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Paine v. Pacific Mut. L. Ins. Co. - 51 F. 689 (1892)

Rule:

The acceptance of an offer not communicated to the proposer does not make a contract. 

Facts:

The applicant forwarded a written application for life insurance to the home office of defendant insurer. The applicant died before the insurer first received the application, and the insurer's medical director approved the application without knowing of the death. Complainant, who was the purported beneficiary of the alleged insurance contract, then sued the insurer, seeking benefits under the policy following the death of the purported insured. The trial court found that the insurer never made any contract to insure the life of decedent Kendall; accordingly, it dismissed the bill. The beneficiary appealed.

Issue:

Where the decedent-applicant died before a life insurance application was approved by defendant insurer, was there a valid contract?

Answer:

No

Conclusion:

The Circuit Court of Appeals explained that the only question to be considered was whether or not the proofs fairly established a contract to insure the life of the decedent, and if they did, the bill should not have been dismissed, but a decree should have been rendered for the complainant for the relief he sought. The Court found that the delivery of the application to the local agent merely made a proposal to become insured. Any acceptance was void because the life that was the subject matter of the contract was no longer in existence. No notice of the June 7th acceptance of the application was in any way communicated to the applicant-decedent or his representatives. Further, the conditions precedent for the contract to go into effect were not met. Because no policy was issued, and the custom of insurance companies was to issue a policy when a contract of life insurance was made, the presumption was that on May 29th, when the application was signed, there were negotiations, but no contract, and no purpose to contract otherwise than by a policy made and delivered upon simultaneous payment of premium. Thus, the decree dismissing the bill was affirmed.

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