Pearce v. American Defender Life Ins. Co.

• Decision Date: 06 May 1986
• Docket Number: No. 468PA85,468PA85
• Citation: 316 N.C. 461,343 S.E.2d 174
• Court: North Carolina Supreme Court
• Parties: Leta PEARCE, on her own behalf and in her capacity as Administratrix and North Carolina Ancillary Administratrix of the Estate of Douglas Allen Pearce v. AMERICAN DEFENDER LIFE INSURANCE COMPANY.

Page 174

343 S.E.2d 174

316 N.C. 461

Leta PEARCE, on her own behalf and in her capacity as Administratrix and North Carolina Ancillary Administratrix of the Estate of Douglas Allen Pearce v. AMERICAN DEFENDER LIFE INSURANCE COMPANY.

No. 468PA85.

Supreme Court of North Carolina.

May 6, 1986.

Graham & James by J. Jerome Hartzell and Charles H. Mercer, Jr., Raleigh, for plaintiff-appellant.

Smith Moore Smith Schell & Hunter by Ted R. Reynolds and Benjamin F. Davis, Jr., Raleigh, for defendant-appellee.

MARTIN, Justice.

In 1968 plaintiff's decedent, Douglas Allen Pearce, then a college student, purchased a $20,000 life insurance policy from the American Defender Life Insurance Company (American Defender). Pearce also purchased an accidental death rider, which provided for the payment of an additional $40,000 if he were to be injured or to die by accident. The rider specifically excepted from coverage death or injuries resulting under certain circumstances, including

(a) travel or flight in or descent from any species of aircraft if (i) you are a pilot, officer, or other member of the crew of such aircraft while in flight, or (ii) the aircraft is maintained or operated for military or naval purposes....

In 1971 Pearce entered the Air Force. In May of that year American Defender received the following letter from C.L. Dickerson, who, according to the letterhead, was an employee of "Military Associates, Inc.," "Specialists in Military Financial Planning," dealing in "Financial Programming, Investments, [and] Insurance."

4 May 1971

American Defender Life Insurance Company

P.O. Box 2434

Raleigh, North Carolina 27602

Re: Douglass Allen Pearce, Pol. No. 82-0058

Gentlemen:

Lt. Pearce signed an application in 1968 for $20,000 and he is concerned as to whether or not he is fully covered now that he is in the USAF. He is a 2nd Lt. enrolled in The Navigation School at Mather, Ca. He is flying the T-29 which is a trainer for the Nav School. He has flown 6 hours so far and expects to fly approximately 250 hours during the next 12 months. After graduation he does not have any idea as to which plane he will be assigned.

Will you please check over his coverage and advise us. I feel sure that he is fully covered, however, to make him feel at ease and appreciate his policy and its protection--he would like to have it spelled out over the signature of one of your executives.

Thanks for your usual very prompt service.

Sincerely,

C.L. Dickerson

cld:pp

Within two weeks, Pearce received the following response:

May 12, 1971

Mr. Douglas Allen Pearce

10484 Investment Circle, # 40

Rancho Cordova, California 95610

Policy number: 82-0058

Dear Mr. Pearce:

We have received Mr. C.L. Dickerson's letter of May 4, 1971, concerning the coverage of your above numbered policy.

Your policy has a $20,000.00 College Defender Program with a $40,000.00 Accidental Death and Dismemberment Rider, $10,000.00 Guaranteed Insurability Option. Your program does not contain a war clause. In other words, the basic program is in full force and effect regardless of your occupation. The Accidental Death Rider portion of the policy would not be payable should your death occur as the result of a direct act of war. However, in addition to the basic policy, this Accidental Death Rider would also be payable should his death occur while in the Armed Forces but not as the result of an act of war.

Should this letter not fully answer your questions or if you would like additional information, please write directly to us or call us collect.

Sincerely yours,

(Miss) Linda Wynne

Policyowners' Service

LEW/yaw

bcc: Mary Feiton

Arden French Pearce was killed in a flight training mission off the coast of England in 1979. His widow, the beneficiary of Pearce's policy with American Defender and plaintiff in this suit, informed the company of her husband's death and received a check for $20,000. American Defender refused to pay her benefits under the accidental death rider, referring her to the exceptions paragraph and to a paragraph in the general provisions portion of the basic policy, which stated in pertinent part, "No alteration of this policy and no waiver of any of it's [sic] provisions shall be valid unless made in writing by us and signed by our President, Vice President or Secretary."

Mrs. Pearce timely filed a complaint alleging claims for relief based upon unfair trade practices, breach of contract, breach of fiduciary duty, negligence, fraud, and breach of the insurance company's duty to investigate claims in a fair and equitable manner. The trial judge granted American Defender's 12(b)(6) motion, which was subsequently vacated and remanded to the trial court by the Court of Appeals. Pearce v. American Defender Life Ins. Co., 62 N.C.App. 661, 303 S.E.2d 608 (1983).

