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United States District Court, S.D. Alabama, Southern Division
May 31, 2001
Civil Action 00-305-S (S.D. Ala. May. 31, 2001)


Civil Action 00-305-S

May 31, 2001


This matter came on for trial before the Court on April 10, 2001, at which time the parties submitted live testimony, deposition testimony, various exhibits and oral argument in support of their respective positions. At the Court's request, the parties filed post-trial briefs, which the Court has also considered. (Docs. 28-3 1). The record is now closed and the case ripe for resolution. For the reasons that appear below, the Court finds that the plaintiff is entitled to judgment in its favor.


The plaintiff issued the defendant a disability policy effective February 10, 1986. In June 1999, the defendant filed a claim for total disability benefits, which the plaintiff began paying following the 90-day elimination period and has paid since. The plaintiff brought this declaratory judgment action to have the Court determine whether the monthly benefit payable to the defendant is the $7,000 set forth in the policy or the $8,000 set forth in certain other documents.

Briefly, the plaintiff argues that the policy, including its monthly benefit figure of $7,000, constitutes a contract that supersedes any prior discussions or negotiations concerning a higher figure. The plaintiff continues that this contract was not modified by the plaintiff's subsequent correspondence with the defendant or by the parties' ultimate entry into a "Settlement Agreement," which was negotiated after potential improprieties by the agent servicing the defendant's accounts.

The defendant does not deny that the policy expresses a monthly benefit of $7,000 but questions whether that figure was ever accurate, given the results of one or more later audits identifying the monthly benefit as $8,000. The defendant next argues that, if the original contract amount was $7,000, the audits and other post-policy correspondence from the plaintiff modified the monthly benefit. The defendant also argues that, even if the plaintiffs correspondence did not modify the monthly benefit, the Settlement Agreement did so. Finally, the defendant argues the plaintiff is equitably estopped to deny a monthly benefit of $8,000.

The plaintiff replies that, even if its correspondence or the Settlement Agreement did modify the policy, the modification was the result of the plaintiffs unilateral mistake and that the contract should be reformed to reflect the $7,000 amount. The plaintiff denies that equitable estoppel applies. The defendant denies that unilateral mistake applies or that reformation is an appropriate remedy.


The defendant applied for disability insurance with the plaintiff in late 1985. His application sought monthly benefits of $8,000. The plaintiff's underwriters determined the defendant qualified only for a monthly benefit of $7,000. The plaintiff issued the defendant a policy effective February 10, 1986 reflecting a monthly benefit of $7,000. The defendant, who is literate, received the policy and began paying the required premium, but he did not read the policy until after this dispute arose. The premium paid by the defendant was that applicable to the $7,000 monthly benefit, not the $8,000 monthly benefit.

The declarations page reflects the defendant's monthly premium as $143.17, and other documents reflect this as what the defendant in fact paid. Exhibits 4, 6-B, 6-D.

In 1986 and 1987, the plaintiff investigated allegations of wrongdoing by its agent Roland Hayes, who serviced the accounts of the defendant and others. Michael J. Crowley, an officer of the plaintiff, was the plaintiffs primary interface with the defendant during this process. In his initial correspondence with the defendant, dated June 17, 1986, Crowley reported that "[o]ur review of your Disability Income insurance showed" an $8,000 monthly benefit. Exhibit 6-A at 3. Later correspondence repeated the $8,000 figure.

Crowley and the defendant discussed the defendant's various accounts, including IRAs, SEPs, life insurance policies and disability policies. With respect to the disability policy at issue in this case, Crowley and the defendant discussed only two issues: (1) the availability of a premium discount; and (2) an "own occupation" rider. Crowley and the defendant had no discussion at any time concerning the monthly benefit, including any modification of the amount payable.

Under cover of a letter dated August 24, 1987, Crowley submitted to the defendant a document styled, "Release of All Claims and Settlement Agreement" ("Settlement Agreement"), in which the defendant released the plaintiff and others from liability for the actions of Roland Hayes. The cover letter, an accounting statement referencing a life insurance policy, a schedule of disability policies and a schedule of other life insurance policies were incorporated by reference as part of the Settlement Agreement. Exhibit 6-J. The schedule of disability policies again reflected an $8,000 monthly benefit. The Settlement Agreement as proposed by the plaintiff and reflected in Exhibit 6-3 was accepted by the defendant. In accordance with the release, the defendant did not thereafter sue the plaintiff for any alleged wrongdoing by Roland Hayes.

