ALFA Life Ins. Corp. v. Reese

• Citation: 185 So.3d 1091
• Decision Date: 30 June 2015
• Docket Number: 1140053.
• Parties: ALFA LIFE INSURANCE CORPORATION et al. v. Wanchetta REESE.
• Court: Alabama Supreme Court

185 So.3d 1091

ALFA LIFE INSURANCE CORPORATION et al.

v.Wanchetta REESE.

1140053.

Supreme Court of Alabama.

June 30, 2015.

William P. Gray, Jr., and Douglas N. Robertson of Gray & Associates, L.L.C., Birmingham, for appellants.

Thomas E. Davis, Gadsden; and Shaun Malone, Gadsden, for appellee.

MAIN, Justice.

Pursuant to Rule 5, Ala. R.App. P.,¹ this Court granted Alfa Life Insurance Corporation ("Alfa"), Josh Griffith, a licensed insurance agent for Alfa, and Judy Russell, also a licensed insurance agent for Alfa (hereinafter sometimes referred to collectively as "the defendants"), permission to appeal from the Etowah Circuit Court's order entered on October 8, 2014, denying the defendants' renewed motion for a summary judgment. We reverse the trial court's order and remand the cause for proceedings consistent with this opinion.

I. Facts and Procedural History

On January 26, 2011, Wanchetta Reese ("Reese"), individually and as owner and beneficiary of the life-insurance policy issued on the life of her husband Lee V. Reese, filed a complaint in the Etowah Circuit Court against the defendants, setting forth, in pertinent part, the following factual assertions:

"4. On April 14, 2010, Reese met with ... Alfa and Griffith to purchase life insurance on her husband, Lee V. Reese (here[in]after [‘Lee Reese’] ). The defendants completed an application to insure the life of [Lee Reese] under a policy of life insurance to be issued by Alfa with ... Reese as named beneficiary.

"[Reese] advised [the] Defendants that she sought to obtain life insurance on [Lee Reese] so that she would have funds available to bury him in the event of his death. Griffith, as the agent of Alfa, suggested that [Reese] apply for no more than $15,000.00 in life insurance since this was the maximum amount of insurance that could be sold without [Lee Reese] undergoing a physical examination.

"5. ... Griffith, as the agent, servant or employee of Alfa acting within the line and scope of his employment, asked a series of questions of Reese in completing [on a laptop computer] an application for the policy of life insurance on [Lee Reese], ... including questions about [Lee Reese's] past medical history. [Reese] provided answers to the questions asked of her by Griffith who completed the application for insurance.

"6. ... Griffith read to Reese a question on the application regarding whether or not [Lee Reese] had diabetes, kidney failure or amputation. Reese answered these questions truthfully and advised [the] defendants that [Lee Reese] suffered from chronic kidney disease, diabetes, and an amputation of his leg below the knee.

"7. After being advised of [Lee Reese's] medical condition, Griffith stated to Reese that he needed to ask Russell ... for advice in completing the application. In the presence of Reese, Griffith advised Russell of the medical issues of [Lee Reese]. Russell advised Griffith, in the presence of Reese, to not put that information in the application.

"8. After the application was completed, Griffith and Reese stepped out of the office building into the parking lot where [Lee Reese] was sitting in a pickup truck. [Lee] Reese had removed his artificial leg prosthesis on his left leg[,] which had been amputated, and the prosthesis was in plain view of Griffith in the vehicle when Griffith asked [Lee Reese] to electronically sign the application. [Lee] Reese was unable to sign the application and Griffith had ... Reese sign both her name and [Lee Reese's] name to the application.

"9. After the application was completed, Reese paid a premium in the amount of $167.87. [Reese] made a second supplemental payment the following month in the same amount.

"10. [Lee Reese] passed away unexpectedly on May 23, 2010. [Reese] made application for policy benefits with the aid and assistance of [the] Defendants and the claim was denied by Alfa in a letter dated August 16, 2010."

The complaint stated four counts: Count I alleged breach of contract against Alfa; count II alleged bad faith against Alfa; count III generally alleged fraud (including fraudulent misrepresentations)² against the defendants; and count IV alleged that the defendants had committed the tort of outrage.

On February 28, 2011, Alfa filed a consolidated counterclaim and motion to dismiss. In its counterclaim, Alfa sought rescission of the life-insurance policy; Reese, as owner of the policy, and Lee Reese, as the insured, were each required to sign the policy application that was completed and submitted to Alfa. Accordingly, Alfa, in its counterclaim, asserted, in pertinent part:

"In the application for the above stated policy, the deceased, Lee V. Reese, as the insured, and Wanchetta Reese, as the owner and named beneficiary, made misrepresentations, omissions, misstatements, incorrect statements, and concealed facts regarding Lee V. Reese's physical health.

