Cullen v. Valley Forge Life Ins. Co.

• Decision Date: 16 December 2003
• Docket Number: No. COA02-1328.,COA02-1328.
• Court: North Carolina Court of Appeals
• Parties: Anthony W. CULLEN, Plaintiff, v. VALLEY FORGE LIFE INSURANCE COMPANY, CNA Life Insurance Company, Moneymetrics Insurance Agency, Inc., Piedmont Carolinas Group, LLC, and Mark C. Flur, Defendants.

589 S.E.2d 423

161 NC App. 570

Anthony W. CULLEN, Plaintiff, v. VALLEY FORGE LIFE INSURANCE COMPANY, CNA Life Insurance Company, Moneymetrics Insurance Agency, Inc., Piedmont Carolinas Group, LLC, and Mark C. Flur, Defendants.

No. COA02-1328.

Court of Appeals of North Carolina.

December 16, 2003.

Faison & Gillespie, by O. William Faison, Reginald B. Gillespie, Jr., and Kristen L. Beightol, Durham, for plaintiff-appellee.

Smith Moore L.L.P., by James G. Exum, Jr. and Samuel O. Southern, and Drinker Biddle & Reath, L.L.P., by Stephen C. Baker and John B. Dempsey, Raleigh, for defendants-appellants Valley Forge Life Insurance Company and CNA Life Insurance Company.

CALABRIA, Judge.

This appeal arises from the trial court's granting of Anthony W. Cullen's ("plaintiff")¹ summary judgment motion awarding plaintiff $499,605.02 for breach of a life insurance contract, treble damages for unfair and deceptive practices, costs, and attorneys' fees. We affirm in part and reverse in part.

In the early 1990's, Marc Flur ("Flur"), plaintiff's insurance agent and acquaintance, contacted him to discuss insurance policies. Plaintiff subsequently applied for a one million dollar life insurance policy. The application process required plaintiff to disclose his medical history. Although plaintiff listed prior surgeries, treatment for a skin disorder, and Crohn's disease (a degenerative gastrointestinal disorder), his application was approved.

Each year, Flur and plaintiff met to discuss plaintiff's insurance needs. In 1999, around the time of the existing life insurance policy's conversion date, plaintiff asked Flur about increasing his life insurance coverage for the benefit of his children due to an increase in the size of plaintiff's family and a more stable financial outlook. Flur explored the options available and presented a $500,000.00 life insurance policy (the "subject policy") application with Valley Forge Life Insurance Company ("Valley Forge").²

On 2 April 1999, Flur and plaintiff met and filled out the application. Since plaintiff did not submit a premium with the application, the following provision applied: "insurance will not take effect until the application is approved and accepted by the Company ... and the policy is delivered while the health of each person proposed for insurance and other conditions remain as described in this application and ... the first premium ... has been paid in full."

On 14 April 1999, plaintiff submitted to a medical examination and provided blood and urine samples as required by the application. Plaintiff also authorized the release of his medical records. These records disclosed the existence of a "blood blister" he had noticed on his back in late 1998. Valley Forge reviewed those records and "need[ed] to know what was the diagnosis, treatment and current condition." Flur was asked to inquire concerning the blood blister. Despite the fact that Flur and plaintiff both agree plaintiff did not represent the blood blister had gone away, Moneymetrics, the company acting as Flur's general agent, reported to Valley Forge the "blood blister went away without any treatment needed." On 19 May 1999, the subject policy was approved, and Flur contacted plaintiff to inform him that he would collect the premium upon delivery of the subject policy.

On 26 May 1999, plaintiff had a regularly scheduled appointment with Dr. Kim Isaacs ("Dr.Isaacs"), his primary care physician since 1994, for his Crohn's disease and inquired as to the blood blister on his back. Dr. Isaacs arranged for plaintiff to see a dermatologist to perform a biopsy and eliminate the possibility of melanoma, a form of skin cancer. An analysis of the biopsy revealed that the blood blister was in fact melanoma. Plaintiff was informed of the diagnosis on 2 June 1999.

On 11 June 1999, plaintiff and Flur met, Flur delivered the subject policy, and plaintiff paid the premium of $394.98. At some point in time, Flur and plaintiff completed a second life insurance application for additional coverage with Valley Forge. Plaintiff underwent a second medical examination and submitted a medical supplement on 14 June 1999. The information in the medical supplement included that plaintiff had been treated for a "[d]isorder of the skin or lymph glands, cyst, tumor or cancer" and an additional handwritten answer further indicated "melanoma on back—will be removed 6/17/99 Dr. Benjamin Calvo UNC Hospitals." Diane Waggoner, the nurse Valley Forge procured to conduct both medical examinations of plaintiff for the purposes of his applications for life insurance, witnessed the medical supplement.