On remand, the trial judge granted a directed verdict at the close of plaintiff's evidence against her claims based upon fraud and unfair trade practices. The remaining claims for relief were subsumed in this issue, which the jury answered in the affirmative:

Was the insured's death covered under that portion of the insurance policy issued by the defendant, which provided for the payment of $40,000 to the beneficiary in the event of the insured's accidental death?

The trial judge allowed American Defender's motion for judgment notwithstanding the verdict. The Court of Appeals held that the trial court had not erred in granting either motion. Pearce v. American Defender Life Ins. Co., 74 N.C.App. 620, 330 S.E.2d 9 (1985).

Mrs. Pearce's breach of contract claim was based upon four theories--estoppel, waiver, the actual or apparent authority of Ms. Wynne to contract with Lt. Pearce on her employer's behalf, and ratification. Addressing the waiver and estoppel bases for this claim, which were included in the trial court's judgment notwithstanding the verdict, the Court of Appeals noted that the flight exception to the rider was unambiguous. That court relied on the well-settled rule that the doctrines of waiver and estoppel have been applied in order to obviate the forfeiture provisions in insurance contracts, but that they "are not available to bring within the coverage of a policy risks not covered by its terms, or risks expressly excluded thereform...." Hunter v. Insurance Co., 241 N.C. 593, 595, 86 S.E.2d 78, 80 (1955) (quoting 29 Am.Jur.Insurance § 903, at 690 (1960) ). Because "application of the doctrines of waiver and estoppel on these facts would essentially rewrite the policy, extending coverage to a risk expressly excluded therefrom, and obligating defendant to pay a loss for which it charged no premium," the Court of Appeals concluded that neither doctrine was available to Mrs. Pearce as a basis for relief. 74 N.C.App. at 626-27, 330 S.E.2d at 13.

The Court of Appeals also rejected the argument that Ms. Wynne, who answered C.L. Dickerson's letter of inquiry, had the actual or apparent authority to modify Lt. Pearce's policy. Ms. Wynne, who was neither president, vice-president, nor secretary of American Defender, had no actual authority to modify the policy; and, because a caveat to this effect was expressly included in Lt. Pearce's policy, he "knew or in the exercise of reasonable care should have known that the agent was not authorized to enter into the contract." Lucas v. Stores, 289 N.C. 212, 220, 221 S.E.2d 257, 263 (1976). If Lt. Pearce assumed that Ms. Wynne "had the authority to bind the company in the face of clear written notice to the contrary," the Court of Appeals concluded, then he "must ... be held to have acted unreasonably." 74 N.C.App. at 628, 330 S.E.2d at 14.

We find that the reasoning of the Court of Appeals was correct regarding these bases for Mrs. Pearce's breach of contract claim. Under the facts of this case, Hunter, 241 N.C. 593, 86 S.E.2d 78, refutes plaintiff's estoppel and waiver arguments. And we agree with the Court of Appeals that there was insufficient evidence to support a breach of contract claim based upon Ms. Wynne's implied or actual authority.

Plaintiff argues that the trial court erred in refusing to instruct the jury on ratification, and she requests that such an instruction be submitted should she be granted a new trial on her contract claim. Plaintiff argues that American Defender's acceptance of Lt. Pearce's premiums for eight years after his receipt of Ms. Wynne's letter without any indication to him of its inaccuracy constitutes ratification of its terms. Even assuming arguendo that inaccuracy, we are not persuaded that American Defender's acceptance of premiums constitutes conduct "inconsistent with an intent not to ratify," Equipment Co. v. Anders, 265 N.C. 393, 401, 144 S.E.2d 252, 258 (1965). Throughout that eight-year period, Lt. Pearce continued to receive coverage under the rider for injuries or death resulting from unexcepted causes. Because American Defender continued to provide coverage in return for Lt. Pearce's premiums, we do not agree with plaintiff that its silence regarding the letter's contents must necessarily be interpreted as ratification of the letter's arguably erroneous terms. We therefore hold that the trial court did not err in refusing to instruct the jury on ratification.

Plaintiff's claims based upon negligence, breach of fiduciary duty, and breach of an insurance company's duty to investigate claims in a fair and equitable manner were not included in the parties' briefs before the Court of Appeals and therefore were not considered by that court. Petitioners whose cases come before this Court on discretionary review are limited by Rule 16 of the North Carolina Rules of Appellate Procedure to those questions they have presented in their briefs to the Court of Appeals. Because these causes of action were not argued to that court, they are not properly before us.

We now consider the claims based upon fraud and unfair trade practices which were included in the directed verdict. A directed verdict is...