"The misrepresentations, omissions, misstatements, incorrect statements, and concealed facts concerning [Lee Reese's] health condition were fraudulent and/or were material either to the acceptance of the risk or to the hazard assumed by Alfa, or Alfa, in good faith, would not have issued the policy, or would not have issued the policy at the premium rate as applied for, or would not have issued the policy in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been made known to Alfa."

Alfa further asserted that "[t]he application for the aforesaid policy ... sets forth questions directed to the insured," which were answered as follows:

"Under the topic of the subject policy, ‘IF ANY ANSWER TO THE FOLLOWING QUESTIONS IS "YES," THE PROPOSED INSURED IS NOT ELIGIBLE FOR COVERAGE:

" ‘Have you ever ...

" ‘Been diagnosed with Diabetes Requiring Insulin (injection or Pump) or have you ever had ... treatment for Kidney Failure ; [or] Amputation due to Disease...?’

" ‘Answer: "No." ’

"(Application) ( [capitalization and bold typeface] emphasis original)."

Moreover, Alfa asserted:

"5. The insured, Lee Reese, represented to Alfa that the foregoing answers in his application of April 14, 2010, were ‘complete and true to the best of [his] knowledge and belief’ (Application Agreement).

"6. By signing the application, Lee Reese agreed as follows:

" ‘I HAVE TRULY ANSWERED THE ABOVE QUESTIONS AND I HAVE READ, OR HAD READ TO ME, THE COMPLETE APPLICATION. I REALIZE THAT MY FALSE STATEMENTS, MISREPRESENTATIONS OR CONCEALMENTS WHICH WOULD AFFECT THE ACCEPTANCE OF THE RISK ASSUMED MAY RESULT IN LOSS OF COVERAGE, SUBJECT TO INCONTESTABILITY PROVISIONS AND/OR THE TIME LIMIT ON CERTAIN DEFENSE PROVISIONS OF THE POLICY.’

"(Application) ( [capitalization and bold typeface] emphasis original).

"7. Alfa relied upon the information provided by [Lee V. Reese] in his application in approving the policy and setting its premium.

"8. ... [O]n or about May 24, 2010, [Lee Reese] ... died....

"9. The immediate cause of death was cardiac arrhythmia and failure, renal failure, and ASVD (also known as artherosclerosis [sic])....

"10. On or about June 16, 2010, Alfa received a ‘Request for Payment of Insurance Benefits,’ signed and submitted by ... Reese....

"11. [Lee Reese] was diagnosed with ‘Diabetes Requiring Insulin (injection or Pump)’ prior to his application for life insurance on or about April 14, 2010....

"12. [Lee Reese] was treated for ‘Kidney Failure ’ prior to his application for life insurance on April 14, 2010....

"13. [Lee Reese] also had had an ‘Amputation due to Disease’ prior to his application for life insurance on April 14, 2010....

"14. Based upon medical records, Alfa is informed and believes, and based upon that information and belief alleges, that the deceased insured, Lee V. Reese, died as an immediate result of cardiac arrest and failure, renal failure, and atherosclerosis, being contributorily caused by ‘Diabetes Requiring Insulin (injection or Pump),’ and ‘Kidney Failure,’ with an indicating factor being ‘Amputation due to Disease.’ ( [bold typeface] emphasis added).

"15. Alfa alleges that the aforesaid policy of insurance affords no insurance coverage or insurance benefits to [Reese]. Specifically, Alfa ... avers that Alfa life insurance policy number LI2999 provides no insurance coverage in that it was void ab initio due to untruthful answers to application question 12, insofar as it was (1) fraudulent; (2) material either to the acceptance of the risk or to the hazard assumed by the insurer; or (3) the insurer, in good faith, would either not have issued the policy or contract, or would not have issued a policy or contract at the premium rate as applied for, or would not have issued the policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been made known to the insurer as required either by the application for the policy, or contract, or otherwise. See Code of Alabama 1975, § 27–14–7(a).³

"16. On August 16, 2010, Alfa sent ... Reese a letter refunding her premium payments and notifying her of Alfa's denial of death benefits on Alfa life insurance policy number LI2999 based on the foregoing misrepresentations, omissions, concealment of facts, or incorrect statements...."

(Emphasis, other than as indicated, added.) Thus, Alfa could seek rescission of the life-insurance policy under § 27–14–7(a)(3), Ala.Code 1975, because, Alfa said, it would not have issued the policy or would have issued the policy under different terms had it known that the signed application Reese submitted contained misrepresentations, concealment of facts, and incorrect statements regarding Lee Reese's medical conditions. According to Alfa, Reese, who admittedly did not read the application, knew that the misrepresentations, concealment of facts, and incorrect statements regarding Lee Reese's medical conditions were contained in the application based on the conversation she overheard between Griffith and Russell at Alfa's office.

In...