Title: Kirkwood v. CUNA Mut. Ins. Soc.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Kirkwood v. CUNA Mut. Ins. Soc.1997 WY 54937 P.2d 206Case Number: 96-209Decided: 04/09/1997Supreme Court of Wyoming

CAROLINE KIRKWOOD, as Personal 
Representative of the Estate of

Arthur Lynn Kirkwood, Sr., Deceased, and CAROLINE 
KIRKWOOD, Individually, 

Appellants(Plaintiffs), 

v. 

CUNA 
MUTUAL INSURANCE SOCIETY, 

Appellee(Defendant).

Appeal from the District Court, Natrona 
County

The Honorable Dan Spangler, 
Judge

Representing 
Appellants:

James R. McCarty and Dallas J. Laird, 
Casper.

Representing 
Appellee:

James R. Bell and Michele L. Lorenzen of 
Murane & Bostwick, Casper.

Before TAYLOR, C.J., and THOMAS, MACY, 
GOLDEN and LEHMAN, JJ.

MACY, Justice.

[¶1]      Appellants 
Caroline Kirkwood and the Estate of Arthur Lynn Kirkwood, Sr. appeal from the 
partial summary judgment which was granted in favor of Appellee CUNA Mutual 
Insurance Society.

[¶2]      We 
affirm.

ISSUES

[¶3]      The appellants 
present two issues for our analysis:

I. Whether the 
policy language used by CUNA was ambiguous, thereby precluding Summary 
Judgment.

II. Whether the 
Court improperly dismissed Count Two and Count Three of the Amended Complaint as 
there were facts to support each of those Counts in the 
record.

FACTS

[¶4]      The Kirkwoods 
borrowed money from a credit union in October and November of 1992. In 
connection with these loans, Arthur Kirkwood, Sr. (Arthur) signed credit 
insurance applications which were printed at the bottom of the note and 
disclosure statement forms provided by the credit union. Certificates of 
insurance were provided as a part of the transactions. As a member of the credit 
union, Arthur was eligible to receive credit life insurance under the group 
credit insurance policy issued by CUNA to the credit union. By applying for the 
insurance in connection with the loans and by paying the premiums, Arthur became 
an insured under the policy.

[¶5]      In April of 1993, 
Arthur refinanced the November loan, increasing the principal amount of that 
loan. The loan officer explained to Arthur that, if he were to die, the credit 
life policy would pay off his loans. Arthur received copies of the notes and the 
certificates of insurance.

[¶6]      Each certificate 
of insurance contained a credit insurance application which was identical to the 
application printed at the bottom of each note. The applications contained an 
"insurance maximums" box which provided that the maximum insurable balance per 
loan account was $30,000. The applications indicated that Arthur had applied for 
"single credit life" coverage rather than for "joint credit life" 
coverage.

[¶7]      Arthur died on 
August 8, 1993. His wife requested benefits of $30,000 under each policy, less 
the balances of the corresponding loans. CUNA rejected the request, contending 
that it was only obligated to pay off Arthur's loans plus not more than six 
months of unpaid interest. The appellants filed a complaint in which they 
alleged numerous causes of action. CUNA filed a motion for a partial summary 
judgment on the appellants' claims for breach of contract, negligent failure to 
pay death benefits under the policies, and negligent infliction of emotional 
distress.

[¶8]      The district 
court granted CUNA's motion, finding that the insurance contract was not 
ambiguous. The district court also dismissed the appellants' claims for 
negligent failure to pay and negligent infliction of emotional distress because 
these claims were not independent of the appellants' bad faith claim. This 
interlocutory appeal is brought pursuant to W.R.C.P. 54(b).1

STANDARD OF REVIEW

[¶9]      Summary judgment 
is appropriate when no genuine issue as to any material fact exists and when the 
prevailing party is entitled to have a judgment as a matter of law. Garcia v. 
Lawson, 928 P.2d 1164, 1166 (Wyo. 1996); see also W.R.C.P. 56(c). We 
examine the record from the vantage point most favorable to the party who 
opposed the motion, and we give that party the benefit of all favorable 
inferences which may fairly be drawn from the record. 928 P.2d  at 1166. We 
evaluate the propriety of a summary judgment by employing the same standards and 
by using the same materials as were employed and used by the lower court. 
Id. We do not accord any deference to the district court's decisions on 
issues of law. Id.

