Tighe v. Combined Ins. Co. of America

• Decision Date: 15 June 2001
• Docket Number: No. S-00-143.,S-00-143.
• Parties: Laurence E. TIGHE, Appellant, v. COMBINED INSURANCE COMPANY OF AMERICA, a corporation, Appellee.
• Court: Nebraska Supreme Court

628 N.W.2d 670

261 Neb. 993

Laurence E. TIGHE, Appellant, v. COMBINED INSURANCE COMPANY OF AMERICA, a corporation, Appellee.

No. S-00-143.

Supreme Court of Nebraska.

June 15, 2001.

Daniel A. Martin, Fremont, for appellant.

Jonathan Nash, Jr., and Robert M. Slovek, of Kutak Rock, L.L.P., Omaha, for appellee.

HENDRY, C.J., WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

CONNOLLY, Justice.

The appellant, Laurence E. Tighe, filed suit for benefits under a disability insurance policy issued by Combined Insurance Company of America (Combined). The district court granted Combined's motion for summary judgment. The court found that the terms of the disability insurance policy issued to Tighe were unambiguous; that Tighe had received income from his employer, Credit Bureau Services, Inc. (CBS), and from self-employment through Associated Business Management (ABM) following his disability; and that Combined had properly reduced the amount of his benefits.

The primary issue in this appeal is what income is considered to be self-employment income under Combined's reduction-of-benefits clause (reduction clause). Combined argues that self-employment income consists of gross receipts, thereby reducing Tighe's benefits to zero. Tighe argues that income from self-employment should be gross receipts minus business expenses. We determine that income from self-employment in Combined's reduction clause means the net income of the insured after subtracting business expenses from gross receipts and that Tighe's benefits should not have been reduced. Accordingly, we reverse.

BACKGROUND

The relevant portion of the reduction clause in Combined's policy, entitled "Coordination With Other Compensation," states: "The Monthly Indemnity will be reduced by: (A) Income received from any employer, [or] from self-employment...." Tighe purchased CBS in 1961 and is the sole shareholder of that subchapter S corporation. He remained president of CBS until 1991. Although he was not president after 1991, he remained actively involved in the management of CBS. From approximately 1973 to July 1994, he was paid a management fee from CBS of $3,200 a month. This amount was not paid to Tighe as a salary but was paid directly to ABM, a sole proprietorship that Tighe also owned. The $3,200 a month was reflected as part of ABM's gross receipts.

Tighe's accountant, Jerome C. Bahm, testified by deposition that although CBS was Tighe's employer in 1994, the $3,000 to $4,000 that Tighe received from CBS through ABM was a management consultation fee, which was self-employment income. Tighe's federal income tax returns showed little income in the form of wages: in 1994, his wages were $218; in 1995, his wages were $319; and in 1996, his wages were $445. Bahm also testified that the management consultation fees would usually not show up as self-employment income on Tighe's tax returns because ABM's receipts—which included such fees from CBS—were always offset by various business expenses. ABM has shown a net loss for almost every year since the 1960's. In 1994, Tighe's Schedule C for ABM showed a net profit of $117. In 1995, ABM showed net losses of $9,676. In 1996, the company's net losses were $13,758, and in 1997, the losses were $68,715.

Tighe testified that on average, he worked 30 hours a week at CBS until he had a heart attack in July 1994. After that time, he stated that he was no longer an employee of CBS and that he did not receive a management consultation fee from CBS because he was unable to perform his original duties. He said that he tried working 2 to 3 hours a week in October 1994, but was unable to continue at that time. He reported in a claim letter to Combined that he worked approximately 10 hours a week from February 1995 until February 1997, when his doctor advised him to stop working altogether.

Tighe admitted that he continued to take $3,000 to $4,000 a month from CBS after July 1994, but he stated that this money was not taken as income for services provided. Instead, he said that the money he received from CBS after his heart attack was a draw on his accumulated earnings and profits from CBS. In 1994, 1995, and 1996, however, the money Tighe received from CBS continued to be paid directly to ABM and was reflected as part of that company's gross receipts.

