Opinion
No. 106,717.
2012-09-28
Karen CHISM, Appellant, v. PROTECTIVE LIFE INSURANCE CO., Appellee.
Appeal from Montgomery District Court; Frederick William Cullins, Judge. W.J. Fitzpatrick, of Independence, for appellant. James D. Oliver, of Foulston Siefkin LLP, of Overland Park, for appellee.
Appeal from Montgomery District Court; Frederick William Cullins, Judge.
W.J. Fitzpatrick, of Independence, for appellant. James D. Oliver, of Foulston Siefkin LLP, of Overland Park, for appellee.
Before HILL, P.J., MALONE and STANDRIDGE, JJ.
MEMORANDUM OPINION
PER CURIAM.
Karen Chism asks for attorney fees and costs that were denied after she had received a jury verdict preventing her insurer, Protective Life Insurance Company, from rescinding a credit life insurance policy she and her husband had obtained. After her husband's death, Protective denied Chism's claim because her husband, when he made the application, failed to inform the company that he was diabetic. During the investigation of this claim Protective obtained and read the death certificate and medical records of Steve Chism, which revealed he had suffered from diabetes, a preexisting condition making him ineligible for credit life insurance. This information was omitted from his policy application. Also, the agent at the car dealership where the Chisms made their application for insurance coverage assured Protective that the application process was completed properly. The jury later determined that this was not so because the agent at the car dealership had fraudulently induced the Chisms into making the contract for credit life insurance. Our Supreme Court has ruled that whether an insurer has just cause to deny a claim depends on the circumstances at the time when liability is declined and is not determined by the outcome of the litigation. Because Protective conducted a reasonable investigation when this claim was made and could, at that point, reasonably rely upon the agent's assurances, we hold the district court did not abuse its discretion when it denied an award of attorney fees to Chism.
A married couple want to buy a new car.
In June 2005, Steve and Karen Chism purchased a vehicle from Quality Motors in Independence, Kansas. Quality's business manager, Dennis Urban, offered to sell the Chisms a Protective Life Insurance Co., credit life insurance policy that would pay off their car loan if either of them died before the debt was paid. Urban considered himself Quality Motors' business agent to sell and issue policies of credit life.
When Urban first mentioned the credit life insurance, he told the Chisms they both qualified because they were under 66 years of age. After the Chisms agreed to purchase the insurance, Urban used his computer to complete the top portion of the insurance application form. Urban then printed out the insurance application and the other documents relating to the purchase and financing of the vehicle. According to Karen Chism, Urban handed them the insurance application and “just told us how much the payments were going to be, how much the insurance was, and this is the Protective Life policy and you sign down here.” Urban did not ask the Chisms to read or review the application.
The application clearly states:
“1. I am not eligible for any insurance if I now have, or during the past 2 years have been seen, diagnosed or treated for:
(a) A condition, disease or disorder of the brain, heart, lung(s), liver, kidney(s), nervous system or circulatory system; or
(b) Tumor; Cancer; Uncontrolled High Blood Pressure; Diabetes....”
The Chisms believed they qualified for the credit life insurance. Karen did not read the application. When asked during her deposition if Steve Chism had read the application, Karen testified, “I don't know, but I'm sure he didn't because we were just passing the deals and we signed them and passed that other one and he signed it. He didn't have time to read it I'm sure.” The Chisms each signed and dated the document, and Urban signed as the licensed resident agent for Protective. The Chisms, however, did not circle or initial any health condition, despite the fact that Steve was taking medications and being treated for high blood pressure, Type II diabetes, and peripheral vascular disease.
About 7 months after purchasing the vehicle, Steve died. The death certificate listed the cause of death as “sudden death.” The death certificate listed diabetes mellitus, hypertension, morbid obesity, and peripheral vascular disease as “significant conditions contributing to death but not resulting in the underlying cause” of Steve's death.
Karen submitted a claim for benefits under the policy. Protective denied the claim on April 4, 2006, and rescinded the policy based on Steve's failure to disclose his disqualifying medical condition of diabetes. Karen responded by sending Protective a demand letter seeking review of Protective's denial of her claim. On September 14, 2006, Protective affirmed its denial.
Karen Chism files suit.
Karen filed an action in the district court against Protective for breach of contract and an action against Quality Motors for negligent procurement of the policy. The district court subsequently granted summary judgment in favor of Protective and Quality Motors. A panel of this court affirmed in Chism v. Protective Life Ins. Co., 40 Kan.App.2d 629, 195 P.3d 776 (2008). Our Supreme Court granted Karen's petition for review, limiting its analysis to Karen's claim against Protective for breach of contract and rescission of the policy. See Chism v. Protective Life Ins. Co., 290 Kan. 645, 654, 234 P.3d. 780 (2010). The Supreme Court decided the district court and this court had improperly granted summary judgment because genuine issues of material fact existed between the parties. 290 Kan. at 660–61.
