Sierra Life Ins. Co. v. First Nat. Life Ins. Co.

• Decision Date: 03 August 1973
• Docket Number: No. 9529,9529
• Citation: 85 N.M. 409,512 P.2d 1245,1973 NMSC 79
• Parties: SIERRA LIFE INSURANCE COMPANY, and Idaho corporation, Plaintiff- Appellee and Cross-Appellant, v. FIRST NATIONAL LIFE INSURANCE COMPANY, an Alabama corporation, Defendant- Appellant and Cross-Appellee.
• Court: New Mexico Supreme Court

Page 1245

512 P.2d 1245

85 N.M. 409

SIERRA LIFE INSURANCE COMPANY, and Idaho corporation, Plaintiff- Appellee and Cross-Appellant, v. FIRST NATIONAL LIFE INSURANCE COMPANY, an Alabama

corporation, Defendant- Appellant and Cross-Appellee.

No. 9529.

Supreme Court of New Mexico.

Aug. 3, 1973.

Jones, Gallegos, Snead & Wertheim, J.E. E. Gallegos, M. J. Rodriguez, Santa Fe, for appellant Standley, Witt & Quinn, Fred M. Standley, Santa Fe, Travis & Jordan, A. Bob Jordan, Oklahoma City, Okl., for appellee

OPINION

MARTINEZ, Justice.

This is an appeal from an action brought by Sierra Life Insurance Company, an Idaho corporation, for damages arising from an alleged breach of contract by First National Life Insurance Company, an Alabama corporation, or in the alternative for specific performance and damages for the past failure to perform the terms of a contract. The action was brought in the District Court of Santa Fe County and was tried without a jury. Judgment was entered in favor of the plaintiff in the sum of $46,053.99, plus costs. Defendant appeals from the judgment and plaintiff cross-appeals on the question of the proper application of the measure of damages.

Appellee is the successor in interest pursuant to a statutory merger in 1964 with New Mexico Life Insurance Company, (New Mexico Life), a New Mexico corporation. Appellant is the successor in interest pursuant to a statutory merger in 1967 with First National Life Insurance Company, (First National Life), an Arizona corporation. In 1962, New Mexico Life and First National Life entered into a merger agreement which prohibited First National Life from selling insurance contracts on the lives of New Mexico Life policyholders pending approval of the merger. The merger was delayed. New Mexico Life and First National Life amended the merger agreement by concurrent corporate resolutions allowing First National Life to sell life insurance policies to the policyholders of New Mexico Life, but with the resolutions providing that '* * * in the event the said merger is not consummated, that FIRST NATIONAL LIFE INSURANCE COMPANY shall forthwith cede back, by treaty of bulk reinsurance, all such life insurance contracts written with the present policyholders of NEW MEXICO LIFE INSURANCE COMPANY.' After April 1, 1963, First National Life sold life insurance policies to persons who were policyholders of New Mexico Life.

The proposed merger agreement was rejected by the Director of Insurance of the State of Arizona. The merger agreement was therefore abandoned by New Mexico Life and first National Life. After the merger failed, neither First National Life nor its successor, the appellant, transferred back any life insurance policies written on New Mexico Life policyholders to New Mexico Life or its successor, the appellee.

A basic issue of the appeal is whether the concurrent corporate resolutions form a contract, or are merely an agreement to contract in the future. Appellant argues that the term of the resolution, 'cede back, by treaty of bulk reinsurance,' requires that the parties must in the future negotiate a 'treaty.' Appellant further argues that a good faith attempt was made by the parties to negotiate such a treaty, but the parties failed to agree on its terms, thereby excusing performance by First National Life. In this connection, the appellant asserts that the trial court erred in admitting parol evidence to interpret the terms of the 'agreement to agree,' or the contract if one in fact existed.

