# FILED December 10, 2001 Cecil Crowson, Jr . Appellate Court Clerk PEOPLE'S BANK OF ELK VALLEY, ) ) Plaintiff/Appellant, ) Appeal No. ) 01-A-01-9506-CV-00260 v. ) ) Lincoln Circuit AMERICAN BANKERS FINANCIAL ) No. 128-88 SERVICES, INC., et al, ) ) Defendants/Appellees. )



### COURT OF AP PEALS OF TE NNESSEE MIDDLE SECT ION AT NASH VILLE
APPEAL FROM

THE COURT FOR LINCOLN COUNTY AT FAYETTEV ILLE, TENNE SSEE
THE HONORAB LE LEE RUSS ELL

STEPHEN G. ANDERSON Baker, Donelson, Bearman & Caldwell 900 Gay Street, S.W., Suite 2200 P. O. Box 1792 Knoxville, Tennessee 37901 ATTORNEY FOR PLAINTIFF/APPELLANT

Walter W. Bussart Barbara G. Medley Bussart & Medley 101 West Commerce, Suite 306 Lewisburg, Tennessee 37091 ATTORNEYS FOR DEFENDANTS/APPELLEES

REVERSED AND REMANDED



### SAMUEL L. L EWIS, JUDGE2 

# O P I N I O N
Pl aintiff, People's Bank of Elk Valley ("People's Bank"), appeals from the trial court's order granting summary judgment to defendant, American Banker's Financial Services, Inc. ("American") and dismissing People's Bank's complaint.

The complaint focused on American's failure to insure loans that American had allegedlyagreed to insure. Initially, People's Bank sought to recover the entire am ount of a ll the loans and consequential damages regardle ss o f whether the underlying loans had gone into default. As the case progressed, however, People's Bank norrowed its focus to those loans that had actually gone into default and the portions of thos e loan s (principal and interest) that American had allegedly agreed to insure.

Following discovery, both parties moved for summary judgment. In February 1992, the trial court denied People's Bank motionfor partial summary judgment, granted American's motion for summaryjudgment, and dismissed People's Bank's complaint. People's Bank appe ale d the trial court's judgment as to thirtyeight of the original fifty-two loans.

The facts out of which this case arose are as follows. In the summer of 1985, Manufacturer 's Mo rtgage Underwriters, Inc. ("MMU") approached the president of People's Bank . MMU proposed an arrangement in which People's Bank would fund loans secured by manufactured homes. If People's Bank made the loans under certain conditions, they could package the loans and resell them on the secondary market. MMU represented to People's Bank that the risk was small because People's Bank could obtain credit insurance and would only hold the loans for a brief time.3 As part of this arrangement, American issued a manufactured home credit insurance policy in August 1985 naming People's Bank as the insured. The section of the insurance polic y enti tled "Insuring Agreement" provided:

We agree to prov ide insurance coverage for losses caused by the default of a borrower wh ose lo an is secur ed b y a manufactured home which occur during the Commitment Period shown on the Co mmitment of Insurance. Your coverage is subject to all policy terms and conditions.

The relevant portio ns of the "General Policy Conditions" were as follows: 1. REQUIREMENT FOR INSURANCE We [American] agree to issue a Commi tment for Insurance for each eligible loan adv a nced by You after the effective date of the policy. You agree to submit a Request for Commitment of Insurance on forms furnished by Us on all eligible loans advanced by You after the effective date of this policy. Your request must be made by the 10th of the month following the purchase date of the loan. We agree to provide You with the Commitment of Insurance within 30 days afte r receipt of Your request. * * * 5. MISREPRESENTATION AND FRAUD We [American] have the option to can cel an individual Commitment of Insurance if on e of Your employees or appointed agents has concealed or materiallymisrepresented any of the information We require on a loan or borrower. * * * 8. INFORMATION AND REPORTS Onany loan to be insured You must supply Us with the information and documentation We require bythe 10th of the month following the date of the loan. * * * If at any t ime We request additional information You will promptly provide Us with the information. * * * 18. CANCELLATION You [People's Bank] ma y ca ncel this policy at any4 time by returning it to Us. We [American] reserve the right t o cancel this po licyat any time by mailing a 10 day wr itte n notice to You at Your address last known to Our authorized agent with postage fully pre-paid.

The policy provided that People's Bank wo uld pay a single premiumto American which would cover the life of the loan. Shortlyafter American issued the policy, a representative of Americanmet with two officers from People's Bank to discuss the policy. The representatives from People's Bank discl ose d to Americanthat People's Bank did not have experience in mobile home financing or in selling loans on the secondary market.