In May 2011, a jury found Urban had fraudulently caused the Chisms to enter into a contract for credit life insurance with Protective. The district court entered judgment in favor of Karen Chism in the sum of $23,099.65, together with prejudgment interest from the date of her husband's death. Chism then sought attorney fees under the authority of K.S.A. 40–256 and an allowance of costs according to K.S.A.2010 Supp. 60–2002. The district court denied her request for attorney fees and most of her request for costs.
In this appeal, Chism argues that the district court erred in denying her request for attorney fees. We review this decision under the abuse of discretion standard. See Unruh v. Purina Mills, 289 Kan. 1185, 1200, 221 P.3d 1130 (2009).
We find no error because of the circumstances when liability was denied.
The controlling statute, K.S A. 40–256, states that a court must award reasonable attorney fees to any claimant when an insurance company, “ without just cause or excuse,” refuses to pay the full amount of a loss. The phrase “without just cause or excuse” means that the denial of the claim was “ ‘frivolous' “ and “patently without any reasonable foundation.” Clark Equip. Co. v. Hartford Accident & Indemnity Co., 227 Kan. 489, 494, 608 P.3d 903 (1980).
Along this line, in refusing to pay a claim, an insurer has a duty to make a good faith investigation of the facts surrounding the claim. Evans v. Provident Life & Accident Ins. Co., 249 Kan. 248, 261, 815 P.2d 550 (1991). If there is a bona fide and reasonable factual ground for refusing to pay the insured's claim, attorney fees are not awardable. 249 Kan. at 261. Further, whether there was a reasonable factual ground for contesting the claim “depends upon circumstances existing when the payment is withheld or liability is declined [and] is not necessarily determined by the outcome of the ensuing litigation.” (Emphasis added.) Koch, Administratrix v. Prudential Ins. Co., 205 Kan. 561, 565, 470 P.2d 756 (1970).
Painting with a broad brush, Protective argues Chism's claim for attorney fees fails outright because of the existence of a good faith legal controversy between the parties. The insurer cites Justice Larson's concurrence/dissent in Scott v. State Farm Mut. Auto. Ins. Co., 18 Kan.App.2d 93, 850 P.2d 262 (1992), as support for its position. Because of the existence of factual disputes in this case, we are not convinced.
In Scott, Justice Larson acknowledged that K.S.A. 40–256 was relevant authority in construing K.S.A. 40–3111(b). 18 Kan.App.2d at 101. (Larson, J., concurring and dissenting). Justice Larson, construing K.S.A. 40–256, stated: “The presence of a good faith legal controversy, particularly if it involves a matter of first impression in this jurisdiction, may constitute just cause or excuse for an insurer's refusal to pay.” 18 Kan.App.2d at 102 (Larson, J., concurring and dissenting) (quoting Hand v. State Farm Mut. Auto Ins. Co., 2 Kan.App.2d 253, 261, 577 P.2d 1202,rev. denied 225 Kan. 844 [1978]; accord Farm Bureau Mutual Ins. Co. v.. Carr, 215 Kan. 591, 599, 528 P.2d 134 [1974]; see Forrester v. State Farm Mutual Automobile Ins. Co., 213 Kan. 442, 452, 517 P.2d 173 [1973] ).
However, Protective fails to acknowledge that our Supreme Court in Carr only recognized the presence of a good faith legal controversy as being dispositive because (1) the parties did not dispute the facts; (2) the trial court did not have to consider cases regarding the insurance company's duty to investigate; and (3) the trial court considered an issue of first impression. See 215 Kan. at 599. Similarly, in Forrester the parties at the pretrial conference stipulated to the material facts, and the issue between the parties was of first impression. 213 Kan. at 443, 452. Here, this case was not a matter of first impression, there was a significant dispute over the facts surrounding completion of the application, and Protective had a duty to investigate the facts surrounding Karen's claim. See Evans, 249 Kan. at 261.
Hence, two questions must be addressed in this appeal. First, did Protective conduct a good faith investigation? Second, if so, can Protective rely upon its agent's representations that the credit life insurance application was properly completed, to deny a claim made under that policy? We conclude that the company did make a reasonable investigation and made a justifiable decision to deny the claim.
We examine Protective's investigations.
Protective's application for credit-life insurance specifically stated that applicants would not be eligible for insurance if they had diabetes. Because Steve Chism did not make any marks on the medical inquiries section of the application, Protective reasonably believed that he did not have any medical condition, including diabetes, that would preclude coverage. After Steve's death, Protective examined his death certificate, which listed diabetes as one of the significant conditions contributing to his death. Protective then obtained Steve's medical records, which confirmed Steve was aware he had diabetes when he signed the application. These facts alone indicate Protective discovered substantial evidence corroborating a lack of coverage and justifying its April 4, 2006, letter to Karen rescinding the insurance.
