Northern Nat. Life Ins. Co. v. Lacy J. Miller Mach. Co., Inc., 422A83

Decision Date05 June 1984
Docket NumberNo. 422A83,422A83
Citation311 N.C. 62,316 S.E.2d 256
CourtNorth Carolina Supreme Court
PartiesNORTHERN NATIONAL LIFE INSURANCE COMPANY v. LACY J. MILLER MACHINE COMPANY, INC.

Smith, Patterson, Follin, Curtis, James & Harkavy by Norman B. Smith and John A. Dusenbury, Jr., John T. Manning, Greensboro, and Cansler & Lockhart by Thomas Ashe Lockhart, Charlotte, for plaintiff-appellant.

House, Blanco & Osborn, P.A. by Lawrence U. McGee and John S. Harrison, Winston-Salem, and Wilson, Biesecker, Tripp & Sink by Joe E. Biesecker, Lexington, for defendant-appellee.

MITCHELL, Justice.

Northern National Life Insurance Company (hereinafter "Northern"), the plaintiff-appellant, contends in this appeal that the majority in the Court of Appeals erred in upholding the trial court's refusal to grant the plaintiff's motion for a directed verdict and judgment notwithstanding the verdict. Since we find that the trial court was correct in submitting this case to the jury, we affirm the decision of the Court of Appeals.

The Lacy J. Miller Machine Company (hereinafter "Miller Company") is a North Carolina corporation in which the decedent, Lacy J. Miller, was a majority shareholder. Miller also served on the board of directors and as president of the company. Miller was removed from office on January 28, 1980 by the board of directors. James T. Donley and Joseph Buie were members of the board of directors and minority shareholders in the corporation. Until the removal of Miller on January 28, 1980, they served as vice president and secretary-treasurer respectively.

At trial the evidence tended to show that Roger C. Brooks was an insurance agent affiliated with Equitable Life Insurance Company (hereinafter "Equitable"). When Brooks visited the Miller Company corporate offices early in 1979, Buie and Donley informed him that the company was interested in purchasing insurance on the life of Lacy J. Miller. Brooks learned from Buie and Donley that the company had a mandatory stock purchase plan whereby the company agreed to purchase shares of stock held by officers of the company in the event of those officers' deaths. Brooks attempted to procure life insurance coverage for the Miller Company from Equitable on the life of Miller, but Equitable refused to issue such coverage because Miller suffered from a heart condition. Brooks testified that he continued to look for an insurance program to fund the Miller Company's stock purchase plan.

Brooks stated that in September 1979 he placed a group hospitalization insurance policy with Equitable for the Miller Company, and that after September he visited the corporate headquarters of the company on an average of once a month. Brooks stated that late in 1979 he learned of policies offered by Northern and by Manhattan Life Insurance Company. Brooks believed that the policies might suit the Miller Company's needs. He learned that both insurance companies offered "key man" policies to employers on the lives of important employees without requiring physical examinations for the insured employees. Brooks learned about the policies from Barney Haynes, General Agent for Manhattan and for Northern.

Brooks spoke to Buie and Donley about the Manhattan and Northern policies in January 1980. Brooks stated that Buie and Donley were "skeptical" about the likelihood that insurance could be issued on the life of Miller because of his heart condition. Brooks told Buie and Donley that the requirements under Northern's policy were that the employer pay all premiums, that the insured not be known to be terminally ill at the time of the application or issuance of the policy, that the insured be actively involved in the fulltime pursuit of the duties of his employment, and that the insured be an employee of the employer. Brooks said he told Buie and Donley they should submit applications to Northern.

Brooks testified that he personally had questions about Miller's eligibility for the policies because he knew from previous experience that Miller had had a heart attack and a drinking problem. Brooks stated, however, that with regard to Miller, the requirement of active fulltime employment concerned him more than any other requirement. He stated that he knew that Miller was not in his office on a forty hour a week basis but that he thought Miller was president of the company and active in decision making. Brooks told Haynes about Miller's irregular schedule, and Haynes said that as long as Miller had a decision making role in the firm he would qualify under the plan.

