Present:    All the Justices

JAMES A. HILFIGER

v.   Record No. 980074    OPINION BY JUSTICE ELIZABETH B. LACY
                                       September 18, 1998
TRANSAMERICA OCCIDENTAL LIFE
INSURANCE COMPANY

      UPON QUESTIONS OF LAW CERTIFIED BY THE UNITED STATES
             COURT OF APPEALS FOR THE FOURTH CIRCUIT

      Pursuant to our Rule 5:42, the United States Court of

Appeals for the Fourth Circuit certified three questions of

Virginia law to this Court regarding the enforceability of a

life insurance policy.    The questions involve the application

of Va. Code §§ 38.2-302 and -319.    We accepted the questions

by order entered February 13, 1998.

      The facts, as presented in the certification order, are

as follows. *   On January 28, 1995, James A. Hilfiger (Hilfiger)

filled out an application for a life insurance policy with

Transamerica Occidental Life Insurance Company (Transamerica)

seeking insurance upon the life of his father, Paul L.

Hilfiger.   On the application form, Hilfiger answered all

questions on his father's behalf, and where the form required

the "signature of proposed insured," Hilfiger signed his

father's name.    Deborah C. Highsmith, a Licensed Resident

      *
       Because the federal district court granted summary
judgment in favor of Transamerica Occidental Life Insurance
Company, the facts are presented in the light most favorable
Agent of Transamerica, signed the application as a "witness to

all signatures."   Highsmith knew that Hilfiger was signing the

application on behalf of his father.

     Hilfiger's father did not see the life insurance

application, nor did he give Hilfiger written consent to sign

his name.   However, Hilfiger claims that he spoke to his

father about the policy, and that his father gave him oral

authorization to take out the policy.    The application named

Hilfiger as the sole beneficiary for the policy.

     In May 1995, Hilfiger's father underwent a medical

examination in connection with the life insurance application.

At the medical examination, Hilfiger's father signed a form

entitled "PART II of an Application for Insurance to the

Transamerica Occidental Life."   This form did not identify the

type of insurance applied for, who the proposed beneficiary

was, or the amount of coverage sought.   Transamerica issued

the insurance policy on October 9, 1995.

     On November 13, 1995, Hilfiger's wife, Donna C. Hilfiger,

became a broker for Transamerica.    Shortly thereafter, she

executed an amendment to the insurance policy as a

Transamerica resident agent.   As with the original

application, Hilfiger signed his father's name to the form.



to Hilfiger.   United States v. Leak, 123 F.3d 787, 794 (4th
Cir. 1997).

                                 2
Hilfiger's father did not see the document, but Hilfiger

asserts that he discussed the amendment with his father.     Nine

days after the amendment was executed, Hilfiger's father

became ill.   He died four days later on December 3, 1995.

     Transamerica refused to pay the proceeds of the life

insurance policy.   Hilfiger filed a motion for judgment

against Transamerica in the Circuit Court of the City of

Virginia Beach seeking the proceeds of the policy, additional

damages, and costs.   Transamerica removed the case to the

United States District Court for the Eastern District of

Virginia and later filed a motion for summary judgment.    The

federal district court granted Transamerica's summary judgment

motion, concluding that the execution of the policy did not

comply with Code § 38.2-302 and, therefore, was void.

Hilfiger appealed to the Court of Appeals.

     In certifying the questions to this Court, the Court of

Appeals stated that the answers would be determinative of the

proceeding pending before it.   We address the three questions

in order.

                                I.

     The Court of Appeals first asks:

          Whether the son's signing his father's name as
     "proposed insured" violates Va. Code § 38.2-302,
     where the son discussed the policy with his father,
     had verbal authorization to apply for the policy,
     and his father later submitted to a medical


                                3
     examination and signed a form entitled "PART II of
     an Application for Insurance to the Transamerica
     Occidental Life?"

