Sanchez v. Connecticut General Life Ins. Co.

• Decision Date: 02 February 1984
• Docket Number: No. 82CA0750,82CA0750
• Citation: 681 P.2d 974
• Parties: Francisco (Paco) SANCHEZ; Ralph Sanchez; Yolanda Munguia; Veronica Sanchez and Rose Marie Cespedes, Plaintiffs-Appellants, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Corporation, Robert E. Sutton, and David Cave, Defendants-Appellees. . III
• Court: Colorado Court of Appeals

Page 974

681 P.2d 974

Francisco (Paco) SANCHEZ; Ralph Sanchez; Yolanda Munguia Veronica Sanchez and Rose Marie Cespedes Plaintiffs-Appellants, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Corporation Robert E. Sutton, and David Cave, Defendants-Appellees.

No. 82CA0750.

Colorado Court of Appeals,

Div. III.

Feb. 2, 1984.

Rehearing Denied March 22, 1984.

Certiorari Denied May 7, 1984.

Williams, Trine, Greenstein & Griffith, P.C., William A. Trine, Boulder, Safran & Adkins, Hubert M. Safran, Denver, for plaintiffs-appellants.

Baker & Hostetler, James A. Clark, Bruce D. Pringle, Denver, for defendants-appellees Connecticut General Life Ins. Co.

White & Steele, P.C., Stephen K. Gerdes, John P. Craver, Denver, for defendants-appellees Robert E. Sutton and David Cave.

BABCOCK, Judge.

Plaintiffs, the children of Francisco "Paco" Sanchez, deceased, appeal the granting of defendants' motion for summary judgment in their action seeking the proceeds of a temporary life insurance policy allegedly created by a conditional receipt. We reverse.

Defendants Robert Sutton and David Cave were insurance agents employed by defendant Connecticut General Life Insurance Company. Cave was Sutton's supervisor and office manager. In February 1973, Sutton analyzed the various businesses operated and owned by Sanchez, and made recommendations regarding possible reorganization of those businesses.

Sutton concluded that Sanchez was underinsured and recommended that he apply for $1,000,000 of life insurance through Connecticut General. The application form signed by Sanchez on May 16, 1973, contained the following question: "If standard insurance is not approved, shall a rated-up policy be issued?" Sanchez responded affirmatively. Thereafter, on May 22, 1973, Sutton, as Connecticut General's agent, offered Sanchez temporary insurance coverage in the sum of $300,000 in exchange for a $5,000 premium. Sanchez accepted this offer and paid the premium. The conditional receipt for the premium provided that the temporary insurance would terminate if the applicant was rejected as a standard risk. However, the receipt was never delivered to Sanchez and he was not otherwise informed of this condition.

On the same day, Sutton accompanied Sanchez to two physical examinations required for approval of the application and conducted by physicians selected by Connecticut General. The physicians informed Sanchez they would advise Connecticut General that he appeared to be in good health. When the results of the physical examinations were reported to its home office, Connecticut General requested that Sanchez undergo a master EKG. On June 29, having received a report of the results of the EKG, Connecticut General informed Sanchez' representative that it would not insure Sanchez as a standard risk but offered to do so on a rated basis at a 300 percent increased premium. Within two days, Sanchez accepted the rated policy.

On July 3, Sanchez was examined by his physician after complaining of blood in his stools. That same day his representative and Sutton traveled to Fort Collins and arrangements were made with Sanchez's Fort Collins bank to finance the remainder of the initial premium on the rated policy. Two days later, gastro-intestinal tests were conducted on Sanchez, and a Fort Collins bank remitted $41,300 to Connecticut General to cover the remainder of the first annual premium. The next day, July 6, a gastroscopy was performed which indicated a tumor in the upper part of Sanchez' stomach. On July 7, Sanchez underwent surgery during which his entire stomach was removed.

Sutton learned that Sanchez was ill on July 10 and notified Connecticut General of that fact on the next day. Sanchez died on July 12. On July 13, Connecticut General, never having delivered the policy, refunded $41,300 to the Fort Collins bank; the $5,000 premium paid in exchange for the temporary insurance, which was retained in an account separate from that maintained for the rated policy, was not returned until July 25.

