Carolina Amusement Co., Inc. v. Connecticut Nat. Life Ins. Co.
| Decision Date | 13 April 1993 |
| Docket Number | No. 2020,2020 |
| Citation | 437 S.E.2d 122,313 S.C. 215 |
| Parties | CAROLINA AMUSEMENT COMPANY, INC., Appellant, v. CONNECTICUT NATIONAL LIFE INSURANCE COMPANY, f/k/a Covenant Life Insurance Company, Respondent. . Heard |
| Court | South Carolina Court of Appeals |
Steven E. Harvey of Isaacs, Alley & Harvey, Columbia, for appellant.
Douglas McKay, Jr., and Glenn Ohanesian of McKay, McKay, Henry & Foster, Columbia, for respondent.
After reviewing the Petition for Rehearing in this case, it is ordered that the opinion heretofore filed, Opinion No. 2020, filed June 1, 1993, be withdrawn and the attached opinion be substituted. The Petition for Rehearing is denied.
AND IT IS SO ORDERED.
Carolina Amusement Company, Inc. (Carolina Amusement) is the named beneficiary under a life insurance policy issued by Connecticut National Life Insurance Company (Insurer) covering the life of the decedent, Joel Hendrix. 1 The dispositive issue on appeal is whether a letter sent by the Insurer to Hendrix in December 1984 constitutes a separate insurance contract for the amount of $31,200. The trial court held it did not. Carolina Amusement appeals. We affirm.
The facts in this case are undisputed. On August 25, 1981, Hendrix applied to Covenant Life Insurance Co. (Covenant), the predecessor of the Insurer, for a whole life insurance policy in the face amount of $100,000. The next day Hendrix executed to First Palmetto State Bank & Trust Co. (Bank) an assignment of the policy as collateral for a loan. Pursuant to the application and assignment, Covenant issued a policy on September 14, 1981, with annual premiums due each anniversary date.
The pertinent terms of the policy include: (1) a table of values attached to the policy that states the policy has a cash value of $1,300 and would purchase $4,400 in paid-up insurance after its third anniversary date; (2) five conditions for reinstatement of a lapsed policy, including proof of insurability; and (3) nonforfeiture options which provide that in case of default in the payment of premiums, the insured may choose to a) surrender the policy for cash, b) continue the policy as paid-up insurance, or c) continue the policy as extended-term insurance. 2
The second nonforfeiture option provides that if the insured elects paid-up insurance, the amount "depends on how much single premium insurance the cash value of the Policy ... will buy when applied as a net single premium." The nonforfeiture provisions further provide that the insured shall have "60 days after the due date of the first unpaid premium" to make an election of one of these options. They also state:
If you do not choose by the end of the 60 day period, we will automatically continue the Policy as extended term insurance. If extended term insurance is not available because the Insured is not in a standard premium class, we will [automatically] continue the Policy as paid-up insurance. (emphasis added)
Hendrix did not pay the premium due on September 14, 1984. On December 3, 1984, Kathleen A. Ruffino, Covenant's customer relations officer, wrote to Hendrix stating:
The status of your policy has changed because the premium due 9/14/84 was not paid. In accordance with the terms and conditions of the policy, the cash surrender value on the premium due date has been applied to purchase fully paid-up insurance.
The cash surrender value of $1,300.00 has been applied to purchase paid-up insurance in the amount of $31,200.00. This amount will continue in force unless the policy is reinstated.
It has been our experience that, if reinstatement is not desired, most policyholders prefer to accept the cash surrender value instead of a paid-up policy with a small amount of insurance. Should you decide not to apply for reinstatement of the policy and do not wish to retain the paid-up policy, please complete the enclosed Request for Cash Surrender form. We will be happy to send you the cash surrender value promptly.
Reinstatement is possible only in accordance with the terms and conditions of the policy. Should you desire any further information regarding the status of this policy, or if you wish to apply for reinstatement, please contact us.
Hendrix did not contact Covenant. On May 28, 1985, while the paid-up policy was in force, Hendrix died.
On June 10, 1985, the Insurer wrote to Mrs. Hendrix advising her that the $1,300 cash value was insufficient to pay the September 1984 premium due of $3,160. The letter added:
It appears you were inadvertently furnished incorrect information in the December 3, 1984 letter regarding the policy size. Based on the age of the insured and the amount of cash value at the premium due date the amount of paid-up insurance is $2,400.
On June 25, 1985, the Bank wrote to the Insurer and informed it that at the time of Hendrix's death the payoff on his loan was $65,993. The Bank then surrendered the policy and the Insurer sent the Bank a check for $2,426 ($2,400 paid-up insurance plus $26 accumulated interest). The check was negotiated by the Bank. 3
Carolina Amusement paid Hendrix's debt to the Bank, and then, as beneficiary under the policy, brought this action to collect unpaid monies claiming the letter of December 3, 1984 constituted an offer to provide $31,200 in paid-up insurance in return for the $1,300 cash value retained by the Insurer, which offer was implicitly accepted by Hendrix.
The Insurer presented evidence that because Hendrix suffered from leukemia, it always intended to issue a "substandard" policy and so entered the policy on its computer. Thus, according to the Insurer's records, the $1,300 cash value of the lapsed policy would have bought only $2,400 in paid-up insurance. Although the declaration page of the policy indicates the policy requires a "substandard extra premium" of $1,369 per year, the table of values attached to the policy applied to a standard policy and provided that $1,300 in cash value would purchase $4,400 in paid-up insurance at the end of the third anniversary of the policy.
The Insurer's witnesses testified the December 3, 1984 letter reflected a "computational error" in stating that the $1,300 cash value could buy $31,200 in paid-up insurance.
The court held the letter of December 3, 1984 was not a new contract but merely an erroneous explanation of the coverage the policy afforded after it lapsed for nonpayment of premiums. It reasoned the mistake as to the amount of paid-up insurance could be readily ascertained by reference to the policy.
The court also held the letter could not modify the terms of the policy because the writer had no authority to do so. The policy provides it was the sole agreement between the parties and can only be changed by the president, vice president, secretary, or assistant secretary of the company. The writer of the letter was not one of these designated officers. The court further held the letter did not create a new contract because (a) it was not an offer, and (b) if it were, there was no consideration paid for the offer, because the cash surrender value was not new consideration.
In South Carolina, the formation of a contract is governed by well-settled principles. Quite simply, "[a] contract exists where there is an agreement between two or more persons upon sufficient consideration either to do or not to do a particular act." Benya v. Gamble, 282 S.C. 624, 628, 321 S.E.2d 57, 60 (Ct.App.1984). Stated another way, there must be an offer and an acceptance accompanied by valuable consideration. Id. These principles govern contract formation generally and specifically control the creation of an insurance contract. Hodge v. National Fidelity Ins. Co., 221 S.C. 33, 41, 68 S.E.2d 636, 638-39 (1952).
"An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it." Restatement (Second) of Contracts § 24 (1981). The offer identifies the bargained for exchange and creates a power of acceptance in the offeree. Restatement (Second) of Contracts § 29 (1981); accord Chang v. First Colonial Sav. Bank, 242 Va. 388, 410 S.E.2d 928, 930-31 (1991).
"Any conduct from which a reasonable person in the offeree's position would be justified in inferring a promise in return for a requested act or a requested promise by the offeree, amounts to an offer." Broadway v Jeffers, 185 S.C. 523, 530-31, 194 S.E. 642, 645 (1938).
We agree with the trial court that the letter of December 3, 1984 did not constitute an offer from Covenant to Hendrix to provide $31,200 in paid-up insurance in...
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