DISCUSSION

A. Count One

[¶10]   The appellants contend that the 
language which CUNA used in the policies was ambiguous thereby precluding the 
entry of a summary judgment. More specifically, the appellants claim that the 
language in the benefits section of the certificates of insurance gave the 
impression that the beneficiary or Arthur's estate was entitled to receive 
$30,000 under each policy, less the amount owed on the corresponding loan. CUNA 
counters that a summary judgment was proper because the benefits which were 
payable under the terms of the credit life insurance policy were limited to the 
principal balances of the loans on the date of death plus not more than six 
months of unpaid interest.

[¶11]   Insurance policies are contracts, 
and general rules of contract construction apply to them. St. Paul Fire and 
Marine Insurance Co. v. Albany County School District No. 1, 763 P.2d 1255, 
1258 (Wyo. 1988). When we interpret contracts, we ascertain the meaning of the 
words used to express the parties' intent. Doctors' Company v. Insurance 
Corporation of America, 864 P.2d 1018, 1023 (Wyo. 1993). We determine the 
parties' intent by analyzing the instrument which memorializes the parties' 
agreement as a whole. Id. Under our standard of interpretation for 
insurance policies, we give the words used the plain meaning that a reasonable 
person, in the position of the insured, would understand them to mean. 
Id.

[¶12]   In order for a summary judgment to 
be appropriate, the contract must be unambiguous. Id. An ambiguity exists when a 
contract is "obscure in its meaning because of indefiniteness of expression or 
because it contains a double meaning." Ferguson v. Reed, 822 P.2d 1287, 1289 
(Wyo. 1991).

The initial 
question of whether the contract is capable of being understood in only one way 
is a question of law for the court. If the court determines that the contract is 
capable of being understood in only one way, then the language used in the 
contract expresses and controls the intent of the parties. In such case, the 
next question, what is that understanding or meaning, is also a question of law. 
. . . As we have said, "[w]e are . . . at liberty to make a determination as to 
the existence of ambiguity whether or not the parties here agree thereto one way 
or the other, and whether or not the trial court has reached a conclusion 
thereon one way or the other."

Examination Management Services, Inc. v. 
Kirschbaum, 927 P.2d 686, 689 (Wyo. 
1996) (citations omitted) (quoting Amoco Production Company v. Stauffer 
Chemical Company of Wyoming, 612 P.2d 463, 465 (Wyo. 
1980)).

[¶13]   When contract provisions are not 
ambiguous or uncertain, the document speaks for itself, and parol evidence which 
tends to show that a prior or contemporaneous oral agreement or tacit 
understanding was made with respect to the agreement terms is inadmissible. 
Patel v. Harless, 926 P.2d 963, 965 (Wyo. 1996). An ambiguity cannot be 
created by a disagreement between the parties as to the meaning of the contract, 
see St. Paul Fire and Marine Insurance Co., 763 P.2d  at 1258, and the 
contract's language will not be "tortured" to create an ambiguity. Doctors' 
Company, 864 P.2d  at 1024.

[¶14]   The certificates of insurance which 
are at issue in this case contained a section which described the benefits. The 
first general paragraph regarding benefits provided:

Benefits are paid 
to your credit union to pay off or reduce your loan. If the benefits are more 
than the balance of your loan, the difference will be paid to you if you are 
living or to the Beneficiary named by you, if any, or to your estate. Our 
payment will completely discharge our liability to the extent of the 
payment.

The second paragraph, which was placed under 
the heading of "Death Benefit," read:

Death Benefit. 
If you die while you are insured for 
life coverage, we will pay the principal balance of your loan on the date of 
your death, plus not more than six (6) months unpaid interest on your loan to 
that date, not to exceed the Maximum Amount of Life 
Insurance.

[¶15]   The policy issued by CUNA to the 
credit union contained the following provisions relating to death 
benefits:

WHO IS INSURED

Single Life 
Insurance Benefit. For single life 
coverage, the borrower who is insured for the loan will be the eligible member 
who applied for the insurance and whose name is shown on the Certificate of 
Insurance.

. . . .

BENEFITS

Any death benefits 
under this Policy will be paid to you once we receive written proof of the death 
of the insured member. You will apply the benefits to reduce or pay off the 
loans for which payment is made. You will pay any excess benefits to the 
beneficiary named by him or to his estate. Our payment will completely discharge 
our liability to the extent of the payment.

