Keller v. First Nat. Bank

• Decision Date: 14 March 1991
• Docket Number: No. 19691,19691
• Citation: 184 W.Va. 681,403 S.E.2d 424
• Court: West Virginia Supreme Court
• Parties: Ernest G. KELLER, Administrator with Will Annexed of the Estate of Georgia Keller, and Ernest E. Keller v. FIRST NATIONAL BANK, and Integon Life Insurance.

Page 424

403 S.E.2d 424

184 W.Va. 681

Ernest G. KELLER, Administrator with Will Annexed of the Estate of Georgia Keller, and Ernest E. Keller v. FIRST NATIONAL BANK, and Integon Life Insurance.

No. 19691.

Supreme Court of Appeals of

West Virginia.

March 14, 1991.

Syllabus by the Court

1. Once an insurer creates a reasonable expectation of insurance coverage, the insurer must give the coverage or promptly notify the insured of the denial. When an insurer creates a reasonable expectation of insurance coverage and accepts a premium, the denial notice, in order to be effective, must include a refund of the premium. The promptness of the denial notice is determined by the circumstances of each case; however, in any event, in order for a denial notice to be effective, such notice must be given no more than 30 days after the insurer created the reasonable expectation of coverage.

2. In order to recover damages based on an expectation of insurance, a plaintiff must prove that the insurer created a reasonable expectation of insurance coverage. The defendant, in addition to disproving the reasonableness of the plaintiff's expectation, can also prevail by showing that a timely notice of denial was given and, when applicable, that the premium was returned with the denial notice.

Truman Sayre, Jr., Sayre & Sayre, Beckley, for Ernest G. Keller.

C. Berkley Lilly, Gorman, Sheatsley & Hutchinson, Beckley, for First Nat. Bank.

Robert File, File, Payne, Scherer & Brown, Beckley, for Integon Life Ins. Corp.

NEELY, Justice:

Ernest G. Keller, administrator of the estate of Georgia Keller, and Ernest E. Keller appeal the dismissal of their suit concerning credit life insurance against the First National Bank of Beckley and Integon Life Insurance Co. Finding that no credit life insurance was in effect when Georgia Keller died, the Circuit Court of Raleigh County dismissed the action. Based on our review of the record, we find that the Kellers have alleged a set of facts, which, if true, could establish liability. We, therefore, reverse the circuit court's decision and remand the case for further development.

On 21 November 1986, Georgia Keller and her husband, Ernest E. Keller, borrowed $12,656.25 from the Bank. The 1986 loan's term was for one year and the loan was evidenced by a promissory note secured by a deed of trust. Georgia Keller purchased credit life insurance for the 1986 loan through Integon's agent, the Bank, ¹ and a Certificate of Insurance was issued. Ernest E. Keller did not purchase credit life insurance because his age exceeded the maximum age allowed under the insurance policy.

At the end of the one-year term, the Bank renewed the loan for another year and the loan was evidenced by a renewal note dated 18 November 1987. ² Although the Bank maintains that its personnel were aware of Mrs. Keller's deteriorating health, the renewal note nonetheless included, among the amounts to be financed, a $150 charge for credit life insurance. The renewal note required monthly payments of $200 with a final balloon payment of $11,091.82 due on 18 November 1988.

The insurance section of the renewal note began with the following preprinted information:

Credit life insurance ... [is] not required to obtain credit, and will not be provided unless I sign and agree to pay the additional cost.

Immediately below this provision, the Bank had inserted a charge of $150 for the credit life premium with the term noted as "level 12 mo." Next to inserted information the Bank's form stated, "I want credit life insurance" and the initials EGK appear. The following signature appears on the renewal note "Ernest Keller [and] Georgia Keller by EG Keller Power of attorney."

