Smith v. Tenn. Farmers Life Reassurance

• Decision Date: 14 June 2006
• Parties: Neva June SMITH v. TENNESSEE FARMERS LIFE REASSURANCE COMPANY et al.
• Court: Tennessee Court of Appeals

210 S.W.3d 584

Neva June SMITH v. TENNESSEE FARMERS LIFE REASSURANCE COMPANY et al.

Court of Appeals of Tennessee, at Nashville.

November 18, 2005 Session.

June 14, 2006.

Permission to Appeal Denied by Supreme Court November 13, 2006.

COPYRIGHT MATERIAL OMITTED

Robert B. Littleton and David L. Johnson, Nashville, Tennessee, for the appellant, Tennessee Farmers Life Reassurance Company.

Clinton H. Swafford, Winchester, Tennessee, for the appellee, Neva June Smith.

OPINION

WILLIAM C. KOCH, Jr., P.J., M.S., delivered the opinion of the court, in which WILLIAM B. CAIN and FRANK G. CLEMENT, Jr., JJ., joined.

This appeal involves a dispute between an insurance company and the widow of a deceased policyholder. Following the policyholder's death, the insurance company declined to honor the policy because it had ascertained that the policyholder's application for insurance contained misrepresentations regarding matters that, if known, would have affected its decision to issue the policy. The policyholder's widow filed suit in the Chancery Court for Franklin County to force the company to honor the policy. Following a bench trial, the trial court found that the policyholder had made misrepresentations on his application but that these misrepresentations did not increase the insurance company's risk of loss. Accordingly, the trial court ordered the insurance company to pay the policyholder's widow and estate $115,000. The insurance company has appealed. We have determined that the evidence does not support the trial court's conclusion that the policyholder's misrepresentations did not increase the insurance company's risk of loss.

I.

John Wayne Smith and Neva June Smith operated a chicken farm in Decherd, Tennessee for many years. In 1993, when Mr. Smith was approximately 52 years old, they decided to purchase insurance on Mr. Smith's life as a hedge against their business debt. They discussed this insurance with an agent of Tennessee Farmers Life Reassurance Company (Tennessee Farmers). After Tennessee Farmers informed them that it was unable to offer the type of insurance the Smiths were looking for, they purchased a life insurance policy from another company.

In 1999 John Spence, a Tennessee Farmers agent, contacted the Smiths to tell them that he could provide them with similar insurance coverage at a lower premium. The Smiths decided to replace their existing insurance policy with a Tennessee Farmers policy. On June 1, 1999, Mr. Spence filled out and Mr. Smith signed an application for a ten year level term life insurance policy.¹

During the required medical examination on August 7, 1999, the examining nurse asked Mr. Smith questions and recorded his answers on a form that Mr. Smith later signed. Among the questions Mr. Smith was asked were "Have you ever [b]een arrested and/or treated for any alcohol or drug related problems?" and "In the past 2 years have you . . . had a [driver's] license revoked or suspended . . .?" Mr. Smith answered "no" to each of these questions, even though his driver's license had been suspended in 1998 as a result of a DUI conviction. Based on Mr. Smith's application and medical examination, Tennessee Farmers issued Mr. Smith a $115,000 life insurance policy with a "preferred rating" that became effective on August 9, 1999.

Mr. Smith died from a heart attack on June 12, 2001, and thereafter, Ms. Smith filed a claim with Tennessee Farmers. Because Mr. Smith's death occurred within two years of the effective date of his life insurance policy, Tennessee Farmers opened an investigation into Ms. Smith's claim.² Tennessee Farmers reviewed Mr. Smith's medical records and also interviewed Ms. Smith. The investigation revealed that Mr. Smith had not been truthful in his answers during the medical examination on August 7, 1999.

Tennessee Farmers informed Ms. Smith of the results of its investigation in a letter dated August 17, 2001. The company explained:

Based on information provided by you, we obtained copies of his [Mr. Smith's] medical records from Dr. Karen Tidmore, Dr. Nicholas Petrochko, Dr. Dewey Hood, and Southern Tennessee Medical Center. These records provide details of some significant medical problems that your husband did not reveal to us.

According to medical records received from Dr. Karen A. Tidmore your husband had been diagnosed with chronic obstructive pulmonary disease and peptic ulcer disease. The records from Southern Tennessee Medical Center also contain details of his being treated for peptic ulcer disease and possible bleeding ulcer. These records also state that he was drinking 2 quarts of beer per day. Dr. Tidmore also had made note of alcohol use several times. In the statement given by you, you said that he had been arrested for driving under the influence. According to information we have received, this occurred in 1998.

