General American Life Insurance Co. v. Yarbrough

• Decision Date: 13 May 1966
• Docket Number: No. 18171,18172.,18171
• Citation: 360 F.2d 562
• Parties: GENERAL AMERICAN LIFE INSURANCE COMPANY, Appellant, v. J. H. YARBROUGH, Appellee. J. H. YARBROUGH, Appellant, v. GENERAL AMERICAN LIFE INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

360 F.2d 562 (1966)

GENERAL AMERICAN LIFE INSURANCE COMPANY, Appellant, v. J. H. YARBROUGH, Appellee.

J. H. YARBROUGH, Appellant, v. GENERAL AMERICAN LIFE INSURANCE COMPANY, Appellee.

Nos. 18171, 18172.

United States Court of Appeals Eighth Circuit.

May 13, 1966.

James L. Sloan, Little Rock, Ark., made argument for J. H. Yarbrough and filed brief.

Ben R. Swank, Asst. Gen. Counsel for General American Life Ins. Co., St. Louis, Mo., made argument for General American Life Insurance Co. and filed briefs with J. K. Mahony, H. S. Yocum, Emon A. Mahony, Henry S. Yocum, Jr., and C. E. Wright, El Dorado, Ark. Frank P. Aschemeyer, General American Life Ins. Co., St. Louis, Mo., was also on the brief.

Before MATTHES and GIBSON, Circuit Judges, and HUNTER, District Judge.

HUNTER, District Judge.

This is a diversity suit brought by plaintiff, a citizen of Arkansas, against defendant, a Missouri Corporation having its principal place of business in that state. The suit is based on two group industrial policies issued to Phillips Petroleum Company, providing life and disability insurance to Phillips' employees. Policy No. G-1110-R was issued by defendant. The other, Policy No. G-1110, was issued by its predecessor, Missouri State Life Insurance Co., and assumed by defendant. Plaintiff claims $11,952.60 under Policy No. G-1110-R and $2,173.20 under Policy G-1110, plus a 12% statutory penalty and a reasonable attorney's fee.

The District Court found that prior to plaintiff's retirement on September 1, 1961, as a Phillips employee he was totally and permanently disabled within the meaning and coverage of both policies and held that his claim was neither barred nor premature by reason of his failure to make proof of disability within a year after his retirement or by his failure to make such proof on forms furnished or prescribed by the insurance company. The district court further found that defendant was not guilty of such a breach or repudiation of the contract as would entitle plaintiff to the present value of future disability installment payments and that plaintiff was not entitled to any statutory penalty or attorney's fee. The District Court opinion is reported at Yarbrough v. General American Life Insurance Company, 241 F.Supp. 448.

Plaintiff and defendant have separately appealed from those portions of the judgment adverse to them.

A capsule history of the two policies is helpful to an understanding of our disposition of the questions presented on this appeal. Prior to 1959 the two policies provided that if an employee became disabled and established a claim for disability benefits he lost his life insurance protection. In 1959 both policies were amended by a rider permitting the employee to apply on a form approved by the company for continuance of life insurance after retirement without prejudice to disability claims based on disability arising before retirement, provided any such disability claim was made within twelve months from the effective date of his retirement.

The provisions of Group Policy No. G-1110 setting out the disability benefits and required notice were attached to and as a part of Certificate No. 16968 which was issued and delivered to plaintiff in 1933. The particular provisions as to notice read: "6. Notwithstanding any provision in this policy to the contrary * * * no claim for total and permanent disability benefits hereunder shall be allowed to any insured employee unless notice of his permanent and total disability be received by the company not later than twelve months after the cessation of premium payments in respect to such disabled employee's insurance. 7. The proofs required by this provision shall be upon forms furnished by the company."

The provision of Group Policy No. G-1110-R setting out the disability benefits and required notice were attached to and as a part of Certificate No. 3488, which was issued and delivered to plaintiff in 1948. The notice portion stated: "7. As a condition precedent to any liability of the Company on account of the total and permanent disability of any employee, written proof on the company's forms of the total and permanent disability of such employee must be furnished to the company at its Home Office in St. Louis, Missouri, within twelve months after the termination of such employee's insurance."

