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What constitutes a reasonable time to respond to an insurance application must, except in clear cases, be a question of fact.
The plaintiff, a farmer of very limited understanding and experience, went to the office of the insurer’s local agent, Jay H. Grimm (who could not accept applications or issue insurance policies), and made an application in writing for insurance against loss or damage to his growing crops by hail, in the amount of $ 1,320. The application was forwarded to the insurer, and was received by the latter on July 3, 1928. At the time of the making and forwarding of the application, the premium rate of the defendant company was $ 1 per hundred with no limitation as to amount. Grimm charged the plaintiff $ 13.20 premium plus $ 1.50 membership fee, total $ 14.70, upon his books, intending thereby to extend the credit personally to the plaintiff and to forward the proceeds in the usual course of business. However, at its meeting on July 7, the board increased the rate from $ 1 per hundred to $ 2 per hundred and limited the amount to be written on any one farm to $ 1,000. The defendant did nothing with respect to the application until July 10, 1928, when it wrote the agent Grimm advising him that the company had increased its rate. Grimm wrote the defendant and stated that inasmuch as the application was written prior to July 7, 1928, the $2 rate would not be effective thereon, and requested the defendant to send the policy without delay. Grimm’s July 12 letter was received at the defendant's home office on July 14, 1928, and the defendant took no action thereon until July 25, 1928, when it notified Grimm that it rejected the application. On July 30, 1928, Grimm notified the plaintiff that his application was not accepted by the company and that the charge of $ 14.70 had been canceled. The plaintiff received Grimm’s letter about 11:00 AM of August 1, 1928, and at about 4:00 PM of the same day, a violent hail storm swept over plaintiff’s farm, destroying plaintiff’s crops. Plaintiff instituted the present action to recover under the insurance. The trial court found the defendant liable and assessed plaintiff’s damage at $550. Defendant challenged the decision.
Under the circumstances, was defendant liable to the plaintiff in damages?
On appeal, the Court affirmed. Although the Court noted that certain cases had held that failure of an insurer to act upon an application resulted in no liability because no contract had been made, the Court found that an insurer was required to furnish the indemnity requested or to decline to do so within a reasonable time so that an applicant could obtain other coverage. The Court determined that the duty on the insurer's part arose based on a quasi-contractual relationship rather than any specific provision of law. Based on the fact that the insurer took two weeks to reject the application, the Court held that it was liable for the applicant's damages as the applicant could have obtained other coverage had he been seasonably notified.