Flynt v. Life of the South Ins. Co.

• Decision Date: 19 March 2012
• Docket Number: No. A11A1379.,A11A1379.
• Citation: 312 Ga.App. 430,11 FCDR 3545,718 S.E.2d 343
• Parties: FLYNT v. LIFE OF the SOUTH INSURANCE COMPANY.
• Court: Georgia Court of Appeals

11 FCDR 3545

312 Ga.App. 430

718 S.E.2d 343

FLYNT

v.LIFE OF the SOUTH INSURANCE COMPANY.

No. A11A1379.

Court of Appeals of Georgia.

Nov. 7, 2011.Certiorari Denied March 19, 2012.

Powell & Erwin, William A. Erwin, Camilla, for appellant.

Heyman & Sizemore, Jacqueline Marcucci, Atlanta, for appellee.

BARNES, Presiding Judge.

In this dispute over credit life insurance, the widow of the insured, individually and as executrix of his estate, appeals the denial of her motion for partial summary judgment against the insurer and the grant of the insurer's motion for summary judgment on all of her claims. In its summary judgment order, the trial court concluded that the uncontroverted evidence showed that the insured decedent had made material misrepresentations regarding his health in his applications for credit life insurance coverage, thereby entitling the insurer to rescind coverage and deny the widow's claims to the insurance proceeds. The trial court further concluded that an incontestability clause contained in the certificates of insurance, which limited the time period within which the insurer could rescind coverage based upon misrepresentations made by an insured, did not apply under the circumstances of this case. Accordingly, the trial court ruled that the widow was not entitled to recover the insurance proceeds, prejudgment interest, or bad faith penalties and attorney fees under OCGA § 33–4–6.

Based upon the intent of the parties reflected in the language of the applicable certificates of insurance and group life insurance policy, we conclude that the incontestability clause applied such that the insurer could not deny or rescind coverage. Consequently, the trial court should have granted summary judgment in favor of the widow on her claims to the insurance proceeds and prejudgment interest. However, because the insurer's reasons for refusing to pay the insurance proceeds to the widow were erroneous, but not frivolous or unreasonable, the trial court did not err in granting summary judgment in favor of the insurer on the widow's claim for bad faith penalties and attorney fees.

Summary judgment is appropriate if the pleadings and evidence show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. On appeal from the grant or denial of summary judgment, we conduct a de novo review, with all reasonable inferences construed in the light most favorable to the nonmoving party.

(Citation omitted.) Richardson v. Phillips, 302 Ga.App. 305, 690 S.E.2d 918 (2010). See OCGA § 9–11–56(c). With these principles in mind, we turn to the record in the instant case.

The Three Loans to the Decedent. The relevant facts are undisputed. Linda Smith Flynt is the widow of Gifford H. Flynt, Jr., and the executrix of his estate. The decedent was a crop duster who died in the course of that work when his plane crashed on July 12, 2008. At the time of his death, the decedent had three outstanding loans with Pelham Banking Company (the “Bank”), each of which was evidenced by a promissory note. Each of the three loans had been in effect for a number of years and each had been renewed periodically by the decedent. The three loans are discussed in detail below.

First, in August 2003, the decedent borrowed approximately $23,000 from the Bank under a promissory note which matured in August 2004. The promissory note subsequently was renewed in August 2004, August 2005, August 2006, November 2006, and November 2007.

Second, in December 2003, the decedent borrowed approximately $20,000 from the Bank under a promissory note which matured in December 2004. The promissory note thereafter was renewed in December 2004, November 2005, November 2006, and November 2007.

Third, in December 2004, the decedent borrowed approximately $109,000 from the Bank under a promissory note which matured in December 2005. The promissory note was renewed in December 2005, December 2006, and December 2007.

The Group Life Insurance Policies. The Bank has made credit life insurance available to its borrowers through a group policy issued by Life of the South Insurance Company for many years.¹ In May 1998, Life of the South issued a group policy to the Bank that remained in effect until 2006. Under the policy, the Bank would make credit life insurance available to its borrowers who wished to purchase coverage. The Bank would collect premiums at the rates specified by Life of the South and would provide the borrower purchasing insurance with a certificate of coverage under the group policy, using a certificate form provided by Life of the South. The Bank remitted the premiums to Life of the South and earned a commission on each transaction.

