Hill v. Chubb Life American Ins. Co.

• Decision Date: 20 April 1995
• Docket Number: No. CV-93-0413-PR,CV-93-0413-PR
• Citation: 894 P.2d 701,182 Ariz. 158
• Parties: David H. HILL, Plaintiff-Appellant, v. CHUBB LIFE AMERICAN INSURANCE CO.; Chubb Life America Insurance Co. dba United Life and Accident Insurance Company, Defendant-Appellee.
• Court: Arizona Supreme Court

Page 701

894 P.2d 701

182 Ariz. 158

David H. HILL, Plaintiff-Appellant, v. CHUBB LIFE AMERICAN INSURANCE CO.; Chubb Life America Insurance Co. dba United Life and Accident Insurance Company, Defendant-Appellee.

No. CV-93-0413-PR.

Supreme Court of Arizona, In Banc.

April 20, 1995.

[182 Ariz. 159] Randolph G. Bachrach, Scottsdale and Arnett & Arnett by Wayne C. Arnett, Tempe, for plaintiff-appellant.

Stockton & Hing by Robert Ong Hing, Scottsdale and Ulrich & Kessler, P.C. by Thomas F. Ames, Phoenix, for defendant-appellee.

Ulrich & Kessler, P.C. by Paul G. Ulrich, William H. Anger, and Richard E. Barnsback, and Phillip E. Stano, Washington, DC, for amicus curiae American Council of Life Ins.

OPINION

FELDMAN, Chief Justice.

David H. Hill ("Hill") petitioned for review of a court of appeals' opinion affirming summary judgment in favor of Defendant Chubb Life American Insurance Company ("Chubb Life" or "Chubb"). The trial court granted Chubb Life summary judgment on Hill's claims that Chubb failed to timely process his application for disability insurance. The court of appeals affirmed in a divided opinion, the majority holding that Chubb had no duty to process the application because Hill did not tender a premium payment. Hill v. Chubb Life American Ins. Co., 178 Ariz. 37, 870 P.2d 1133 (App.1993). We granted review of the following issues to consider the nature of a life and disability carrier's duty to process insurance applications:

1. Whether an insurance company has a legal duty to process an application for insurance within a reasonable period of time, or, within the time agreed to in the application agreement, when it did not ask for or receive the payment of a premium.

2. Whether the legal duty to act within a reasonable period of time is dependent upon the payment of a premium, or whether the legal duty arises from the relationship of the parties.

We have jurisdiction under Ariz. Const. art. 6, § 5(3) and A.R.S. § 12-120.24. Because we conclude that genuine issues of material fact exist, we vacate the court of appeals' opinion and reverse the trial court's judgment.

FACTS AND PROCEDURAL HISTORY

We view the facts in a light most favorable to Hill, the party against whom summary judgment was granted. Wagenseller v. Scottsdale Memorial Hospital, 147 Ariz. 370, 388, 710 P.2d 1025, 1043 (1985). Hill was a successful dentist who maintained life and disability coverage with Chubb Life. In August 1986 he told Chubb's agents, Marilyn and Leo Sroka ¹ ("Sroka"), that he wanted to increase his disability coverage. Hill completed an application and gave it to Sroka in late September. In accord with Chubb Life's rules, ² Hill did not include a premium with the application. Instead, as with his existing policies, he indicated he would pay his premiums by automatic deductions from his bank account. The application contained the following clause that is the focus of this appeal:

The [applicant] will be informed if the application has been accepted within 60 days or be given the reason for the delay.

Because Chubb refused to issue temporary coverage on such disability policies, this clause presumably attracted consumers because it held out the prospect of prompt coverage or denial within a definite period. See generally JEAN AND JOHN A. APPLEMAN, 12A INSURANCE LAW AND PRACTICE § 7237, at 188 (1981) (discussing the benefits of temporary insurance binders to insurance applicants).

On October 2, Hill underwent the physical examination that Chubb Life required. Unknown to Hill, Sroka did not sign and mail the application to Chubb until October 29. Chubb Life requested and Hill submitted a "Financial Supplement to Application" on December 10. Chubb also requested records from two of Hill's regular physicians. Hill gave consent and Chubb soon received records from one showing that Hill had once been licensed to drive race cars. As a result, Chubb asked Hill to submit a "Hazardous Activity Supplement." Hill did so on January 9, 1987.

With Hill's consent, Chubb Life asked for records from the second doctor on November 26, 1986 but did not receive them until April 10, 1987--four and one-half months later. In the interim, Chubb stopped processing Hill's application. There is conflicting evidence whether Chubb, Sroka, or the doctor's office caused the records delay. It is undisputed, however, that Chubb never told Hill about the delay or asked him to help obtain the records. Nor did Chubb tell Hill that it stopped processing his application. In fact, when Hill repeatedly inquired about the holdup in getting the policy, Sroka told him not to worry and assured him the policy would be approved.