     At common law, a policy of insurance taken out on the

life of an insured without the insured's knowledge or consent

by someone other than the insured was usually held void as

against public policy.   1 Bertram Harnett & Irving I. Lesnick,

The Law of Life and Health Insurance § 3.04[1][a] (1997).     The

reason for this rule was the risk to the insured that a

beneficiary would be tempted to "hasten by improper means the

time when he will receive the benefits of the policy."    Wood

v. New York Life Ins. Co., 336 S.E.2d 806, 809 (Ga. 1985);

Hopkins v. Hopkins, 614 A.2d 96, 100 (Md. 1992).

     Code § 38.2-302(A) codifies this common law principle,

stating in pertinent part that:

          No contract of insurance upon a person shall be
     made or effectuated unless at the time of the making
     of the contract the individual insured, being of
     lawful age and competent to contract for the
     insurance contract (i) applies for insurance, or
     (ii) consents in writing to the insurance contract.

The statute provides the requisite protection for an insured

by identifying two alternative conditions for creating a valid

contract of life insurance.   The specific conditions

identified by the General Assembly reflect an intent to

require unequivocal evidence that an insured approved the

creation of a contract of insurance on his or her life.   With



                                  4
this purpose in mind, we conclude that the facts in this case,

as recited in the certification order, do not establish proof

of either condition.

     First, the evidence in this case, that Hilfiger's father

knew about the policy and orally authorized Hilfiger to apply

for the policy, does not constitute an application for the

policy by the insured as required by the statute.

     At one time, the insured's knowledge of the policy alone

was sufficient to establish compliance with the requirements

of the Code.   Former Code § 38.1-330, the predecessor to Code

§ 38.2-302, provided in relevant part that "[n]o contract of

insurance upon the person . . . shall be made or effectuated

unless . . . the individual insured . . . applies therefor,

has knowledge thereof, or consents thereto . . . ."   In 1986,

however, the General Assembly eliminated the phrase "has

knowledge thereof," leaving the two current alternative

conditions as the only means of creating a valid contract of

life insurance.   Acts 1986, ch. 562.

     We also conclude, as Hilfiger acknowledges, that orally

authorizing another to take out a policy does not alone

constitute "applying" for the policy.   If oral authorization

alone were enough to satisfy the application requirement, the

written consent alternative would be rendered superfluous.




                                5
Wren v. New York Life Ins. Co., 493 F.2d 839, 841 (5th Cir.

1974)(interpreting a similar statute).

     Nevertheless, Hilfiger asserts that the application prong

of the section was satisfied in this case because his father

"materially participated" in the application process by

providing a medical history and submitting to a medical

examination.   We disagree.   "Material participation" in the

application process is not synonymous with applying for the

policy.   As we have said, the purpose of the conditions

required for a valid contract of life insurance is to

eliminate any doubt that the insured knew about and agreed to

the issuance of the insurance contract.   Here, providing

medical information in conjunction with the issuance of an

insurance policy did not reflect consent to the contract of

insurance.

     For the same reason, we reject Hilfiger's contention that

his father's signature on the medical examination form

qualified as a consent in writing to the insurance contract.

The insured's signature on the medical form affirmed only that

the information provided on the form was correct.   Although

the form itself stated that it was a part of an application

for insurance, it contained none of the terms of the contract.

It was not, and could not have been, a written consent "to the

insurance contract" as required by Code § 38.2-302.


                                 6
        For these reasons, we conclude that the facts of this

case do not satisfy either alternative required by Code

§ 38.2-302 for the creation of a valid contract of life

insurance.    Accordingly, we answer the first question in the

affirmative.

                                 II.

        In the second certified question the Court of Appeals

asks:

             Whether the insurance policy should be enforced
        on behalf of the beneficiary despite the violation
        of § 38.2-302, in light of Virginia Code § 38.2-
        319's provision that "[a]ny insurance contract made
        in violation of the laws of this Commonwealth may be
        enforced against the insurer?"

        We answer this question in the negative.   If Code § 38.2-

319 required enforcement of a policy issued in violation of

Code § 38.2-302, the protection for an insured intended by

Code § 38.2-302 could never be realized, and Code § 38.2-302

would be meaningless.    Code § 38.2-319 does not compel such a

result.