Corporate procedures require the creation of an extensive paper trail in order to modify the terms of an issued policy. In addition, the policy itself requires that modifications be approved by an officer of the plaintiff in writing on the policy. No such paperwork was ever created in this case. The defendant continued to pay premiums based on a monthly benefit of $7,000 after entering the Settlement Agreement.

The parties' agreed facts include the following: "3. Kick received a copy of the policy contract showing $7,000 per month in benefits. 4. Kick paid premiums for this coverage. (Doc. 25 at 6).

The parties did not, either through Crowley's correspondence or through the Settlement Agreement, subjectively or objectively modify the monthly benefit payable. The defendant did not forbear suit against the plaintiff in reliance on any representation that the amount of his monthly benefit was $8,000, and any such reliance would not have been reasonable as he at all relevant times possessed a copy of the policy reflecting a $7,000 monthly benefit.

The plaintiff began paying the defendant disability benefits in mid-September 1999, at the conclusion of the policy's 90-day elimination period. The plaintiff has paid the defendant a monthly benefit of $8,000, under a reservation of rights, since September 1999, so that the disputed amount paid through May 31, 2001 is $20, 433.33.


The Court has subject matter jurisdiction over this action. (Doc. 19). Venue is proper in this district. 28 U.S.C. § 1391 (a). The parties agree that Alabama substantive law governs this action.

An application for insurance is an offer and does not become a contract until and unless accepted by the insurer; a policy that materially differs from the application represents a counteroffer rather than an acceptance. Ex parte Rager, 712 So.2d 333, 335 (Ala. 1998) (quoting Connell v. State Farm Mutual Automobile Insurance Co., 482 So.2d 1165, 1167 (Ala. 1985)). A policy that reduces the monthly benefit payable from $8,000 to $7,000 materially differs from the application and therefore constitutes a counter-offer.

The counter-offer represented by the policy becomes a contract once accepted by the insured. The insured accepts the counter-offer by retaining the policy and paying the premiums on it. Ex parte Rager, 712 So.2d at 335-36. Because the defendant received the policy, retained it and paid the premiums on it, the policy became the parties' contract.

Once the parties have reduced their understanding to a written contract, agreeing or intending that it express their full agreement, all prior negotiations and oral agreements are merged into the written document. First Commercial Bank v. Spivey, 694 So.2d 1316, 1326-27 (Ala. 1997); Quimby v. Memorial Parks, Inc., 667 So.2d 1353, 1356-57 (Ala. 1995). Here, the parties explicitly intended the policy to express their full agreement, including their agreement as to the monthly benefit payable. Exhibit 2 at 6, ¶ 1.1. Thus, any discussions the defendant may have had with Roland Hayes as to a higher monthly benefit were rendered irrelevant by the defendant's acceptance of the policy reflecting a $7,000 monthly benefit.

The declarations page of the policy on its face lists the "amount of benefits" as "$7,000.00 per month," and the defendant paid the premiums required for a $7,000 benefit. That Crowley's post-policy correspondence identified the monthly benefit as $8,000 does not show that the policy is wrong; rather, the policy shows that Crowley's correspondence was wrong.

A contract, once formed, may be modified but, "[i]n order to modify a contract, the parties must mutually assent to the new terms." Holland v. Continental Telephone Co., 492 So.2d 998, 999 (Ala. 1986). The defendant suggests that the monthly benefit payable was modified "by the actions of Paul Revere, in particular, its post-policy, pre-Settlement Agreement correspondence reflecting an $8,000 monthly benefit. (Doc. 31 at 1-2). The threshold problem with this argument is that the unilateral actions of one party cannot modify a contract, since modification requires mutual assent. At any rate, the plaintiff's correspondence does not reflect an offer to modify the policy but only the plaintiffs (incorrect) understanding of the already existing terms of the contract.

The defendant next turns to the Settlement Agreement as a source of modification of the monthly benefit. The parties do not dispute that they entered a Settlement Agreement and that the Settlement Agreement constitutes a contract. Instead, the parties dispute whether the Settlement Agreement included among its terms a modification of the disability policy, in particular, the monthly benefit payable.

While the parties have not provided an executed version of the Settlement Agreement, the plaintiff does not argue against enforcement on this ground.

"If a contract is unambiguous on its face, there is no room for construction and it must be enforced as written." Southland Quality Homes, Inc. v. Williams, 781 So.2d 949, 953 (Ala. 2000). Thus, if the Settlement Agreement unambiguously modifies the disability policy by increasing the monthly benefit payable to $8,000, it must be so enforced; likewise, if the Settlement Agreement unambiguously fails to modify the monthly benefit payable, it must be so enforced. Whether the Settlement Agreement is ambiguous in this regard is a question of law for the Court. Id.

