Ellis v. William Penn Life Assur. Co. of America

• Decision Date: 26 May 1994
• Docket Number: 60185-2,Nos. 59986-6,s. 59986-6
• Citation: 124 Wn.2d 1,873 P.2d 1185
• Parties: Charlotte E. ELLIS, Petitioner, v. WILLIAM PENN LIFE ASSURANCE COMPANY OF AMERICA, d/b/a William Penn Life Insurance Company of New York; John W. Crowley and Jane Doe Crowley, husband and wife; J.W. Crowley, Inc., a Washington corporation, Respondents, and Susan B. STROTHER, Respondent, v. CAPITOL BANKERS LIFE INSURANCE COMPANY, Petitioner.
• Court: Washington Supreme Court

Page 1

124 Wn.2d 1

873 P.2d 1185

Charlotte E. ELLIS, Petitioner, v. WILLIAM PENN LIFE ASSURANCE COMPANY OF AMERICA, d/b/a

William Penn Life Insurance Company of New York; John W.

Crowley and Jane Doe Crowley, husband and wife; J.W.

Crowley, Inc., a Washington corporation, Respondents, and Susan B. STROTHER, Respondent, v. CAPITOL BANKERS LIFE INSURANCE COMPANY, Petitioner.

Nos. 59986-6, 60185-2.

Supreme Court of Washington En Banc.

May 26, 1994.

Reconsideration Denied Nov. 8, 1994.

Montgomery, Purdue, Blankinship & Austin, Scott B. Easter, Tamara L. Roe, Seattle, for petitioner Ellis.

Bogle & Gates, Ronald T. Schaps, Seattle, for petitioner Capitol Bankers Life.

Williams, Kastner & Gibbs, Mark S. Davidson, Rebekah R. Ross, Seattle, for respondent William Penn Life.

Hallmark, Keating & Abbott, P.C., William E. Fitzharris, Jr., Barney Jay Mason, Seattle, for respondents Crowley.

Edwards, Sieh, Wiggins & Hathaway, P.S., Malcolm L. Edwards, Seattle, Inslee, Best, Doezie & Ryder, Evan E. Inslee, Bellevue, for respondent Strother.

SMITH, Justice.

Petitioner Charlotte E. Ellis seeks discretionary review of an unpublished decision of the Court of Appeals, Division One, affirming an order of the King County Superior Court granting summary judgment to Respondent William Penn Life Assurance Company of America. This court granted review on March 31, 1993, 121 Wash.2d 1008, 852 P.2d 1091.

Petitioner Capitol Bankers Life Insurance Company seeks discretionary review of a published decision of the Court of Appeals, Division One, which reversed a jury verdict for Respondent Susan B. Strother and remanded for further proceedings in the King County Superior Court. Respondent Strother cross-petitioned for review. This court granted review on March 31, 1993, 121 Wash.2d 1008, 852 P.2d 1091.

The cases were consolidated for the hearing before this court. We reverse the Court of Appeals in each case and remand them for further proceedings.

STATEMENT OF FACTS

Ellis v. William Penn Life Assurance Company

Beginning in 1982, Dr. Leland R. Ellis, M.D., every two or three years purchased an annually renewable term insurance policy on his life. Each new policy purchased replaced a previously issued one. In 1986 Dr. Ellis' insurance broker, John W. Crowley, CLU, ChFC, wrote a $300,000 term life policy for the physician with Jackson National Life Insurance Company. That policy contained a standard 2-year suicide incontestability provision, which provided that the insurer would not pay the face amount of the policy if the insured committed suicide within two years of the date of issue. Coverage commenced on April 1, 1986, and was renewed on April 1, 1987, for a 1-year term ending March 31, 1988. The insured, Dr. Ellis, did not renew the policy after that date.

On April 25, 1988, in consultation with Dr. Ellis, Mr. Crowley completed an application for a $400,000 term life insurance policy for the physician with William Penn Life Assurance Company of America (William Penn). As part of the application Mr. Crowley checked the "no" box for the question which asked whether the proposed insured had "any intention of replacing ... any life insurance ... policy in force in this or any other company." ¹ Mr. Crowley later declared that, as part of the application process, he had informed Dr. Ellis that the suicide provision would apply during the first two years of coverage under the new policy. Subsequently, William Penn retained Equifax Services, Inc. (Equifax) to investigate the application. ² The Equifax report dated May 4, 1988, shows an "x" in the "yes" box for the question "Does the current appl. replace an existing individual life insurance policy?" ³

The resulting William Penn policy, showing an issue date of April 20, 1988, ⁴ contains a standard suicide clause and a 2-year contestability provision which read:

Suicide

If the insured dies by suicide within 2 years of the Date of Issue of this contract, the only death benefit will be the sum of premiums paid. The amount will be paid in a single sum.