If a member or a 
joint insured dies while he is insured under this Policy for a loan, we will pay 
the principal balance of his loan on the date of his death, plus not more th[a]n 
six (6) months unpaid interest on his loan to that date. Our payment will not 
exceed the Maximum Amount of Life Insurance stated in the 
Application.

The insurance maximums section of each 
application provided:

INSURANCE MAXIMUMS                           
                        
DISABILITY                
LIFE 

MONTHLY TOTAL BENEFIT                                               
$600                           
N/A 

INSURANCE BALANCE PER LOAN ACCOUNT            
$30,000                      
$30,000 

MAXIMUM AGE FOR INSURANCE                                   
66                                
70

[¶16]   The first paragraph in each 
certificate of insurance generally described the method for paying the benefits 
which were available under the policy and was followed by three sections: the 
"Death Benefit," the "Joint Insured Death Benefit," and the "Total Disability 
Insurance Benefit" sections. This general paragraph did not promise more 
benefits than those benefits which were described in the "Death Benefit" 
section. It did not, as the appellants assert, indicate the amount which would 
be paid. The statement that the difference would be paid to the named person was 
conditioned by the clause, "[i]f the benefits are more than the balance of your 
loan." This provision did not grant benefits which exceeded the loan balance. 
The language applied to both death and disability benefits and not to just the 
death benefits. In order to determine what benefits were to be paid, the 
specific description of the situation - death or disability - had to be 
consulted.

[¶17]   The language in the insurance 
maximums section of each certificate of insurance stated that the maximum 
insurable balance per loan account was $30,000. When this information is read in 
conjunction with the death benefit provision, the certificates of insurance 
required CUNA to pay off the balances of the loans on the date of death but did 
not require CUNA to pay more than $30,000 on each loan.

[¶18]   We recognize that exact benefit 
amounts were not supplied. This does not surprise us given the fact that the 
benefit amounts were calculated as of the date of death on the basis of the 
remaining loan balances. Since the loan balances changed over time, the amounts 
of the death benefits changed as the loan amounts were 
reduced.

[¶19]   Furthermore, the fact that the 
certificates of insurance included a statement which read, "[i]f the benefits 
are more than the balance of your loan, the difference will be paid to you if 
you are living or to the Beneficiary named by you, if any, or to your estate," 
does not concern us for two reasons. First, WYO. STAT. § 26-21-107(b)(ii) (1991) 
requires that this language appear in the certificates of insurance. Second, the 
language addresses a situation in which a loan balance changes after the date of 
death. For example, a payment might be applied to a loan through an automatic 
payment plan from a decedent's paycheck which is issued after his death. This 
could occur before a notice of the claim is filed for death benefits and would 
reduce the loan balance. In such a situation, CUNA would be required to pay the 
credit union the amount of the loan balance as of the date of death. Since an 
additional loan payment would have been made by virtue of an automatic payment, 
this additional payment would result in the benefits being more than the loan 
balance, and the excess amount would then be paid by the credit union to the 
decedent's estate.

[¶20]   The Wyoming statutes which govern 
credit life insurance prohibit the appellants' proposed reading of the contract. 
WYO. STAT. § 26-21-104 (1991) provides in pertinent part:

(a) The initial 
amount of credit life insurance shall not exceed the total amount repayable 
under the contract of indebtedness.

(b) If an 
indebtedness is repayable in substantially equal installments, the amount of 
insurance shall not exceed the scheduled or actual amount of unpaid 
indebtedness, whichever is greater.

This provision was incorporated into the 
insurance contract between the parties by virtue of WYO. STAT. § 26-21-101(a) 
(1991) and also by the specific policy language which read: "This Policy is 
governed by the laws of the state in which it is delivered." This statute 
prohibits CUNA from paying $30,000 to the appellants on each loan since the 
loans were never insured for that amount.

[¶21]   The notes indicated that one loan 
was for $11,057 and that the other loan was for $5,000. In the event that Arthur 
had died before making even one payment, his death benefits by law could not 
have exceeded the total of these amounts. Here, Arthur died after making 
payments against his indebtedness. His benefits by law could not exceed the 
remaining amount of his indebtedness.

[¶22]   The language which the appellants 
contend made the contract ambiguous is required by statute to be a part of the 
certificates of insurance. Section 26-21-107(b)(ii) 
provides:

(b) Each individual 
policy or group certificate of credit life insurance or credit disability 
insurance, or both, in addition to other requirements of law, 
shall:

. . . 

