Overfield v. American Underwriters

• Decision Date: 26 July 2000
• Docket Number: No. 21211.,21211.
• Citation: 2000 SD 98,614 N.W.2d 814
• Parties: Dorothy OVERFIELD, Plaintiff and Appellant, v. AMERICAN UNDERWRITERS LIFE INSURANCE COMPANY, Defendant and Appellee.
• Court: South Dakota Supreme Court

614 N.W.2d 814

2000 SD 98

Dorothy OVERFIELD, Plaintiff and Appellant, v. AMERICAN UNDERWRITERS LIFE INSURANCE COMPANY, Defendant and Appellee.

No. 21211.

Supreme Court of South Dakota.

Considered on Briefs May 30, 2000.

Decided July 26, 2000.

Dennis C. McFarland of McFarland and Weidenaar, Sioux Falls, Attorney for plaintiff and appellant.

Donald A. Porter of Costello, Porter, Hill, Heisterkamp, Bushnell & Carpenter, Rapid City, Attorneys for defendant and appellee.

[¶ 1.] Justice Robert A. Amundson delivers the opinion as to the result of the decision of the Court.

[¶ 2.] Justice Richard W. Sabers delivers the opinion as to the rationale of the decision of the Court.

AMUNDSON, Justice.

[¶ 3.] Dorothy Overfield (Dorothy) appeals the trial court's refusal to give her proposed jury instructions regarding ambiguity. We affirm.

FACTS

[¶ 4.] Craig Overfield (Craig) was employed by the City of Sioux Falls, South Dakota (City) as superintendent of the light department. On September 13, 1994, as part of his upcoming retirement, Craig was required by his retirement package with City to undergo an extensive physical. Craig had suffered from high blood pressure since the early 1970's and had been taking blood pressure medication. The physical examination revealed that Craig had an abnormal electrocardiogram and he was thereafter referred to a cardiologist.

[¶ 5.] On or around September 21, 1994, Dr. Richard Backes, a cardiologist, performed a stress test on Craig and discovered that Craig was suffering from a heart condition. Craig was diagnosed with reduced blood flow to his heart due to a 20 to 40 percent blockage. As a result of the diagnosis, Craig was informed by Dr. Backes that he was at a high risk of sudden death. Dr. Backes further advised Craig that his treatment options included: (1) medical therapy and life-style changes; (2) to undergo an angioplasty, which is a balloon-type procedure to open up an artery; or (3) to undergo bypass surgery. Dr. Backes suggested medical therapy and life-style changes. Craig followed Dr. Backes' suggestion and was placed on medication and encouraged to improve his diet and discontinue smoking.¹ Craig was not told to limit his recreational activities, such as hunting and fishing. Craig was also not scheduled for any follow-up appointments for his heart condition.

[¶ 6.] In February 1995 Craig decided to purchase a new pickup. Craig financed the purchase of the pickup through the Sioux Empire Federal Credit Union (Credit Union). In addition to the loan agreement with Credit Union, Craig elected to purchase a credit term life insurance policy in the amount of the loan.

[¶ 7.] The credit term life insurance policy was issued through American Underwriters Life Insurance Company (American). The policy application contained a Disclosure Statement with the provision "I must be under age 65 and I must not be disabled or must not be under the care of a physician for any injury or sickness." Craig signed the application on February 8, 1995 and paid a premium of $545.03.

[¶ 8.] In June of 1995 Craig's heart condition deteriorated. Craig eventually developed ischemic heart disease and died of sudden death syndrome on August 14, 1995. Craig's wife, Dorothy, made a claim to American for the credit life insurance policy proceeds. American denied the claim and rescinded the contract claiming Craig made a material misrepresentation in his application. American's basis for its denial was the provision in the Disclosure Statement stating "must not be under the care of a physician for any injury or sickness."

[¶ 9.] Dorothy initiated a declaratory judgment action against American to determine whether American was contractually obligated to pay Dorothy the insurance policy proceeds. Dorothy later moved to amend her complaint to add a count of bad faith, bifurcate the issues as to coverage and bad faith, and request a jury trial. The motion to amend the complaint was granted and the trial court allowed the coverage issue to be tried before a jury. The issue raised by Dorothy at trial was that the provision "must not be under the care of a physician for any injury or sickness" was ambiguous and should therefore be interpreted against American, the drafters of the provision. The case was tried to a jury on June 22-23, 1999. At the conclusion of the trial, Dorothy proposed jury instructions eleven through sixteen regarding ambiguity and the effect of ambiguity on a contract.² The trial court found the application provision was not ambiguous and rejected Dorothy's proposed instructions.³

[¶ 10.] The jury ultimately returned a verdict in favor of American. Dorothy now appeals, raising the following issue:

Whether the trial court erred in rejecting Dorothy's proposed jury instructions on ambiguity.

