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87279 -- National Inspection & Repair v. Valley Forge Life Ins. Co. -- Allegrucci -- Kansas Supreme Court

IN THE SUPREME COURT OF THE STATE OF KANSAS 1 2 No. 87,279 No. 87,981 NATIONAL INSPECTION AND REPAIR, INC., Appellee, v. VALLEY FORGE LIFE INSURANCE COMPANY and CONTINENTAL ASSURANCE COMPANY, Appellants, and EUGENE C. STRAUB, Appellee. SYLLABUS BY THE COURT 1. Summary judgment is appropriate where there are no genuine issues as to any material fact and the moving party is entitled to judgment as a matter of law. 2. Where a policy of insurance is issued to an insured in compliance with the requirement of a statute, the pertinent provisions of the statute must be read into the policy, and no provisions of the policy in contravention of the statute can be given effect. 3. A trial court's decision which reaches the right result will be upheld even though the trial court may have relied upon the wrong ground or assigned erroneous reasons for its decision. 4. Under the provisions of K.S.A. 40-451, coverage under an individual life insurance policy becomes effective upon receipt of the application for such policy, together with the initial premium. Such coverage, limited only by the conditional premium receipt and subsection (b), remains in effect until the applicant has been notified in writing of an adverse underwriter decision, as defined in K.S.A. 40-2,111, and any unearned premium is returned. Appeal from Shawnee district court; JAN W. LEUENBERGER, judge. Opinion filed November 1, 2002. Affirmed. Scott C. Nehrbass, of Shook, Hardy & Bacon, L.L.P., of Overland Park, argued the cause, and Matthew J. Wiltanger, and Jerrod A. Westfahl, of the same firm, were with him on the briefs for appellants. Richard F. Hayse, of Morris, Laing, Evans, Brock & Kennedy, Chtd., of Topeka, argued the cause, and Phillip L. Turner, and Dan E. Turner, Topeka, were with him on the brief for appellee National Inspection and Repair, Inc. Eric A. Van Beber, of Wallace, Saunders, Austin, Brown & Enochs, Chartered, of Overland Park, argued the cause for appellee Eugene C. Straub. The opinion of the court was delivered by ALLEGRUCCI, J.: The central issue in this case is whether there was temporary insurance coverage on the life of

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87279 -- National Inspection & Repair v. Valley Forge Life Ins. Co. -- Allegrucci -- Kansas Supreme Court

William Thomas Gaines at the time of his death. Gaines died within the temporary coverage period set by the conditional premium receipt. When National Inspection and Repair, Inc., (NIR) demanded payment of $500,000 in life insurance on Gaines, Valley Forge Life Insurance Company and Continental Assurance Company (collectively known as CNA) denied coverage. NIR sued CNA and Eugene Straub. Against CNA, NIR alleged breach of contract and, in the alternative, negligence. Against Straub, it alleged negligence or misrepresentation and acting without authority in failing to procure the insurance. CNA filed a cross-claim against Straub for improperly accepting the application and initial premium for Gaines. On cross-motions, the district court granted summary judgment in favor of NIR and against CNA. The district court dismissed CNA's cross-claim against Straub. CNA appeals. The district court's entry of summary judgment in favor of Straub was not appealed. CNA filed separate notices of appeal from the entry of summary judgment and the dismissal of its cross-claim. Those appeals, 87,279 and 87,981, are consolidated for purposes of argument and decision under case No. 87,279. This court transferred the appeal from the Court of Appeals. K.S.A. 20-3018(c). On appeal, CNA argues that the trial court erred in granting summary judgment in favor of NIR and in dismissing CNA's cross-claim against Straub. The district court made findings of fact. On appeal, CNA contends, among other things, that summary judgment is precluded by a genuine issue of material fact whether NIR had notice before Gaines died that his life was not insured by CNA. CNA argues that summary judgment is not precluded because any notice NIR may have had of the lack of coverage on Gaines' life is, as a matter of law, insufficient to terminate temporary coverage. The district court made findings of fact, set out in numbered paragraphs, as follows: 1. The Defendant, Valley Forge Life Insurance Company, is an insurance company licensed to conduct business in the State of Kansas. 2. The Defendant, Continental Assurance Company, is an insurance company licensed to conduct business in the State of Kansas. The two companies are referred to collectively as CNA. 3. On or about September 18, 1998, William T. Gaines and Kenneth Burkhead both filled out applications for key man insurance. The plaintiff, NIR, was the intended beneficiary. Both William T. Gaines and Kenneth Burkhead filled out applications, which were accepted by defendant Straub. 4. On September 18, 1998, NIR issued check number 2409 to CNA in the amount of $653.36 with $211.72 being the amount due for Burkhead and $441.84 due for Gaines for life insurance coverage of $500,000 each, and delivered the check to defendant Straub. 5. Straub accepted the check, which was the premium payment for the first three (3) months for each policy and in return provided two "Conditional Premium Receipts" to NIR. 6. On September 19, 1998, Straub forwarded the applications to Financial Brokerage, Inc., which processed applications on behalf of CNA. Straub then went to China for 1 month. 7. Straub took premium money for the Gaines application although technically he should not have done so because Gaines had answered a question in section 20 of his application in the affirmative. 8. On September 24, 1998, Financial Brokerage, Inc., on behalf of CNA wrote to Straub and acknowledged receipt of the two applications. 9. The premium check from NIR was cashed by CNA on or about October 2, 1998. 10. On October 9, 1998 Financial Brokerage, Inc., wrote to Straub as a "STATUS UPDATE AS OF 10/08/98" and advised: "We may consider $234,500 as maximum for key man insurance. Please verify if the applicant was diagnosed

