907 F.2d 1115 (11th Cir. 1990), 89-8534, Gulf Life Ins. Co. v. Folsom

Docket Nº:89-8534.
Citation:907 F.2d 1115
Party Name:GULF LIFE INSURANCE COMPANY, Plaintiff-Appellant, v. Sidney M. FOLSOM, Folsom Construction Company, Randall M. Folsom and Lawanda F. Rigdon, Defendants-Appellees.
Case Date:August 03, 1990
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit
 
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Page 1115

907 F.2d 1115 (11th Cir. 1990)

GULF LIFE INSURANCE COMPANY, Plaintiff-Appellant,

v.

Sidney M. FOLSOM, Folsom Construction Company, Randall M.

Folsom and Lawanda F. Rigdon, Defendants-Appellees.

No. 89-8534.

United States Court of Appeals, Eleventh Circuit

August 3, 1990

Page 1116

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

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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

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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...

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