Naifeh v. Valley Forge Life Ins. Co.

• Decision Date: 28 August 2006
• Citation: 204 S.W.3d 758
• Parties: Niccole A. NAIFEH, et al. v. VALLEY FORGE LIFE INSURANCE COMPANY, et al.
• Court: Tennessee Supreme Court

Page 758

204 S.W.3d 758

Niccole A. NAIFEH, et al. v. VALLEY FORGE LIFE INSURANCE COMPANY, et al.

Supreme Court of Tennessee, at Jackson.

April 5, 2006 Session.

August 28, 2006.

Order on Denial of Rehearing October 2, 2006.

J. Houston Gordon, Covington, Tennessee, for the Appellants, Niccole Naifeh and Henry Joseph Naifeh, Co-Administrators of the Estate of John H. Naifeh.

James S. Wilder, II, Dyersburg, Tennessee, and James J. Webb, Jr., Memphis, Tennessee, for the Appellant, Cathy Naifeh.

Sam B. Blair, Jr., and John B. Starnes, Memphis, Tennessee, for the Appellee, Valley Forge Life Insurance Company.

J. Kimbrough Johnson and John Dotson, Memphis, Tennessee, for the Appellees, Bill McGowan, Jr., and Bill McGowan and Company.

Walker T. Tipton, Covington, Tennessee, for the Appellee, Union Planters Bank.

Charles W. Cook, III, and James E. Gaylord, Nashville, Tennessee, for the Amicus Curiae, Tennessee Bankers Association.

OPINION

E. RILEY ANDERSON, J., delivered the opinion of the court, in which WILLIAM M. BARKER, C.J., and ADOLPHO A. BIRCH, JR., JANICE M. HOLDER, and CORNELIA A. CLARK, JJ., joined.

We granted this appeal to determine (1) whether a life insurance policy purchased by the insured as part of a divorce decree had been terminated before the insured's death; and (2) whether the insurer or the insurance agent was negligent in failing to prevent the policy from lapsing after the insured issued an oral stop payment order and failed to pay a monthly premium. The Chancery Court concluded that the policy had not been terminated, that the insurer and insurance agent were negligent, and that the proceeds of the policy were to be paid to the beneficiary. The Court of Appeals, reversing the Chancellor's judgment, concluded that the policy had been backdated by agreement of the parties and had been terminated by the insured before his death. The Court of Appeals also concluded that the insurer and the insurance agent were not negligent because their actions were not a proximate cause of the damages. After reviewing the record and applicable authority, we conclude that the life insurance policy remained valid at the time of the insured's death and that the beneficiary was entitled to the proceeds under the policy. However, we agree with the Court of Appeals' conclusion that the insurer and the insurance agent were not negligent because there was no evidence that their acts were a proximate cause of the damages. Accordingly, the Court of Appeals' judgment is affirmed in part and reversed in part for the reasons stated herein.

Background

This appeal involves a one-million dollar life insurance policy purchased by the decedent, John H. Naifeh ("Naifeh"), from Valley Forge Life Insurance Company ("Valley Forge") with the assistance of Bill McGowan ("McGowan"), an independent insurance agent. The policy, which was required under a divorce decree, named Naifeh's former wife, Cathy Naifeh, as sole beneficiary. After Naifeh was killed in a car accident in March of 2000, Valley Forge decided that the policy had been terminated because Naifeh had issued an oral stop payment order on the monthly premiums to Union Planters Bank in January of 2000.

The plaintiffs, Cathy Naifeh and the co-administrators of John Naifeh's estate ("Estate"), filed a complaint in the Chancery Court of Tipton County, Tennessee, alleging several causes of action against the defendants, Valley Forge, McGowan,¹ and Union Planters Bank. In particular, the plaintiffs alleged breach of contract, negligence, bad faith, estoppel, and deceptive practices under the Consumer Protection Act against Valley Forge, and they sought specific enforcement of the life insurance contract. The plaintiffs also alleged negligence, misrepresentation, and violations of the Consumer Protection Act against McGowan. Finally, the Estate brought claims for breach of contract, violations of the Consumer Protection Act, and non-compliance with state and federal banking statutes against Union Planters Bank. Valley Forge filed a cross-claim against McGowan. The evidence presented during a bench trial before the Chancellor is summarized below.

