Gray v. Great American Reserve Ins. Co.

• Decision Date: 29 August 1986
• Citation: 495 So.2d 602
• Parties: James GRAY v. GREAT AMERICAN RESERVE INSURANCE COMPANY and John L. "Brownie" Sides. 85-485.
• Court: Alabama Supreme Court

Page 602

495 So.2d 602

James GRAY v. GREAT AMERICAN RESERVE INSURANCE COMPANY and John L. "Brownie" Sides.

85-485.

Supreme Court of Alabama.

Aug. 29, 1986.

Herbert M. Newell III of Ray, Oliver, Ward & Parsons, Tuscaloosa, for appellant.

J. Russell Gibson III, Alyce Manley Spruell of Phelps, Owens, Jenkins, Gibson & Fowler, Tuscaloosa, for appellees.

BEATTY, Justice.

Plaintiff, James Gray, appeals from a summary judgment for defendants, Great American Reserve Insurance Company (hereinafter "Great American") and John L. "Brownie" Sides, in an action which included counts for breach of contract and bad faith refusal to pay an insurance claim.

James and Hazel Gray signed a joint application for health insurance coverage with Great American on April 12, 1984. The application was taken by John L. Sides while meeting with the Grays at their residence and place of business, the Moon Winx Lodge. At that time, Sides was not an agent for Great American. Plaintiff alleges that when asked the date coverage would begin, Sides responded that coverage would begin upon payment of the first month's premium; Sides denies making such a statement. Gray alleges that the statement was made and that the Grays then tendered to Sides a check for $188.50.

Sides mailed the Grays' application to Southeastern Agency in Mobile, Alabama, along with his application to become an agent to sell insurance for Great American. The agent's application, with the attached application for insurance for the Grays, was then sent to Markman Agency in Dallas, Texas. Markman Agency is a company which markets the products of North American Consumer Alliance ("NACA") outside the State of Texas. The medical insurance policy which the Grays applied for was produced by Great American for NACA members.

An agreement whereby Sides became a "broker" for Great American was consummated on May 22, 1984. Great American began to process the Grays' application on June 1, 1984. On June 6, 1984, the application was returned by Great American, and Sides was instructed to obtain NACA dues from the Grays. A check for the NACA membership dues dated June 18, 1984, along with the Grays' application and premium check, was returned to Southeastern Agency, which, in turn, forwarded the dues to Great American on June 29, 1984.

On June 27, 1984, Mr. Gray was injured when he was thrown from a horse. Subsequently, he received treatment for his injuries at West Alabama General Hospital. Mrs. Gray notified Sides of the claim. Sides then called Great American and obtained claim forms and also obtained what he told the Grays was a policy number. The vice president for new business for Great American testified in her deposition that the company issues a pending policy number to all applications to be used as a file number and for the internal processing of the application.

On October 9, 1984, Mr. Gray received a letter from Great American stating that, since no policy had been issued prior to his injury, benefits would be denied. The underwriter's worksheet reflects that the application was received as new business on July 5, 1984. Great American processed the premium check on July 7, 1984, and placed it in a suspense account of Great American, where it was to remain until the application had been processed and a decision made on whether a policy would be issued.

On July 10, 1984, Great American sent an application amendment to Sides requesting further information on Mrs. Gray. The amendment was signed by the Grays on July 25, 1984, and received by the underwriting department on July 30, 1984.

On July 20, 1984, Great American received Mr. Gray's first claim for medical benefits; however, this claim was routed to the wrong department and was returned to the medical services provider. The claim was then returned to Great American and received by the benefits department on August 16, 1984. The Grays' application file could not be located, and the processing of the claim was delayed.

On September 25, 1984, Kent Caswell, senior claims examiner for Great American, received a telephone call from the business office of West Alabama General Hospital inquiring about the status of Mr. Gray's claim for benefits. Caswell informed the hospital that no policy had been issued and, therefore, that the claim would be denied. On that same day, the hospital called back and told Caswell that it had noted in its file a "verification of coverage" given to them by Sides under a Great American policy. On September 27, 1984, Caswell wrote to Mr. Gray, informing him that his claim for medical benefits would be denied.

On October 18, 1984, Mr. Gray filed suit against Great American and Sides for breach of an insurance contract, bad faith refusal to pay benefits under that insurance contract, and intentional and unintentional fraud and misrepresentation. On April 12, 1985, Gray amended his complaint to add counts alleging negligent and/or wanton failure to procure insurance for the plaintiff and negligent and/or wanton failure to process plaintiff's application in a diligent manner.

On April 24, 1985, defendants filed a motion for summary judgment on all issues. Defendants later withdrew their motion as to the count for fraud. On January 13, 1986, the trial court issued an order granting the motion for summary judgment on behalf of defendants as to the counts for breach of contract and bad faith refusal to pay an insurance claim and denying the motion as to the two negligence counts. The court entered a Rule 54(b), A.R.Civ.P., order making the summary judgment final, and Gray appeals.

In Sho-Me Motor Lodges v. Jehle-Slauson Construction Co., 466 So.2d 83, 88 (Ala.1985), we recognized the standard of review for a summary judgment as it is set out in Rule 56(c), A.R.Civ.P.:

"Summary judgment is authorized only when the moving party clearly shows that there is no genuine issue as to any material fact and the movant is entitled to a judgment as a matter of law...."

In Missildine v. Avondale Mills, Inc., 415 So.2d 1040, 1042 (Ala.1981), the Court recognized:

"The burden for sustaining a motion for summary judgment is substantially increased by the scintilla of evidence rule. This rule requires that no summary judgment be granted if there is a scintilla of evidence to support the non-movant's position.... The scintilla of evidence rule requires merely a gleam, glimmer, spark, the least bit, or the smallest trace in support of the non-moving party...." (Citations omitted.)

Since the trial court granted summary judgment, it must have determined that there was not a scintilla of evidence supporting Gray's allegation of a contract of insurance upon which a breach could be based.

Gray first argues that, by signing the application presented to him by Sides and paying the first month's premium, a contract of insurance sufficient to support his breach of contract claim was created. His theory is that the application constituted an offer made by Great American through its agent, Sides, and accepted by him. We cannot accept this argument.

It is well established that "an application for insurance is a mere offer which does not ripen into a contract unless, and until, it is accepted by the insurer." Gillilan v. Federated Guaranty Life Ins. Co., 447 So.2d 668, 671-72 (Ala.1984). Under the express terms of the application, it is clear that no such acceptance occurred.

The application, which was signed by Gray, provides:

"AGREEMENT: I hereby agree that (1) all statements and answers contained herein are full, complete, and true to the best of my knowledge and belief, (2) the insurance hereby applied for will not be considered in force until a certificate is issued and the first full premium paid while I am alive and in good health and other conditions remain as described in this application, and (3) acceptance of any certificate issued as a result of this application shall constitute notification by the undersigned of any corrections, additions or changes noted in the space designated for 'Home Office Endorsements and Corrections,' except there can be no change of amount, classification of risk, plans of insurance or benefits unless first agreed to in writing if so required by regulations or statutes of the state wherein this application is dated."

Gray contends that it was reasonable for him to believe that the literature left with him after he submitted his application constituted a certificate. In support of this contention, he points out various references in this literature to "the effective date of this certificate."

The construction of a written application for insurance is a question of law for the court. See generally, 44 Am.Jur.2d Ins...