        By its own terms, Code § 38.2-319 applies to a contract

of insurance which is "made" in violation of a law of the

Commonwealth.    Code § 38.2-302 declares that if the statutory

requirements are not met, no life insurance policy can be

"made or effectuated."    Thus, in the absence of compliance

with the provisions of Code § 38.2-302(A), no contract of



                                  7
insurance is created, and any policy issued under those

circumstances must be void ab initio.   Wood, 336 S.E.2d at

809, 811-12 (interpreting a similar statute).   Contra Jackson

Nat'l Life Ins. Co. v. Receconi, 827 P.2d 118, 131 (N.M.

1992).

     Here, no contract of life insurance was "made or

effectuated" because there was no compliance with Code § 38.2-

302(A).   Therefore, Code § 38.2-319 does not require

enforcement of the insurance policy issued by Transamerica in

this case.

                              III.

     Finally, the Court of Appeals asks:

          Whether an insurance company can be estopped to
     rely on § 38.2-302 because its agent knew about the
     incorrectness of the signature on the application?

     Estoppel is an equitable principle that prevents one

"whose action or inaction has induced reliance by another from

benefiting from a change in his position at the expense of the

other."   Employers Commercial Union Ins. Co. of America v.

Great American Ins. Co., 214 Va. 410, 412, 200 S.E.2d 560, 562

(1973).   Hilfiger argues that Transamerica should be estopped

from relying on Code § 38.2-302 to avoid payment on the life

insurance policy because it is charged with the knowledge of

its agents, both of its agents knew that the insured did not

sign the application form, and both agents failed to inform


                                8
Hilfiger of the consequences of that omission.   This failure,

Hilfiger asserts, prevented him from taking the appropriate

corrective measures to secure a valid life insurance policy

for his father.

     We have addressed the application of equitable estoppel

in the context of enforcing insurance policies against an

insurer.    Id.; Reserve Life Ins. Co. v. Ferebee, 202 Va. 556,

118 S.E.2d 675 (1961); New York Life Ins. Co. v. Eicher, 198

Va. 255, 93 S.E.2d 269 (1956); Gilley v. Union Life Ins. Co.,

194 Va. 966, 76 S.E.2d 165 (1953).   And, as Hilfiger points

out, we have applied the doctrine to enforce an insurance

policy based on imputing to the insurer its agent's knowledge

of false statements on the application.    See Gilley, 194 Va.

at 974, 76 S.E.2d at 170.   These cases all involved the level

of knowledge and complicity of both the agent and applicant in

supplying such false information.    None of these cases,

however, involved consideration of whether the equitable

doctrine of estoppel should be applied in a manner which

negates a significant public policy codified by the General

Assembly.

     Jurisdictions addressing that situation have not been

unanimous in their conclusions or rationales.    One court

applied equitable estoppel based on the theory that the

statutory requirements for a valid life insurance contract


                                 9
reflect a public policy to protect the insured and the

beneficiary, rather than to preserve the public order and

morals and, therefore, the statutory requirements can be

waived by the beneficiary.   Adam Miguez Funeral Home, Inc. v.

First Nat'l Life Ins. Co., 234 So.2d 496, 499 (La. Ct. App.

1970).   Another court concluded that the failure to apply

equitable estoppel under these circumstances would allow

insurers to perpetrate a fraud upon policyholders by accepting

premiums on a policy, knowing that the policy was void from

the beginning.   Holmes v. Nationwide Mut. Ins. Co., 244

N.Y.S.2d 148, 153 (1963).

     In contrast, equitable estoppel has not been applied in

these circumstances on the theory that its application would

invite beneficiaries and insurers' agents to create a binding

contract of insurance on the life of another in direct

contravention of the policy addressed by the common law and

statutes in imposing requirements for a valid policy.      Hunt v.

Pyramid Life Ins. Co., 732 S.W.2d 167, 169 (Ark. Ct. App.

1987); Time Ins. Co. v. Lamar, 393 S.E.2d 734, 735-36 (Ga. Ct.

App. 1990).

