Mutual of Omaha Insurance Company v. Russell, 9169

• Decision Date: 09 December 1968
• Docket Number: No. 9169,9182.,9169
• Citation: 402 F.2d 339
• Parties: MUTUAL OF OMAHA INSURANCE COMPANY, a corporation, Appellant, v. Elmer D. RUSSELL, Appellee. Elmer D. RUSSELL, Cross-Appellant, v. MUTUAL OF OMAHA INSURANCE COMPANY, a corporation, Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

402 F.2d 339 (1968)

MUTUAL OF OMAHA INSURANCE COMPANY, a corporation, Appellant, v. Elmer D. RUSSELL, Appellee.

Elmer D. RUSSELL, Cross-Appellant, v. MUTUAL OF OMAHA INSURANCE COMPANY, a corporation, Cross-Appellee.

Nos. 9169, 9182.

United States Court of Appeals Tenth Circuit.

September 30, 1968.

Rehearing Denied December 9, 1968.

Henry G. Eager, Kansas City, Mo., for appellant and cross-appellee.

John E. Shamberg, Kansas City, Kan., for appellee and cross-appellant.

Before MURRAH, Chief Judge, JOHN R. BROWN^* and HICKEY, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

Does the speed of the modern jet age and the restless, irrepressible, increased tempo of all who are in its vortex impose on a flight insurer the obligation toward prospective policy buyers of explaining the distinctive differences of the several available coverages? Does the insurer's attractive sales booth, neon signs heralding the need for and availability of "flight insurance," and the other catchy advertising come-ons carry the inevitable message to scurrying people on the move the notion that the coverage is for the traveler's intended round trip rather than for a definitive period of time? And to avoid this misreading by people in a hurry of printed contracts plain enough that even those who run may read, must the insurer affirmatively take steps by extra-contract informational statements to overcome such misapprehension?

The District Judge, in effect, answered these broad inquiries in the affirmative. The failure to give such informational advice became, in his analysis, a constructive fraud upon which to base reformation of a flight insurance policy which, all now agree, did not by its terms cover the death of the Assured. In more austere terms the main issue presented for decision is whether the Assured¹ is entitled to reformation of a general accident flight insurance policy purchased at Insurer's² sales booth in the lobby of an airport. The District Court reformed the contract and awarded plaintiff $20,000. We hold that under the unusual fact situation of this case the insurance policy should not have been reformed and the decision of the District Court must be reversed.

To understand fully the Assured's theory a full recitation of the facts is helpful. Rev. and Mrs. Russell were residents of Kansas City, Kansas. On Thursday, January 24, 1963, upon receiving word that one of her brothers had died in Lubbock, Texas, Mrs. Russell decided to fly to Lubbock for the funeral. Reservations were made for a flight the next day, Friday, but the return flight was left open because the funeral date had not been set. On Friday Rev. and Mrs. Russell and their son³ went to the airport in Kansas City, Missouri, picked up their tickets at the Continental Airlines counter, and proceeded toward the awaiting plane.

As the three Russells passed one of Insurer's vending machines for dispensing flight insurance, Rev. Russell decided that Mrs. Russell should have insurance to cover her during the trip. This machine dispensed Insurer's policy T-20. In many ways the T-20 affords severely limited coverage in that it provides protection only for accidents while aboard an airplane or in established limousines going to or coming from the airport. On the other hand, the T-20's coverage expressly remains in effect for the duration of the round trip or for twelve months, whichever occurs first. Similarly, since events and covered occurrences were more restrictive, the face amount of insurance per premium dollar was larger than other policies. Had a T-20 been machine-issued the Assured's death would have been covered. But no one had the proper change to operate the machine, so the Russells stepped just south of the machine to one of Insurer's staffed insurance booths. The booth had signs overhead reading "Flight Insurance" and was attended by a Miss Fletcher.

Rev. Russell asked either for flight insurance or insurance⁴ to cover his wife on her round trip to Lubbock. Miss Fletcher then asked "How much?", meaning what amount of insurance coverage. Mrs. Russell asked for the least amount and $20,000 was the amount agreed upon. Without then explaining various policies available (see note 8 infra), Miss Fletcher took out an application form and began to fill it out. She then asked either how long would Mrs. Russell be gone or when would she be returning. Mrs. Russell turned to her husband and asked "Three days?". Rev. Russell said she should allow herself more than that — at least four days. Miss Fletcher completed the form⁵ and turned it around for Mrs. Russell's signature. Mrs. Russell signed and paid the $2.25 premium. Miss Fletcher stapled the policy together and handed it to Rev. Russell.