STANDARD OF REVIEW

[¶ 11.] Our standard of review for the trial court's rejection of a proposed jury instruction is well settled. We have often stated,

On issues supported by competent evidence in the record, the trial court should instruct the jury. The trial court is not required to instruct on issues lacking support in the record. Failure to give a requested instruction that correctly sets forth the law is prejudicial error. Jury instructions are reviewed as a whole and are sufficient if they correctly state the law and inform the jury. Error is not reversible unless it is prejudicial. The burden of demonstrating prejudice in failure to give a proposed instruction is on the party contending error.

Buxcel v. First Fidelity Bank, 1999 SD 126, ¶ 13, 601 N.W.2d 593, 596 (quoting Sundt Corp. v. South Dakota Dep't of Transp., 1997 SD 91, ¶ 19, 566 N.W.2d 476, 480 (emphasis added) (citing Kuper v. Lincoln-Union Elec. Co., 1996 SD 145, ¶ 32, 557 N.W.2d 748, 758)). This Court has repeatedly stated that "`[a] trial court must present only those instructions to the jury which are supported by competent evidence and set forth the applicable law.'" Atkins v. Stratmeyer, 1999 SD 131, ¶ 55, 600 N.W.2d 891, 903 (Amundson, J., dissenting) (quoting Sundt, 1997 SD 91, ¶ 22, 566 N.W.2d at 481 (quoting State v. Johnson, 320 N.W.2d 142, 147 (S.D.1982))).

[¶ 12.] We have often stated that contract construction is a question of law which we review de novo with "`no presumption in favor of the trial court's determination.'" See Fox v. Burden, 1999 SD 154, ¶ 12, 603 N.W.2d 916, 920

(quotation omitted); Chord v. Reynolds, 1999 SD 1, ¶ 13, 587 N.W.2d 729, 732. Further, "`[w]hether the language of a contract is ambiguous is [also] a question of law for the court.'" Campion v. Parkview Apartments, 1999 SD 10, ¶ 25, 588 N.W.2d 897, 902 (quoting Production Credit Ass'n v. Wynne, 474 N.W.2d 735, 740 (S.D.1991) (quoting Baker v. Wilburn, 456 N.W.2d 304, 306 (S.D.1990) (citations omitted))).

DECISION

[¶ 13.] Whether the trial court erred in rejecting Dorothy's proposed jury instructions on ambiguity.

[¶ 14.] This Court has developed "special rules of construction that apply when interpreting an insurance policy." Chord, 1999 SD 1, ¶ 14,587 N.W.2d at 732 (citing Olson v. United States Fidelity & Guar. Co., 1996 SD 66, ¶ 6, 549 N.W.2d 199, 200).

Where the provisions of an insurance policy are fairly susceptible of different interpretations, the interpretation most favorable to the insured should be adopted. This rule of liberal construction in favor of the insured and strictly against the insurer applies only where the language of the insurance contract is ambiguous and susceptible of more than one interpretation.... This rule does not mean, however, that the court may seek out a strained or unusual meaning for the benefit of the insured.

Id. (quoting Olson, 1996 SD 66, ¶ 6, 549 N.W.2d at 200). To apply our liberal construction to an insurance contract, the contract language "must be ambiguous and susceptible to one or more interpretations." Id., ¶ 15, 587 N.W.2d at 732 (citation omitted).

[¶ 15.] We have often held that "`[a] contract is ambiguous when application of rules of interpretation leave a genuine uncertainty as to which of two or more meanings is correct.'" Alverson, 1997 SD 9, ¶ 8, 559 N.W.2d at 235 (quoting City of Watertown v. Dakota, Minnesota & E. R.R. Co., 1996 SD 82, ¶ 13, 551 N.W.2d 571, 574 (citations omitted)). Whether an insurance policy contains ambiguity is determined "by reviewing `the policy as a whole and plain meaning and effect of its words.'" Chord, 1999 SD 1, ¶ 15, 587 N.W.2d at 732 (quoting American Family Mut. Ins. Co. v. Elliot, 523 N.W.2d 100, 102 (S.D.1994)).

[¶ 16.] Dorothy argues that we must determine whether the application provision "must not be under the care of a physician for any injury or sickness" is ambiguous. We agree, but we must also review the record and determine if "competent evidence" was presented at trial which would support the jury instructions on ambiguity and whether the failure to give those instructions was prejudicial. See Atkins, 1999 SD 131, ¶ 55,

600 N.W.2d at 903.

[¶ 17.] During cross-examination of Trudy Helsel, the Assistant Vice President in charge of processing claims for Inter-Americas, she testified as follows:

Q. (Attorney for Dorothy): I guess the question I am going to ask you, ma'am, is of all the people in all 17 states [which they write business in] of all different sizes, shapes, description, are you telling this jury that they all interpret that language under the care of a physician for injury or sickness the same way?

....

A. (Helsel): I can't say how everybody interprets the policies, no.

Q. Somebody could interpret that questionnaire—for example, if they have a broken arm sitting right there as being injured probably? I don't know. Are you going to write that risk if he's sitting there saying wrist works fine, break in the arm right here?

....

A. (Helsel): Well, yes, I guess. I mean, when the claim comes in—I mean, if he was totally disabled at the time due to that broken arm and he was filing for a disability claim for it,...