First United Bank of Poplarville v. Reid

• Decision Date: 31 December 1992
• Docket Number: No. 90-CA-297,90-CA-297
• Citation: 612 So.2d 1131
• Parties: FIRST UNITED BANK OF POPLARVILLE and First United Bank of Bay Springs v. James Earl REID, Patricia Stines and James Kenneth Ray Reid.
• Court: Mississippi Supreme Court

Page 1131

612 So.2d 1131

FIRST UNITED BANK OF POPLARVILLE and First United Bank of Bay Springs v. James Earl REID, Patricia Stines and James Kenneth Ray Reid.

No. 90-CA-297.

Supreme Court of Mississippi.

Dec. 31, 1992.

M.D. Tate, II, Smith, Smith, Tate & Cruthird, Picayune, David R. Smith, Smith, Smith, Tate & Cruthird, Poplarville, for appellants.

Charles H. Reid, Hattiesburg, for appellees.

Before ROY NOBLE LEE, C.J., and PRATHER and BANKS, JJ.

BANKS, Justice, for the Court:

Here, we are confronted with the unfortunate circumstance of a borrower, who falls ill during the term of a credit life policy, but who dies after its expiration. The borrower's family seeks to charge the bank with responsibility for the failure of coverage under a variety of theories. ¹ Concluding that none of the proffered theories have merit under the circumstances, we reverse and render.

I

Defendants, First United Bank of Poplarville, and First United Bank of Bay Springs [hereinafter First United or bank], appeal from a final judgment entered on April 13, 1989, by the Circuit Court of Pearl River County, Mississippi, pursuant to a jury verdict awarding the plaintiffs, James Earl Reid, James Kenneth Ray Reid, and Patricia Stines [hereinafter Reids] actual damages in the amount of $23,000.

On October 8, 1987, the Reids filed suit against First United and Cherokee National Life Insurance Company [hereinafter Cherokee] seeking to recover from the defendants, jointly and severally, $23,000, together with prejudgment interest, allegedly due on a policy of credit life insurance solicited from the Reids by First United as an authorized agent for Cherokee. First United and Cherokee answered, denying the Reids' allegations and asserting certain affirmative matters. On March 21, 1988, the trial court entered an order dismissing the complaint against Cherokee pursuant to Rule 4(h), Miss.R.Civ.P. (1982), for failure to effect service of process upon Cherokee within 120 days after the filing of the complaint.

The Reids alleged in their complaint that prior to the untimely death of Betty Rae Reid from natural causes on October 8, 1981, her husband, James Earl Reid, and her daughter, Patricia Stines, attempted to pay the premium on a policy of credit life insurance, thereby extending coverage on Betty Reid, who, at the time of this tender, was lying in a coma following a brain hemorrhage. The Reids alleged that representatives of First United would not permit them to extend the coverage and, following Betty Reid's death, they were entitled to judgment against the defendants in the face amount of the credit life policy.

When the last certificate of insurance was issued by First United on March 26, 1981, Betty Rae Reid was in sound health. The onset of her fatal illness came about on September 2, 1981, while the certificate was still in force. Betty Reid died on October 8, 1981, twelve (12) days after coverage expired on September 26, 1981. Cherokee denied the Reids' claim for benefits on November 24, 1981.

Trial of this cause was held on April 4, 1989. A jury of twelve returned a verdict for the Reids and awarded them $23,000, the face amount of the policy. Motions for a directed verdict, a request for peremptory instruction, and First United's post-trial motion for JNOV or, in the alternative, for a new trial were all denied.

First United appeals contending that the Reids failed to introduce any substantial evidence that they were entitled to recover on the basis of the certificate of insurance issued by the bank or, if not on this basis, then by virtue of an agency relationship existing between First United and the Reids with respect to the procurement of credit life insurance. Specifically, First United raises on appeal:

(1) denial of their motion for a directed verdict at the close of the plaintiffs' case;

(2) the granting of jury instruction C-2, which permitted the jury to find for the plaintiffs, if the jury concluded that the bank undertook to secure insurance, that diligent pursuit of such undertaking included disclosure of the requirement of good health at the time of any reissue, that the bank failed to so disclose and that such failure caused the plaintiffs to forego alternative insurance;

(3) the denial of two defense instructions, one explicitly and the other in effect, peremptory; and

(4) the purported abuse of judicial discretion in accepting an insurance agent as an expert witness for the Reids to express and opinion whether the bank was required to make certain disclosures to the Reids.