The Bank maintains that it received the renewal note on 1 December 1987, and immediately entered it into the computer. Later that same day, Bradley Wartella, President of the Bank, reviewed the renewal note and "caught the error showing a charge for insurance that was added to the principal." Mr. Wartella maintains that on 2 December 1987, he corrected the error by deducting the $150 insurance charge from the amount financed. However, the Bank did not notify the Kellers in writing that credit life insurance would not be issued or that the insurance charge was in error and had been deducted from the principal financed. The monthly payments required by the renewal note remained the same and the Kellers were not given a new renewal note. Mr. Wartella asserts that he told Ernest G. Keller, the son who signed the renewal note, both before and after the execution of the renewal note that no credit life insurance could be issued for his mother, Georgia Keller. ³

Georgia Keller died on 5 September 1988, which was during the term of the renewal note. The Bank and Integon refused to pay any insurance benefits, claiming that no credit life insurance was in effect when Mrs. Keller died. Ernest G. Keller maintains that although "[n]o person at the bank orally represented that Georgia Keller had credit life insurance coverage," "no one had told me that we could not receive Credit Life Insurance." Mr. Keller also maintains that he believed that the credit life insurance premium was financed and included in the monthly payments on the renewal note. Mr. Keller also states that he "relied upon the fact that there was Credit Life Insurance upon Georgia Keller."

The Kellers sued the Bank and Integon on 25 October 1988 and both defendants immediately filed motions to dismiss claiming that no credit life insurance policy was in effect. Following limited discovery, by order entered on August 3, 1989, the circuit court dismissed both defendants based on his finding that no insurance policy was in effect. The Kellers appeal and we reverse.

I

This case is only a slightly different mutation of almost all insurance cases, because despite of the appearance of a contract on the renewal note, the defendants claim there was no insurance policy. ⁴ In most insurance cases, the plaintiffs pay for and believe they have insurance, to discover only after disaster strikes, no insurance. The insurer has the plaintiffs' money and after the disaster--fire, death or accident--informs the plaintiffs that no insurance covers the fire, death or accident. Although the after-the-fact denial of coverage scenario is repeated numerous times, without the disaster, the insurer does not refund the insurance premium. Under this system the insured always loses; without a disaster, the insurer keeps the premium even though there was no insurance and with a disaster, the potential insured becomes uninsured and the insurer returns the premium. In this case, the $150 premium was taken off the unpaid debt of the plaintiffs.

Most people expect insurance once they pay the premium, but in the present case, even though the premium was paid, insurance was denied. In order to eliminate an insured's doubt about coverage, we find that once an insurer creates a reasonable expectation of insurance coverage, the insurer must give the coverage or promptly notify the insured of the denial. ⁵ When an insurer creates a reasonable expectation of insurance coverage and accepts a premium, the denial notice, in order to be effective, must include a refund of the premium. The promptness of the denial notice is determined by the circumstances of each case; however, in any event, in order for a denial notice to be effective, such notice must be given no more than 30 days after the insurer created the reasonable expectation of coverage. Under this rule, once an insurer creates a reasonable expectation of insurance coverage, the insured is assured of coverage or a prompt notice of denial, which would give the insured the opportunity to seek other ways of limiting the risk.

Generally, an insured deals with an insurance company through an insurance agent, who generally is authorized to act for the insurance company. W.Va.Code, 33-1-12 [1957] defines an insurance agent as "an individual appointed by an insurer to solicit, negotiate, effect or countersign insurance contracts in its behalf." Therefore, an insurance agent "who has actual authority to enter into a contract on behalf of a principal will bind the principal to all the elements of that contract, even though particular statements may have been unauthorized." Warden, supra n. 5, 176 W.Va. at 64, 341 S.E.2d at 684 (quoting Thompson v. Stuckey, 171 W.Va. 483, 300 S.E.2d 295, 299 (1983)).

When credit life insurance is purchased, generally the creditor acts as an agent for the insurance company. In Syllabus Point 2, Warden, supra n. 5, we stated Where a creditor under a credit life insurance policy was furnished blank forms, and the forms were completed by the creditor's employees and delivered to the debtors advising them of coverage under and subject to the master policy, the creditor was the agent of the insurer in issuing the certificates of insurance.

If the creditor, who is an agent for an insurance company, creates a reasonable expectation of insurance coverage, then both the insurance company and the creditor would be bound.

In order to recover damages based on an expectation of insurance, a plaintiff must prove that the insurer created a reasonable expectation of insurance coverage. The defendant, in addition to disproving the reasonableness of the plaintiff's expectation, can also prevail by showing that timely notice of denial was given and, when applicable, that the premium was returned. An action based on a reasonable expectation of insurance usually will raise substantial questions of fact.

Other cases recognizing that insurance can be based on a reasonable expectation are either based on a procedure, which fosters a misconception about the insurance to be purchased, or a contract to procure insurance. A reasonable expectation of insurance based on a procedural exception recognizes that an insurer by its actions can forego the safeguards of its procedures or written...