Vandeventer v. All American Life & Cas. Co.

Decision Date13 March 2003
Docket NumberNo. 2-01-145-CV.,2-01-145-CV.
Citation101 S.W.3d 703
PartiesRobert L. VANDEVENTER, Duane D. Woodrow, and B. Legare Walpole, Jr., Appellants, v. ALL AMERICAN LIFE & CASUALTY COMPANY n/k/a All American Life Insurance Company, Appellee.
CourtTexas Court of Appeals

Bourland, Kirkman, Seidler & Evans, LLP, William L. Kirkman, David R. Seidler, Fort Worth, Nexsen Pruet Jacobs Pollard & Robinson, Paul A. Dominick, William G. Lyles, III, Charleston, South Carolina, Cohen & Malad, P.C., Irwin B. Levin, David J. Cutshaw, Indianapolis, IN, Vahldiek, Cano, Grayson, Hovenkamp & Petroski, John L. Grayson, Houston, Orth, Hrabal & Orth, LLP, Gerry Orth, Fort Worth, for Appellants.

Vinson & Elkins, LLP, David P. Blanke, Austin, Matthew R. Stammel, Dallas, for Appellee.

Panel B: HOLMAN, GARDNER, and WALKER, JJ.

OPINION

ANNE GARDNER, Justice.

I. INTRODUCTION

This case involves an insurance dispute over an assumption agreement whereby a block of disability policies was transferred and sold by the insurer that issued the policies to another insurer that later cancelled them. Appellants Robert L. Vandeventer, Duane D. Woodrow, and B. Legare Walpole, Jr. appeal from the trial court's grant of summary judgment to Appellee All American Life & Casualty Company n/k/a All American Life Insurance Company ("All American").

II. ISSUES

Appellants raise three issues on appeal in support of their position that the trial court erred in granting All American's motion for summary judgment. First, Appellants contend that All American failed to establish as a matter of law its affirmative defense that the transfer of Appellants' disability policies to American Insurance Company of Texas ("AICT") created a "novation," releasing All American from any liability on the policies and thereby barring recovery under the theories of recovery pleaded by Appellants. Second, Appellants argue that they raised material issues of fact on their claims of damages for breach of contract and rescission or reimbursement of premiums for "illusory contract." Finally, Appellants complain that their claim of breach of the duty of good faith and fair dealing was not barred as a matter of law and that they raised an issue of material fact as to that claim by introducing evidence that All American transferred their policies to a company with inadequate assets and financial capability and failed to disclose that AICT lacked such assets or capability. We reverse and remand the trial court's grant of All American's motion for summary judgment in part and affirm in part.

III. FACTUAL & PROCEDURAL HISTORY

In 1969, All American began selling Farmers' and Ranchers' Disability, Accident and Health Insurance Policies. For an additional premium, an insured could obtain a "Premium Return Benefit Rider," providing that, if the insured made no claims during a ten-year period of the policy, All American would refund to the insured eighty percent of the premiums paid during that period. The benefit rider also provided for a lesser refund of eighty percent of the premiums paid during a ten-year period minus the amount of claims paid if the insured made claims not greater than twenty-five percent of the ten-year premium amount.

Appellant Vandeventer, a resident of Illinois, purchased a disability policy and benefit rider from All American in 1969. He paid premiums from September of 1969 to September of 1989, made no claims, and received a return of eighty percent of premiums paid during those two ten-year periods. Appellant Woodrow, a resident of Indiana, also purchased his disability policy and benefit rider from All American in 1969. He paid premiums until October 1979, with one claim in 1972, and received a refund of eighty percent of premiums paid for the first ten-year period, less the amount of the 1972 claim. He paid his premiums for the second ten-year period and received a refund of eighty percent of premiums paid for that period in October 1989. Appellant Walpole, a resident of South Carolina, purchased his policy and rider from All American in 1971, likewise made premium payments for the two initial ten-year periods, had no claims, and was refunded eighty percent of the premiums paid for those periods.

Effective September 30, 1989, All American entered into an agreement with AICT entitled "Contract of Sale of Accident and Health Insurance Policies and Assumption Agreement" ("Assumption Agreement"), providing for the sale and transfer of its existing Farmers' and Ranchers' Disability, Accident and Health Insurance Policies to AICT, including the policies previously sold to Appellants. Under the Assumption Agreement, All American "agree[d] to transfer, and AICT ... assumed ... one hundred percent (100%) of [All American's] liability under the policies ... for all losses" on or after the date of sale, "subject to the terms, provisions and duration of such policies."