People's Bank made fifty-two loans, which w ere se cured by manufactured homes, between 30 August 1985, the date the policy was issued, and January 1986. The loans had an aggregate face value of approximately one and one-half million dollars.

Americanadmitted receiving requests for commitments of insurance on forty-eight loans. It issu ed c ommitments for insurance onten of the loans and refused to insure the remainder.

People's Bank divid ed t he forty-eight loans into four categories based on American's dispositi on o f the requests for commitment of insurance. Firs t, there were eighteen loans that American refused to insure because the requests for commitment of insurance were allegedly made after the time period provided in the policy. Second, there were seven of the preceding eighteen loans that American refu sed to insure because it claimed that People's Bank had made misrepresentations regarding the employment or deaths of the loan applicants. Third, American refused to insure twenty loans because of the alleged misrepresentations made in the other loans. Fourth, there were ten loans which American insured, but5

for which it cancelled payment. The parties have resolved the issues regarding this last group of loans.

Americanrefused to issue commitments for insurance on the first eighteen loans because they did not promptly receive the requests for commitment of insurance. American alleged that they
rece ived t he requests for commitment of insurance on 23 December 1985 and that People's Bank made the loans in September, October, and November 1985. American insisted that the policy required that theybe in receipt of the requests by the 10th of the month follo wing the month in which People's Bank made the loan s . Althoughthe policy obligated American to act upon the requests for commitment of insurance within thirty days, American did not advise People's Bank of its refusal t o ins ure these loans until 19 June 1986, some five months after People's Bank submitted the requests for commitment of insurance. American's letter conveying their refusals stated in pertinent part:

Thankyou [sic] for forwarding me a copy of the agreement betwe en Man ufactured Mortgag e Underwriters and The Peoples[sic] Bank. In addition to the lists of loans furnished you in myletter of May 30, 1986, I amenclosing a list of loans that were received at our office on December 23, 1985. This list totals 18 loans. Unfortunately, we are unable to insure these loans because they do not comply with Paragraph 1 under General Policy Conditions of the Manufactured Home Credit Insurance Policy. All of these loans had effective dates of September and October, 1985 and therefore should have been submitted to American Bankers by the 10th of the following month.

Americaninsisted tha t it d id not have an obligation to issue commitments for insurance as to the seven loans in the second group because of alleged misrepresentations concerning the borrowers' debts or places of emp loyment. American found these misrepresentations through phone audits, credit reports, and investigations conducted byEquifax. American did not allege that6

the misrepresentations were attributable to People's Bank.

Ameri canrefused to issue commitments for insurance as t o the twenty loans in the third group because of the alleged misrepresentations in the other loans. Americanalso insisted that People's Bank did not adequately explain discrepancies in the appl icatio ns. As a result, American suspended its obligation to insure the loans. American explained its action in a letter dated 30 May 1986, four months after People's Bank submitted the requests for commitment of insurance to American and three months after Amer icanwould have ordinarily issued the commitments for insurance. That letter stated in pertinent part:

This letter confirms our telephone conversation on Friday, May 23 in which I advised you that we had not yet received the delinquency report from Manufactured Mortgage Underwriters for the month of April. Also, I advise d you that in recent audits we had discovered discrepancies on employment relative to the bo rr ower. As information, the amount that is past due for May is $502.87. Attached is a l ist of loans that were returned to Manufactured Mortgage Underwriters on May 23, 1986. As I indicated on the phone, we would not be underwriting these loans until audit discrepancies we re c leared up and until we were confident all conditions of the above policy were complied with. Please consider the above policy suspended for coverage of any additional loans not show n on the attached list of inforce loans . The suspension is effective immediately and is in effect until further notice.

On18 July 1986, American notified People's Bank that it had cancelled the policy. People's Bank insisted that it suffered losses on the loans because of borrowers' defaults and because of American's refusal to insure the loans.

People's Bank presented four issues on appeal. They are as follows: I. Did the Manuf ac tured Home Credit

Insurance Policy ("the Policy") issued by American Bankers Insurance Company of Florida ("ABIC")7 create an enforceable obligation on th e par t of ABIC to insure all "eligible" loans made by the People's Bank of Elk Valley ("People's Bank")during the term of the Policy or until it was ter minate d by ABIC? II. Did ABIC breach its obligation under the Policy when it refused to insure eligible loans for no reason other than unexplained discrepancies in other loans? III. Did ABIC breach its obligation under the Policyby re fusing to insure loans solely because they were not submitted for insurance within the time period specified in the Policy? IV. Did ABIC breach its obligation under the Policy by refusing to insure anyloans in which a borrower misrepresented his employment history or debts?

