Allen v. Great American Reserve Ins. Co.
| Decision Date | 02 April 2002 |
| Docket Number | No. 29S05-0204-CV-222.,29S05-0204-CV-222. |
| Citation | 766 N.E.2d 1157 |
| Parties | Thomas G. ALLEN, Joe M. Gilstrap, Thomas G. Grier, James H. Nelson, Donald K. Owens, Richard K. Patierno, Richard K. Patierno, Jr., Silvine M. Patierno and John M. Stone, Appellants (Plaintiffs Below), v. GREAT AMERICAN RESERVE INSURANCE COMPANY and Glenn H. Guffey, Appellees (Defendants Below). |
| Court | Indiana Supreme Court |
George M. Plews, Jeffrey A. Townsend, Indianapolis, Indiana, Attorneys for Appellants.
Patricia Polis McCrory, Mark W. Pfeiffer, Joseph H. Yeager, Jr., Shawna Meyer Eikenberry, Indianapolis, Indiana, Attorneys for Appellees.
ON PETITION FOR TRANSFER
Plaintiffs1 are insurance agents licensed in North or South Carolina. Each of them sold the Flex II, a tax-deferred annuity issued by Jefferson National Life ("JNL"), to individual residents of those states. The plaintiffs were recruited by defendant Glenn H. Guffey, then a resident of South Carolina, and entered into contracts with JNL calling for them to work under Guffey, who served as JNL's general agent. JNL subsequently merged into defendant Great American Reserve Insurance Company ("GARCO"), a Texas life insurance company with its principal office in Indiana, and GARCO succeeded to the policies. Each plaintiff's contract with GARCO contained a choice of law provision that the contract was to be "construed in accordance with the laws of the State of Indiana exclusive of choice of laws provisions." There was also a forum selection clause providing that venue "for any action between the parties arising under this Agreement" was to be in a court in Hamilton County, Indiana.
In exchange for annual premiums, the Flex II promised annuity income in the future. Guffey trained the plaintiffs, and part of that instruction included telling the plaintiffs that the Flex II had no front-end load, meaning that no commission or other fees would reduce the amount of premiums used to build up the value of the policy. In fact, the Flex II did have a front-end load, and for most policyholders only 65% of the first year's premium was applied to add to the value of the policy. Just over 85% was applied in years two through five, and only in year six did the entire premium go to enhance the value of the annuity. After some of the plaintiffs' customers complained about misrepresentations in the sale of the Flex II, the South Carolina Department of Insurance launched an investigation. As a result of the investigation, most of the plaintiffs entered into consent decrees with the department admitting that they had misrepresented the Flex II as to the existence of a front-end load.
The plaintiffs first sued Guffey and GARCO in federal court in South Carolina. That suit was dismissed without prejudice for improper venue and lack of diversity of citizenship. The plaintiffs then initiated this suit in the Hamilton Circuit Court, asserting twelve counts against both Guffey and GARCO. The substance of many of these claims was that the plaintiffs incurred liability to their customers and costs of regulatory proceedings and defense of civil lawsuits, all as a result of Guffey's and GARCO's misrepresentations that the Flex II had no front-end load. The trial court, applying South Carolina law to the entire proceeding, granted partial summary judgment in favor of Guffey and GARCO on most of the counts on the ground that the plaintiffs, as licensed insurance agents, could not have reasonably relied on the claimed misrepresentations.
The Indiana complaint also asserted three Indiana statutory causes of action, and a claim for negligence. The trial court granted summary judgment as to the statutory claims on the ground that these Indiana statutes were not applicable to claims governed by South Carolina law, and also on statute of limitations grounds. The negligence claim was also dismissed on statute of limitations grounds. Finally, two counts remain in the trial court while this interlocutory appeal proceeds.
The Court of Appeals concluded that the plaintiffs' Indiana statutory claims and the claim for negligence were properly preserved by the Journey's Account statute, and reversed that portion of the summary judgment order dismissing those counts, but agreed that the plaintiffs' status as experts in the field of insurance precluded recovery under the misrepresentation counts. The plaintiffs seek transfer to this Court.