Valley Forge deposited plaintiff's premium payment, which cleared plaintiff's bank account on 17 June 1999. On 9 July 1999, Valley Forge complied with plaintiff's request to change the beneficiary named under the subject policy. Subsequently, in a letter from Valley Forge dated 21 September 1999, plaintiff learned his second application for insurance was declined. In addition, the letter informed him that, regarding the subject policy, "no coverage or contract was ever in effect" and that "no coverage ever existed." Valley Forge included a refund check for the premium payment, which was eventually reissued and deposited by plaintiff.

Plaintiff filed suit on 11 June 2001 against Flur, Valley Forge, CNA, Moneymetrics, and Piedmont Carolinas Group, L.L.C. seeking a judgment declaring he was insured under the subject policy³and later amended his complaint to include a claim for unfair and deceptive practices arising out of the same transaction as the breach of contract action. Valley Forge answered asserting numerous defenses including, inter alia, accord and satisfaction and that plaintiff's health, when the policy was delivered and the premium paid, was not the same as his health as described in the application. On 18 and 24 January 2002, plaintiff's "Motion for Summary Judgment or Partial Summary Judgment" against Valley Forge was heard. Valley Forge opposed the motion, asserting discovery was not yet complete. On 8 March 2002, the trial court granted plaintiff's motion for summary judgment on his claims against Valley Forge, awarding plaintiff in excess of 2.2 million dollars for breach of contract and unfair and deceptive practices as well as attorneys' fees and costs.

On appeal, we find the issue of waiver controlling on plaintiff's breach of contract claim. The ramifications of our holding concerning waiver and the undisputed surrounding circumstances are, moreover, dispositive of plaintiff's remaining claims and Valley Forge's defenses. Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law." N.C. Gen. Stat. § 1A-1, Rule 56(c) (2001). "The rule is designed to permit penetration of an unfounded claim or defense in advance of trial and to allow summary disposition for either party when a fatal weakness in the claim or defense is exposed." Caldwell v. Deese, 288 N.C. 375, 378, 218 S.E.2d 379, 381 (1975). The party moving for summary judgment has the burden of showing that there is no genuine issue as to any material fact. Dixie Chemical Corp. v. Edwards, 68 N.C.App. 714, 715, 315 S.E.2d 747, 749 (1984).

I. Waiver

A life insurance policy is a contract. Motor Co. v. Insurance Co., 233 N.C. 251, 253, 63 S.E.2d 538, 540 (1951). As such, the parties entering into the insurance contract may agree upon "its terms, provisions and limitations." Allen v. Insurance Co., 215 N.C. 70, 72, 1 S.E.2d 94, 95 (1939). "Waiver is `an intentional relinquishment or abandonment of a known right or privilege.'" Medearis v. Trustees of Meyers Park Baptist Church, 148 N.C.App. 1, 10, 558 S.E.2d 199, 206 (2001) (citation omitted). Although "[w]aiver is a mixed question of law and fact[, w]hen the facts are determined, it becomes a question of law." Hicks v. Insurance Co., 226 N.C. 614, 619, 39 S.E.2d 914, 918 (1946).

As we have previously held, waiver of a provision in an insurance policy "`is predicated on knowledge on the part of the insurer of the pertinent facts and conduct thereafter inconsistent with an intention to enforce the condition.'" Town of Mebane v. Insurance Co., 28 N.C.App. 27, 32, 220 S.E.2d 623, 626 (1975) (quoting Hicks, 226 N.C. at 617, 39 S.E.2d at 916). "Ordinarily, an insurance company is presumed to be cognizant of data in the official files of the company, received in formal dealings with the insured." Gouldin v. Insurance Co., 248 N.C. 161, 165, 102 S.E.2d 846, 849 (1958) (citing Hicks, 226 N.C. 614, 39 S.E.2d 914; Robinson v. B. of L.F. and E., 170 N.C. 545, 87 S.E. 537 (1916)). Moreover, "`[k]nowledge of facts which the insurer has or should have had constitutes notice of whatever an inquiry would have disclosed and is binding on the insurer.'" Id. (citation omitted).

To comply with our standard of review, the operative facts, viewed in the light most favorable to Valley Forge, are as follows: plaintiff did not disclose the existence of the blood blister in the subject policy application, but the medical records, obtained as part of the application, revealed its existence. Plaintiff did not disclose the diagnosis of malignant melanoma when applying for additional life insurance with Valley Forge, but the medical supplement tendered to Valley Forge on 14 June 1999 detailed the diagnosis and proposed treatment. Accordingly, Valley Forge had notice that the blood blister remained, that it had been diagnosed as melanoma, and that it would be removed. Nonetheless, Valley Forge negotiated plaintiff's check in payment of the subject policy's premium, received without objection a request for a change of beneficiary, and granted that request almost a month after knowledge of the pertinent facts concerning plaintiff's health....