On April 10, the same day that Chubb finally received the second set of medical records, Hill again asked Sroka about his application. Sroka said the policies had already been approved. In fact, Chubb did not approve and mail the policies to Sroka until April 21, more than six months after Hill applied. In the meantime, however, Hill suffered a serious stroke on April 12.

When Hill's fiancee told Sroka about the stroke, Sroka became evasive and avoided discussing the policies. When Hill and Sroka met in May 1987, Sroka would not say if the policies were in effect but said he would try to sneak them through in any event. In reality, Sroka received the policies and, after learning of Hill's stroke, returned them to Chubb Life, which immediately "canceled" them. ³

In February 1990, Hill filed a complaint against Chubb Life and Sroka. ⁴ Citing the application's sixty-day notification clause and his stroke more than sixty days after applying, Hill claimed that he was damaged by Chubb's delay in processing his application. Both sides moved for summary judgment. The trial court granted summary judgment to Chubb Life "on all points raised in its motion" and denied Hill's cross motion. The court of appeals affirmed, finding the lack of a premium payment fatal to both Hill's contract and tort theories. Hill, 178 Ariz. at 42-43, 870 P.2d at 1138-39.

CONTRACTUAL DUTY AND THE SIXTY-DAY CLAUSE

Much of the oral argument before this court focused on whether the sixty-day clause imposed contractual duties on Chubb Life. But in answering a question from the court, Hill candidly conceded at that argument that although he repeatedly referred to the sixty-day clause in his complaint, he did not plead it as an enforceable contract that Chubb breached. Rather, the complaint was styled as a tort action for negligently processing the application. Thus, before we can consider whether the application agreement's sixty-day clause is contractually enforceable in the absence of a premium, we must first decide whether a contract theory is properly before this court.

A. Trial by Implied Consent

Notwithstanding Hill's failure to state a contract claim in his complaint, we believe that the trial court reached and the court of appeals considered the contract issue and that review of a contract theory by this court is therefore appropriate. Ariz.R.Civ.P. 15(b) provides that:

When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment, but failure so to amend does not affect the result of the trial of these issues.

Courts interpret Rule 15(b) liberally "to promote the objective of deciding cases on their merits rather than in terms of the relative pleading skills of counsel." Brandon v. Holt, 469 U.S. 464, 471 n. 19, 105 S.Ct. 873, 877 n. 19, 83 L.Ed.2d 878 (1985); accord, Hanshaw v. City of Huntington, 456 S.E.2d 445, 448, 1995 WL 69019, at * 3 (W.Va. Feb. 16, 1995).

To determine whether an issue has been tried under Rule 15, "no general rule can be laid down. Each case depends upon the facts as shown by the record of that particular case." Collison v. International Ins. Co., 58 Ariz. 156, 162, 118 P.2d 445, 447 (1941). However, if the pleadings "present affirmatively certain [other] issues ... there must be some affirmative showing in the record" that the unpleaded, disputed issue was reached. Id. In Collison, for example, we concluded that an unpleaded issue was tried under Rule 15's predecessor because the record showed that the defendant was aware of the issue but did not object when the court considered it. Id.

We bear these principles in mind as we examine the record to determine whether Chubb Life impliedly consented to reaching the merits of the contract claim. ⁵ We conclude that the record affirmatively shows that contractual liability based on the sixty-day clause was at issue and argued by the parties in both the trial court and the court of appeals, despite the fact that Hill's complaint failed to make a short and plain statement of such a legal theory. ⁶

For example, in his response to Chubb's motion for summary judgment, Hill plainly said that there had been a "breach of the express sixty-day requirement " and that Chubb's "breach of its own contract has resulted in egregious injury to Plaintiff." Plaintiff's Response to Defendant Chubb's Motion for Summary Judgment at 6 (emphasis added). And in his cross-motion for summary judgment, Hill said that Chubb "violated its basic duties under ... the contract by failing to advise Plaintiff of the reasons for delay." Reply in Support of Plaintiff's Cross-Motion for Partial Summary Judgment at 12 (emphasis added). Far from objecting that Hill had not pleaded a contract claim, Chubb Life responded to the merits of what it called Hill's contractual "fall back position" that Chubb violated the sixty-day clause. Reply in Support of Defendant Chubb Life's Motion for Summary Judgment at 5.

Although the discussion also focused on Hill's related negligent delay claim, the summary judgment hearing...