A contract is unambiguous if it is "susceptible of only one reasonable meaning." Homes of Legend, Inc. v. McCollough, 776 So.2d 741, 746 (Ala. 2000). The presence or absence of ambiguity must be discerned from a study of the contract as a whole, giving undefined terms their ordinary, plain and natural meaning unless there is sufficient evidence a different meaning was intended. id Applying these rules, the Court concludes that the Settlement Agreement unambiguously fails to modify the disability policy as to the monthly benefit payable.

The Settlement Agreement consists of a "Release of All Claims and Settlement Agreement" and four exhibits to which it refers, as follows:

• Exhibit 1: August 24, 1987 letter from Crowley to the defendant;
• Exhibit 2: Accounting statement concerning the defendant's Excelerator life insurance policy;
• Exhibit 3: Schedule of the defendant's disability protection insurance policies;
• Exhibit 4: Schedule of the defendant's life insurance policies.

The parties agree that the four exhibits form part of the Settlement Agreement and that no other documents are incorporated into the Settlement Agreement.

After several introductory clauses) the Settlement Agreement reads as follows:
Now therefore, . . . the undersigned, for and in consideration of the restructuring of the undersigned's insurance contracts with Paul Revere as more specifically described in the attached letter of August 24, 1987 by Michael J. Crowley (Exhibit 1) and in the accounting statement (a copy of which is marked as Exhibit 2 and attached hereto and incorporated herein by reference) . . . have [released the plaintiff and related entities and individuals] of and from any and all actions, causes of action [etc.] on account of or in any way growing out of the sale, issuance, handling, investigation, negotiations to or with respect to the undersigned by any of the parties being released concerning any and all policies of insurance and/or annuity contract(s) with any of the said companies being released and/or concerning any and all monies paid or entrusted to Roland Hayes . . ., EXCEPT, of course, that the contracts as so specified in Exhibits 3 and 4 hereto will continue In full force and effect pursuant to the terms and conditions of such contracts.

Exhibit 6-J (emphasis added).

The quoted language unambiguously divides the plaintiff's insurance policies into two classes: those that are being restructured and those that are not. By referring to the incorporated exhibits, the, quoted language unambiguously identifies which of the defendant's insurance policies fall into each class: those "specifically described" in Exhibits 1 and 2 are being restructured, while those in Exhibits 3 and 4 remain "in full force and effect pursuant to the terms and conditions of such contracts."

The only policy "specifically described" in Exhibits 1 and 2 is the Excelerator life insurance policy, identified in Exhibits 1 and 2 as contract #08051281890. While Exhibit 1 also refers generally to "your Disability Income Protection policies" and "your Life Insurance Protection . . . as well as your wife Tammy's," it does not "specifically describ[e]" them by policy number or otherwise. Similarly, Exhibits 1 and 2 "specifically describ[e]" the restructuring of the Excelerator policy, i.e., cancellation and full premium refund with interest, but these exhibits say nothing of any restructuring of the plaintiff's disability or other life insurance policies.

That Exhibit 3 to the Settlement Agreement identifies the plaintiffs disability policy by contract number and lists the plaintiff's monthly benefit payable as $8,000 cannot create an ambiguity as to the monthly benefit because the existence of an ambiguity must be gauged from the contract as a whole, not simply from an isolated clause. The dispositive fact, as noted above, is that the Settlement Agreement identifies only the policies "specifically described" in Exhibits 1 and 2 as being restructured, not those specifically described in Exhibits 3 and 4. Moreover, Exhibit 1 states that the plaintiffs policies as listed in Exhibits 3 and 4 are "currently in force, 2' and the Settlement Agreement acknowledges that these polices will "continue" to be in force according to their terms and conditions. On its face, the Settlement Agreement and Exhibit 3 do not purport to alter the defendant's disability policy in any way but merely reflect the parties' (incorrect) understanding of what the disability policy already provided.

The defendant argues the Settlement Agreement is ambiguous because it refers to multiple policies or contracts, so that the Excelerator policy cannot be the only one that was restructured. (Doc. 28 at 3). Again, ambiguity cannot be created by looking to an isolated clause or term. A review of the Settlement Agreement as a whole reflects indiscriminate usage of the singular and plural forms of policy and contract, demonstrating the lack of significance to be attached to the form used. Nor can the imprecise plural form be afforded significance when juxtaposed against the explicit restriction of the policies being modified to those "specifically described" in Exhibits 1 and 2.

