Services Holding Co., Inc. v. Transamerica Occidental Life Ins. Co.

• Decision Date: 08 February 1994
• Docket Number: No. 1,CA-CV,1
• Citation: 883 P.2d 435,180 Ariz. 198
• Parties: SERVICES HOLDING COMPANY, INC., an Arizona corporation, Plaintiff-Appellant, v. TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY, a California corporation; Michael Dale Cherry, Defendants-Appellees. 91-0425.
• Court: Arizona Court of Appeals

Page 435

883 P.2d 435

180 Ariz. 198

SERVICES HOLDING COMPANY, INC., an Arizona corporation, Plaintiff-Appellant, v. TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY, a California corporation; Michael Dale Cherry, Defendants-Appellees.

No. 1 CA-CV 91-0425.

Court of Appeals of Arizona Division 1, Department A.

Feb. 8, 1994.

Review Denied Nov. 1, 1994.

[180 Ariz. 200] Frederick C. Berry, Jr., P.C. by Frederick C. Berry, Jr., T. Scott King, Phoenix, for plaintiff-appellant.

Bess & Dysart, P.C. by Leon D. Bess, Kevin M. LeWinter, Phoenix, for defendant-appellee Transamerica.

Renaud, Cook, Videan, Geiger & Drury, P.A. by William W. Drury, Jr., Charles A. Struble, Phoenix, for defendant-appellee Cherry.

OPINION

WEISBERG, Presiding Judge.

Plaintiff Services Holding Company ("SHC") appeals from the granting of summary judgment in favor of defendants Transamerica Occidental Life Insurance Company ("Transamerica") and its employee Michael Dale Cherry ("Cherry"). We hold that SHC raises genuine issues of fact in its breach of contract claim against Transamerica, stemming from both the reasonable expectations doctrine and the waiver doctrine, set out as separate claims. We therefore reverse partial summary judgment on causes of action one, five, and part of six. Furthermore, because we hold that SHC raises genuine issues of fact on its negligence claim against Transamerica, which is not barred by the statute of limitations, we reverse partial summary judgment on the seventh cause of action as to Transamerica. We affirm partial summary judgment as to causes of action two, three, four, and part of six for Transamerica and as to all causes of action for Cherry.

FACTS AND PROCEDURAL HISTORY

SHC seeks approximately $900,000.00, plus compensatory and punitive damages, under several theories relating to a purported insurance agreement issued by Transamerica with SHC as beneficiary.

In 1987, four key employees of SHC decided to obtain key employee life insurance. The four contacted Cherry, the Phoenix brokerage manager for Transamerica, and asked him to present proposals for key employee insurance in the amount of $1,000,000.00 per each key employee. This case arises out of the application of one of these key employees, Ernest Powell ("Powell").

On July 8, 1987, Powell submitted his application for key employee insurance. The parties disagree on the details of this transaction. Transamerica asserts that, at the time the application was submitted, it issued a conditional receipt indicating that its liability was limited to $100,000.00 until such time as a policy would be issued. SHC denies that Transamerica issued this conditional receipt. It asserts that Cherry made oral representations that coverage in the amount of $1,000,000.00 per person would be effective upon submission of each application, completion of each physical, and payment of each initial premium.

Powell's physical examination revealed abnormalities. Transamerica therefore decided it would not insure Powell under the standard smoker premium, but instead under a "Table J" rate--a more expensive premium. The time when this decision was made and communicated is also disputed by the parties. Transamerica claims the decision was not made until August 11, 1987; SHC claims that on August 6, 1987, Cherry was informed that Powell would be insured under "Table J" premiums. On August 10, 1987, Powell died.

SHC presented its claim for $1,000,000.00. After investigation, Transamerica paid $100,000.00, plus interest, pursuant to the conditional receipt. SHC accepted the payment without prejudice to its filing other claims under the alleged policy. On April 18, 1989, SHC filed a complaint seeking the balance of the $1,000,000.00 claim, damages for failure to pay promptly, and punitive damages. On June 27, 1990, SHC filed an amended complaint, which added a seventh cause of action based on negligence. After answering, defendants filed separate motions for partial summary judgment on each cause of action and the trial court held a hearing on the motions. In May 1991, the trial court granted summary judgment in favor of Transamerica and Cherry on all causes of action. SHC timely appealed.

