Southern United Life Ins. Co. v. Gregory

• Citation: 508 So.2d 247
• Parties: SOUTHERN UNITED LIFE INSURANCE CO. v. Lovie GREGORY, as Executrix of the Estate of Chester Gregory, and Camden National Bank, a National Banking Corporation. 85-311.
• Decision Date: 29 May 1987
• Court: Alabama Supreme Court

Page 247

508 So.2d 247

SOUTHERN UNITED LIFE INSURANCE CO. v. Lovie GREGORY, as Executrix of the Estate of Chester Gregory, and Camden National Bank, a National Banking Corporation.

85-311.

Supreme Court of Alabama.

May 29, 1987.

Archie T. Reeves, Jr., of Reeves & Stewart, Selma, for appellant.

Andrew M. Cromer, Jr. and L.Y. Sadler, Jr., Camden, for appellees.

STEAGALL, Justice.

Southern United Life Insurance Company appeals from a $15,474.01 jury verdict entered against it for breach of two insurance contracts. We reverse.

Lovie Gregory, as executrix of the estate of Chester Gregory, and Camden National Bank filed suit against Southern United, alleging breach of two insurance contracts and bad faith failure to pay the claims on the two contracts.

Southern United is an Alabama insurance company whose business includes the writing of creditor-debtor life insurance for banks. Camden National Bank (hereinafter "Bank"), acting as an agent for Southern United, issued two certificates of credit life insurance to Chester Gregory. These certificates, dated April 23, 1982, and May 17, 1982, were properly issued and sent to Southern United for processing. Chester Gregory died of a heart attack on May 29, 1982. Prior to Mr. Gregory's death, Southern United requested that he complete an application form which contained health questions. This form, which was signed on May 25, 1982, revealed that Mr. Gregory was 62 years old and was suffering from high blood pressure and diabetes. On June 2, 1982, Southern United declined coverage on the certificate dated April 23, 1982, and on June 14, 1982, declined coverage on the certificate dated May 17, 1982. Southern United did not receive notice of Mr. Gregory's death until June 14, 1982, when claims were filed on the two certificates of insurance.

The contract or group policy between Southern United and the Bank contained the following provisions:

"EFFECTIVE DATES OF INSURANCE. Each eligible debtor under this policy shall become insured with respect to his indebtedness to the Creditor on the later of the following dates:

"1. The date he becomes eligible for insurance, and if an application is required, applied for such insurance; or

"2. The date on which the Company determines evidence of insurability of the debtor to be satisfactory, if such evidence is required hereunder.

"EVIDENCE OF INSURABILITY. The Company may require evidence of insurability satisfactory to it with respect to each eligible debtor who applies for insurance hereunder with respect to an indebtedness. If the Company finds that any applicant is not an insurable risk according to its underwriting standards, it reserves the right to decline the insurance on the life by indicating its intention in writing to the Creditor within 90 days from the effective date of the individual Certificate. If the debtor should die during the 90 days, the insurance shall be deemed to have been in effect if the Company, acting on its regular underwriting methods, would have accepted the insurance. Any premium paid under this policy for insurance not granted will be refunded to the Creditor on demand; except that no underwriting of applicants or borrowers by the Company, for loans of under $1,000.00, exclusive of interest and other carrying charges, may be done. This prohibition does not include the writing agent."

A.L. Johnson, who was president of the Bank, testified as follows when asked how he questioned people when writing a policy for them:

"Well, we are instructed when we become an agent that I have asked the question, now I'm not a medical examiner or medical doctor, how am I going to know if he's insurable? Well, if you know of anything, you would say you can't write it. But if you don't know that, go ahead and write it and the insurance is in force until we reject it. We reserve the right to reject it. But if he dies before we reject it, we pay off on the policy."

Beatrice Jackson, chief underwriter for Southern United, testified in pertinent part as follows:

(On cross-examination.)

"Q Now, if your company gets an agent or a contract with an agent in a certain bank, that agent would have authority to bind the company, wouldn't they?

"A Yes, sir.

"Q Now, in this case Mr. Johnson was the agent. I don't know whether--you know that, don't you?

"A Yes, sir.

"Q And when he wrote a certificate of insurance on say me, and he saw me and dealt with me, and that certificate was sent into the company, until they denied it, the company was bound to honor that certificate, weren't they?

"A Yes, sir.

"Q And with Mr. Gregory they were bound to honor that certificate from Mr. Johnson, were they not?

"A Yes, sir.

"Q And they were bound to honor it, were they not, until they refused to cover it, weren't they?

"A Yes, sir."

(On redirect examination.)

"Q ... Tell the ladies and gentlemen of the jury, please, ma'am, what the company policy or the company procedure is in a case such as Mr. Gregory when he died within the 90 day time span between the certificate issuing date and prior to them having--he died prior to them having sent in a rejection to the creditor as provided in the insurance policy.

"A We would have rejected it, as we did in this case.

"....

"Q How do you determine--explain to the ladies and gentlemen of the jury in the underwriting department, how you determine whether you pay it or not pay it.

"....

"A Okay. This is where the underwriting comes into the process. We order inspection reports or medical information. And in this case we ordered--we had a completed application and we also had an inspection report showing that he was in bad health.

"Q So acting on your regular underwriting methods and procedures, you determined he was not insurable; is that correct?

"A Yes, sir.

"Q And you denied coverage; is that correct?

"A Yes, sir."

Southern United's motion for directed verdict was granted as to the bad faith claim. However, Southern United argues that...