Gulf Life Ins. Co. v. Folsom

Citation907 F.2d 1115
Decision Date03 August 1990
Docket NumberNo. 89-8534,89-8534
PartiesGULF LIFE INSURANCE COMPANY, Plaintiff-Appellant, v. Sidney M. FOLSOM, Folsom Construction Company, Randall M. Folsom and Lawanda F. Rigdon, Defendants-Appellees.
CourtU.S. Court of Appeals — Eleventh Circuit

Jesse W. Walters, Donald W. Lee, Perry, Walters & Lippitt, Albany, Ga., for plaintiff-appellant.

David N. Rainwater, David A. Forehand, Jr., Rainwater and Christy, Cordele, Ga., for defendants-appellees.

Appeal from the United States District Court for the Middle District of Georgia.

Before TUTTLE *, RONEY * and HILL *, Senior Circuit Judges.

HILL, Senior Circuit Judge:

The appellant in this case, Gulf Life Insurance Company ("Gulf") issued four $100,000 policies of whole life insurance on the life of Sidney M. Folsom, who was at that time the chief operating officer of appellee, Folsom Construction Company ("Folsom"). One policy was issue on March 5, 1974, and the other three were issued on March 4, 1977. Folsom was the owner and beneficiary of all four policies at all times pertinent to the issues involved in this case.

In June of 1981, Folsom applied to Gulf Life Insurance Company for policy "loans" on each of the four $100,000 policies. The original loan applications were made on behalf of Folsom by Sidney M. Folsom. The applications were for the maximum loan amount then available. Pursuant to Folsom's application, four checks totalling $56,530.45 were issued to Folsom Construction Company, which deposited the checks and spent the money.

In June of 1981, Sidney M. Folsom resigned, sold his stock in Folsom to his son, Randall M. Folsom, and retired. The life insurance policies remained in effect. On June 15, 1982 Randall Folsom, on behalf of the company, applied to Gulf for policy loans upon each of the four $100,000 policies. Once again, he sought to obtain the maximum amount then available. This time, four checks totalling $62,065.39 were forwarded to Folsom Construction Company.

Loans made under such life insurance policies are not actually loans in the ordinary sense. Normally, although interest accrues on the "borrowed" principal, the amount of the loan itself does not have to be repaid until the insured passes away, and the benefits are paid out under the policy. The "loan" amount is then deducted from the benefits payable.

At some point in 1983 Gulf discovered that the $62,065.39 loaned to Folsom in 1982 was $45,326.84 in excess of the loan value then available under the four life insurance policies. Gulf admits that the error in processing the second policy loans resulted from a mistake in the computer software used by Gulf to check the cash and loan values of insurance policies. The system simply failed to pick up the prior loans after the policies were reactivated following a short lapse in the payment of premiums.

In March of 1983, Gulf Life agent Steven L. Barber and Billy C. Bussell went to Folsom Construction Company for a meeting with Randall M. Folsom, to try and persuade him to convert the four policies insuring his father's life to a different, new type of insurance. According to the testimony of Randall Folsom, he had, prior to their meeting, decided not to maintain the policies as his father was no longer involved with the business. Rather than agreeing to convert the insurance policies he inquired as to what the cash surrender amount would be should he elect to surrender the policies.

Mr. Barber called the Gulf office from Folsom Construction's office to determine the surrender value. Due to the same programming flaw that had already resulted in the excess loans, the computer erroneously indicated that the four policies had a combined cash surrender value of approximately $3,500. Although it was unknown to both Mr. Folsom and the Gulf agents at that time, in fact the policies had no cash value, and were in an overloan status.

As a result of this meeting, Mr. Folsom elected to surrender the policies. However, neither Bussell nor Barber had the appropriate surrender forms with them. The forms were executed in April of 1983. In the interim, Mr. Folsom allowed the policies to lapse.

On September 8, 1983, Gulf mailed a letter to Folsom advising the company of the fact that the previous loans exceeded the amounts available under the policy terms by $45,326.74, and requested that Folsom return the overpayment to Gulf. Folsom declined to pay Gulf Life, and demanded payment of the $3,500 surrender value it claimed was owed due to Folsom's surrender of the policy. The controversy then entered federal district court.

Gulf instituted an action for money had and received, claiming that it was entitled to the $45,326.84 that had been mistakenly paid to Folsom. Folsom filed a counterclaim seeking to recover the $3,500 which it alleged Gulf is obligated to pay because of the cash surrender agreements executed in April of 1983.

