Hancock Bank v. Integon Life Ins. Corp.
| Decision Date | 17 November 1986 |
| Docket Number | Civ. A. No. S85-1413 (GN). |
| Citation | 660 F. Supp. 459 |
| Parties | HANCOCK BANK, Plaintiff, v. INTEGON LIFE INSURANCE CORPORATION, Defendant. |
| Court | U.S. District Court — Southern District of Mississippi |
W.V. Westbrook, III, Gulfport, Miss., for plaintiff.
Floyd J. Logan, Gulfport, Miss., for defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This Declaratory Judgment action was filed by Hancock Bank in the Chancery Court for the First Judicial District of Harrison County, Mississippi. Integon Life Insurance Company removed the cause to this Court on the grounds of diversity of citizenship. The question to be answered is whether the defendant, Integon Life Insurance Corporation, entered into a binding contract for credit life and disability insurance with Milton E. and Willie Mae Travis when the Travis' indicated on a mortgage loan disclosure form prepared by the plaintiff/mortgagor, Hancock Bank, that they wished to obtain credit insurance. Both parties have filed cross-motions for summary judgment.
1. Defendant, Integon Life Insurance Corporation, is a corporate entity organized and existing under the laws of the State of North Carolina and engaged in the business of selling insurance.
2. Hancock Bank is a corporation organized and existing under the laws of the State of Mississippi and engaged in the business of general banking.
3. Mrs. Kate Gentry is a Vice-President of Hancock Bank in charge of the Direct Mortgage Loan Department; the bank offers its direct mortgage customers credit insurance through its Real Estate Loan Department.
4. From 1977 through 1985, all such credit insurance coverage offered by Hancock Bank's Real Estate Department was placed exclusively with Integon Life Insurance Company ("Integon").
5. Mrs. Gentry was authorized to solicit and service credit life and credit disability insurance for Integon Life Insurance Company in Mississippi pursuant to a Memorandum of Agreement between the bank and Integon dated July 7, 1983.
6. The Memorandum of Agreement between the parties provided that "the Collection Agent is not authorized to accept risks of any kind, to make or offer any contract of insurance, to waive forfeitures, to extend the time for paying a premium, or to obligate the Company in any way."
7. On May 27, 1983, Milton E. and Willie Mae Travis (the Travises) obtained a loan from Hancock Bank in the amount of $40,000.00 secured by a mortgage on their residence.
8. At the loan closing which took place at the Travises' attorney's office, the Travises executed various documents; most particularly, however, they executed a "Notice to Customers" required by Federal Reserve Law, Regulation "Z" Mortgage Disclosure Form.
9. The document was, as usual, prepared by Hancock Bank in connection with the real estate loan and was intended to inform the Travises of all costs incurred in obtaining their loan and to ascertain the Travises' wishes concerning the voluntary purchase of credit life insurance and credit disability insurance.
10. Milton C. Travis signed the signature line on the Mortgage Loan Disclosure Form which stated "I want credit life and disability insurance."
11. No employees, agents, or representatives of either Hancock Bank or Integon were present at the loan closing.
12. According to Hancock Bank's standard procedure, the Travises' loan closing attorney returned all the loan closing documents to the bank's Direct Mortgage Loan Department, including the federally required Mortgage Loan Disclosure Form.
13. The Travises' loan packet was received and reviewed by a Hancock Bank employee in the Direct Mortgage Loan Department.
14. Through inadvertence, the employee did not take notice that Mr. Travis had indicated he wished to obtain credit life and disability insurance with respect to the $40,000.00 loan.
15. As a direct result of Hancock Bank's Direct Mortgage Loan Department's failure to note Mr. Travis' wish to obtain credit insurance, no Integon application for insurance was forwarded to the Travises' although that was the bank's standard operating procedure at the time.
16. Hancock Bank became aware that the Travises had requested credit life and credit disability insurance on or about May 20, 1985, when Mrs. Travis contacted the Direct Mortgage Loan Department of the bank to advise that Mr. Travis had been injured on or about May 18, 1985, and inquire about the process for collecting payment for their requested credit disability insurance.
