General Am. Life Ins. Co. v. Charleville

• Decision Date: 13 September 1971
• Docket Number: No. 55389,No. 1,55389,1
• Citation: 471 S.W.2d 231
• Parties: GENERAL AMERICAN LIFE INSURANCE COMPANY, a Corporation, Plaintiff-Respondent, v. Alice Kiech CHARLEVILLE, Defendant-Appellant
• Court: Missouri Supreme Court

Page 231

471 S.W.2d 231

GENERAL AMERICAN LIFE INSURANCE COMPANY, a Corporation Plaintiff-Respondent, v. Alice Kiech CHARLEVILLE, Defendant-Appellant.

No. 55389.

Supreme Court of Missouri, Division No. 1.

Sept. 13, 1971.

Motion for Rehearing or for Transfer to Court En Banc Denied

Oct. 11, 1971.

Murphy & Kortenhof, Edward E. Murphy, Jr., Jospeh M. Kortenhof, St. Louis, for respondent.

Charles R. Judge, Dubail, Judge, Kilker & Maier, St. Louis, for appellant.

WELBORN, Commissioner.

General American Life Insurance Company began a declaratory judgment action to determine whether or not it was liable on a certificate of insurance covering Clem Whistle under a group policy issued by General American to the Arkansas-Missouri Cotton Ginners Association, Inc., Insurance Fund. Alice Kiech Charleville, former wife of Whistle and beneficiary designated by him, counterclaimed, seeking judgment for $20,000, the amount of insurance provided, plus attorneys' fees and 12% damages, under § 66--3238, Ark.Stat.Ann. Trial court found that Whistle was not insured at the time of his death and entered judgment against counterclaimant who has appealed.

Effective July 1, 1953, General American issued its Group Insurance Policy No. G--7063 to the Arkansas-Missouri Cotton Ginners Association, Inc., Insurance Fund. The policy provided life insurance upon employees of members of the association who participated in its insurance fund. The plan was a so-called self-administered plan, with the association handling enrollment under the plan, collecting the premiums from the member employers and certifying coverage whenever a claim was presented. Insured individuals were issued certificates showing the insurance provided persons enrolled under the plan. The certificates were prepared by General American and issued by the association upon enrollment under the plan.

On April 19, 1963, Whistle Gin Company, the operator of a cotton gin at Whistleville, Arkansas, applied to the association, of which it was a member, for insurance of its employees under the group policy, which at that time provided accidental death and dismemberment insurance and hospital expense insurance in addition to life insurance. Clem Whistle executed an enrollment card, showing the date of his birth, the date of his employment (August 1, 1955), his occupation as 'Farmer' and naming his then wife, Alice Kiech Whistle, beneficiary. Other employees of Whistle Gin Company also enrolled under the plan.

The association issued a certificate of insurance to Clem Whistle, effective June 1, 1963. It showed life insurance coverage of $20,000 for 'Proprietors, Partners and Officers: Under Age 60.' Clem Whistle, on June 1, 1963, was president of Whistle Gin Company. The premiums were thereafter paid for the coverage afforded the gin company's officers and employees.

In February, 1966, Alice Whistle obtained a divorce from Clem and she subsequently remarried. In August, 1966, Clem, a diabetic, fell into a coma and was hospitalized in Memphis, Tennessee, where he died in November, 1966.

Following Clem's death, his former wife, unquestionably the named beneficiary, sought payment of the $20,000 coverage ostensibly provided on Clem's life. The insurer resisted payment on the grounds that, subsequent to his death, the insurer had learned that Clem was not a 'full-time' employee of the Whistle Gin Company and that coverage under the group policy was limited to full-time employees of member employers. The insurer brought this action, seeking to vindicate its position.

The beneficiary counterclaimed for the amount of the coverage, $20,000, basing her claim on the grounds that Arkansas law required any limitation upon eligibility for insurance, imposed under a group policy, to be expressed in the certificate issued to the person purportedly covered and that the certificate issued to Clem contained no provision requiring that he be a 'full-time employee.' She also invoked the incontestability clause found in the master policy and asserted that the insurer was estopped to deny liability because of payments under the hospitalization coverage of the policy which had been made by reason of Clem's hospitalization. The trial court found that Clem was not eligible for insurance under the group policy and declared that no obligation to defendant Alice Kiech Charleville arose by reason of the death of Clem. The trial court found against Alice on her counterclaim and she has appealed.

