Knapp v. Protective Life Ins. Co.

• Decision Date: 20 March 1991
• Docket Number: No. 89-3760,89-3760
• Citation: 927 F.2d 993
• Parties: Lu Ann KNAPP, Plaintiff-Appellant, v. PROTECTIVE LIFE INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 993

927 F.2d 993

Lu Ann KNAPP, Plaintiff-Appellant, v. PROTECTIVE LIFE INSURANCE COMPANY, Defendant-Appellee.

No. 89-3760.

United States Court of Appeals Seventh Circuit.

Argued Oct. 25, 1990.

Decided March 20, 1991.

William A. Szotkowski, St. Paul, Minn., for plaintiff-appellant.

Michael Bertling and Thomas J. Graham, Jr., Carroll, Parroni & Postlewaite, Eau Claire, Wis., for defendant-appellee.

Before CUDAHY and POSNER, Circuit Judges, and WILL, Senior District Judge. ^*

CUDAHY, Circuit Judge.

Carl J. Knapp slipped off the rock from which he was fishing and was drowned in the swirling waters of the Diversion River during a trip to Canada on June 14, 1988. Only one month before, Mr. Knapp had decided to change life insurers. The outcome of this case depends in great part on how contemporaneous these two events really were. By June 14, Mr. Knapp's new insurer had already issued a policy on his life, but the paperwork surrounding the cancellation and surrender of the earlier policy was still incomplete. His wife and beneficiary of both policies, Lu Ann Knapp, collected the $100,000 face value on the second policy. Because of the uncertain status of his earlier policy, she now sues for its like face value. The district court granted the insurer's motion for summary judgment, concluding that the prior policy had indeed been canceled by the time of Mr. Knapp's death. We affirm.

I.

The district court's disposition leaves few disputed factual questions. To the extent that any remain, we resolve them in favor of the appellant. The decedent purchased a life insurance policy with a $100,000 face value from the predecessor to defendant Protective Life Insurance Company (Protective Life) on January 2, 1984. Mr. Knapp kept the policy in effect for over four years, with his wife Lu Ann Knapp named as beneficiary. In May 1988, on the advice of his agent, Mr. Knapp decided to change life insurance companies. He selected First Capital Life Insurance Company (First Capital) and chose a policy having the same $100,000 face value. Expecting to apply the surrender value of the old policy towards the new one, Mr. Knapp executed an absolute assignment agreement, placing all rights to his old policy in his new insurer, First Capital. The exchange of surrender value was to qualify under 26 U.S.C. section 1035 for tax exempt status. On May 25, First Capital issued its policy to Mr. Knapp, with Lu Ann Knapp again serving as beneficiary. On May 31, it attempted to terminate, or cancel, Protective Life's policy and extract its surrender value.

According to Protective Life's policy, "All coverage under this policy shall terminate when any one of the following events occurs: (1) You request that coverage terminate. Such request will require a surrender of this policy." Protective Life Policy at 6, Defendant's Response to Plaintiff's First Request for Production of Documents, Ex. A at 8. In a separate clause, the policy stated that it could be surrendered for its surrender value on any monthly anniversary date after the policy had been in force for at least twelve months. Id. at 9, Defendant's Response to Plaintiff's First Request for Production of Documents, Ex. A at 11.

When First Capital sent the assignment and the policy itself to Protective Life, it asked that the surrender value be turned over to First Capital. In seeking surrender as part of a section 1035 exchange, First Capital unequivocally evinced an intent that the policy be canceled. Instead of forwarding the check as requested, however, Protective Life responded on June 10 with its own surrender form, which it requested First Capital execute and return. The June 10 letter read:

We have received your request to surrender the above mentioned policy.... Before this can be done it will be necessary for the enclosed Request for Surrender form to be completed and returned along with the original policy contract, if not previously sent....

At this time we acknowledge the assignment of this life insurance policy to First Capital Life Ins. Co.

Appellant's Br., App. at A-21. First Capital received this letter on the 14th, the same day Mr. Knapp died. For purposes of summary judgment we will assume the form was executed sometime after his death, and later returned to Protective Life. Thus the question on review is whether First Capital's May 31 letter effectively canceled Mr. Knapp's coverage under the Protective Life policy.

That summer Lu Ann Knapp submitted a claim for benefits to each of the insurers. First Capital paid $102,958.90 on its policy in September 1988, representing the face value plus accrued interest. On October 14, Protective Life refused to pay benefits to Ms. Knapp; it subsequently tendered the surrender value of the first policy to First Capital, which was refused.

