## Facts

- Ralph T. Megee, a self-employed contractor, applied for disability income insurance through Vertex Insurance Agency and its agent, Chandler T. McEvilly, for coverage issued by United States Fidelity and Guaranty Company (USF&G).
- Megee submitted the application on May 14 but intentionally did not pay the initial premium because he wanted confirmation of the benefit level before paying.
- USF&G received and processed the application: it completed a credit check, arranged a physical examination at Megee’s convenience, and issued a policy dated June 1.
- The policy was transmitted to the local agency and arrived at Vertex on June 5.
- On June 5, Megee suffered an accidental injury and was unable to work thereafter.
- After learning of the injury, McEvilly asked USF&G for instructions; USF&G directed him not to deliver the policy and not to accept the first premium.
- Megee mailed a premium check on June 10; USF&G returned it uncashed and declined coverage.
- The application and policy provided that coverage would not take effect until the policy was issued and the first premium was paid (unless the premium was paid with the application).

## Issues

1. Whether a disability insurance contract was in effect on the date of Megee’s injury when the first premium had not been paid before the loss.
2. Whether USF&G, Vertex, or McEvilly were negligent in processing the application or failing to deliver the policy before the injury.
3. Whether Megee’s reasonable expectations of coverage could create coverage contrary to express conditions precedent in the policy and application.

## Decision

- The Delaware Supreme Court affirmed summary judgment for USF&G, Vertex, and McEvilly.
- No insurance contract was in force at the time of the June 5 injury because the first premium had not been paid as required by the policy/application conditions.
- The record showed no unreasonable delay or mishandling in underwriting, issuance, or transmittal of the policy.
- Reasonable-expectations and negligence theories could not be used to impose coverage inconsistent with the policy’s clear effective-date terms.

## Legal Principles

- When an insurance application and policy unambiguously make payment of the first premium (and issuance) a condition precedent to coverage, no contract arises until those conditions are satisfied.
- A loss occurring before satisfaction of an express condition precedent (such as initial premium payment) is not covered, even if the insurer has issued the policy but it has not been delivered and paid for.
- Ordinary underwriting steps (credit investigation, medical exam, administrative processing) are not negligence absent evidence of unreasonable delay or mishandling.
- The insured’s expectations cannot override clear, unambiguous policy conditions that define when coverage begins, particularly where the insured knowingly withholds the initial premium.

## Conclusion

The court held that Megee had no disability coverage because he did not pay the first premium before his injury, and it rejected negligence and reasonable-expectations theories where the insurer processed the application without unreasonable delay and the policy clearly conditioned effectiveness on premium payment.


Megee v. United States Fidelity & Guaranty Co., 391 A.2d 189 (Del. 1978)