On December 12, the executor of Sanchez' estate brought suit in Denver District Court against Connecticut General to recover under the $1,000,000 policy for which Sanchez had applied. The case was removed to federal court. The parties eventually arrived at a settlement by which Connecticut General agreed to pay $20,000 conditioned on the suit being dismissed with prejudice. The settlement was approved by the Denver Probate Court, and the federal court dismissed the case with prejudice on August 26, 1974.

The executor of the Sanchez estate assigned to the plaintiffs whatever interest, if any, remained in Sanchez' insurance policy. Plaintiffs then filed this suit on March 1, 1979, alleging Sanchez was or should have been covered by temporary life insurance at the time of his death, based on the conditional receipt. The plaintiffs also claimed that Connecticut General intentionally breached the alleged life insurance policy and negligently failed to issue the policy.

In April 1979, Connecticut General filed a motion for summary judgment on the basis that the action was barred by a release executed in conjunction with the federal action. This motion was denied.

Thereafter, the parties filed cross-motions for summary judgment. Defendants' motion was based upon the distinctly separate basis of termination of the temporary insurance policy. These motions were also denied but were later renewed upon a stipulation of facts which was intended by the parties to posture the case for a legal ruling upon the termination issue. It is the summary judgment in favor of defendants entered upon this motion that is before us for review. The parties have not briefed or argued the issue of release. Thus, the parties having made no argument as to this issue and it is not being preserved for appeal, we have no authority to consider it sua sponte. See Glennon Heights, Inc. v Central Bank & Trust, 658 P.2d 872 (Colo.1983).

In granting Connecticut General's motion for summary judgment, the trial court concluded that any temporary insurance coverage was an:

"[A]ncillary right arising out of the original application for insurance, and that Connecticut General's communication to Sanchez that he was being rejected as a standard risk, along with the counter-offer to insure him on a rated basis and the acceptance of this counter-offer by Sanchez, operated to terminate the original offer for a standard policy, as contained in the application, and also terminated any temporary insurance which might have been in effect."

It further concluded that since the counteroffer and acceptance terminated the temporary insurance, any alleged dereliction of duty of Sutton and Cave could not have caused a loss to plaintiffs and was not actionable. We do not agree with this analysis.

Under the circumstances of this case, we adopt a rule of reasonable expectation wherein:

"An insurer who wishes to avoid liability must not only use clear and unequivocal language evidencing its intent to limit temporary coverage, but it must also call such limiting conditions to the attention of the applicant. Absent proof of such disclosure, coverage will be deemed to be that which would be expected by the ordinary layperson, namely complete and immediate coverage upon payment of the premium." Collister v. Nationwide Life Insurance Co., 479 Pa. 579, 388 A.2d 1346 (1978).

See Keene Corp. v. Insurance Company of North America, 667 F.2d 1034 (D.C.Cir.1981), cert. denied, 455 U.S. 1007, 102 S.Ct. 1644, 71 L.Ed.2d 875 (1982); Puritan Life Insurance Co. v. Guess, 598 P.2d 900 (Alaska 1979).

Application of this rule requires an analysis of the totality of the circumstances involved in the transaction from the point of view of an ordinary layperson. Collister v. Nationwide Life Insurance Co., supra. The issue is: What did the lay-applicant think he was buying in exchange for the premium.

Here, the $5,000 premium is clearly consideration for temporary insurance. The following circumstances give rise to a question of fact as to whether Sanchez had a reasonable expectation that the temporary insurance coverage would continue until Connecticut General finally acted upon his application for an insurance policy: 1) Sanchez' alternate application for a rated policy; 2) Connecticut General's retention of the $5,000 premium pending acceptance of the rated policy and separate refund thereof after Sanchez' death; and 3) Sanchez' ignorance of the terms of the temporary insurance resulting from Connecticut General's failure to deliver the conditional receipt to him or otherwise inform him of its terms.

Moreover, under the trial court's strict contractual analysis of offer/counteroffer, Connecticut General's withholding of the premium while Sanchez' application for a rated policy was pending creates a question of fact as to whether Sanchez reasonably expected that a new temporary policy had been effected. Hence, because reasonable persons might reach different conclusions or draw different inferences from the undisputed facts, summary judgment should have been denied. See Hasegawa v. Day, (Colo.App. No. 82CA0428 ann'd November 17, 1983).

Examination of the dynamics of the insurance transaction to ascertain the reasonable expectations of the lay consumer avoids the...