Much testimony explaining the technical terms of the life insurance business was admitted into evidence. Such testimony was not admitted for the purpose of varying or altering the terms of a contract. Parol evidence may be received to explain technical terms used in a written contract, and is always admissible to define and explain the meaning of words or phrases in a written instrument which are technical or where a word or phrase is used in a peculiar sense that is applicable to a particular industry or trade. Hartford Steam Boil. Insp. I. Co. v. Schwartzman Pack. Co., 423 F.2d 1170 (10th Cir. 1970). See also 30 Am.Jur.2d Evidence § 1075; 32A C.J.S. Evidence § 962.

In the case before us, certain terms of the contract in question are peculiar to the life insurance industry and have not been previously interpreted by this Court. Several of the expert witnesses that estified in this action gave definitions to the technical words and phrases of the contract and to terms used. The key phrase to the contract was the requirement for First National Life to 'cede back, by treaty of bulk reinsurance,' certain life insurance contracts to New Mexico Life. 'Cede' in the insurance industry was interpreted to mean to 'transfer' or 'assign.' A 'reinsurance treaty' is an instrument by which an insurance company passes all or part of the insurance risk from itself to another. In the life insurance industry, 'treaty of bulk reinsurance' is basically a contract of conveyance and assumption, resulting in substituted personal insurance and is not a reinsurance treaty in the classical sense. See 13 Appleman, Insurance Law and Practice, § 7741, at 506 et seq., and § 7743, at 517 et seq. Appleman defines pure reinsurance as:

'* * * the ceding by one insurance company to another of all or a portion of its risks for a stipulated portion of the premium, in which the liability of the reinsurer is solely to the reinsured, which is the ceding company, and in which contract the ceding company retains all contact with the original insured, and handles all matters prior to and subsequent to loss.' Section 7681, at 434.

There is substantial evidence, which finds support in the texts, that under a treaty of bulk reinsurance, the ceding (insuring) company transfers and assigns to the receiving (reinsuring) company the entire risk of the policy contracts being transferred, together with the statutory reserves of those policies. All policy records and files are also delivered to the reinsuring company which is thereafter totally responsible for all aspects of the policy contracts pertaining to the policies ceded. The reinsuring company shall thereafter be entitled to receive all premium income and profits flowing from the policies reinsured, and shall be the insurer of policyholders, indemnifying the original insurer from all future responsibility or liability concerning the policies. See 13 Appleman, Insurance Law and Practice, § 7743, at 517 et seq.

The trial court found that the concurrent corporate resolutions created a contract. We find in the record substantial evidence to support this finding and if there is substantial evidence to support a trial court's findings such findings will not be disturbed on appeal. Trujillo v. Romero,82 N.M. 301, 481 P.2d 89 (1971). The trial court correctly found that First National Life had an obligation to transfer to New Mexico Life immediately after the merger failed the life insurance policy contracts written on the policyholders of New Mexico Life at the date of the contract. The merger attempt was totally abandoned in December, 1963. Appellant admits that it did not cede the policies in question. The remaining questions before this Court concern the proper identification of the policies, the correct measure of damages and certain legal defenses raised by the appellant.

The trial court found that nearly one year after the contract obligation arose, First National Life had furnished the appellee with a computer print-out which listed the policies in question. Appellant generally attacks this print-out as being hearsay evidence and in violation of the best evidence rule. It appears from the evidence that an officer of First National Life mailed a computer listing of certain policies to the appellee with a letter that stated that the enclosed print-out was a listing of 'the policies with which we are concerned in our transfer of business from FIRST NATIONAL LIFE to SIERRA LIFE.' The defendant admitted the authenticity of the letter and stipulated its admission into evidence. A former officer of the appellee testified that the computer print-out was the listing of policies referred to in the letter and received by the appellee with the letter from First National Life, such evidence violates neither the best evidence rule nor the hearsay evidence rule. This is evidence which substantially supports the trial court's findings of fact and will not be disturbed on appeal.

Appellant further asserts that the appellee's conduct precluded the consummation of a treaty of bulk reinsurance. This attack is also related to the appellant's contention that the concurrent corporate resolutions...