefits if such service had been performed by a holder of a license issued pursuant to chapter 18.71 RCW.

            "This act shall apply to all contracts issued on or after the effective date of this act."

            This act provides that benefits should not be denied under disability insurance contracts when lawful medical and surgical services are performed by a licensed chiropodist.  Section 3 of the act makes its applicability prospective in nature by providing that the act shall apply to all contracts issued on or after the effective date of the act.  Accordingly, the act is constitutional as it does not impair or modify a prior substantial contractual right.  1 Couch on Insurance 2d, § 13.16; see, also, Tremper v. Northwestern Mut. Life Ins. Co., 11 Wn. (2d) 461, 119 P. (2d) 707 (1941); Article I, § 10, United States Constitution; and Article I, § 23, Washington State Constitution.

            It is settled law that statutory provisions are a part of all applicable insurance contracts as though such provisions were written into the policy.  Ringstad v. Metropolitan Life Ins. Co., 182 Wash. 550, 553, 47 P. (2d) 1045 (1935).

             [[Orig. Op. Page 3]]

            The crucial factor at this point is a determination of the effect of a renewal upon a contract of disability insurance.  In other words, is a renewal of such a contract merely an extension of the original contract or is it a new contract with the same terms covering a different period of time?  If it is the former (hereinafter referred to as "continuing insurance") the act would not become a part of the insurance contract at the renewal date for to do so would require an unconstitutional retroactive application of the act.  If it is the latter (hereinafter referred to as "term insurance") the act would apply and become a part of the insurance contract at the first renewal date subsequent to the effective date of the act.  Dickirson v. Pacific Mutual Life Ins. Co., 319 Ill. 311, 150 N.E. 256 (1926).

            Renewal provisions written into disability insurance contracts can be classified into the following three types:  (1) Renewable at the option of the insurer; (2) noncancellable; (3) guaranteed renewable.1/   To answer your question, then, we must examine each type of renewal provision and determine whether the particular provision involved would have the effect of "continuing insurance" or of "term insurance."

                        DISABILITY INSURANCE RENEWABLE AT OPTION OF INSURER

            In a contract of disability insurance that is renewable at the option of the insurer the insurer can refuse to accept a renewal premium tendered by the insured and terminate the contract at the renewal date.2/   In a disability contract renewable at the option of the insurer, an insured cannotunilaterally continue the contract in force by a timely payment of the premium therefor.  The premium must also be accepted by the insurer to keep the contract in full force and effect.  Since it would require an offer of premium on the part of the insured and an acceptance by the insurer to keep the policy in force, the generally accepted view is that disability insurance renewable at the option of the insurer is a contract from year-to-year that constitutes a species of "term insurance."  World Ins. Co. v. Perry, 210 Md. 449, 124 A. (2d) 259 (1956).

             [[Orig. Op. Page 4]]

            It has been held by the Washington Supreme Court that such a disability insurance contract is "term insurance" that can be terminated by an insurer without notice by its refusing to accept a renewal premium.  Perkins v. Associated Indemnity Corp., 189 Wash. 8, 63 P. (2d) 499 (1936).  Furthermore, such a disability insurance contract has been held to be "term insurance" even though the contract also provides increased benefits for each additional year that it is in force.  Bowling v. Aetna Life Insurance Co., 176 Okla. 405, 55 P. (2d) 1023 (1936).

            In view of the foregoing authorities it is our opinion that a disability insurance contract renewable at the option of the insurer is a species of "term insurance."  Accordingly, it is our opinion that chapter 87, Laws of 1963, is applicable to and a part of all disability insurance contracts renewable at the option of the insurer where such a contract was originally issued before the effective date of the act and renewed subsequent to its effective date.

                        NONCANCELLABLE DISABILITY INSURANCE

            In a noncancellable disability insurance contract the insured has the right to continue the contract in force by making timely payment of premium set forth in the policy (1) until at least age 50, or (2) in a case of a policy issued after age 44, for at least five years from its date of issue, during which period the insurer has no right to make unilaterally any change in any provision of the policy while the policy is in force.3/   In such a contract, then, the insured can unilaterally continue it in force for a certain period of time merely by remitting to the insurer the stated premium therefor.