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87279 -- National Inspection & Repair v. Valley Forge Life Ins. Co. -- Allegrucci -- Kansas Supreme Court

with schizophrenia in August of 98? Thank you for your business." 11. On October 29, 1998, Financial Brokerage, Inc. again corresponded with Straub as a "STATUS UPDATE AS OF 10/28/98" and advised: "I have given the underwriter the medical information regarding schizophrenia and we will continue to underwrite this case. I will contact you as soon as I have a decision. Thank you." 12. NIR's payment was for the first 3 months' premium for each policy. CNA does not dispute this fact, but it denies the payment was for any temporary, conditional or unconditional life insurance contract. 13. Straub did not disclose that this insurance was contingent in any way and in fact stated that upon the acceptance of the check the company would be covered and if the individuals died the next day that the insurance would be in effect. Defendant CNA does not dispute that the statement may have been made but denies it was valid or that Straub had authority to make it or that it would give rise to a temporary insurance contract. 14. Gaines died unexpectedly on November 15, 1998. 15. Straub wrote in a letter to the Kansas Insurance Commissioner on April 22, 1999: "I called Financial Brokerage, Inc., promptly upon notification by phone from Mr. Kenneth Burkhead, Jr. that Mr. Gaines had died during the night." This fact is not disputed by CNA, but it denies that prompt notification has any effect to create temporary, conditional or unconditional coverage. 16. On November 23, 1998, 8 days after Gaines' death, CNA, through its agent Financial Brokerage, Inc., notified Straub by letter that a policy of insurance was being issued for Burkhead with an annual premium payment of $622.50. 17. After Gaines died, NIR contacted CNA on December 30, 1998, and on January 21, 1999, attempting to collect on the insurance policy. NIR, through its counsel, notified CNA of its demand to collect the life insurance proceeds for the policy which insured Gaines in the amount of $500,000 at the time of his death on November 15, 1998. 18. In a letter dated January 8, 1999, CNA attempted to refund the original premium amount by issuing a refund check in the amount of $653.36. The letter states that "any coverage that may have been provided under our Conditional Premium Receipt no longer applies." This letter was date stamped by the post office, January 11, 1999. CNA denies that the letter expressly or impliedly creates temporary, conditional or unconditional insurance coverage. 19. NIR refused to cash the refund check. 20. In a letter to the Kansas Insurance Department, CNA on May 7, 1999, admitted: "Although the money was refunded under the partner file, no notification was sent to Mr. Gaines that coverage did not exist." 21. CNA has refused to pay NIR the $500,000 coverage upon the death of Gaines, and NIR contends that the money is now due and owing under the application and conditional receipt. 22. To help in its business operations, NIR hired Straub as an advisor on business related matters. 23. David Price, President of NIR, also declared Straub to be NIR's insurance representative. 24. In his capacity as an advisor for NIR, Straub suggested to Price that NIR should purchase key man insurance on a couple of its employees. 25. Straub contacted Financial Brokerage, Inc., to solicit key man insurance on behalf of NIR. Financial Brokerage, Inc., responded by sending Straub information on three companies. 26. Price, on behalf of NIR, selected CNA. 27. After CNA was selected, Straub sought solicitor or producer status with CNA in order to receive the commission from the sale of key man insurance to NIR.

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87279 -- National Inspection & Repair v. Valley Forge Life Ins. Co. -- Allegrucci -- Kansas Supreme Court

28. On or about September 29, 1998, Financial Brokerage, Inc., contacted Bammes, who had been designated by Straub to act for him while he was in China, to inform him that premium money could not be accepted with Gaines' application and to discuss potential remedies. NIR contends that this fact is inadmissible hearsay and should not be considered. 29. Financial Brokerage, Inc., also informed Bammes that, if Gaines were to be covered, he could only be covered for $234,500 due to his salary range. Bammes conveyed this information to Straub, but not to NIR. 30. Bammes told Financial Brokerage, Inc., to apply all the premium to Burkhead's application and to reapply $441.84 to Gaines' file if a policy was issued on his life. NIR contends that this fact is inadmissible hearsay and should not be considered. The district court found that there was not sufficient competent evidence to support a finding that NIR was informed before Gaines' death of the communications between Bammes and Financial Brokerage, Inc. 31. Until receiving CNA's letter of January 8, 1999, NIR had no direct knowledge from CNA of its intent not to insure Gaines. 32. CNA retained the premium and was in possession of it at the time of Gaines' death. 33. Gaines died within the 90-day period for which any coverage was in effect through the conditional premium receipt. We first consider whether the trial court erred in granting summary judgment in favor of NIR. The issue, as seen by the district court, is whether a person is insured if that person dies after an application for life insurance has been submitted and an initial premium payment has been exchanged for a receipt, but before the period provided for temporary coverage has expired and before a policy of life insurance has been issued or refused. According to the district court, the general rule governing this circumstance was stated in Service v. Pyramid Life Ins. Co., 201 Kan. 196, Syl.

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