Time Limit on Contests (Incontestability)

We cannot contest this contract after it has been in force, during the Insured's lifetime, for 2 years from the Date of Issue, except for failure to pay premiums. ⁵

On May 15, 1989, Dr. Ellis died an apparent suicide. ⁶ After his death, his widow, Petitioner Charlotte E. Ellis, submitted a claim as beneficiary under the policy, indicating her belief that the death was a suicide. After investigation, the insurer invoked the "suicide provision" and delivered to Ms. Ellis only an amount equivalent to the sum of premiums paid instead of the $400,000 face value of the policy.

On April 30, 1990, Ms. Ellis filed a complaint in the King County Superior Court against John M. Crowley, his marital community, J.W. Crowley, Inc., a licensed insurance brokerage in which Mr. Crowley was the sole shareholder, and William Penn. The complaint sought a declaration that William Penn (a) is estopped from denying coverage under the policy, (b) committed a breach of contract by refusing to pay the face value of the policy, and (c) breached a duty of good faith and fair dealing by refusing to pay the $400,000.

In addition, the complaint alleged that Mr. Crowley's negligent misrepresentations, failure to disclose material facts, and failure to abide by the insurance regulations in the Washington Administrative Code governing replacement life insurance policies resulted in Ms. Ellis losing the $400,000 death benefit on the policy. The complaint then alleged that both Mr. Crowley and William Penn violated Washington's Consumer Protection Act. ⁷

Respondent William Penn then moved for dismissal under CR 12(b)(6) for failure to state a claim upon which relief could be granted. Petitioner Ellis followed with a motion for summary judgment. The court denied both motions. Afterward, Mr. Crowley, later joined by William Penn, moved for dismissal of Ms. Ellis' claims on summary judgment. On May 7, 1991, the King County Superior Court, the Honorable Liem E. Tuai, granted dismissal on summary judgment of all claims by Petitioner Ellis.

On May 15, 1991, Petitioner Ellis filed a notice of appeal of the judgment to the Court of Appeals, Division One. She argued that William Penn should have known that Dr. Ellis intended to secure replacement insurance because it was indicated in the Equifax report. Such knowledge, she claimed, meant that (a) under WAC 284-23-455 William Penn had an obligation to notify Jackson National Life that Dr. Ellis intended to replace that company's policy and (b) under WAC 284-23-485 the insurer had a duty to supply the insured with a written comparison of policy features and a statement that the new policy might not provide coverage equivalent to that in the old policy. Petitioner Ellis contended that the company should be estopped to deny coverage because it had not complied with these regulatory provisions.

Noting that in a life insurance policy estoppel applies only to conditions and not to coverage, in its unpublished opinion filed November 23, 1992, the Court of Appeals reasoned that the suicide provision qualifies as a statement of coverage only and not as a condition. Accordingly, the court concluded that Petitioner Ellis' argument failed. ⁸

In addition, Petitioner Ellis contended that the trial court should not have admitted Respondent Crowley's statement that he had advised Dr. Ellis about the applicability of the suicide provision in the William Penn policy. She argued the "dead person's statute" ⁹ bars Mr. Crowley's testimony because that testimony would be unfair to her. Noting that only an adverse party can make use of the statute, the Court of Appeals decided that a beneficiary does not qualify as an adverse party and that Petitioner Ellis, as a beneficiary, could not avail herself of the statute.

Finally, as to Petitioner Ellis' negligence claim, the Court of Appeals looked to her declaration to determine whether she had raised a material fact on proximate cause. In it she contended that her husband had experienced periods of depression prior to applying for the William Penn policy. Accordingly, she claimed, he would not have purchased a policy containing a suicide clause. The Court of Appeals concluded that Petitioner Ellis had not provided any factual support for the statements and thus had not raised an issue of material fact as to proximate cause.

On December 22, 1992, Petitioner Ellis petitioned this court for discretionary review of the unpublished decision of the Court of Appeals, claiming that the court erred in failing to apply the estoppel theory; that there was sufficient circumstantial evidence to establish proximate cause on the negligence theory; and that the decision of the Court of Appeals in this case conflicts with its decision in Strother v. Capitol Bankers Life Ins. Co., ¹⁰ the other case consolidated here.

Respondent William Penn contends that the Court of Appeals correctly determined that equitable estoppel does not apply in this case. Respondent Crowley argues that there is no conflict between Ellis and Strother because in both cases the court recognized the theoretical viability of a negligence claim based on a violation of WAC 284-23-400 through -485. He contends that in Strother the court remanded for determination of proximate cause, while in Ellis the court correctly determined that the evidence is not sufficient to raise the issue of proximate cause. Alternatively, Mr. Crowley argues that this court need not address a conflict between decisions from the same division of the Court of Appeals.

Strother v. Capitol Bankers Life Insurance Company

¹¹

In 1983, Respondent Susan B. Strother's husband, Mark Strother, D.V.M., graduated as a veterinarian from Washington State University. At that time, he purchased a group policy with Mutual Life Insurance Company of New York (MONY) for a face value of $40,000 through agent Skip Carbon. In 1984 Dr....