Naifeh v. Valley Forge Life Insurance Company, No. W2003-02800-COA-R3-CV (TN 5/5/2005), W2003-02800-COA-R3-CV.
| Decision Date | 05 May 2005 |
| Docket Number | No. W2003-02800-COA-R3-CV.,W2003-02800-COA-R3-CV. |
| Parties | NICCOLE A. NAIFEH, ET AL. v. VALLEY FORGE LIFE INSURANCE COMPANY, ET AL. |
| Court | Tennessee Supreme Court |
Sam B. Blair, Jr., John B. Starnes, Memphis, TN, for Appellant Valley Forge Life Insurance Company
J. Houston Gordon, Covington, TN, for Appellees Niccole Naifeh and Henry Joseph Naifeh, Co-Administrators of the Estate of John H. Naifeh
James S. Wilder, III, Dyersburg, TN, for Appellee Cathy Ann Lyles Naifeh
Walker T. Tipton, Covington, TN, for Appellee Union Planters Bank
J. Kimbrough Johnson, Memphis, TN, for Appellees Bill McGowan, Jr. and Bill McGowan and Company
Alan E. Highers, J., delivered the opinion of the court, in which W. Frank Crawford, P.J., W.S., and Holly M. Kirby, J., joined.
This appeal arises out of the interpretation of a life insurance contract. The trial court determined that the Decedent's life insurance policy was in effect and had not lapsed due to Decedent's failure to pay the premium due in January 2000. It ordered Valley Forge Life Insurance Company to pay the sum of $1,000,000.00 to Cathy Naifeh plus prejudgment interest of 8% per annum beginning on June 1, 2000. The lower court dismissed Valley Forge Life Insurance Company's counterclaim against William McGowan, Jr. and Bill McGowan & Company. Further, it dismissed the claim of Decedent's estate and Cathy Naifeh against Bill McGowan, Jr. and Bill McGowan & Company for negligent misrepresentation and their claims against Union Planters Bank. Finally, it dismissed the claims of Decedent's estate and Cathy Naifeh against Union Planters Bank, William McGowan, and Valley Forge Life Insurance Company for violations of the Tennessee Consumer Protection Act. Valley Forge Life Insurance Company now seeks review by this Court. For the following reasons, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.
In 1998, John H. Naifeh ("Naifeh" or "Decedent") was in the midst of a divorce action with Cathy Ann Lyles Naifeh ("Cathy"). While negotiating the marital dissolution agreement, Naifeh decided to apply for a life insurance policy to secure the alimony obligation he anticipated having when the final decree of divorce was entered. Naifeh approached William McGowan, Jr. ("McGowan"),1 an independent insurance agent and longtime friend of Naifeh and Cathy, to begin the application process. McGowan received a proposal from Valley Forge Life Insurance Company ("Valley Forge") which listed Naifeh's age2 for the policy as fifty-one (51) and listed the classification as "Male Preferred Nonsmoker 2." After notifying Naifeh of the rate at which the premium payments were set, on August 31, 1998, McGowan and Naifeh filled out the application,3 and Naifeh wrote a check for a premium payment in the amount of $149.99.4 On the application, Naifeh stated that he did not use any tobacco products.
Naifeh submitted to a medical examination on September 21, 1998. Representatives of Valley Forge learned that Naifeh occasionally smoked cigars. As a result, Valley Forge sent Naifeh an additional questionnaire, which Naifeh filled out and dated November 3, 1998, and stated that he had, for the previous year, smoked one cigar every two to three weeks. Pursuant to an internal policy established on October 9, 1998, Naifeh was reclassified with a rating of "nonsmoker class 4," effectively rejecting the originally proposed "nonsmoker class 2" arrangement and increasing the premium amount. This new policy was approved by Valley Forge underwriters on November 19, 1998, and drawn up in document form on November 23, 1998. The new policy called for a monthly premium rate of $214.33 for the first year.5
At this point, McGowan attempted to contact Naifeh to have him write another check reflecting the increased premium. Cathy learned that McGowan was attempting to contact Naifeh, and she spoke with McGowan, explaining that Naifeh was in Las Vegas but would be returning after the Thanksgiving holiday. McGowan explained that Naifeh only needed to fill out an additional form and sign it. Cathy further asserts that McGowan stated he would "keep her posted" about matters concerning the life insurance policy though McGowan disputes making this statement. When McGowan reached Naifeh, Naifeh wrote out a check in the amount of $278.676 on December 1, 1998, for the increased premium amount. On December 9, 1998, $642.997 was electronically transferred from Naifeh's bank account to pay the premium on the life insurance policy. Later that month, on December 29, 1998, $214.33 was electronically transferred to pay the monthly premium.
On December 10, 1998, a final decree of divorce was entered between Naifeh and Cathy. The decree provided, in relevant part, as follows:
3. LIFE INSURANCE. Husband shall maintain a $1 million life insurance policy on his life, with Wife as the irrevocable, sole beneficiary of said policy, and with Wife's son, John Andrew McCullough, as the secondary irrevocable beneficiary in the event that Wife predeceases Husband. 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).
On January 25, February 25, March 25, April 26, May 25, and June 28, 1999, the monthly premium amount of $214.33 was electronically transferred from Naifeh's bank account at First State Bank8 to Valley Forge. On July 26, August 25, September 27, October 25, November 26, and December 29, 1999, the monthly premium amount of $251.009 was electronically transferred from Naifeh's bank account.
On January 10, 2000, Vicki Atkins ("Atkins"), an employee for First State Bank, received by phone and entered an oral order to cancel the payment of $251.00 due to Valley Forge on January 25, 2000. Atkins, after requesting the account number from which electronic transfers were drawn, verified that the order was authorized by checking the amount of the electronic transfer for which cancellation was requested, the name of the payee on the transfer, the social security number of the account holder, and the date of the account's last deposit.10 Though First State Bank had a policy to request signatures of parties requesting a stop payment order, its regular procedure was to keep the stop payment order in place even without a signature for a period of six months. First State Bank, and its successor, Union Planters Bank, never received a written order from Naifeh to stop payments to Valley Forge. Subsequently, the premium payment of $251.00 due on January 25, 2000, was returned and not paid to Valley Forge.
On February 15, 2000, First State Bank was converted into a branch for the Union Planters Bank ("Union Planters"). Because First State Bank's stop payment orders could not be transferred onto the Union Planters database electronically, all stop payment orders with First State Bank were entered manually. As a result, Union Planters sent a notice to Naifeh, dating the stop payment order on February 18, 2000, and requesting Naifeh's signature to authorize the stop payment order beyond the 14-day period permitted for oral stop payment orders.
Valley Forge alleges that it sent a notice to Naifeh in a letter dated February 3, 2000, informing Naifeh that his premium payment due on January 25, 2000, was returned and the mode of paying his premiums had been switched to quarterly billing. As a result, the stated amount due was $758.76. Additionally, McGowan alleges he mailed Naifeh a letter dated February 18, 2000, notifying Naifeh that he was delinquent on his monthly premium payment due on January 25, 2000.
Concerning late payments, the insurance policy contained the following provision:
3.23: GRACE PERIOD — After the first premium, a Grace Period of 31 days from the Premium Due Date will be granted for the payment of every premium. Your policy will stay in force during the Grace Period. If the Insured dies during the Grace Period, we will deduct any unpaid premium for the Policy Month in which the Insured dies prior to the payment of any proceeds, as described in section 2.11.
If the Grace Period ends without the payment of any unpaid premium, this policy will terminate as of the Premium Due Date.
Naifeh did not make any further payments on the insurance policy. He suffered terminal injuries in a car accident and died on ...
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