Shirkey v. Guarantee Trust Life & Ins. Co.

• Decision Date: 10 August 2004
• Docket Number: No. WD 63191.,WD 63191.
• Citation: 141 S.W.3d 62
• Court: Missouri Court of Appeals
• Parties: Stacy K. SHIRKEY, Appellant, v. GUARANTEE TRUST LIFE & INSURANCE COMPANY, Respondent.

141 S.W.3d 62

Stacy K. SHIRKEY, Appellant, v. GUARANTEE TRUST LIFE & INSURANCE COMPANY, Respondent.

No. WD 63191.

Missouri Court of Appeals, Western District.

August 10, 2004.

Appeal from the Circuit Court, Jackson County, Gregory Burnett Gillis, J Robert L. Shirkey, Kansas City, MO, for Appellant.

Dennis D. Palmer, Kansas City, MO, for Respondent.

Before THOMAS H. NEWTON, P.J., HAROLD L. LOWENSTEIN and RONALD R. HOLLIGER, JJ.

THOMAS H. NEWTON, Presiding Judge.

Mr. Stacy K. Shirkey brought a claim for breach of insurance contract and vexatious refusal to pay against Guarantee Trust Life Insurance Company when it refused to pay his claim under a credit disability insurance policy. Guarantee Trust asserted that Mr. Shirkey made a material misrepresentation on his application and, on that basis, it had rescinded his policy. The trial court found in favor of Guarantee Trust. But Mr. Shirkey did not warrant his answers on the application, so Guarantee Trust was required to show that he made a fraudulent misrepresentation, which includes proving intent to deceive. Guarantee Trust did not prove this, so it was not entitled to a judgment in its favor. We reverse.

I. FACTUAL AND PROCEDURAL BACKGROUND

Mr. Shirkey was employed with Computer Science Corporation. He took out a car loan with the Computer Science Corporation Employees' Federal Credit Union on December 9, 1996. At that time, he was offered credit life and disability insurance from Guarantee Trust, which insurance is the subject of this litigation.

Mr. Shirkey filled out the application, which stated that "[i]f the question(s) below is (are) answered "Yes", or you do not meet all of the eligibility requirements, then you are not eligible for insurance." The question at issue here related to the disability insurance and asked "[w]ithin the past two years have you (Primary Borrower only) had treatment or been advised to have treatment for any of the following: mental or nervous disorders, strained back, slipped disc, or sciatica?" Mr. Shirkey checked "No" in answer to this question. The application also stated that the applicant's signature means that "[y]ou have read the question(s) and answer(s) above and it is (they are) correct and complete, to the best of your knowledge and belief." Mr. Shirkey signed the application.

Mr. Shirkey received an insurance certificate for both credit life and disability insurance and premiums for the insurance began to be automatically deducted from Mr. Shirkey's account with the credit union. Mr. Shirkey had a cancer relapse¹ and by mid-year 1997 he was no longer able to work and went onto disability. He submitted a claim to Guarantee Trust on June 9, 1997. The claim form stated that his primary medical condition causing disability was depression due to chronic pain. Guarantee Trust acquired Mr. Shirkey's medical records and reviewed his claim. It found that he had been treated for various mental disorders, particularly depression, in the two years before applying for insurance. Guarantee Trust rescinded Mr. Shirkey's insurance coverage on October 23, 1997, because Guarantee Trust considered depression to be part of the category of "mental and nervous disorders" that it asked about in its application. So the claim was not paid. Mr. Shirkey brought a claim for breach of insurance contract and vexatious refusal to pay.

Mr. Larry Graves, an officer of Guarantee Trust, testified at trial that a "yes" answer to either question on the application meant automatic denial of insurance. He also testified that the policy was rescinded because the medical records showed that in the six months before applying for benefits, Mr. Shirkey had sought treatment at least eight times for anxiety, depression, or bipolar disorder. Had Guarantee Trust known of his history of mental disorder, the insurance certificate would not have been issued.

Dr. William Logan, Mr. Shirkey's treating psychiatrist, testified for Mr. Shirkey. He testified that in the fall of 1996 he began treating Mr. Shirkey for depression due to an accumulation of physical problems.² He testified that Mr. Shirkey's official diagnosis is depression secondary to a general medical condition. He further stated that the depression derives from the other physical problems that Mr. Shirkey has and that all of those conditions together are why he cannot work. He said, "it just became enough of a drain on him, with the depression and the pain, that he felt he was — didn't really have the stamina to continue." On cross-examination, he acknowledged that on the claim form he listed depression due to chronic pain as Mr. Shirkey's primary medical condition causing disability and that he listed September 6, 1996, as the date when he began seeing Mr. Shirkey.

