McKinney v. Pioneer Life Ins. Co., 17020

• Decision Date: 22 October 1990
• Docket Number: No. 17020,17020
• Citation: 465 N.W.2d 192
• Parties: Floyd McKINNEY and Una McKinney, Plaintiffs and Appellants, v. PIONEER LIFE INSURANCE COMPANY, Defendant and Appellee. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 192

465 N.W.2d 192

Floyd McKINNEY and Una McKinney, Plaintiffs and Appellants, v. PIONEER LIFE INSURANCE COMPANY, Defendant and Appellee.

No. 17020.

Supreme Court of South Dakota.

Considered on Briefs Oct. 22, 1990.

Decided Jan. 23, 1991.

Brian W. Jones of Heidepriem, Widmayer, Zell & Jones, Miller, for plaintiffs and appellants.

Robert B. Anderson of May, Adam, Gerdes & Thompson, Pierre, for defendant and appellee.

MILLER, Chief Justice.

This is an appeal from a summary judgment in favor of Pioneer Life Insurance Company (Pioneer) in an action against it for policy proceeds, "emotional strain" and punitive damages. We reverse.

FACTS

Floyd and Una McKinney of Miller, South Dakota, brought this action against Pioneer seeking, among other things, money which they claimed was owed to them under a "long-term-care" insurance policy. Pioneer, which apparently has never answered the complaint, ¹ moved for summary judgment on the basis of the preexisting condition limitation in the policy. The trial court granted summary judgment and McKinneys' motion to reconsider the same was later denied. This appeal followed.

Floyd had been a patient of Dr. James E. Monfore for over twenty years. He had enjoyed fairly good health over those years, excepting minor back troubles. Between June, 1982, and February, 1987, Floyd began to suffer episodes of gross confusion which culminated in a diagnosis of Alzheimer's disease. He was treated with various drugs. On February 20, 1987, Floyd was admitted to the hospital and hospital records note that he suffered from Alzheimer's disease (this is the first time doctors' records definitely make that diagnosis).

On March 1, 1987, Floyd was admitted to nursing home care at the hospital. Dr. Monfore testified that during the course of seeing Floyd as a patient, his wife was always with him. Although Dr. Monfore discussed her husband's condition with Una many times, he did not know if he had ever actually told her that Floyd was suffering from Alzheimer's disease.

On that same day, Michael R. Johnson, an agent of Pioneer, sold a "long-term-care" insurance policy to Floyd and Una. Johnson had traveled that Sunday afternoon to Miller, South Dakota, from his home in Sioux Falls, after receiving a phone call from Una asking him to come to Miller to write a "nursing home" policy for Floyd. That day, the application for insurance was written and subsequently signed by Una in her home. Floyd, who was in the hospital, was not present. Una signed his name for him. Johnson, who totally completed the application form, was aware that Floyd was hospitalized. ² Johnson, who had previously sold health insurance to McKinneys, was generally familiar with Floyd's condition. On prior occasions, he and Una had discussed the fact that Una believed Floyd had Alzheimer's disease.

Johnson accepted Una's check for the premium and submitted the application to Pioneer. The policy which Pioneer ultimately issued contained a preexisting condition limitation.

Una ultimately filed a claim with Pioneer for expenses which arose from Floyd's long-term care in the nursing home. Subsequently, Pioneer notified McKinneys that the claim was denied based on the preexisting condition limitation contained in the policy. Pioneer rescinded the policy and ultimately sent a check to the McKinneys representing the amount of the initial premium of $1,316.00. It has not been cashed.

McKinneys brought this suit. In their complaint, they alleged breach of contract, fraudulent inducement and bad faith refusal to pay insurance proceeds. They sought damages as follows: $15,853.50 for policy benefits due; $50,000 for "severe emotional strain"; and $100,000 in punitive damages. Eventually, Pioneer filed a motion for summary judgment claiming that it was entitled to judgment as a matter of law because "there is no genuine issue as to any material fact relevant to the preexisting condition defense advanced" by it. The trial court granted summary judgment for Pioneer, concentrating principally on the preexisting condition exclusion, but making a brief comment that the evidence does not support McKinneys' allegations of fraud. This appeal followed.

STANDARD OF REVIEW

It is well established that summary judgment shall be granted where the pleadings, depositions, admissions, exhibits, and supporting affidavits show that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Aetna Life Ins. Co. v. McElvain, 363 N.W.2d 186 (S.D.1985). To surmise that a party will not prevail at trial is not a sufficient basis on which to grant summary judgment on issues which are not shown to be sham, frivolous, or so unsubstantial that it is obvious that it would be futile to try them. Trapp v. Madera Pac., Inc., 390 N.W.2d 558 (S.D.1986).

DECISION

Various issues have been presented to us in this appeal, i.e., it has been asserted that the policy provisions (specifically portions of the preexisting condition exclusion) are ambiguous. We conclude those issues are irrelevant and collateral to the central issue, namely Pioneer's responsibility for Agent Johnson's representations, and therefore dispose of the appeal on that basis.

Here, the complaint alleges ³ that McKinneys were fraudulently induced to purchase the insurance contract through a scheme executed by Agent Johnson whereby Johnson filled out the application for the McKinneys, including answers which he knew were untrue and were designed to lead to the approval of the application by Pioneer. The complaint further alleges that McKinneys were unaware that Johnson had written false answers to questions on the application and were unaware that later, given the correct answers to those questions, Pioneer would attempt to rescind the policy. McKinneys further allege that Pioneer, having failed to reasonably investigate the application for insurance, is responsible as a principal for Johnson's actions. Furthermore, they assert that Pioneer is estopped to deny coverage or to rescind the policy based on inaccuracies within the application.

Interestingly, Una testified that she had previously purchased a different health insurance policy from Johnson through Pioneer. Pioneer terminated the policy for nonpayment of premium. (She had previously paid the premium to Johnson, but he did not remit it to Pioneer.) Una testified that she then contacted Pioneer, sending them a copy of the check. Pioneer later called her, informing her that they had "straightened it out" by charging Johnson's account for the amount of the premium.

Pioneer fired Johnson because he evidently had a problem selling insurance policies due to his frequent "dope" smoking. Johnson's supervisor was aware of his drug and financial problems because Johnson told him about it on several occasions. ⁴

In response to the motion for summary judgment, Una filed an affidavit alleging that she and Johnson had discussed some details of the insurance policy she believed she had purchased. Included in those discussions were details described to her by Johnson as a "six-month waiting period." Una claims that Johnson explained them to her to mean that she could not submit a claim to Pioneer for benefits from Floyd's confinement in the nursing home until six months after the date the policy was issued. That, she explains,...