The policy purchased was not, however, the T-20; rather it was the T-18, a significantly different policy. The T-18 is a general accident policy that covers almost all risks — whether air related or not — during the life of the policy. The policy term is stated in terms of twenty-four hour periods on a daily basis up to thirty-one days.⁶ The premium is higher on the T-18 for the same dollar amount of insurance, and the T-18 is not sold in vending machines. As the Schedule signed by Mrs. Russell shows (see note 5 supra), the T-18 was issued for only four days, and expired at 11:00 a. m., Tuesday, January 29, 1963, about twelve hours prior to the Assured's death.

The District Court credited Rev. Russell's testimony that Miss Fletcher never mentioned any other available policies,⁷ did not explain the T-18, and did not warn plaintiff that the policy would expire at 11:00 a. m. on Tuesday, January 29, 1963.⁸ The Judge also found that the Assured intended to buy insurance that would cover Mrs. Russell's round trip, which both she and her husband thought would occur within four days.

After buying the insurance, Mrs. Russell boarded her plane and arrived safely in Lubbock, Texas. There the funeral was delayed because a son of the deceased had not arrived from England. The funeral was finally held on Tuesday, January 29, and Mrs. Russell was fatally injured when her airplane crashed that night at 10:45 p. m. while attempting to land at the Kansas City, Missouri, airport. The insurance policy had expired by its own terms about twelve hours earlier. The Insurer denied liability.

The Assured then pursued Insurer in this diversity of citizenship suit in Kansas on the theories that either (1) the insurance contract should be construed to cover the death of Mrs. Russell, or (2) the policy should be reformed to provide coverage for the return flight from Lubbock to Kansas City. The District Judge held that the contract was clear and unambiguous and as written did not cover the accident. But now of direct importance he held that as a matter of equity the policy should be reformed to cover the accident.⁹ Judgment for $20,000 was entered for the Assured. Insurer appealed contending that it is not liable since the policy had expired and the company was not guilty of any inequitable conduct that would give rise to the remedy of reformation. The Assured cross-appealed contending that the judgment should have been for $90,000, the amount of straight flight insurance (T-20) that $2.25 would have bought, but the Assured did not appeal the decision that the policy could not be construed to cover the accident. Thus the only substantive problem before us is whether the contract should, as a matter of equity, be reformed.

But before we reach the merits, with the suit being brought in a Kansas District Court by a Kansas resident on a contract made in Missouri, an Erie¹⁰ problem of determining what state's law to apply arises. The District Court held that the Kansas conflicts rule is to apply Kansas law to this insurance policy. Insurer contends, albeit without much vigor, that Kansas follows the lex locus contractus rule and a Kansas state court would apply Missouri law.¹¹ Even the trial judge acknowledged that the Erie-Stentor Electric¹² lights are dim here. Although it makes little difference in this case what the Kansas conflicts rule may be since Insurer admits there is no substantial variation between the relevant Kansas and Missouri law, we hold for Kansas that in a suit such as this one, involving an adhesion insurance contract, Kansas would apply its own law to a suit brought in its court by a Kansas resident. Although this is deciding what Kansas would decide on a question they have never decided,¹³ the case of Hildebrand v. Washington Nat'l Ins. Co., 155 Kan. 220, 124 P.2d 510 (1952), is inferentially controlling. In that case the conflicts problem was pleaded and argued in a suit on an insurance policy made in another state by a Kansas resident. Without discussion of the problem, the Kansas court applied Kansas law. Without further discussion we do the same.¹⁴

The question thus remains: What would Kansas do with this case? More specifically, can the Trial Judge's approach of a duty to explain and a failure to do so which he set forth in his opinion (see note 9 supra) in persuasive fashion be sustained? We think not.

Neither party disagrees about the general principles of equity applicable here.¹⁵ The rub comes in the proper application of those principles to the facts of this case. Reformation is an ancient remedy used to reframe written contracts to reflect accurately the real agreement between contracting parties when, either through mutual mistake or unilateral mistake coupled with actual or equitable fraud by the other party, the writing does not embody the contract as actually made.¹⁶

But reformation is an extraordinary remedy, and courts exercise it with great caution. 13 Appleman, Insurance Law and Practice § 7608 (1943). Even in situations where obvious mistakes have been made, courts will not rewrite the contract between the parties, but will only enforce the legal obligations of the parties according to their original agreement.¹⁷ Strouhal v. Allied Dev. Co., 10 Cir....