Lu Ann Knapp brought suit in Wisconsin against Protective Life for the death benefit and for punitive damages. Protective Life removed the case to federal court, based on diversity jurisdiction, and then joined First Capital as a third-party defendant for indemnification. After discovery, Judge Shabaz found for both defendants in summary judgment. Only Ms. Knapp has appealed.

II.

In prosecuting this lawsuit, Ms. Knapp makes no pretense that her husband intended to carry two life insurance policies, or even that he intended to allow the old policy and the new policy to overlap for a period of time. Appellant does not argue that there was a double payment of premiums for any single period of coverage. She forthrightly admits that their decision was to "change" insurance policies, leaving Protective Life in favor of coverage under First Capital. She also admits that First Capital has paid her the benefits it owed on her husband's life. How then can she claim that she is entitled to a second recovery? A single statement early in her brief reveals that appellant and her husband were allegedly told by their agent that a period of double coverage would ensue from changing insurers. Perhaps it is this statement that gave rise to the present suit. Yet even if appellant's agent made such a statement--and we assume in this posture that he did--it does not avail her. Appellant has not pressed any claims based on fraud, misrepresentation or even negligence. Appellant's only claim rests directly on the policy's own terms, and statements her agent may have made do not affect this analysis.

The trial court found that the policy had been canceled prior to Mr. Knapp's death for two reasons, and the appellee argues both to this Court in favor of affirmance. First, the policy was canceled on May 31, 1988, because its specific terms for cancellation were met. Second, the policy was terminated by the doctrine of cancellation by substitution. We reach only the first of these contentions.

Under Wisconsin law, which both parties believe governs this case, we must look to the specific terms of the policy when questioning whether cancellation occurred. Kopke v. Miller, 611 F.Supp. 273 (E.D.Wis.1985); Suennen v. Evrard, 254 Wis. 565, 36 N.W.2d 685 (1949). Regarding this policy's terms for cancellation, there might be an argument for ambiguity. But the first sentence of the first cancellation clause is unambiguous in this case. A request for a section 1035 exchange clearly implies an intent to cancel the earlier policy, a conclusion the appellant does not dispute. The second sentence, concerning surrender, might require some exegesis, however. Initially, what is a "surrender"? It could involve merely the physical return of the policy with an intent to receive some or all of its cash value, as was the case in Waller v. Door County Mutual Ins. Co. 256 Wis. 323, 41 N.W.2d 211 (1950). Or it might require something more, as Protective Life's June 10 letter suggested when it stated, "Before [the requested surrender] can be done it will be necessary for the enclosed Request for Surrender form to be completed...." The word "surrender" is subject to varying definitions. See, e.g., Manhattan Life Ins. Co. v. Allison, 100 Colo. 1, 64 P.2d 1265 (1937) (surrender involves physical delivery of policy only); Board of Trustees of Unitarian Church v. Nationwide Life Ins. Co., 88 N.J.Super. 136, 211 A.2d 204 (1965) (surrender requires execution of surrender forms and delivery of policy); cf. 17 G. Couch, Cyclopedia of Insurance Law Sec. 67.273 (2d ed. 1983).

A second possible ambiguity arises in the surrender's effect. Can an insured successfully cancel his coverage without simultaneously surrendering the policy? One could argue that the language of the policy requires prior or contemporaneous surrender, for it states that the "request" itself will require a surrender. Had the policy said the cancellation would require a surrender, one might contend that the policy need not be surrendered simultaneously with the request for cancellation but could take place later. By insisting that the request be accompanied by a surrender, the clause gives one hint that a cancellation, which necessarily occurs only after a request, must likewise follow a surrender. Nevertheless, other evidence in the policy and Protective Life's letter suggest the surrender could occur after cancellation. Again, there appears to be room for either understanding. 17 G. Couch, supra, Sec. 67:270 ("In the absence of an express provision therefor, the surrender of a policy is not essential to effecting a cancellation of the policy.") (citing cases).

On occasion, such ambiguities might propel the parties past the summary judgment stage. But in Wisconsin, the interpretation of an insurance contract is a question for the court. Just v. Land Reclamation, Ltd., 155 Wis.2d 737, 456 N.W.2d 570 (1990); Wagner v. Milwaukee Mutual Ins. Co., 145 Wis.2d 609, 427 N.W.2d 854 (App.1988). The district court apparently decided that the policy's use of "surrender" meant only the return of the physical policy, not the completion of a Request for Surrender form. Mem. and...