            Although a renewal of a contract of disability insurance is generally considered a new contract of insurance, whether the renewal is a new and independent contract or an extension of the original contract depends primarily on the intentions of the parties as ascertained from the instrument itself.  Lewis v. Western Assurance Co., 175 Tenn. 37, 130 S.W. (2d) 982 (1939).  It is our opinion that a noncancellable disability insurance contract as described above  [[Orig. Op. Page 5]] evidences an intention by the parties to provide for an extension of the original contract by permitting the insured tounilaterally continue the contract in force.  It is also our opinion that such a contract would create a species of "continuing insurance."  Such a policy could not be considered "continuing insurance," however, where acceptance of the renewal premium or approval of the renewal of the contract by the insurer is necessary to effectuate the renewal.4/

             It is therefore our opinion that chapter 87, Laws of 1963, is not applicable to and a part of a noncancellable disability insurance contract where such contracts were originally issued prior to the effective date of the act.  We note, however, that such policies are noncancellable only for a certain period of time or until the insured reaches a certain age.  Our conclusion therefore that chapter 87, Laws of 1963, is not applicable is limited to that period of time that the contract retains its noncancellable characteristics.

                        GUARANTEED RENEWABLE DISABILITY INSURANCE

            In a guaranteed renewable disability insurance contract the insured has the right to continue the contract in force by the timely payment of premiums (1) until at least age 50, or (2) in the case of a policy issued after age 44, for at least five years from its date of issue during which period the insurer has no right to make unilaterally any change in any provision of the contract while the contract is in force, except that the insurer may make changes in premium rates by classes.5/

             The basic distinction between noncancellable disability insurance and guaranteed renewable disability insurance is that in the latter type of insurance the insurer reserves the right to change the premium rate by class.  In other words, the insurer cannot raise the premium on a single specific insurance contract, but can raise the premium on all disability insurance contracts in Washington of the  [[Orig. Op. Page 6]] same type or class.  Accordingly, the insured can unilaterally continue the contract in force by paying the premium stated in the original policy until the insurer exercises its right to change the rate of that particular class of insurance contract.

            In our opinion the reasoning of Lewis v. Western Assurance Co., supra, is applicable to guaranteed renewable disability insurance contracts in that the parties contemplate a renewal to be an extension or continuation of the original contract until the insurer exercises his option to change the rate of the premium for the contract.  Once the insurer exercises its option to change the rate, however, the terms of the original agreement are obviously no longer acceptable to the insurer.  It can hardly be said, therefore, to be a continuation of the original contract.  It is an offer by the insurer to the insured for a new contract with different terms covering a different period of time.  It follows then that guaranteed renewable disability insurance contracts are a species of "continuing insurance" only until the insurer does, in fact, exercise its right to terminate the original contract and change the rate for the contract.

            Accordingly, it is our opinion that chapter 87, Laws of 1963, does not apply to a guaranteed renewable disability insurance contract originally issued prior to the effective date of the act and renewed subsequent to the effective date of the act, so long as the insurer does not exercise its option to change the rate therefor.

            In the course of researching this opinion we have noted that much of the litigation reported concerning the renewal of a disability insurance contract involved a renewal of a contract that has no provision for renewal.  In such cases the courts have been almost unanimous in declaring such a disability insurance contract to be a species of "term insurance."  Steele v. Great Eastern Casualty & Indemnity Co., 158 Minn. 160, 197 N.W. 101 (1924).  Accordingly, we are of the opinion that chapter 87, Laws of 1963, is applicable to and a part of all disability insurance contracts containing no renewal provision where the contract was issued prior to the effective date of the act and renewed subsequent to the effective date.

             [[Orig. Op. Page 7]]

            In conclusion we advise that the crucial factor in determining whether chapter 87, Laws of 1963, is applicable to a disability insurance contract originally issued prior to the effective date of the act is the wording of the contract with respect to its renewal occurring after the effective date of the act.  If there is no renewal provision or if the contract is renewable at the option of the insurer, then the act would apply at the first renewal date subsequent to the effective date of the act.  If the contract is a noncancellable disability insurance contract the act would not apply at a renewal date subsequent to the effective date of the act for that period of time that the contract retains its noncancellable characteristics.  If the contract is a guaranteed renewable disability insurance contract the act would not apply at a renewal date occurring subsequent to the effective date of the act for so long as the insurer does not exercise its option to change the premium rate for the contract.  However, the act would apply to the first renewal date of a noncancellable or guaranteed renewable disability insurance contract occurring after the effective date of the act if the renewal of the contract does not become effective until approved or accepted by the insurer.

            We trust the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

BASIL L. BADLEY
Assistant Attorney General

                                                         ***   FOOTNOTES   ***

1/Accident and Sickness Insurance Provided Through Individual Policies, The Society of Actuaries, 1956 Edition, pp. 34-37.

2/Ibid, pages 36-37.

3/Vol. I, 1960 Proceedings of the National Association of Insurance Commissioners, page 153.

4/See, Williams v. Mutual of Omaha, 297 F. (2d) 876 (1962), where the court held that the terms "noncancellable" and "acceptance by the insurer" were not inconsistent with each other and created a species of "term insurance."

5/Vol. I, 1960 Proceedings of the National Association of Insurance Commissioners, page 293.

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