The defendant's suggestion that the Settlement Agreement itself and Exhibits 1 and 2 "state, in very clear and concise language, that the benefit to be paid to Dr. Kick was $8,000.00," (Doc. 28 at 3), is simply incorrect. As noted in text, two of these documents do not mention a disability policy at all, and the third merely recognizes that a disability policy exists, without any description of its terms."

Even could the Court detect any ambiguity in the Settlement Agreement, so as to require consideration of evidence aliunde, the extra-contractual evidence presented at trial simply confirms that the parties never reached a mutual agreement to increase the monthly benefit payable from $7,000 to $8,000. The defendant recalls discussing with Crowley only two changes to his disability policy: (1) an "own occupation" rider; and (2) a premium discount. These are also the only issues concerning the defendant's disability policy mentioned in Crowley's copious correspondence. Moreover, had any modification of the monthly benefit payable occurred, an extensive paper trail would have been created, including the signed endorsement to the policy required by ¶ 10.1, yet none of this paperwork in fact exists. Similarly, had the monthly benefit payable been increased to $8,000, the premium would have been correspondingly increased, yet the defendant continued to pay the premium applicable to $7,000 of coverage. While both parties thought and/or spoke in terms of an $8,000 monthly benefit, they did so based on the incorrect assumption that the existing contract of insurance already provided $8,000 in benefits and not because they desired, intended or agreed to alter the original contractual amount.

Finally, the defendant argues that, even if the monthly benefit was not modified to $8,000, the plaintiff is equitably estopped to pay the defendant a lesser amount. He argues that the plaintiff's correspondence preceding execution of the Settlement Agreement misrepresented, innocently or otherwise, that the benefit amount was $8,000 and that he detrimentally relied on this representation by executing the Settlement Agreement and foregoing suit against the plaintiff for the actions of Roland Hayes. (Doc. 28 at 4-6; Doc. 31 at 2).

As a threshold matter, the defendant failed to preserve this issue for trial. While he alleged estoppel in his answer, (Doc. 9 at 1), he did not do so in the joint pretrial document. (Doc. 25). The pretrial order "shall constitute the final statement of the claims to be litigated, shall govern the conduct of the trial, and shall constitute the basis for any relief afforded by the Court," subject to amendment only "for good cause to avoid manifest injustice." (Doc. 20 at 3-4); accord Fed.R.Civ.P. 16(e). The defendant has offered no good cause for his failure to identify estoppel as an issue in the pretrial document.

Even were the issue of equitable estoppel properly before the Court, the defendant ignores the principle that "application of the doctrine of equitable estoppel must be tempered by applying "a standard of reasonable reliance.'" McCormack v. AmSouth Bank, 759 So.2d 538, 543 (Ala. 1999) (quoting City of Birmingham v. Cochrane Roofing Metal Co., 547 So.2d 1159, 1167 (Ala. 1989)). The defendant at all relevant times had in his possession a copy of the policy which explicitly identified his monthly benefit as $7,000. Just as a literate fraud plaintiff cannot reasonably rely on a representation contrary to documents in his possession, e.g., W.D. Williams, Inc. v. Ivey, 777 So.2d 94, 98 (Ala. 2000), neither may a party pleading equitable estoppel. The defendant did not reasonably rely on the plaintiffs representations as to the monthly benefit payable.

Nor did the defendant prove detrimental reliance to begin with. In brief, the defendant asserts he relied on the plaintiffs representations of an $8,000 monthly benefit by foregoing suit against the plaintiff for the actions of Roland Hayes. (Doc. 28 at 6; Doc. 31 at 2). There is no question that the defendant did not sue the plaintiff, but the defendant presented no evidence that he would have sued the plaintiff had he known his monthly benefit was actually $7,000. Indeed, he offered no evidence that he would not have entered the Settlement Agreement, releasing all such claims, had he realized the true monthly benefit was $7,000. The Court finds the defendant did not rely on any representation as to the amount of his monthly benefit in foregoing suit against the plaintiff.


The failure of both parties to review the terms of the policy created the confusion that inspired this litigation, but it did not work either a modification of the monthly benefit or an equitable estoppel. For the reasons set forth above, the plaintiff is entitled to judgment against the defendant for all benefits paid in excess of $7,000 a month and to a declaration that its liability under the policy is limited to $7,000 a month. Judgment shall be entered accordingly by separate order.

Summaries of


United States District Court, S.D. Alabama, Southern Division
May 31, 2001
Civil Action 00-305-S (S.D. Ala. May. 31, 2001)
Case details for


Case Details


Court:United States District Court, S.D. Alabama, Southern Division

Date published: May 31, 2001


Civil Action 00-305-S (S.D. Ala. May. 31, 2001)