When the policies were amended in 1959, no new certificates were issued to plaintiff and there is nothing to indicate that he knew that his electing to take post-retirement insurance protection would be without prejudice to a pre-retirement disability claim provided such claim and sufficient proof thereof is made within twelve months from the effective date of his retirement.

Immediately prior to his retirement plaintiff's basic life insurance coverage under Policy No. G-1110 was $2,000, and under Policy No. G-1110-R was $11,000. About the middle of August, 1961, plaintiff elected in writing to continue life insurance coverage after his retirement which was anticipated and imminent. He chose to keep in force the full $2,000 coverage provided by his earlier policy but reduced the coverage of the later policy from $11,000 to $2,000. Pursuant thereto on his retirement he was issued two new certificates designated as Certificates Nos. 975971. Each new certificate certified that plaintiff "is insured * * * (for $2,000) subject to the terms, conditions and limitations of" the particular Group Policy. The new certificates did not specifically refer to any notice requirements. At the bottom of each certificate was printed the statement that this certificate is issued in lieu of and supersedes any certificate that may heretofore have been issued to the insured under the particular group policy.

The new certificates said nothing about any disability protection. Defendant conceded at a pre-trial conference that plaintiff does have some disability protection under the new certificates based on plaintiff's present life insurance coverage of $4,000 as compared to $13,000 under the old certificates. The policies provided for a certain number of monthly payments at an amount determined by the amount of life insurance. Plaintiff then and now seeks recovery on the basis of a pre-retirement disability with payments to be measured by reference to the $13,000 in life insurance in effect at the alleged onset of the disability.

On April 17, 1963, plaintiff addressed a demand letter to defendant stating he had become totally disabled on August 31, 1961, as a result of rheumatoid arthritis and that his disability was permanent. He referred to the Group Policies by number and to the life insurance amount as being $2,000 under the old policy and $11,000 under the newer policy.

On April 26, 1963, defendant replied, acknowledging receipt of the August 17th letter advising, "We are writing to Phillips Petroleum Company in Bartlesville, Oklahoma, to obtain information regarding Mr. Yarbrough's insurance." On May 10, 1963, defendant wrote again saying, "Please refer to our letter of April 26, 1963. The Phillips Petroleum Company has advised us that Mr. Yarbrough retired effective September 1, 1961, and as a retired employee is currently insured for $2,000 under policy G-1110, and $2,000 under policy G-1110-R. We understand that Mr. Yarbrough last worked on August 31, 1961. Therefore, it appears that any claim for total and permanent disability benefits would be subject to the terms of the certificates issued to Mr. Yarbrough effective September 1, 1961. With this understanding, the enclosed forms may be completed and submitted to us for our consideration. * * * In furnishing these forms, the General American Life Insurance Company does not waive any of its rights or admit liability."

Plaintiff did not execute or submit to the company the forms enclosed with the letter. In due time defendant advised it was denying liability on the basis of absence of timely and sufficient proof of disability and absence of compensable disability prior to retirement.

The question of whether the trial court erred in finding that plaintiff was totally and permanently disabled prior to retirement as required by the policies may be readily answered. This being a diversity of citizenship case, the substantive law of Arkansas is controlling. Under Arkansas law an insured under policy provisions such as before us is not required to establish that he is completely helpless or bedfast in order to show compensable total disability. He need only be so disabled as to be unable to perform all the substantial and material acts of his business or trade, or the execution of them in the usual or customary way. Franklin Life Ins. Co. v. Burgess, 219 Ark. 834, 245 S.W.2d 210, 213. In Benefit Association of Railway Employees v. France, 228 Ark. 765, 310 S.W.2d 225, 227, the Arkansas Supreme Court in explaining the meaning of such a requirement said, "Nor does the law require one to perform duties at the peril of his life or health, nor to perform them if their performance entails pain and suffering which a person of ordinary prudence and fortitude would be unwilling and unable to endure." * * * And, loc. cit. 228, "When the rule is thus stated and analyzed, it will be seen that the mere fact that the insured performs certain labor, when common care and prudence require otherwise, does not of itself demonstrate a lack of total disability."

Whether the insured at the controlling point of time is totally disabled within the meaning of the policy is a question of fact. The essence of the testimony of the three physicians who examined plaintiff is that by the time he left Phillips employment on September 1, 1961, he was and had been for some...