Summary of Evidence

Thomas Forrester ("Forrester") testified that he represented Cathy Naifeh in her divorce from the decedent in 1998. As part of a marital dissolution agreement dated September 16, 1998, Naifeh agreed to buy a one-million dollar life insurance policy naming Cathy Naifeh sole beneficiary and her son, John Andrew McCullough, as secondary beneficiary. The agreement stated in part:

Said life insurance shall be maintained for a period of twenty (20) years from the date of execution of this Marital Dissolution Agreement. Husband shall not pledge, borrow against or encumber said insurance policy. Husband is to furnish to Wife the name and address of the insurance company issuing said life insurance policy, the policy number, the group number (if any) and the name and address of the insurance agent through whom the policy was purchased. Husband, by his signature hereto, does hereby release and authorize any insurance company, agent and/or representative who has knowledge or information regarding the status and issuance of said policy to communicate fully with Wife as to said policy and the status thereof in regard to any and all premium payments. Husband, upon Wife's demand shall exhibit to Wife evidence that said insurance is in full force and effect and that the policy is being maintained per the provisions set forth hereinabove. Husband agrees to execute the necessary documents to have said insurance premiums paid directly from his bank account. If for any reason Husband does not maintain said life insurance as required by this provision or, if for any reason said insurance is not paid to Wife upon Husband's death (or to Wife's son if Wife predeceases Husband), Husband's estate shall be responsible for paying to Wife (or to Wife's son if Wife predeceases Husband) the sum of One Million Dollars ($1,000,000.00).

(Emphasis added).

Forrester testified that the divorce decree incorporating the above agreement was filed on December 10, 1998. Although he thought he sent a copy of the decree to McGowan, he had no record of having done so. Forrester testified that he did not receive a copy of the insurance policy, the name of the insurance company, the policy number, or any other information required in the divorce decree. However, Forrester testified that he learned the policy was in effect after speaking to McGowan shortly before the divorce decree was filed.

Marilyn Balicki ("Balicki"), a representative of Valley Forge, testified that on August 26, 1998, Naifeh obtained a life insurance proposal from Valley Forge through McGowan. The proposal, which listed Naifeh's age as fifty-one,² stated in part that "[N]o contract will be issued until an application has been received and accepted by the underwriting company."

On August 31, 1998, McGowan helped Naifeh complete an application for the policy. Naifeh wrote a check in the amount of $149.99, which was a "conditional premium" payment for a "Male Preferred Nonsmoker 2." The conditional coverage provision of the application stated that "insurance coverage will begin on the later of the following dates: A. The Underwriting Date, or B. The Policy Date, if any requested in item 14 of the application." However, there was no date requested in item fourteen. Naifeh provided a "void" check to set up an automatic electronic transfer, and he signed a request for preauthorized payment that was to be sent to Naifeh's bank, the First State Bank ("First State Bank") of Covington.³ The request form stated that the "authority will remain in force until revoked by [Naifeh] in writing, and until [Bank] actually receives such notice." The form also stated that the authorization could be revoked with Naifeh's "written revocation." Balicki testified, however, that the preauthorized payment form was not sent to the bank because "banks don't want them."

On September 21, 1998, Naifeh completed a medical exam during which he admitted smoking cigars. On November 3, 1998, Naifeh completed an additional questionnaire at Valley Forge's direction stating that he smoked one cigar every two to three weeks. On November 19, 1998, a life insurance policy was approved by Valley Forge's underwriters but with a classification of "nonsmoker class 4," which increased the premium amount to $214.33 for the first year. Although Balicki said that Valley Forge had adopted a new classification for cigar smoking in October of 1998, there was no indication that Naifah had been notified of the new classification during the application process.

On November 23, 1998, the policy was issued. On December 1, 1998, Naifeh wrote a check for $278.67, which covered one monthly premium, as well as the difference between the new premium and the initial premium amount of $149.99.

Balicki testified that the declaration page of the policy listed the "policy date" as July 25, 1998. She stated that although Naifeh was fifty-one years of age when the application was completed, his "save age" or "insurance age" was fifty-two because he was within six months of his next birthday. Thus, she thought that the policy was "backdated" to July 25, 1998,⁴ so that Naifeh could pay lower premiums based on the younger age.

Balicki conceded that the terms "save age" and "insurance age" were not defined in the application or the insurance policy. Moreover, she conceded that the phrase "conserve to age 51" had been written on Naifeh's application after the application had been completed and signed by Naifeh. Although the policy defined the "policy date" as "the date on which the policy is issued and the insurance coverage becomes effective," Balicki acknowledged that the policy did not define "issued" or "becomes effective."

Balicki stated that the life insurance policy was not approved by Valley Forge underwriters until November 19, 1998....