In February 1997, Tighe apparently became aware of his coverage under Combined's policy and filed a claim for disability benefits. In May, Combined issued a check for $9,450 to Tighe to cover his total disability up to February 15, 1995. The record does not indicate how Combined calculated that benefits payment. Tighe sent another claim letter to Combined in August 1997, asking for an additional $31,948 in benefits. In that letter, Tighe deducted 25 percent from his disability benefits for the period of time during which he worked 10 hours a week.

ASSIGNMENTS OF ERROR

Tighe assigns that the district court erred in (1) finding that the disability policy was unambiguous, (2) finding that Tighe received income from CBS, (3) finding that Tighe received self-employment income through ABM following his disability, (4) finding that the term "self-employment income" means gross earnings from self-employment rather than net earnings, and (5) sustaining Combined's motion for summary judgment.

STANDARD OF REVIEW

Summary judgment is proper only when the pleadings, depositions, admissions, stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law. Daniels v. Allstate Indemnity Co., 261 Neb. 671, 624 N.W.2d 636 (2001); Kirwan v. Chicago Title Ins. Co., 261 Neb. 609, 624 N.W.2d 644 (2001).

In reviewing a summary judgment, an appellate court views the evidence in a light most favorable to the party against whom the judgment is granted and gives such party the benefit of all reasonable inferences deducible from the evidence. Daniels v. Allstate Indemnity Co., supra; Kirwan v. Chicago Title Ins. Co., supra.

The interpretation of an insurance policy is a question of law, in connection with which an appellate court has an obligation to reach its own conclusions independent of the determination made by the lower court. Callahan v. Washington Nat. Ins. Co., 259 Neb. 145, 608 N.W.2d 592 (2000).

ANALYSIS

The parties in this case are not disputing the amount of Tighe's insured monthly benefits of $1,500 under the policy. Combined stated at the summary judgment hearing that the sole issue was whether Tighe had received income from an employer or from self-employment following his disability, which under the reduction clause would offset his benefits. Combined's position was that if Tighe had received income, it was entitled to have the disability payments offset by the amount of that income under the reduction clause. Combined contends that the $3,000 to $4,000 a month that Tighe received from CBS following his disability reduced his benefits to zero.

Income From Employer

The district court found that Tighe had received income from his employer, CBS, following his disability, but did not specify the amount of that income. Tighe's federal income tax returns show his wages were $218 in 1994, $319 in 1995, and $445 in 1996. These are the only wages in the record that fairly represent Tighe's income from an employer following his disability.

We note that at oral argument, Combined contended that the $3,000 to $4,000 a month Tighe received from CBS following his disability was income from CBS, as his employer. The evidence in the record on this issue consists of Tighe's income tax returns which show nominal wages and Bahm's testimony that the management consultation fees that CBS paid to Tighe were self-employment income to him through ABM. Bahm also stated that the $3,000 to $4,000 that Tighe received from CBS through ABM was included in gross receipts on the Schedule C for ABM.

In addition, Tighe testified that after his heart attack in July 1994, he was no longer an employee of CBS and that he did not receive a management consultation fee from CBS because he was unable to perform his original duties. Instead, he stated that the money he received from CBS after his heart attack was a draw on his accumulated profits from CBS. No contradicting evidence was submitted by Combined to show that the $3,000 to $4,000 Tighe received from CBS was income from an employer. We conclude that the record does not support Combined's contention.

Self-Employment Income

Tighe contends that Combined should not have been allowed to reduce his disability benefits because he showed a net loss through ABM for every year except 1994, when ABM had a net profit of $117. He further contends that the district court erred in finding that self-employment income means gross receipts from self-employment. Combined contends that the gross receipts from ABM are Tighe's self-employment income regardless of any business expenses he reported for federal income tax purposes. Therefore, the issue is whether Tighe had self-employment income that reduced the amount of his disability benefits.

In its order, the district court did not explicitly state that it was using gross receipts for Tighe's self-employment income. Net profits, however, would have only marginally reduced Tighe's benefits. Tighe's Schedule C for 1994 showed that ABM's net profits were $117. After 1994, ABM had net losses of $9,676 for 1995, $13,758 for 1996, and...