Sparks v. Shelter Life Ins. Co.

• Decision Date: 08 February 1988
• Docket Number: 87-1861,Nos. 87-1768,s. 87-1768
• Citation: 838 F.2d 987
• Parties: 24 Fed. R. Evid. Serv. 786 Wilma SPARKS, Appellee, v. SHELTER LIFE INSURANCE COMPANY, Appellant. Wilma SPARKS, Appellant, v. SHELTER LIFE INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 987

838 F.2d 987

24 Fed. R. Evid. Serv. 786

Wilma SPARKS, Appellee, v. SHELTER LIFE INSURANCE COMPANY, Appellant.

Wilma SPARKS, Appellant, v. SHELTER LIFE INSURANCE COMPANY, Appellee.

Nos. 87-1768, 87-1861.

United States Court of Appeals Eighth Circuit.

Submitted Dec. 28, 1987.

Decided Feb. 8, 1988.

Toney D. McMillian, Arkadelphia, Ark., for appellant.

Travis R. Berry, Arkadelphia, Ark., for appellee.

Before ARNOLD, Circuit Judge, HENLEY, Senior Circuit Judge, and JOHN R. GIBSON, Circuit Judge.

HENLEY, Senior Circuit Judge.

Shelter Life Insurance Company (Shelter) appeals from the district court's ¹ order denying its motion for summary judgment and granting Wilma Sparks's motion for partial summary judgment in Sparks's action to recover insurance proceeds. Sparks cross-appeals from the denial of her motion for a new trial on the portion of the case tried to a jury. We affirm.

On April 26, 1983 Matt Raper, an agent for Shelter, procured from Sparks's husband an application for a $50,000 policy of life insurance naming Mrs. Sparks as beneficiary. In conjunction with the completion of the application, Mr. Sparks remitted a check for $45.72 as an advance payment of premiums for the first two months. In addition, Mr. Sparks executed an automatic bank-withdrawal form authorizing Shelter to receive direct payment of future premiums from his bank account.

At this same time, Raper issued Mr. Sparks a "conditional coverage receipt" which provided that "[n]o insurance shall be effective before policy delivery to owner unless all of the conditions on the other side of this receipt are fulfilled exactly." The following was printed on the reverse side of the receipt:

Conditions Precedent--Effective Date of Insurance

The insurance for which you (Proposed Insured) have applied, will be effective on your application date if all of the following conditions are met.

1. You have paid the full premium with the application.

2. You have completed the medical examination form, if required, and

3. We (SHELTER Life Insurance Company) have determined by our guidelines that all persons in your application are qualified for the types and amounts of insurance you are requesting at the premium paid.

If the above conditions are not met or if we refuse to insure any person exactly as requested in your application, no one will be insured unless we offer and you accept a policy under modified terms. That modified policy will be effective on your application date, only if (1) we deliver your policy while all persons in the application are alive, and (2) to your best knowledge there has been no material change in your answers since your application, and (3) you have paid any required additional premium.

Special Limitations:

All insurance against death requested by your application is limited to $100,000, including all other insurance pending with us, until your policy has been issued for this application.

NO AGENT OF SHELTER LIFE INSURANCE COMPANY IS AUTHORIZED TO CHANGE ANY PROVISION OR CONDITION OF THIS RECEIPT.

In addition, a provision called the "agent's statement," which Shelter provides for the use of its agents, was attached to Mr. Sparks's application. Thereon, Raper had checked a box with the word "no" in response to a question asking whether a medical examination was required. Also on that form, Mr. Sparks signed an authorization for the release of medical information to Shelter. Mr. Sparks's application and his payment were then forwarded to Shelter's home office.

In a form memorandum dated May 5, 1983, an underwriter at Shelter notified Raper to arrange a medical examination for Mr. Sparks. Mr. Sparks died on May 15, 1983, before a medical examination had been performed. Shelter was notified of the death on May 16, 1983. In a letter written to Mr. Sparks dated May 23, 1983, Shelter returned the advance premium and stated that it was withdrawing Sparks's application because of his failure to have a medical examination.

Mrs. Sparks subsequently commenced this action in an Arkansas state court whereupon Shelter removed to federal court on diversity of citizenship grounds. Her complaint asserted that the conditions on the conditional receipt had been fulfilled and that the insurance contract was in full force as of the date of application. She sought to recover the $50,000 face value of the policy, $100,000 in punitive damages as a result of Shelter's malicious and intentional misrepresentations, and $100,000 because of Shelter's bad faith failure to investigate and refusal to honor the policy. ²

The district court denied Shelter's motion for summary judgment and granted plaintiff's cross-motion for partial summary judgment with regard to Shelter's liability on the policy. The court set the remaining issues for trial.

In granting Sparks's motion, the district court determined that Mr. Sparks had complied with the three requirements contained in the conditional receipt. It was undisputed that the first condition, that the premium be paid, was satisfied. The district court found that the second requirement had also been complied with because no medical examination was required at the time of the application and Shelter did not take the appropriate steps to make its subsequent request for an examination known to Mr. Sparks. In this regard, the court further held that Raper was acting within his apparent authority in completing the application and the agent's statement. Finally, the court relied upon an Arkansas Court of Appeals decision, DeFoure v. MFA Life Insurance Co., 268 Ark. 829, 596 S.W.2d 7 (Ct.App.1980), in concluding that although the third requirement caused the conditional receipt to be ambiguous, an examination of the entire application, viewed in the light most favorable to the insured, disclosed conditional coverage as of the application date.

The issues of Shelter's alleged misrepresentation and bad faith were tried to a jury, which found in favor of Shelter. Plaintiff then filed a motion for a new trial, claiming that the jury's verdict was against the weight of the evidence and that the district court committed prejudicial error by refusing to permit Sparks's attorney to question Robert E. Studley, the supervisor of Shelter's life insurance underwriting department, concerning his knowledge of the DeFoure decision, where coverage was found under similar terms of a policy issued by Shelter's predecessor. The district court denied Sparks's motion. She cross-appeals from this order, arguing that the district court abused its discretion in disallowing the proffered testimony. Shelter appeals from the district court's order denying its summary judgment motion and granting Sparks's motion for partial summary judgment.

Both parties concede that the question of Shelter's liability on the insurance policy was an appropriate matter for summary judgment disposition because no genuine issues of material fact existed, and the question was strictly one of law. See Fed.R.Civ.P. 56(c). The sole dispute in this portion of the appeal is whether the district court properly concluded that pursuant to Arkansas law Shelter was liable under the conditional coverage receipt at the time of Mr. Sparks's death.

Contracts for temporary insurance, in the nature of binding or conditional receipts, are valid and enforceable in Arkansas provided that appropriate language is used and the terms thereof are satisfied. DeFoure, 268 Ark. at 833, 596 S.W.2d at 9; Union Life Insurance Co. v. Rhinehart, 229 Ark. 388, 391-93, 315 S.W.2d 920, 922-23 (1958). Binding or conditional receipts are subject to the rules of construction generally utilized in interpreting insurance policies; if the provisions are ambiguous, making them susceptible to two reasonable constructions, one favorable to the insurer and one favorable to the insured, the latter will be adopted. DeFoure, 268 Ark. at 833, 596 S.W.2d at 9.

Shelter argues that the district court erred in holding that the second requirement contained in the receipt had been complied with because of the statement in the application that "only Shelter at its home office can make or modify contracts or waive any [of Shelter's] ... rights or requirements, and then only in writing," and the provision on the back of the conditional receipt which provided that "no agent of Shelter is authorized to change any provision or condition of this receipt." Shelter urges that these provisions illustrate that Raper, as a...