Before Dr. Logan began to see Mr. Shirkey, Mr. Shirkey's regular physician, Dr. Zito, noted in Mr. Shirkey's medical files that he should begin seeing Dr. Logan for his bipolar disorder. Dr. Logan and Mr. Shirkey both testified that they did not know about this note, although Dr. Logan said that it did not surprise him. Mr. Shirkey testified that he was unaware that Dr. Zito suggested that he see Dr. Logan for bipolar disorder and that Dr. Zito never discussed with him that he was being treated for anxiety, depression, or bipolar disorder. Mr. Shirkey maintained that his answers were correct and that he was unaware that he might have had any mental disorders. Mr. Shirkey admitted that he was prescribed Prozac at one time, but he could not remember when or why it was prescribed, and stated that it had no value to him. There were no other medical records introduced, and no specific evidence indicating that Mr. Shirkey was aware of any treatment for bipolar disorder.

There was some conflicting evidence about the refund of Mr. Shirkey's premiums after Guarantee Trust rescinded the policy. Although the policy was rescinded on October 23, 1997, Guarantee Trust continued to collect premiums from him through June 4, 1998. Mr. Graves testified that a letter was also sent to the credit union on October 23, 1997, informing the credit union that the insurance was rescinded and asking it to make the appropriate refund and credit to Mr. Shirkey's account. Mr. Shirkey received a refund of $139.86 on June 11, 1998. But there is a dispute about an additional $42.00 in premiums that were deducted from Mr. Shirkey's account and were not repaid as a part of the June 11, 1998, refund. Mr. Shirkey maintains that he is still owed those premiums collected after October 1997. During the trial, Mr. Graves testified that there was a discrepancy in the premiums of approximately $42.00. He stated that the credit union told him that the premiums paid by Mr. Shirkey totaled $139.86, but when looking at the paperwork there was another $42.00 outstanding and he did not know why that discrepancy existed.

After the trial and before the trial court ruled, Guarantee Trust provided the trial judge with an affidavit from Mr. Graves. In the affidavit, he stated that he had investigated the discrepancy in the premiums and determined that the premiums that Mr. Shirkey continued to pay, totaling $42.00, were for the credit life insurance, which was not rescinded at the time that his credit disability insurance was rescinded. Mr. Graves further stated that Mr. Shirkey was fully refunded for the premiums paid on the disability insurance, which totaled $139.86.

The trial court found in favor of Guarantee Trust and entered judgment in its favor. Mr. Shirkey appeals and brings three points. He first claims that the trial court erred in entering judgment for Guarantee Trust because an insurance company waives its right to deny coverage when it continues to collect premiums and Guarantee Trust accepted premiums from Mr. Shirkey for seven months after it rescinded coverage. He next claims that the trial court erred in entering judgment for Guarantee Trust because an insurance company may avoid its contract because of false representations only if the representations are false and material to the risk and made with the intent to deceive. He claims that the insurance company did not prove that he made an intentional and material representation. He finally claims that the trial court erred in entering judgment for Guarantee Trust because the law requires explicit disclosure to the insured that coverage is dependent upon disclosure when information in the application is being used as a basis to deny coverage.

II. STANDARD OF REVIEW

In a court-tried case, the decision of the trial court will be sustained unless there is no substantial evidence to support it, unless it is against the weight of the evidence, or unless it erroneously declares or applies the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). When the trial court does not enter any findings of fact or conclusions of law, we assume that the trial court resolved all issues of fact in accordance with the result reached. Rule 73.01(c);³ Bechtle v. Tandy Corp., 77 S.W.3d 689, 692 (Mo.App. E.D.2002).

III. LEGAL ANALYSIS

As an initial matter, Guarantee Trust claims that Mr. Shirkey "presumably stated a claim for vexatious refusal to pay insurance proceeds" and so we cannot consider his second and third points. Guarantee Trust briefly mentions that Mr. Shirkey did not plead a claim of waiver at trial; but it focuses on its claim that Mr. Shirkey failed to preserve his second and third points both because they do not present an argument for vexatious refusal to pay and because they were not argued to the trial court. As such, Guarantee Trust maintains that we may not consider the latter two points on appeal. See Bechtle, 77 S.W.3d at 696.

But Guarantee Trust misunderstands Mr. Shirkey's petition. He did not just claim vexatious refusal to pay; he claimed a breach of contract due to Guarantee Trust's refusal to pay on his claim under the policy and claimed that such refusal was vexatious.⁴ Guarantee Trust...