The Assumption Agreement further provided that, in the event the policyholders did not accept the assumption of their policies by AICT, All American was required to remain liable on the policies. All American also "agree[d] to cede under an indemnity agreement 100% quota share interest in said reinsurance policies." AICT agreed to pay a ceding commission to All American in the amount of $3,500,000.

Under section seven of the Assumption Agreement, entitled "Reserves," All American agreed to pay to AICT, on the effective date of the agreement, the amount of the estimated reserves, including the "return premium" reserves for payment under the benefit riders totaling $9,622,345. By section 11 of the Assumption Agreement,

AICT agree[d] to indemnify and hold [All American] harmless against any and all losses, claims, demands, actions, causes of action, costs or fees arising out of or related to the insurance provided under the policies incurred on or after [the effective date of the agreement], including but not limited to, punitive or compensatory damages ... and attorneys fees of any such actions against [All American].

AICT was not, however, to be held liable for any such claims attributable to actions by All American before the effective date.

Vandeventer, Woodrow, and Walpole received no advance notice of the sale of their policies by All American to AICT in 1989, nor were they contacted in advance by either company for their assent to the transfer of their policies to AICT. After the effective date of the sale, each received a letter written on the letterhead of "The National Insurance Group Insurance Companies," notifying them that an agreement had been reached between AICT and All American that "your policy ... has been reinsured and assumed by [AICT]." The letter assured the policyholders "that there are no changes in your policy. All of the terms and conditions of your policy remain the same." Referring to an enclosed "Assumption Certificate," the letter reiterated, "This Certificate confirms there are no changes in the terms and benefits of your current policy." The notice letter further informed the policyholders that premium notices would be mailed from AICT, enclosing a pre-addressed envelope to mail currently due premiums directly to AICT. The letter was jointly signed by John F. McManus, Executive Vice President of All American, and by Lyndon L. Olson, President of AICT.

The "Assumption Certificate" included with the letter to Appellant Woodrow stated:

                ASSUMPTION CERTIFICATE
                  Policy Number and Name Y000568630                   Effective Date
                  of Insured or Policyholder: Duane D. Woodrow        Sept. 30, 1989
                         This is to certify that the above-numbered policy, issued or assumed by
                                          ALL-AMERICAN LIFE INSURANCE COMPANY
                                                    Chicago, Illinois
                
                                            Has Been Assumed and Reinsured by
                                           AMERICAN INSURANCE COMPANY OF TEXAS
                                                   A Legal Reserve Stock
                                                   Life Insurance Company
                                                         Waco, Texas
                This is to certify that under the terms of an Assumption Agreement between American
                Insurance Company of Texas and All American Life Insurance Company effective
                September 30, 1989, your policy (number shown on above label) and all endorsements
                and riders thereto (herein called "The Policy") issued or assumed by All American Life
                Insurance Company, an Illinois Corporation, was transferred to and all liability under it
                assumed by American Insurance Company of Texas, a Texas Corporation
                All terms and conditions of the Policy remain unchanged, except that American
                Insurance Company of Texas shall be the insurer. All premium payments, notices
                claims and suits of [sic] actions on the Policy shall hereafter be made directly to
                American Insurance Company of Texas as though it had issued the Policy originally
                The acceptance of this Certificate and payment of the first premium due to American
                Insurance Company of Texas by the owner of said policy or contract will evidence your
                consent to the assumption but will not serve as a waiver or release of any rights the
                owner may have under said policy or contract
                IN WITNESS WHEREOF, the American Insurance Company of Texas has caused this
                instrument to be signed by its President and Secretary at the Home Office of the
                Company in Waco, Texas, as of September 30, 1989
                

Appellants Vandeventer and Walpole received identical letters with identical enclosed certificates. During the subsequent nine-year period from 1989 to 1998, Appellant Vandeventer paid his premiums to AICT, including the premiums for the return of premium rider, and he had no claims. Appellants Woodrow and Walpole likewise paid their premiums to AICT for the years from 1989 to 1998, including their premiums for the return of premium rider, and they had no claims.

In July 1998, after collecting nine years of premiums, including nine years of refund...

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