It is the obligation of courts "to enfor ce contracts according to their plain terms." Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc. , 52 1 S.W.2d 578, 580 (Tenn. 1975). Courts are to interpret insurance policies, like other contracts, bygiving words their common and ordinary meaning. Tata v. Nichols , 848 S.W.2d 649, 650 (Tenn. 1993). "[T]he paramount rule of construction in insurance law is to ascertain the intent of the parties." Blue Diamond Coal v. Holland-Americ a Ins. Co. , 671 S.W.2d 829, 833 (Tenn. 1984). If language in a policy is found to be ambiguous, i.e., "susce ptib le of more than one reasonable interp retation," it will be "construed against the insurance company and in favor of the insured." Tata , 848 S.W.2d at 650.

We are reviewing the dismiss al of People's Bank complaint on motion for summary judgment.

Indetermining whether or not a genuine issue of material fact exists for purposes of summary judgment, courts ... must take the strongest legitimate view of the e vide nce in favor of the nonmoving party, allow all reasonable inferences in favor of that party, and discard all countervailing evidence. Then, if there is a dispute as to any material fact or any doubt as to the conclusions to be drawnfrom that fact, the motion must be denied. Byrd v. Hall, 847 S.W.2d 208, 210 (Tenn. 1993) (citations omitted). It has been repeatedly stated by this Court that the purpose of a summary judgment preceding is not8 th e finding of facts, the resolution of disputed factual issues, or the determination of conflicting inferences reasonably to be drawnfro m the facts. The purpose is to resolve cont rolli ng issues of law, and that alone. Bellamy v. Federal Express Corp. , 749 S.W.2d 31, 33 (Tenn. 1988). Summary judgment is appropriate when, after construing all of the evidence most favorably to th e nonmoving party, there are no genuine issues of material fact and the law entitles the movant to a judgment. Byrd , 847 S.W.2d at 214.

Withthese rules in mind we discuss the issues presented by the plaintiff. People's Bank has stated that the central issue on appeal i s wh ether American's "refusal to issue certificates of i nsurance on thirty-eight loans was a breach of the credi t insurance policyit issued to People's Bank." The question we must answer is when did the obligation of American to insure attach to a specific loan.

People's Bank insisted that American's obligation to insure
a loan attached, if at all, at the time People's Bank made the loan. That is, if the loan met t he eligibility requirements at that time, the policy obligated American to insure the loan and to issue a commitment for insurance. They admitted that the policy did not obligate American to insure a loan if the loan did not meet the eligibility requirements.

P eople's Bank further argued that "any factual review o f loandocumentation undertake n bythe insurance company after the loanis advanced is done not to decide whether the company wants to insure the loan but to confirm whether the loan, when made, met the eligibilityrequirements in the Policy." Stated another way, People's Bank insisted that once they made the loan, American no longer had the discretion to decide whether it wanted to insure the9

loan. I f the loan met the objective criteria the parties ha d agreed to, it was an "eligibl e" loan a nd the policy entitled People's Bank to insurance regardless of whether American was "comfortable" with it.

The trial court, however, found that there was no obligation to insure an y of the loans until after American had made a discretionarydecision that it wanted to insure a specific loan and had issued a commitment for insurance as to that loan. The trial court held that refusing to insure the t hirty-eight loans was defensible because American had no obligation to insure the loans unless and until it was comfortable with the paperwork and it had actually issued commitments for insurance.

Fromour review of this record, we are of the opinion that People's Bank has shown that there is a genuine issue of material fact as to whether American agreed to insure all eligible loans and
as to whether the eligibility of a loan was a fact that People's Bank could determine prior to making the loan by referring to the object ive criteria set forth in the policy. There is also a material question as to whether the thirty-eight loans i ssued by People's Bank met the eligibility criteri a a t the time People's Bank made the loans.

Therefore, it results that the summary judgment granted to Americanis reversed, and the cause is remanded to the trial court for any further necessary proceedings. Costs on appeal are assessed to defendant/appellee, American Bankers Financial Services, Inc.

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_________________

_ SAMUEL L. LEWIS, JUDGE10

CONCUR:

_________________________________ HENRY F. TODD, P.J., M.S.

_________________________________ WILLIAM C. KOCH, JR., J.