Ehrhardt v. Penn Mut. Life Ins. Co., 89-1385

• Decision Date: 14 June 1990
• Docket Number: No. 89-1385,89-1385
• Citation: 902 F.2d 664
• Parties: Maxine H. EHRHARDT, Appellee, v. PENN MUTUAL LIFE INSURANCE CO., Appellant, v. David G. DEMPSEY and Patrick O. Boyle as Trustees of the Eugene J. Ehrhardt, Children's Trust, and David G. Dempsey as Trustee of the Eugene J. Ehrhardt living trust.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 664

902 F.2d 664

Maxine H. EHRHARDT, Appellee, v. PENN MUTUAL LIFE INSURANCE CO., Appellant, v. David G. DEMPSEY and Patrick O. Boyle as Trustees of the

Eugene J. Ehrhardt, Children's Trust, and David G.

Dempsey as Trustee of the Eugene J.

Ehrhardt living trust.

No. 89-1385.

United States Court of Appeals Eighth Circuit.

Submitted Jan. 18, 1990.

Decided May 2, 1990.

Rehearing and Rehearing En Banc Denied June 14, 1990.

P. Terence Crebs, St. Louis, Mo., for appellant.

Alan J. Agathen, Clayton, Mo., for appellee.

Before BOWMAN and WOLLMAN, Circuit Judges, and ROSS, Senior Circuit Judge.

ROSS, Senior Circuit Judge.

Penn Mutual Life Insurance Co. (Penn Mutual) appeals from the district court's order entering judgment upon a jury's verdict in favor of Maxine Ehrhardt (Maxine), and third party defendants David Dempsey and Patrick Boyle (trustees) in Maxine's diversity action to recover insurance proceeds. We reverse and remand for a new trial.

Maxine was a licensed life insurance agent in Missouri working for Penn Mutual. She sold a $200,000 life insurance policy to her husband, Eugene Ehrhardt (Eugene), on July 26, 1982. Maxine was the original owner of the policy. The beneficiaries of the policy were designated as follows: three-fourths of the proceeds to go equally to Eugene's three daughters from a previous marriage; one-fourth to go to Maxine. Thereafter, Maxine twice redesignated herself the owner and redesignated the original beneficiaries.

After Eugene was diagnosed as suffering from leukemia, his behavior became erratic. Fearing disinheritance and mounting medical bills, Maxine requested a change-of-beneficiary form from Penn Mutual. Penn Mutual sent a cover letter ¹ and multipurpose blank form 6955. Part I of the form vested all privileges of ownership in the "INSURED" unless otherwise indicated "below." Maxine left this part blank. She filled in Part III by redesignating herself sole primary beneficiary and her two daughters contingent beneficiaries. She signed the bottom of the form under "policyowner" on June 3, 1985. Penn Mutual then changed ownership of the policy to Eugene.

In February 1986, Eugene summoned his attorney, David Dempsey, to his hospital room regarding an estate plan. Maxine was present at the meeting in which a plan placing the policy proceeds into trust for Eugene's daughters was discussed. Eugene acknowledged that Maxine owned the policy. Eugene decided that he wanted three-fourths of the policy proceeds to go into the children's trust and one-fourth into a living trust for Maxine's benefit. During creation of the trust documents, Dempsey's associate, Robert Kahn, discovered from Penn Mutual that Eugene was the record owner of the policy. Accordingly, on February 14, 1986, Eugene designated the two trusts as beneficiaries of the policy insuring his life. Maxine was present and did not object.

In June 1986, Kahn learned that the Ehrhardts had a prenuptial agreement. In order to avoid conflict with the trusts, a postnuptial agreement was drafted. The postnuptial agreement recognized the living trust as beneficiary of one-fourth of the policy proceeds and stated that Eugene "shall not alter or amend such designation of beneficiary." Both Eugene and Maxine signed the agreement.

When Eugene died, Penn Mutual paid the policy proceeds ($215,317.08) to the trustees: $161,360 for the children's trust; $53,957.08 for the living trust. Maxine then sued Penn Mutual alleging: Count I--breach of contract; Count II--vexatious refusal to pay; and Count III--negligence (in connection with Penn Mutual's treatment of form 6955). Penn Mutual filed a third party complaint against the two trustees. Count III was submitted to the jury which found Maxine twenty percent negligent and Penn Mutual eighty percent negligent and assessed damages against Penn Mutual at $172,253.67 (eighty percent of $215,317.08). The jury returned a verdict against Penn Mutual on its third party complaint.