On motion for summary judgment, the district court ruled in favor of Folsom on Gulf's claim for money had and received, and on Folsom's $3500 counterclaim. The district court found that the overpayment was caused solely by Gulf's negligence, and therefore O.C.G.A. Sec. 13-1-13 required that Folsom be allowed to retain the overpayments.

O.C.G.A. Sec. 13-1-13 provides that:

Payments of claims made through ignorance of the law or where all the facts are known and there is no misplaced confidence and no artifice, deception, or fraudulent practice used by the other party are deemed voluntary and cannot be recovered unless made under an urgent and immediate necessity therefor or to release person or property from detention or to prevent an immediate seizure of person or property....

Gulf appealed this decision, arguing that another Georgia Code provision, O.C.G.A. Sec. 23-2-32(b) conflicted with the result reached by application of Sec. 13-1-13. O.C.G.A. Sec. 23-2-32(b) provides that "relief may be granted, even in cases of negligence by the complainant, if it appears that the other party has not been prejudiced thereby."

We agreed that there appeared to be a conflict between O.C.G.A. Sec. 23-2-32(b) and O.C.G.A. Sec. 13-1-13. Unable to find a Georgia case addressing or resolving this conflict, we certified the following question to the Georgia Supreme Court.

In an action for money had and received, can the plaintiff recover a payment mistakenly made when that mistake was caused by his lack of diligence or his negligence in ascertaining the true facts and the other party would not be prejudiced by refunding the payment?

The Supreme Court, in Gulf Life Insurance Co. v. Folsom, 256 Ga. 400, 349 S.E.2d 368 (1986), answered this question as follows:

In an action for money had and received, plaintiff generally can recover a payment mistakenly made when that mistake was caused by his lack of diligence or his negligence in ascertaining the true facts and the other party would not be prejudice by refunding the payment--subject to a weighing of the equities between the parties by the trier of fact.

349 S.E.2d at 373.

Thus enlightened, Folsom and Gulf returned to the district court to try their case. The trial resulted in a jury verdict in favor of Folsom regarding the overloan, but the jury did not find in favor of Folsom on its counterclaim.

Gulf again brings its case to this court, seeking a reversal of the district court's decision not to grant a directed verdict, or, in the alternative, a new trial. Gulf's appeal centers on the trial court's instructions to the jury, which Gulf contends did not adequately express the law concerning an action for money had and received, contained unwarranted instructions on ambiguity and accord and satisfaction, and were generally confusing. Folsom, perfectly content with having won the second time around, adheres to a contrary position.

Had the litigants in this case elected to go to state court for a resolution of this purely state law action in the first instance, there would undoubtedly have been a final resolution by now. However, because federal courts are bound to apply the law of the appropriate state in diversity cases, Gulf's decision to come to federal court has created a long and convoluted road. Today we conclude that their journey has not yet ended. For the following reasons, we hold certain portions of the judge's instructions to be reversible error, and remand the case for a new trial.

Gulf appeals the following five issues: First, it claims that the trial court erred in failing to grant Gulf's motion for a directed verdict and Gulf's subsequent motion for a judgment notwithstanding the verdict. Second, it claims that Folsom failed to prove the existence of accord and satisfaction, and the that the trial court thus erred in giving such an instruction and in failing to grant Gulf's motion for a directed verdict on Folsom's counterclaim. Third, Gulf contends that the judge erred in instructing the jury on the legal principal that a policy of insurance is to be construed liberally in favor of the insured, there being no evidence of any ambiguity in the policies at issue. Fourth, Gulf contends that the trial court erred in instructing the jury regarding the duty of diligence owed by Gulf concerning discovery of its erroneous payments, while refusing to similarly instruct the jury regarding Folsom's good faith. Next, Gulf claims that the trial court erred by giving an instruction based on the language of O.C.G.A. Sec. 13-1-13, claiming that such an instruction was inappropriate and prejudicial in light of the Supreme Court's decision on the question certified to it by this court. Finally, Gulf claims that the trial court's instructions were generally confusing and prejudicial because they did not accurately, adequately, or precisely charge the law. Finally, given these various assignments of error, Gulf concludes that it was error for the trial court not to grant Gulf Life's motion for a new trial.

ISSUE I: DIRECTED VERDICT

Gulf claims that, under the ...

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