17. Hancock Bank failed to forward the Travises the applications needed to obtain credit insurance; Hancock Bank collected no premiums for credit life or credit disability insurance from the Travises.
18. Integon's Disability Income Insurance application provides, "... the answers will form a part of the policy if issued and ... the insurance shall not be in force until this application has been approved by the Company and the policy issued and delivered to me the applicant subject to all the conditions set forth in the policy and the first premium paid by me the applicant.
19. No application for credit disability or credit life insurance with Integon was ever filled out by the Travises.
20. No application for credit disability or credit life insurance was ever forwarded to Integon's home office by or on behalf of the Travises.
21. No agent, officer or employee of Integon had any knowledge that Mr. Travis had executed the Mortgage Loan Disclosure Form requesting credit life and credit disability insurance until after the injury to Mr. Travis.
22. Integon denied coverage to Mr. Travis based on the fact that there had never been an application submitted, a premium paid, and/or a policy written.
23. Hancock Bank was the named beneficiary on the credit life and credit disability insurance policies written by Integon on behalf of the bank's direct mortgage loan customers.
The Mississippi Supreme Court, in line with its sister states, has recognized that when a financial lending institution represents to a borrower that the lender/bank is capable of obtaining, at the borrower's request, insurance for the the borrower that would protect against default in the event of the borrower's disability or death during the life of the loan, and the borrower accepts the lender's offer to obtain such insurance, the financial lending institution stands in a fiduciary capacity to its borrowers and has an obligation to attempt to obtain credit insurance for the borrower. Parnell v. First Savings and Loan Association, 336 So.2d 764, 768 (Miss.1976). Accord Kurtz v. American Federal Savings and Loan Association, 689 P.2d 944, 945-46 (Okla.1984) (); Sutton v. First National Bank of Crossville, 620 S.W.2d 526, 529-30 (Tenn. 1981) (); Hutson v. Wenatchee Federal Savings and Loan Assoc., 22 Wash.App. 91, 92-94, 588 P.2d 1192, 1194-95 (1978) ().
Hancock Bank today asks this Court to declare that Integon Life Insurance Corporation by operation of Section 83-17-11 of the Mississippi Code, is obligated to extend to Milton Travis credit life and credit disability insurance with benefits payable to Hancock Bank and to pay to Hancock Bank all benefits that would have been payable had Integon issued the Travises credit insurance upon full payment to Integon of all premiums due on or before the date of Milton Travis' injury, May 18, 1985. For the following reasons, the Court concludes that no contract for insurance was created between Integon Life Insurance Corporation, through its agent, and the Travises.
Courts have declined to rule that a policy for credit insurance is created or issued simply because the borrower indicates a desire to obtain credit insurance on a disclosure form. In Burgess v. Charlottesville Savings and Loan Assoc., 349 F.Supp. 133 (W.D.Va.1972), rev'd on other grounds, 477 F.2d 40 (4th Cir.1973), the district court addressed, inter alia, the issue whether the lender and borrower either orally or in writing had formed a contract of credit insurance based on the borrower's indication on the loan disclosure form that credit insurance was desired. The Court wrote:
Despite the plaintiff's allegations, there is no evidence of the existence of any written contract of life insurance. The only written document involving insurance completed by the Burgesses and Charlottesville Savings and Loan was the Regulation Z disclosure statement. The purpose of this document was to disclose the costs involved in the Burgesses' loan from defendant and not to form an insurance contract. 349 F.Supp. at 139 (emphasis added). The Court ultimately determined that, as a matter of law, no contract of insurance was issued as a result of the Regulation Z disclosure statement. Id.
Adopting the Burgess court's conclusion that a loan disclosure document was not intended to form an insurance contract, the Court finds, under the facts of the instant case, that Hancock Bank cannot hold up its disclosure document as the embodiment of an insurance contract between the Travises and Integon through its agent, Kate Gentry. The lynchpin of Hancock Bank's argument is that "had Hancock notified Integon of Mr. Travis' request, Integon would have issued to Milton E. Travis credit ... policies...." See Complaint, Paragraph VIII. Essentially, Hancock Bank asserts that its loan disclosure form is tantamount to an insurance application (Appendix "A" attached hereto) that would be...
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