II

First United Bank of Poplarville, formerly First Citizens Bank & Trust Company, has been in the banking business since 1978. It performs services such as lending money to qualified debtors like James Earl and Betty Rae Reid, who, as husband and wife, were owners of a small grocery in Poplarville known as Reids' Mini-Mart.

Cherokee National Life Insurance Company of Macon, Georgia, is in the business of credit life insurance.

In 1979, First United entered into a "Creditor Agency Agreement" [hereinafter Agreement] with Cherokee whereby the bank became an agent of Cherokee authorized to "solicit insurance on behalf of [Cherokee] and to deliver policies/and or group certificates prepared by [Cherokee] ... to debtors of [First United] who appear The certificates of insurance were issued by First United under Cherokee's Master Group Credit Insurance Policy No. 3484 which contained on its second page provisions stating that "[e]ach debtor of the Creditor, who is in sound health, in the following classes of indebtedness shall be eligible for insurance hereunder" [paragraph 4.] and "[a]ny renewal or refinancing of any loan shall be treated as a new loan [paragraph 9.]." [emphasis supplied] The original copy of the Master Policy was forwarded to First United and placed in its file.

to the Agent [First United] to be in sound health, upon receipt from such debtors of the premium stipulated...."

Under the Master Policy, First United, as an authorized agent for Cherokee, could issue level term credit life insurance, decreasing payment credit insurance, or disability credit insurance. In order to issue a credit insurance certificate under the Master Policy, the insured had to be a debtor of the bank, to appear to the bank to be in sound health, to meet certain age requirements, and to pay the required premiums. The duration of the certificate of insurance was the duration of the loan it insured.

During the year 1981, both the Agreement and Master Policy were in full force and effect. Neither instrument authorized First United to extend or renew credit life insurance certificates; rather, when a loan that had reached maturation was renewed, it was necessary to apply for a new certificate of insurance. Each credit insurance certificate issued to an insured contained the following language under "Conditions of Coverage":

Discharge of Indebtedness Prior to Maturity: If the indebtedness is discharged due to prepayment, the insurance in force shall be terminated. If the indebtedness is discharged due to renewal or refinancing prior to the scheduled maturity date, the insurance in force shall be terminated before any new insurance may be issued in connection with the renewed or, refinanced indebtedness. [emphasis supplied]

The Reids had a loan account with First United Bank. In 1979 they had borrowed money from the bank to purchase Reid's Mini-Mart. From time to time thereafter, during the course of operating their business, the Reids would renew or refinance their loan. While the original loan was in the form of an annual note, each succeeding loan had been in the form of a six-month demand promissory note signed by Reid and his wife and secured by a deed of trust. As each note neared maturation, the Reids would renegotiate a new loan for an additional six months. On the occasion of each new loan, the Reids requested and were issued by First United a new certificate of level term credit life insurance. James Reid testified both he and Betty wanted this insurance in case something happened to either one of them, but the general tenor of his testimony was to the effect that he understood the bank required the coverage.

To this end, on April 30, 1980, James Earl Reid, who was illiterate, and Betty Rae Reid, who was not, signed a six-month demand promissory note in the sum of $22,199.83 which reflected a maturity date of October 27, 1980. The Reids requested, paid for, and were issued a certificate of level term credit life insurance which became effective the date of the loan.

On October 23, 1980, James and Betty Reid renewed their maturing loan by signing a six-month demand promissory note in the amount of $23,460.00 which had a maturity date of April 21, 1981. Once again, the Reids requested, paid for, and were issued a new certificate of level term credit life insurance for the duration of the loan.

Finally, on March 27, 1981, as the maturity date on the October note approached, James and Betty Reid, who were usually accompanied by their daughter, Patricia Stines, went to the bank where they renewed their loan a final time by signing a six-month demand promissory note in the amount of $23,890.54. This six-month note had a maturity date of September 26, 1981.

Certain fine, but not inconspicuous, print located immediately above the signatures of the Reids read as follows: "CREDIT On August 25, 1981, Betty Reid was hospitalized after complaining bitterly of headaches. On September 2, 1981, while an in-patient at Forrest General Hospital, Mrs. Reid suffered a brain hemorrhage and slipped into a coma from which she never awakened. She remained hospitalized in a comatose condition until her death on October 8, 1981. The bank became aware of Betty Reid's fragile condition within a week of her illness.

                LIFE Insurance and CREDIT ACCIDENT & HEALTH Insurance are voluntary and not required for credit.    If the Borrower obtains this

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