Undaunted, Chism, through counsel, sent Protective a demand letter seeking satisfaction of her claim under the policy. Protective's second review of Karen's claim addressed Karen's demand letter contention that Urban had failed to ask her and Steve about statements number 1 and 2 on the application and to have them subscribe their initials beneath either one of the statements. The statement Urban provided to Protective as part of its investigation indicated that the application process was completed properly. Protective also informed Chism that it would reconsider its decision based on any further information she submitted. Chism responded by initiating the breach of contract action against Protective.
Basically, Chism argues to us that Protective did not properly investigate her claim because it was obliged to take the investigation one step further and see if the agent had committed fraud. Chism contends that Protective had to satisfy the five elements of rescission our Supreme Court discussed in considering her petition for review:
“(1) There was an untrue statement of fact made by the insured or an omission of material fact, (2) the insured knew the statement was untrue, (3) the insured made the statement with the intent to deceive or recklessly with disregard for the truth, (4) the insurer justifiably relied on the statement, and (5) the false statement actually contributed to the contingency or event on which the policy is to become due and payable.” Chism, 290 Kan. at 654.
This argument is unconvincing. Chism cites no authority that such an extensive investigation is reasonably called for. It appears that Chism is arguing that Protective was required at that time to make an investigation as if it was defending a lawsuit on the claim. In State v. Berriozabal, 291 Kan. 568, 594, 243 P.3d 352 (2010), the court held that the failure to support a point with pertinent authority is akin to failing to brief the issue. Further, we note that factual disputes are questions for a jury. “In cases where the truth of the representations or the facts surrounding the taking of the application are in dispute the questions presented are for a jury's determination.” See Schneider v. Washington National Ins. Co., 200 Kan. 380, 393, 437 P.2d 798 (1968). That is precisely what happened here. The jury was required to settle the substantial differences between Karen Chism's testimony about the application process and the testimony of Urban, the car dealer's manager.
Our Supreme Court has spoken on this issue. All that is required to deny an insured's claim is a bona fide and reasonable factual ground for the insurer to defend its decision at the time of denial. Koch, 205 Kan. at 565. In this case, Protective made a reasonable investigation and could reasonably rely upon the assurances of its agent. Accordingly, reasonable minds could conclude that Protective's position that Karen had no coverage under the policy had substantial support in the facts known to Protective at the time.
The district court did not abuse its discretion in denying Karen's request to recover attorney fees.
We turn to the issue of costs.
Chism argues that the district court erred in denying her request for deposition expenses under K.S.A.2010 Supp. 60–2002. We review the taxing of costs in a civil action for an abuse of discretion. Wendt v. University of Kansas Med. Center, 274 Kan. 966, Syl. ¶ 4, 59 P.3d 325 (2002).
The stenographic charges for taking any depositions utilized by a district court in deciding a summary judgment motion may be taxed as costs because the deposition is “used as evidence” under K.S.A.2011 Supp. 60–2003(5). Frederking v. Frederking, 26 Kan.App.2d 614, 614–15, 992 P.2d 1255 (1999), rev. denied 268 Kan. 886 (2000); see Klein v. Kansas Highway Patrol, No. 92,927, 2005 WL 3455757, at *12 (Kan.App.2005) (unpublished opinion), rev. denied 281 Kan. 1378 (2006). On the other hand, discovery depositions not admitted as evidence at trial are ordinarily not taxable as costs. See Bridges v. Bentley, 244 Kan. 434, 446, 769 P.2d 635 (1989); Wood v. Gautier, 201 Kan. 74, 79, 439 P.2d 73 (1968); Cessna Aircraft Co. v. Metropolitan Topeka Airport Authority, 23 Kan.App.2d 1038, 1060, 940 P.2d 84,rev. denied 262 Kan. 959 (1997).
But irrespective of whether the depositions are used to decide summary judgment or admitted at trial, the controlling statute, K.S.A.2010 Supp. 60–2002(a), provides that the costs associated with such depositions “shall be allowed to the party in whose favor judgment is rendered ” (Emphasis added.)
Summary judgment was never rendered in Chism's favor in this case. When the district court considered the parties' competing motions for summary judgment, it granted judgment in favor of Protective and Quality Motors. Even though our Supreme Court subsequently found that summary judgment was improper and reversed the district court's decision, the matter was remanded for trial. Chism, 290 Kan. at 660–61, 665.
A plain reading of the statutes indicates that the award of costs for summary judgment and trial are not viewed in tandem. As Frederking noted, the statutes allowing taxation of costs indicate that “the legislature contemplated an award of costs to occur directly following a final order of the trial court.” 26 Kan.App.2d at 614; see K.S.A. 60–2004. The purpose of summary judgment is to avoid a trial where there is no real issue of fact. Secrist v. Turley, 196 Kan. 572, 575, 412 P.2d 976 (1966). Since Chism was never granted summary judgment, she is not entitled to the costs of those depositions.
Affirmed.