In 2006, Life of the South revised its group policy and its certificate forms, and a revised group policy was issued to the Bank effective May 2006. As part of the revisions, the application for the certificate of insurance, which had to be completed by a borrower when applying for coverage, included a “Statement of Debtor's Physical Condition” that read as follows:

In applying for life coverage, I(we) hereby represent that I(we) have not been diagnosed, treated (including medication), consulted or received advice from a physician within the past twenty-four (24) months for any of the following: a heart disease, condition or disorder; cancer (excluding basal cell carcinoma); diabetes; drug or alcohol abuse; Acquired Immune Deficiency Syndrome (AIDS) or Aids Related Complex (ARC); or tested positive for HIV virus.

(Emphasis supplied.) The version of the application in effect prior to May 2006 did not include diabetes as one of the diseases that had to be disclosed by the applicant. Other than the revisions to the group policy and the certificate forms, the Bank's relationship with Life of the South and the manner in which it provided insurance coverage to its borrowers did not change.

The Decedent's Credit Insurance Coverage. The decedent applied for and obtained credit life insurance from Life of the South when he acquired each of the three loans in 2003 and 2004, respectively. He also applied for and obtained credit life insurance from Life of the South each time he renewed the promissory note on each of the loans. At the time of each renewal, the Bank would issue the decedent a certificate reflecting coverage under the Life of the South group policy then in effect. In applying for coverage in 2006 and 2007, the decedent signed an application for each certificate of insurance that for the first time included diabetes as one of the diseases listed in the Statement of Debtor's Physical Condition. Although the decedent signed the statement representing that he had not been diagnosed with that disease, a physician had diagnosed him with Type II diabetes in the late 1990s.

The Dispute over Payment of Insurance Proceeds. The decedent died on July 12, 2008. Outstanding balances remained on his three loans from the Bank. The three certificates of credit life insurance issued to the decedent in 2007, evidencing coverage under the Bank's 2006 group policy, were in effect at the time of his death.

Following the death of the decedent, his widow submitted claims under the three insurance certificates that were in effect at the time. In response, Life of the South conducted an investigation and decided to rescind coverage, asserting that the decedent misrepresented the state of his health in his applications for insurance beginning in 2006, and that, if the applications had been accurate, the certificates of insurance would not have been issued.

The widow responded through counsel that Life of the South was precluded from denying or rescinding coverage in light of an incontestability clause ² contained in the certificates of insurance that provided: “We cannot contest the insurance evidenced by the Certificate after it has been in force two (2) years during your ... lifetime.” The 2006 group policy likewise contained an incontestability clause that provided: “We cannot contest the insurance evidenced by the Certificate after it has been in force two (2) years during the lifetime of the Insured Debtor[.]” Life of the South disputed whether the incontestability clause had taken effect and refused to pay out the insurance proceeds.

The Litigation. The widow, individually and as executrix of the decedent's estate, then commenced this action against Life of the South to recover the proceeds of the three insurance certificates. She sought the face amount of each certificate, prejudgment interest, and bad faith penalties and attorney fees under OCGA § 33–4–6. Life of the South answered, admitting that it had issued the insurance coverage to the decedent but denying liability on the ground that the application for each certificate of insurance contained materially false representations entitling it to rescind coverage. The parties cross-moved for summary judgment, with the widow seeking partial summary judgment on the issue of her entitlement to the insurance proceeds and prejudgment interest, and Life of the South seeking summary judgment on all of the widow's claims.

The trial court denied summary judgment to the widow but granted it to Life of the South on all of her claims. The trial court concluded that each certificate of credit life insurance was a separate and distinct insurance policy such that the two-year incontestability clause began to run anew upon the issuance of each new certificate. Because two years had not passed from the time that the decedent was issued his last certificates in 2007 to the time of his death, the trial court ruled that the incontestability clause had not become operative and could not be invoked by his widow. The trial court further concluded that there was no continuation of insurance coverage because the 1998 group policy and the 2006 group policy were not substantially similar. Additionally, the trial court found that...