Brooks testified that in late January or early February 1980 he received blank applications for the policy from Northern. He delivered a Northern application to Don R. House, attorney for the Miller Company, and he explained to House the requirements for eligibility for the policy. When that application was returned to Brooks, it was blank except for Lacy J. Miller's signature. Brooks testified that he received at the same time nine other applications from the Miller Company for Northern's "key man" life insurance. The applications other than the one seeking insurance on Miller's life were signed by Buie or by Donley on behalf of the corporation. The application for insurance on Miller's life was signed only by Miller. Brooks stated that on February 5, 1980 he filled out the remainder of the application for insurance on the life of Miller, using as his source of information his own knowledge about Miller and his experience in trying to place another policy for the Miller Company in September 1979. Brooks stated that he had also obtained information from Northern's files and from the conversations he had with Buie and Donley in late December 1979 and early to mid-January 1980. The application completed by Brooks included the statements that Lacy J. Miller was currently an active and fulltime employee of the Miller Company and that his position was that of president with office and public relations duties. Brooks signed the application as "Licensed Resident Agent." The completed application bore his signature and that of Lacy J. Miller, but no others.

The information on the application was inaccurate as of February 5, 1980, the day it was completed by Brooks. The application failed to disclose that on January 22, 1980 a temporary restraining order had been issued at the request of Buie, Donley and the Miller Company enjoining Miller from "taking or attempting to take any action whatsoever with regard to the assets, funds, obligations, rights, [or] employees of the corporation." The order was issued pursuant to a lawsuit filed January 21, 1980 in Davidson County in which the plaintiffs, Buie, Donley, and the Miller Company, sought to enjoin Lacy Miller from further involvement with the corporation. In affidavits in support of the restraining order, Donley and Buie stated that Miller had been inactive in the business since 1975, and that he had neglected his corporate duties and responsibilities. On January 28, 1980, Miller was removed as president and replaced by Donley in a meeting of the Miller Company's Board of Directors.

After completing the application for the Northern policy on the life of Miller, Brooks submitted that application and the nine others to Barney Haynes. He stated that he did not know when he completed the application that Miller had been removed as president of the corporation, that a restraining order had been issued or that Buie and Donley had filed affidavits.

Northern received applications for the policy insuring the lives of Miller and nine other employees of the corporation on February 19, 1980. Terry L. Anderson, Chief Underwriter for Northern, stated in a deposition which was read to the jury that the applications were reviewed and approved by Northern. Before issuing the policy, however, Northern licensed Brooks as its agent. The policies were then typed and mailed to Haynes by Northern with a request for an additional premium. On April 4, 1980 the additional premium was received and found sufficient. On April 17, 1980 the insurance was considered issued by Northern, according to the testimony of Anderson. The policy was backdated to February 5, 1980, the date of application. Lacy J. Miller died May 13, 1980.

Northern brought this declaratory judgment action seeking a cancellation of the policy because of the false statements in the application. Northern sought to show that Brooks was an agent of the Miller Company and not an agent of Northern and that whatever knowledge Brooks had of the falsity of the statements was to be imputed to the Miller Company. At the close of all the evidence at trial, both Northern and the Miller Company made motions for directed verdict which the trial court denied. The following were the stipulated issues submitted to the jury and the jury's verdicts.

1. Was Roger C. Brooks the agent of Lacy J. Miller Machine Co., Inc., in obtaining the insurance policy on the life of Lacy J. Miller?

ANSWER: NO

2. Was there a false statement of a material fact in the application for insurance on the life of Lacy J. Miller?

ANSWER: YES

3. Was Roger C. Brooks the agent of Northern National Life Insurance Company in obtaining the insurance policy on the life of Lacy J. Miller?

ANSWER: YES

4. As such, did Roger C. Brooks know or have reason to know of a false statement of a material fact in the application of the insurance on the life of Lacy J. Miller?

ANSWER: YES

5. Was a false statement of material fact inserted in the application by Roger C. Brooks without the actual or implied knowledge of the Lacy J. Miller Machine Co.?

ANSWER: YES

Northern moved for a judgment notwithstanding the verdict and the motion was denied. From the jury verdict and judgment awarding the Miller Company the full amount of coverage on the policy, Northern appealed.

The Court of Appeals held that there was no error in the trial court. One judge dissented on the ground that the disposition of a related...

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