On this appeal, no contention is advanced that Clem was eligible for insurance under the terms of the master policy which provided coverage to 'full-time employees,' and defined 'full-time employees' as those who worked at least thirty hours a week. The Whistle Gin Company operated on a seasonal basis, generally between September and December of each year. It had only two fill-time regular employees, the manager-bookkeeper and the ginner who was employed on a year around basis. Clem, who had previously been vice-president of the company, was elected president following the death of his sister, who had previously held the office, in May, 1963. The sister had handled the application of Whistle Gin to become a participant in the group policy issued to the ginners' association. She had died before the application had been accepted and Clem was president on the effective date of Whistle Gin's membership, June 1, 1963. The gin operated largely for the benefit of members of the Whistle family who grew cotton although it ginned cotton for others. Clem's actual work for the company was minor and irregular. In 1965, he reported $550 income from Whistle Gin on his income tax return. He reported no other income from the gin company for the years here in question and had received no payments during 1966, the year of his death.

Acknowledging that Clem was not a full-time employee as defined in the master policy, appellant seeks reversal of the judgment below on the grounds that the certificate issued to Clem did not disclose the requirement of full-time employment, that the insurer waived the eligibility requirement and is estopped to assert it, and that the incontestability clause prevents assertion of such a defense to the beneficiary's claim.

The parties agree that the contract of insurance involved was an Arkansas contract and that the rights of the parties are to be determined by Arkansas law, which appellant pleaded in her counterclaim. See Burns v. Aetna Life Ins. Co., 234 Mo.App. 1207, 123 S.W.2d 185, 190(1). Unfortunately Arkansas law provides no ready answer to the issues raised. Respondents asserts that it does, relying upon the case of Gill v. General American Life Insurance Co., E.D.Ark., affirmed, 8th Cir., 434 F.2d 1057. That case arose out of the group policy here involved. A certificate of insurance had been issued to one Gill, a director of Farmers Gin Company, a family operation. His only connection with the gin company was as a director, the court rejecting the claim that he had been a paid public relations representative of the company. The certificate issued on the life of Gill was held void and unenforceable by reason of § 66--3504, Ark. Stat.Ann., which makes a director of a corporate employer ineligible for group life insurance unless he is a bona fide employee, performing duties of employment other than the customary duties of a corporate director. The statute applied in Gill is limited to corporate directors. Clem was a corporate officer and at least a part-time employee of Whistle Gin Company. The statute does not declare that, as a matter of Arkansas law, group life insurance may not be extended to a person in Clem's position. Therefore, no stated public policy of Arkansas would be violated by extending insurance coverage to Clem and the Gill case is not here controlling.

In its opinion in Gill, the Eighth Circuit Court of Appeals noted the problem here presented. Observing the absence of Arkansas authority directly in point on the issue before is, the court stated (434 F.2d 1058--1060):

'The cases most nearly in point involve master policies which contain both an incontestable clause and a defintion of 'employees' which, if applied, would exclude from coverage a deceased to whom a certificate of insurance had been issued. The authorities are hopelessly split on the question of whether the incontestable clause bars the insurer from raising the defense that the insured was not an eligible employee. Those cases rejecting the defense adopt the theory that the incontestable clause bars any defense which is not specifically excepted in the clause itself and which the company could have discovered by investigation, while those allowing the defense take the view that the clause cannot be used to enlarge the coverage of the policy nor to compel the company to accept risks and hazards not within the scope of the policy. See generally, Annotation, Misrepresentation as to Employer-Employee Relationship as within Incontestability Clause of Group Insurance, 3 A.L.R.3d 632 (1969); in addition to the cases therein cited, compare First Pennsylvania Banking and Trust Co. v. United States Life Ins. Co., 421 F.2d 959 (3d Cir. 1969), with Baum v. Massachusetts Mutual Life Ins. Co., 357 P.2d 960 (Okl.1960). (Compare also Simpson v. Phoenix Mutual Life Insurance Company, 24 N.Y.2d 262, 299 N.Y.S.2d 835, 247 N.E.2d 655, and Spitz v. Continental Cas. Co., 40 Wis.2d 439, 162 N.W.2d 1.) However, none of these cases involve a statutory provision expressly prohibiting coverage of a director who does not otherwise qualify as an employee, and hence they are not precisely applicable to the instant case.

'There are two Arkansas cases which are of some relevance to the case at hand, both involving certificates issued under group health insurance policies.

'In Palmer v. Standard Life and Accident Ins. Co., 238 Ark. 585, 383 S.W.2d 285 (1964), a group health insurance policy was issued to the employer, the Mid-South Grain...