     We are persuaded that the better rationale is not to

apply equitable estoppel to enforce a life insurance policy

issued in contravention of Code § 38.2-302.   That statute was

not enacted for the protection of the beneficiary but to


                               10
protect the insured against potentially improper motives of

the beneficiary.   Thus, contrary to the conclusion reached

elsewhere, we conclude that a beneficiary is not entitled to

waive the statutory requirements.    As we have already stated,

applying Code § 38.2-319 to enforce a contract which Code

§ 38.2-302 renders void ab initio eliminates the very purpose

of the statute.    To apply equitable estoppel in these

circumstances also:

     would permit the unreasonable result that [the
     conduct of an insurance company or its agent] would
     breathe life into an insurance contract which the
     General Assembly [for reasons of individual and
     public protection] intended to have no life, and
     would frustrate the strong public policy that no
     contract for life insurance should be made unless
     the insured applies for or consents in writing to
     the contract.

Lamar, 393 S.E.2d at 736 (citing Wood, 336 S.E.2d at 812).

     Accordingly, we answer the third certified question in

the negative.

          First certified question answered in the affirmative.
          Second certified question answered in the negative.
          Third certified question answered in the negative.

JUSTICE KINSER, with whom JUSTICE KOONTZ joins, dissenting.

     I would construe Code § 38.2-302(A) differently from the

majority and would, therefore, answer the first certified

question in the negative.   I agree that the statute identifies

“two alternative conditions” for making a valid life insurance

contract, allowing a proposed insured either to apply for life


                                11
insurance or to consent to such a contract.   However, as I

understand the majority’s position, a proposed insured’s oral

authorization combined with “material participation” in the

application process does not constitute “applying” for the

insurance contract.   I disagree. 1

     The part of Code § 38.2-302(A) at issue provides that no

life insurance contract is made or effectuated unless “the

individual insured . . . (i) applies for insurance, or (ii)

consents in writing to the insurance contract.”   The statute

fails to define “applies;” therefore, the term must be “given

its ordinary meaning, given the context in which it is used.”

Dep’t of Taxation v. Orange-Madison Coop. Farm Serv., 220 Va.

655, 658, 261 S.E.2d 532, 533-34 (1980).   “The context may be

examined by considering the other language used in the

statute.”   City of Virginia Beach v. Bd. of Supervisors of

Mecklenberg County, 246 Va. 233, 236-37, 435 S.E.2d 382, 384

(1993).

     Examining the language chosen by the legislature, I find

it significant that the phrase “in writing” appears after the

disjunctive “or” and immediately following “consents” and that

the two phrases, “applies for insurance” and “consents in


     1
         Notably, the majority states only what action is
insufficient to apply for a life insurance contract and fails
to delineate or define specifically the requirements necessary
to apply for insurance under Code § 38.2-302(A).

                                12
writing,” are separately identified by the designations “(i)”

and “(ii).”   As a general rule, “proper grammatical effect

will be given to the arrangement of words in a sentence of a

statute,” Harris v. Commonwealth, 142 Va. 620, 624, 128 S.E.

578, 579 (1925), and a presumption exists that the General

Assembly understood basic rules of grammar when drafting the

statute.   Frere v. Commonwealth, 19 Va. App. 460, 464, 452

S.E.2d 682, 685 (1995).   Fundamental rules of grammar require

the placement of a phrase so as to indicate clearly what the

phrase modifies.   John C. Hodges et al., Harbrace College

Handbook 249 (12th ed. 1994).

     Applying this rule to Code § 38.2-302(A), the phrase “in

writing” modifies “consents,” the word immediately preceding

the phrase, and does not modify “applies.”   But see Alleman v.

Lincoln Nat’l Life Ins. Co., 636 F.2d 1195, 1196 (10th Cir.

1981) (holding that writing provision in Utah statute, which

states that “[n]o life . . . insurance contract . . . shall be

made . . . unless . . . the individual insured . . . in

writing applies therefore [sic] or consents thereto,” modifies

not only “applies” but also “consents”).   By choosing not to

modify “applies” with the phrase “in writing,” the General

Assembly intended not to restrict the method by which an

individual can apply for insurance.   See Forst v. Rockingham

Poultry Mktg. Coop., Inc., 222 Va. 270, 278, 279 S.E.2d 400,


                                13
404 (1981) (“When the General Assembly uses two different

terms in the same act, it is presumed to mean two different

things.”).   Moreover, when the General Assembly has intended

for a proposed insured to apply for insurance in writing, it

has so stated.   See Code § 38.2-3737(A) (“No contract of

insurance upon a debtor shall be made or effectuated unless

. . . the debtor . . . applies for the insurance in writing

. . . .”).   Thus, the General Assembly knows what language to

use when it wants to condition the making of an insurance

contract upon submission of a written application.