Penn Mutual appeals, raising the issues of whether the district court erred in: (1) determining that form 6955 was ambiguous; (2) denying Penn Mutual's motion for judgment notwithstanding the verdict because giving the form without adequate instructions could not constitute negligence; (3) preventing Penn Mutual from presenting its waiver or estoppel defense relating to the postnuptial agreement; (4) refusing to give Penn Mutual's requested Instruction A on the postnuptial agreement; (5) giving Maxine's three-prong disjunctive verdict director, Instruction No. 12; (6) failing to declare a mistrial after giving additional instructions to the jury in response to a question; (7) refusing a remittitur; (8) refusing to allow Penn Mutual to refresh witness David Dempsey's recollection with an estate tax return; and (9) instructing the jury on Penn Mutual's third party complaint. We will discuss each of these issues in turn.

Penn Mutual contests the admission of alleged parol evidence to vary the terms of the form, i.e., Maxine's testimony that she never intended to transfer ownership of the policy. Maxine argues that because the form is not reasonably calculated to draw one's attention to the automatic change of ownership in Part I, it is ambiguous, especially in view of the accompanying letter sent by Penn Mutual.

An ambiguity exists when a contract is reasonably susceptible of more than one construction. Sun Oil Co. v. Vickers Ref. Co., 414 F.2d 383, 386 (8th Cir.1969). Whether form 6955 is ambiguous is a question of law to be decided by the trial court in the first instance. Motor Carriers Council v. Local Union 600, 486 F.2d 650, 653 (8th Cir.1973).

At trial Maxine contended that the word "below" used in the form could have referred to the form's signature block where she signed as policyowner. Yet immediately beneath the word "below" in Part I are two blank lines on which to place the names of the primary or contingent owner(s). Immediately beneath that is a phrase which begins "If a new owner has been designated above...." (emphasis added). The parts of the form are separated by adequate blank spacing and blocks.

The district court refused to grant Penn Mutual's motion to dismiss Count III of the complaint for failure to state a claim, finding the form ambiguous as a matter of law. The court found nothing on the face of the form to advise an owner that she is required to redesignate herself as the owner each time a beneficiary change is made. It further refused to grant a judgment notwithstanding the verdict on this point. In a diversity case, this court defers to the local district court's interpretation of state law unless it is " 'fundamentally deficient in analysis or otherwise lacking in reasoned authority.' " Barber-Greene Co. v. National City Bank, 816 F.2d 1267, 1270 (8th Cir.1987) (quoting Dabney v. Montgomery Ward & Co., 761 F.2d 494, 499 (8th Cir.1985)). In light of the deference accorded the district court, we agree that the form, when considered with the cover letter, may be reasonably susceptible of two interpretations. See J.E. Hathman, Inc. v. Sigma Alpha Epsilon Club, 491 S.W.2d 261, 264 (Mo.1973) (en banc) (writings in addition to contract to be considered in determining ambiguity).

Second, Penn Mutual contends that the court erred in denying its motion for a judgment notwithstanding the verdict because merely providing the form could not constitute a basis for a negligence action. Penn Mutual did not, however, object to the availability of a negligence remedy during the trial. Maxine had alleged Penn Mutual's negligence in providing the form without adequate instruction. Penn Mutual points out that Maxine failed to read the entire form or request assistance, yet Maxine asserts she had the false impression that the form was a change-of-beneficiary form. ²

Penn Mutual further argues that Maxine did not justifiably rely on anything represented by Penn Mutual, an essential element of negligent misrepresentation. We disagree. She may have relied on the cover letter sent with the form, together with the allegedly ambiguous form itself. We note, however, that Maxine had more than ten years of experience in the insurance business.

This court will not overrule the district court's ruling on a motion for judgment notwithstanding the verdict if the evidence is susceptible of any reasonable inference sustaining the prevailing party's position. Brown by Brown v. Syntex Laboratories, Inc., 755 F.2d 668, 671 (8th Cir.1985). The district court did not err in failing to enter a judgment notwithstanding the verdict because Maxine's claim appears cognizable in tort. Because Missouri is a comparative fault state, however, the jury was entitled to fix negligence apportionately. We therefore decline to reverse on Penn Mutual's second issue.

As its third and fourth points, Penn Mutual asserts it should have been allowed to argue waiver and estoppel. By the August 4, 1986 postnuptial agreement, Maxine consented to receipt of twenty-five percent of the policy proceeds being placed in a living trust for her benefit; she also consented to redesignation of the children's trust. Penn Mutual stresses that by reason of the judgment, Maxine is to receive eighty percent of the policy proceeds in addition to twenty-five percent of the living trust, effectively one hundred five percent of the policy proceeds. In addition, the children's trust would receive seventy-five percent of the policy proceeds, making Penn Mutual liable for one hundred eighty percent of the policy proceeds. The district court refused to allow Penn Mutual to submit its waiver or estoppel defenses in the instructions, mention them in closing argument, or grant its motion for a judgment notwithstanding the verdict. Penn Mutual believes the agreement was relevant to damages and to Maxine's credibility.

Maxine responds that the agreement could not have barred her claim as a matter of law, due to Missouri's comparative fault system. She did...