(ii) State that the 
benefits shall be paid to the creditor to reduce or extinguish the unpaid 
indebtedness and, if the amount of insurance exceeds the unpaid indebtedness, 
the excess is payable to a beneficiary, other than the creditor, named by the 
debtor or to his estate.

When a statute requires that certain 
provisions be included in an insurance policy, the provisions are deemed to be 
consistent with the public policy established by the legislature. 
Prudential-LMI Commercial Insurance v. Superior Court, 51 Cal. 3d 674, 274 Cal. Rptr. 387, 393, 798 P.2d 1230, 1236 (1990). Parties to an agreement are 
presumed to know the law and to have contracted with reference to existing 
principles of law. Walliker v. Escott, 608 P.2d 1272, 1278 (Wyo. 1980). 
"These existing principles of law enter into and become a part of a contract as 
though referenced and incorporated into the terms of the agreement." Union 
Pacific Resources Company v. Texaco, Inc., 882 P.2d 212, 222 (Wyo. 
1994).

[¶23]   We conclude that the insurance 
policy and certificates of insurance were not ambiguous as a matter of law. The 
benefits equaled the principal balances of the loans on the date of Arthur's 
death plus not more than six months of unpaid interest.

B. Counts Two and 
Three

[¶24]   The appellants maintain that the 
district court improperly dismissed counts two and three of their amended 
complaint because the record contained facts which supported each count. CUNA 
counters that the district court correctly ruled that, as a matter of law, 
Wyoming does not recognize actions for negligent failure to pay or negligent 
infliction of emotional distress independent of a bad faith cause of 
action.

[¶25]   In count two, the appellants 
complain that CUNA negligently refused and failed to pay death benefits under 
the policies and that, as a result, the appellants suffered damages in the 
nature of unpaid death expenses, emotional distress, loss of credit, loss of 
reputation and credibility, and loss of enjoyment of life. In count three, the 
appellants allege that CUNA should have been aware that Arthur's wife was 
suffering extreme anxiety and emotional distress after the death of her husband 
and that it negligently communicated with her concerning the payment of death 
benefits. In count four, the appellants claim that CUNA refused to pay valid and 
legitimate claims without having justification and that, in doing so, CUNA 
breached its duty to act in good faith which resulted in damages for emotional 
distress, mental pain and suffering, loss of enjoyment of life, and economic 
losses.

[¶26]   Prior to 1990, an insured who felt 
that he had been wronged by an insurance company in the first-party insurance 
context could sue only for breach of contract. We have, however, adopted a tort 
cause of action for the breach of an insurer's duty of good faith and fair 
dealing. McCullough v. Golden Rule Insurance Co., 789 P.2d 855, 858 (Wyo. 
1990). Such a claim is known as a bad faith cause of action. We adopted the bad 
faith cause of action after recognizing that an insurance contract is a special 
situation where a duty of good faith and fair dealing should apply. Id. 
Recovery is premised upon the existence of a special relationship that is 
created by the unequal bargaining power which an insurer has over an insured. 
Id.

[¶27]   In determining whether an insurance 
company has acted in bad faith, we use an objective standard. Under that 
standard, "`where a claim [is] not fairly debatable, refusal to pay would be bad 
faith.'" State Farm Mutual Automobile Insurance Company v. Shrader, 882 P.2d 813, 825 (Wyo. 1994) (quoting Anderson v. Continental Insurance 
Company, 85 Wis.2d 675, 271 N.W.2d 368, 374 (1978)). Such bad faith creates 
an action in tort. Id. This bad faith tort covers both an insurer's 
obligation to investigate and its obligation to pay its insureds in appropriate 
situations.

[¶28]   The appellants' cause of action for 
negligent failure to pay as well as their cause of action for negligent 
infliction of emotional distress are included within the bad faith tort. They 
are not sustainable causes of action under Wyoming law apart from a bad faith 
cause of action, and the appellants were not deprived of a remedy by virtue of 
their dismissal. Since count four alleged a bad faith claim, the district court 
properly found that the claims asserted in counts two and three were contained 
within count four.

CONCLUSION

[¶29]   We hold that CUNA was entitled to 
be awarded a partial summary judgment as a matter of law and that the district 
court properly dismissed counts two and three of the appellants' 
complaint.

[¶30]   Affirmed.

Footnotes

1 Although the district court found that 
there was no just cause for delay under the provisions of W.R.C.P. 54(a), we 
believe the cite to section (a) rather than to section (b) was merely a 
typographical error.