If we had been aware of his arrest for DUI, we would have automatically applied a substandard rating on his policy, which would have been an extra charge of $3.50 per thousand dollars of insurance for 2 years. Additionally, if we had been aware of his peptic ulcer disease, significant alcohol use, and chronic obstructive pulmonary disease, we would have ordered additional medical information. The best offer we could have made would have been a very high substandard rate, which would have required a substantial increase in his premium. For his policy to have then become in effect he would have had to accept our counteroffer and paid the higher premium. It is very likely, with additional medical information, we would not have been able to insure your husband at all.

Accordingly, Tennessee Farmers informed Ms. Smith that it was contesting her claim but that it would return the $1,774.52 in premiums that had been paid on the policy.

On September 30, 2002, Ms. Smith, as beneficiary of the policy and representative of Mr. Smith's estate, filed suit against Tennessee Farmers in the Chancery Court for Franklin County seeking to recover $115,000 in insurance benefits. Tennessee Farmers defended on the ground that it had a right to deny the claim under Tenn. Code Ann. § 56-7-103 (2000) because Mr. Smith had made misrepresentations that had increased its risk of loss. Following a bench trial, the trial court found that Mr. Smith had, in fact, made misrepresentations in his application materials. However, the trial court also concluded that these misrepresentations had not increased Tennessee Farmers' risk of loss and, therefore, that Ms. Smith was entitled to recover $115,000 in benefits available under the policy. Tennessee Farmers has appealed.

II.

The standards this court uses to review the results of bench trials are well-settled. With regard to a trial court's findings of fact, we will review the record de novo and will presume that the findings of fact are correct "unless the preponderance of the evidence is otherwise." We will also give great weight to a trial court's factual findings that rest on determinations of credibility. In re Estate of Walton, 950 S.W.2d 956, 959 (Tenn.1997); B & G Constr., Inc. v. Polk, 37 S.W.3d 462, 465 (Tenn.Ct.App.2000). If, however, the trial court has not made a specific finding of fact on a particular matter, we will review the record to determine where the preponderance of the evidence lies without employing a presumption of correctness. Ganzevoort v. Russell, 949 S.W.2d 293, 296 (Tenn.1997).

Reviewing findings of fact under Tenn. R.App. P. 13(d) requires an appellate court to weigh the evidence to determine in which party's favor the weight of the aggregated evidence falls. There is a "reasonable probability" that a proposition is true when there is more evidence in its favor than there is against it. Thus, the prevailing party is the one in whose favor the evidentiary scale tips, no matter how slightly. Parks Props. v. Maury County, 70 S.W.3d 735, 741 (Tenn.Ct.App.2001); Realty Shop, Inc. v. RR Westminster Holding, Inc., 7 S.W.3d 581, 596 (Tenn.Ct. App.1999).

Tenn. R.App. P. 13(d)'s presumption of correctness requires appellate courts to defer to a trial court's findings of fact. Fell v. Rambo, 36 S.W.3d 837, 846 (Tenn.Ct.App.2000). Because of the presumption, an appellate court is bound to leave a trial court's finding of fact undisturbed unless it determines that the aggregate weight of the evidence demonstrates that a finding of fact other than the one found by the trial court is more probably true. Parks Props. v. Maury County, 70 S.W.3d at 742. Thus, for the evidence to preponderate against a trial court's finding of fact, it must support another finding of fact with greater convincing effect. Walker v. Sidney Gilreath & Assocs., 40 S.W.3d 66, 71 (Tenn.Ct.App.2000).

The presumption of correctness in Tenn. R.App. P. 13(d) applies only to findings of fact, not to conclusions of law. Accordingly, appellate courts review a trial court's resolution of legal issues without a presumption of correctness and reach their own independent conclusions regarding these issues. Johnson v. Johnson, 37 S.W.3d 892, 894 (Tenn.2001); Nutt v. Champion Int'l Corp., 980 S.W.2d 365, 367 (Tenn.1998); Knox County Educ. Ass'n v. Knox County Bd. of Educ., 60 S.W.3d 65, 71 (Tenn.Ct.App.2001); Placencia v. Placencia, 48 S.W.3d 732, 734 (Tenn.Ct.App. 2000).

Tenn.Code Ann. § 56-7-103 authorizes an insurance company to deny a claim for benefits in two circumstances—if the insured made intentional misrepresentations on the application for insurance or if the insured made misrepresentations that increased the insurer's risk of loss. In the context of a bench trial, determining whether an insured intentionally misrepresented information is a question of fact. Womack v. Blue Cross and Blue Shield of Tenn., 593 S.W.2d 294, 295 (Tenn.1980); State Farm Gen. Ins. Co. v. Wood, 1 S.W.3d 658, 661 n. 5 (Tenn.Ct. App.1999). However, determining whether a particular misrepresentation increases an insurance company's risk of loss is a...