     Therefore, in my view, under the provisions of Code

§ 38.2-302(A), consent to an insurance contract must be in

writing, but the act of applying for insurance is not confined

to any particular form.   In other words, the mode of applying

for a life insurance contract is not limited to a written

application personally signed by the proposed insured.      Accord

Walker v. Jackson Nat’l Life Ins. Co., 20 F.3d 923, 924-25 (8th

Cir. 1994) (holding that insured can apply for insurance

without signing application). 2




     2
         An example of a statute that plainly requires a
written application signed by the insured is Mass. Gen. Laws
Ch. 175, § 123 (1998). This section states that “[n]o life
company shall issue any policy of life or endowment insurance
. . . except upon a written application therefor signed or
assented to in writing by the person to be insured . . . .”

                                  14
     While rules of grammar are not permitted to defeat the

purpose of a statute, Harris, 142 Va. at 624, 128 S.E. at 579,

construing “applies” to denote more than the narrow meaning of

an application signed by the proposed insured does not thwart

the common law principle that Code § 38.2-302(A) embodies.     A

proposed insured’s signature on an application form is not

critical to proving that the individual applied for insurance

if other facts evidence the proposed insured’s intent to

apply.   See Walker, 20 F.3d at 925 (finding that signature of

insured on insurance application was not crucial to proving

his knowledge of policy and identity of beneficiary); Crump v.

Northwestern Nat’l Life Ins. Co., 236 Cal. App.2d 149, 155

(1965) (holding insured’s signature not essential where

insured’s agent prepared application and insured later

ratified insurance contract).   In other words, if the facts

show that the proposed insured acted with the purpose of

obtaining life insurance, then no risk exists of “allowing one

person to have insurance on the life of another without the

knowledge of the latter.”   Walker, 20 F.3d at 925.

     In the instant case, the actions of Hilfiger’s father

show that he applied for insurance as contemplated by the

provisions of Code § 38.2-302(A).    Because the district court

granted summary judgment to Transamerica, the facts and

inferences must be construed in the light most favorable to


                                15
Hilfiger.     United States v. Leak, 123 F.3d 787, 794 (4th Cir.

1997).   See also Anderson v. Liberty Lobby, Inc., 477 U.S.

242, 249 (1986) (“at the summary judgment stage the judge’s

function is not . . . to weigh the evidence and determine the

truth of the matter”).     The facts show that Hilfiger orally

discussed the policy with his father and that the father

verbally authorized his son to obtain the policy.     As the

United States Court of Appeals for the Fourth Circuit stated

in its certification order, “we can infer that the insured

father ‘authorized’ Hilfiger to sign for him and provided the

answers which Hilfiger filled in on the application forms.”

Moreover, the father underwent a medical exam during which he

signed a form titled “Part II of an Application for Insurance

to the Transamerica Occidental Life.”     Thus, the evidence

shows not only oral authorization, but also undisputed overt

actions on the part of the father that not only corroborate

his oral authorization but also establish his participation in

the application process.     This is not a case of mere oral

authorization, which, as the majority observed, would render

the written consent alternative superfluous.

     Given these facts, I conclude that Hilfiger’s signing his

father’s name as the “proposed insured” does not violate Code

§ 38.2-302.     As the majority stated, “[T]he purpose of the

conditions required for a valid contract of life insurance is


                                 16
to eliminate any doubt that the insured knew about and agreed

to the issuance of the insurance contract.”   That purpose is

fulfilled in this case.

     Accordingly, for these reasons, I dissent. 3




     3
         Because I would answer the first certified question in
the negative, I need not address the remaining two questions.

                               17
