Lincoln Nat. Life Ins. Co. v. Commonwealth Corrugated Container Corp.

• Decision Date: 08 March 1985
• Docket Number: No. 820117,820117
• Citation: 327 S.E.2d 98,229 Va. 132
• Parties: LINCOLN NATIONAL LIFE INSURANCE COMPANY v. COMMONWEALTH CORRUGATED CONTAINER CORPORATION. Record
• Court: Virginia Supreme Court

Page 98

327 S.E.2d 98

229 Va. 132

LINCOLN NATIONAL LIFE INSURANCE COMPANY v. COMMONWEALTH CORRUGATED CONTAINER CORPORATION.

Record No. 820117.

Supreme Court of Virginia.

March 8, 1985.

Dennis O. Laing, Richmond, (A.C. Epps; Christian, Barton, Epps, Brent & Chappell, Richmond, on briefs), for appellant.

Barbara Tessin Derry, Richmond, (John F. Kay, Jr.; Mays, Valentine, Davenport & Moore, Richmond, on brief), for appellee.

Present: All the Justices.

COMPTON, Justice.

This is the appeal of an insurance case involving a coverage question under a group policy. Specifically, the issue is whether an employee was "actively at work" when the policy became effective to enable him to qualify for life insurance benefits under the contract.

Anthony J. Bagley died on August 8, 1977 at a Richmond hospital where he had been confined for nearly two weeks. At the time of his death, Bagley was 65 years of age and employed as a salesman for appellee Commonwealth Corrugated Container Corporation. Bagley also was Chairman of the corporation's Board of Directors and a stockholder in the company which he and another formed 13 years earlier.

Appellant Lincoln National Life Insurance Company issued a group policy effective August 1, 1977 to Commonwealth, the policyholder. Life insurance benefits in the amount of $15,000, for employees of Bagley's age and job description, were among the coverages provided under the policy. According to the application form: "Each employee must be actively at work when the Insurance provided under the policy becomes effective; otherwise, it will not become effective with respect to him until the next following day on which he is actively at work...."

The insurer denied the claim of Bagley's widow for payment of the death benefit and, in 1979, she assigned her claim under the policy to Commonwealth.

The policyholder then brought this suit against the insurer. Following a bench trial, the court below determined that Bagley was covered under the policy. The insurer appeals from the October 1981 order entering judgment in favor of Commonwealth for $15,000 plus interest from August 8, 1977.

The facts, although mainly undisputed, will be viewed in the light most favorable to the party prevailing below. Commonwealth, a manufacturer of corrugated shipping boxes, was formed in 1964 by Bagley and Maurice F. Dozier, each owning 50 percent of the stock. In 1972, James Boulden acquired a one-third interest, with Bagley and Dozier, in Commonwealth and an interest in Fiber Tube Corporation, an allied company that had been formed in 1969 by Bagley and Dozier. Fiber Tube manufactures spiral tubes and covers. The two corporations operate from the same office and employ approximately 22 persons.

Dozier, president of both corporations, testified that Bagley's duties as Board Chairman included making reports to stockholders, acting in a sales capacity, and assisting Dozier in administration daily. According to Dozier, he did not, as president, make any policy or administrative business decisions "without full conversation" with Bagley and Boulden. The trio usually met in the late afternoon to discuss "problems that had developed" and other business matters, for example, whether "any machinery or equipment ... needed repair or replacement."

Bagley's compensation included a "straight" salary, plus sales commissions, with the salary apparently being the larger component. Bagley was "the senior salesman" for the corporation, spending 30-35 hours per week out of the office in sales and the balance of his time on "ownership" duties in the office.

In July of 1977, Dozier learned from Melvin R. Mercer, a local insurance agent who had been "taking care" of Commonwealth's life insurance needs for several years, that the insurer providing Commonwealth's group coverage was on the verge of insolvency. Commonwealth sought to obtain similar coverage from another insurer. Bagley, Dozier, and Boulden decided, after considering several proposals, to select Lincoln National, Mercer's "principal company." The necessary Lincoln National forms were executed under the agent's supervision on Friday, July 22, in Commonwealth's office. Dozier signed the application for insurance as company president. Bagley executed a "Group Insurance Enrollment Card."

Bagley remained at home because of illness on July 25 and 26. Dozier talked to Bagley by telephone both days, discussing "business," Bagley's health, "what came in the morning's mail," "problems," and "what [was] going on in the plant."

Bagley, who had not been sick for at least six months, was hospitalized on Wednesday, July 27, for conditions which proved to be terminal. Dozier visited Bagley that afternoon and each succeeding day until August 5, three days before Bagley's death and the day Dozier and Boulden learned the terminal nature of Bagley's condition. During each visit, lasting 10 to 15 minutes each, Bagley was alert and the two discussed "business," "what money came in the morning's mail, what bills we have to pay," "who gets paid based upon income," and similar "judgments." Dozier testified that during the period he "did get the benefit of [Bagley's] advice" and that he "[d]efinitely" considered Bagley to be in the service of the corporation.

Robert J. Boulden, Commonwealth's vice president in charge of sales, visited Bagley in the hospital on three occasions, staying about one-half hour each time. They discussed "the condition of his health and business." Bagley was alert, according to Boulden, and on August 3 Bagley walked unassisted to a new hospital room assigned him. Boulden testified that the business matters discussed with Bagley in the hospital were the same types of subjects normally discussed with Bagley at the office.

According to the record, Bagley was compensated during the period July 25 to August 8 pursuant to a "sick leave policy" of the corporation. Under the policy, an ill employee who was an officer or director would be paid full salary for a six-month period.

On appeal, the insurer contends Bagley was not eligible for coverage under the policy because he was not "actively at work" on the effective date of the policy or at any time thereafter. It argues that the trial court's finding of coverage under the policy in question "is totally without any support in the record."

The insurer says that, like most group plans, its policy did not require Commonwealth's employees to submit to a physical examination or even disclose their medical...