ISSUES

SHC appeals the granting of summary judgment in favor of Transamerica and Cherry on the following seven causes of action: (1) breach of contract, which was asserted only against Transamerica, (2) bad faith, (3) statutory violations, (4) fraud, (5) reasonable expectations, (6) waiver and estoppel, and (7) negligence. We consider the first, fifth, and sixth causes of action together as they all relate to the underlying contract claim. The other causes of action are considered in turn.

DISCUSSION

The trial court should grant summary judgment "if the pleadings, deposition, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Ariz.R.Civ.P. 56(c). The Arizona Supreme Court has interpreted this rule to require summary judgment "if the facts produced in support of the claim or defense have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim or defense." Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990).

A. Breach of Contract

SHC's first cause of action, the breach of contract claim, was only directed at Transamerica. On appeal, SHC indicates that there are factual issues whether the Transamerica policy was effective at the time of Powell's death, whether the conditional receipt provided $1,000,000.00 coverage, and whether Cherry formed an oral binder that bound Transamerica for $1,000,000.00 coverage. Although, absent other considerations, the express unambiguous provisions of the policy application and the conditional receipt would support the granting of summary judgment for Transamerica, we hold that the doctrine of reasonable expectations requires the trial court to consider Cherry's alleged oral representations, which do raise genuine issues of material fact.

1. Contractual Provisions

a. Policy Effectiveness

SHC argues that its assertion that the insurance contract was effective constitutes a genuine issue as to a material fact. It asserts that the policy was effective when the underwriting decision was made--when Transamerica placed Powell in the "Table J" category.

The application completed by Powell, however, included provisions requiring full premium payment and policy delivery during the life of the insured. When the key employees submitted their applications for key man insurance, they also submitted the estimated annual premium of $5,520.00 for all four policies, including $1,940.00 for Powell's policy under standard smoker's tables. SHC concedes that, under "Table J," the annual premium for Powell's policy alone would be $6,390.00. Because of these undisputed facts, the first condition, full premium payment, was not met.

Second, SHC does not indicate any facts showing delivery of the policy to Powell. It relies upon cases holding that a provision requiring "delivery" before death does not mean physical delivery. See, e.g., Republic Nat'l Life Ins. Co. v. Merkley, 59 Ariz. 125, 124 P.2d 313 (1942). These cases, however, do not invalidate delivery provisions in general; they simply indicate that delivery can be made constructively. See id., 59 Ariz. at 131, 124 P.2d at 316 (a policy that is deposited in the mail by an insurer, addressed to its agent, for unconditional delivery to the insured, is "delivered to and received by" the insured at that time). Because SHC has not shown any evidence of even constructive delivery, the second condition, delivery during the applicant's lifetime, was not met.

Given these undisputed facts, SHC does not raise any genuine factual issue as to whether the requirements printed in the policy governing the time of policy effectiveness were met. Consequently, if the unambiguous policy terms govern, the policy could not have been effective at the time of Powell's death.

b. Conditional Receipt

The conditional receipt attached to Powell's application indicated that coverage under the receipt was limited to $100,000.00 for nonstandard classes of risk. ¹ SHC did not provide any evidence that Powell was a standard risk and, in fact, the only evidence is that he was a "Table J" risk, far from a standard risk. The unambiguous text of the conditional receipt clearly limits Transamerica's obligation as to Powell to $100,000.00.

c. Oral Representations

i. Oral Binder

Transamerica argues that any oral representations made by Cherry purporting to bind Transamerica to a contract of temporary insurance could not be effective because oral binders are prohibited by A.R.S. section 20-1120 and the parol evidence rule. Transamerica cites Continental Life and Accident Co. v. Songer, 124 Ariz. 294, 603 P.2d 921 (App.1979), as authority for its argument. In Songer, this court indicated that A.R.S. section 20-1120 did not apply to life and health insurance and went on to analyze the alleged temporary contract of insurance, without regard to A.R.S. section 20-1120. Because this court found that such representations would violate the parol evidence rule, we did not consider whether the oral representations created an oral contract.

The same situation is before us in the instant case. The oral representations would either vary the terms of the application as to the time of the effectiveness of the policy or would vary the terms of the conditional receipt. The terms of the documents are express and unambiguous. The parol evidence rule, if applied as in Songer, would prevent the oral representations from binding Transamerica contrary to the terms of the policy application and the conditional receipt. Notwithstanding, we examine below the continuing validity of the...