On appeal, the standard of review of a grant or denial of a motion for partial summary judgment is the same as that used in the trial court: summary judgment is appropriate only where the evidence shows that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law. Bemenderfer v. Williams, 745 N.E.2d 212, 215 (Ind.2001). All facts and reasonable inferences drawn from those facts are construed in favor of the nonmoving party. Id.
No one in this lawsuit claims that because the policies were represented to contain no front-end load, the purchasers were entitled to that benefit. Rather, all parties agree that the policies in fact carried a front-end load. The plaintiffs contend, in broad brush, that they were assured by Guffey that they were selling noload policies, they sold the policies on that basis, and they incurred losses as a result of the false assurances. Because Guffey was GARCO's general agent, plaintiffs contend GARCO is liable as principal as well as for its own actions. The defendants point out that the plaintiffs admit that they never read the Flex II policies they sold. The defendants contend that a reading of the policies discloses that the cash value of the policy is less than the premiums paid until year seven. They also note that the plaintiffs received commissions on the sale of the policies, and the money had to come from somewhere. From this they argue that no licensed insurance agent could reasonably conclude that the policies were no-load. The plaintiffs' contentions are found in twelve different counts. We note at the outset that because the parties hail from different states, and because many of the activities in question occurred in different states, this case raises significant choice of law issues. In analyzing each of the counts of the plaintiffs' complaint, it is first necessary to determine which state's law applies to that count. The answer may differ for different counts and may differ between defendants as to a single count. As a preliminary matter, except as to Count VI, no party argues for the application of the law of North Carolina to any claim. Accordingly, we discuss only the choice between South Carolina and Indiana law as to each of the other counts.
In this count, the plaintiffs allege that their contract with GARCO and their sub-agency relationship with Guffey implied a duty and obligation of good faith and fair dealing. The plaintiffs claim that, with fraudulent intent and through fraudulent acts, GARCO and Guffey breached these implied covenants, and that those breaches are equivalent to breaches of contract.
Ordinarily a choice of law issue will be resolved only if it appears there is a difference in the laws of the potentially applicable jurisdictions. Here we are unclear whether this is the case as to these or potentially other issues raised by these claims after remand. Accordingly, we address choice of law as to this count. Because these cases are brought in Indiana, Indiana choice of law doctrines control. Hubbard Mfg. Co., Inc. v. Greeson, 515 N.E.2d 1071, 1073 (Ind.1987).
The plaintiffs describe their claim in Count I against GARCO as a claim for breach of a covenant of good faith implied in their contracts with GARCO. Indiana choice of law doctrine favors contractual stipulations as to governing law. Hoehn v. Hoehn, 716 N.E.2d 479, 484 (Ind.Ct.App.1999); Homer v. Guzulaitis, 567 N.E.2d 153, 156 (Ind.Ct.App.1991), trans. denied; Barrow v. ATCO Mfg. Co., 524 N.E.2d 1313, 1315 (Ind.Ct.App.1988). There is no reason here to disregard that presumption. Accordingly, the contractual provision that Indiana law governs the construction of the contract is controlling on the choice of law issue. Indiana law recognizes an implied duty of good faith in all insurance contracts requiring that an insurer will act in good faith with its insured. Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515, 518 (Ind.1993). This duty results from the unique nature of the insured/insurer relationship, which may be at varying times arm's-length, fiduciary, and/or adversarial. Id. But Indiana does not imply such a covenant in every contract. See First Fed. Sav. Bank v. Key Mkts., 559 N.E.2d 600, 604 (Ind. 1990)
(). We nevertheless think these agency agreements, though by professionals, are in the category of agreements that carry some implied covenants. Agency relationships generally carry with them the obligation of the principal to exercise reasonable care to avoid placing the agent in harm's way in the course of carrying out the agency. Montgomery Ward & Co., Inc. v. Tackett, 163 Ind.App. 211, 217, 323 N.E.2d 242, 246 (1975).2 This is essentially what the plaintiffs allege was not done here. Thus, if the plaintiffs can establish that Guffey or GARCO allowed or caused them to misrepresent the "noload" feature, with knowledge that the plaintiffs believed their representation to be true, and plaintiffs' reliance on a defendant's actions or omissions was reasonable, then perhaps a breach of this duty would be established under Indiana law, which applies to GARCO by reason of the contract.
As to Guffey, who had no contract with any plaintiff, Count I alleges a breach of the duty of good faith...
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