Title: Bush v. Ford Life Ins. Co.
Citation: 682 So. 2d 46
Docket Number: 1931402
State: Alabama
Issuer: Alabama Supreme Court
Date: July 19, 1996

682 So. 2d 46 (1996)
John W. BUSH
v.
FORD LIFE INSURANCE COMPANY, et al.
1931402.

Supreme Court of Alabama.
July 19, 1996.
Jeffery C. Duffey, Montgomery, and Denise A. Simmons of Susan G. James and Associates, Montgomery, for Appellant.
*47 Gerald C. Swann, Jr. of Ball, Ball, Matthews &amp; Novak, P.A., Montgomery, for Ford Life Ins. Co.
Steven F. Schmitt and John G. Smith of Schmitt &amp; Harper, P.C., Tallassee, for Ben Atkinson Motors, Inc.
PER CURIAM.
This appeal, involving a dispute over a policy of credit life insurance, presents two questions:
1) When does a cause of action for negligent failure to procure insurance accrue?
2) Was the credit life insurer entitled to a summary judgment on the insured's bad-faith-failure-to-pay claim, on the basis that there was a debatable issue on the contract claim?
John W. Bush and his wife Alfa Sue Bush purchased a truck from Ben Atkinson Motors, a Ford Motor Company dealership, and financed it through Ford Motor Credit Corporation. The Bushes applied for credit life insurance through Ford Life Insurance Company (hereinafter "Ford Life"). Alfa Sue Bush died of a heart attack approximately one year after she and her husband had purchased the truck and had signed the credit life application.
Mr. Bush filed a claim with Ford Life, but Ford Life refused to honor it, on the ground that when they signed the application Mrs. Bush was not in good health, contrary to her representation on the application.
The credit life application includes a health statement, a portion of which reads as follows:
The plaintiff Mr. Bush admits that this statement was included on the credit life application; however, he testified that the only question the sales representative asked him and Mrs. Bush was "What do you consider your health to be?" and he says they replied that it was good. Ford Life conducted an investigation after Mrs. Bush's death and discovered that she had had a two-year history of heart problems.
Mr. Bush sued Ford Life Insurance Company, alleging breach of contract for its failure to pay on the policy and alleging the tort of bad faith failure to pay. He sued Ben Atkinson Motors in the same action, alleging negligent procurement of credit life insurance.
The trial court entered a summary judgment for Ben Atkinson on the negligent procurement claim, holding that that claim was barred by the statute of limitations. It also entered a summary judgment for Ford Life on the bad faith claim. Although this case involved other claims and other defendants, only these two claims are involved in this appeal.
The statute of limitations applicable to a negligence claim is two years. Ala.Code 1975, § 6-2-38. Alfa Sue Bush died on September 18, 1990. Mr. Bush sued Ben Atkinson Motors on December 11, 1992, more than two years after her death. Mr. Bush argued that the cause of action for negligent procurement did not accrue and, therefore, that the statutory limitations period did not begin to run on that claim, until he received notice on December 14, 1990, from Ford Life that his claim would not be honored. We agree with Mr. Bush that the cause of action for negligent procurement did not accrue until Ford Life notified him that it would not honor his claim. In a case of negligent procurement, a cause of action accrues when a loss that would trigger liability under the policy occurs. Hickox v. Stover, 551 So. 2d 259, 264 (Ala.1989). In Weninegar v. S.S. Steele &amp; Co., 477 So. 2d 949, 956 (Ala.1985), the Weninegars filed a negligence action against an insurance agent for allowing a flood insurance policy to lapse. The Court held that no legal injury occurred until the Weninegars' house was flooded and the insurer refused to cover the loss.
Here, the event that triggered liability under the policy was the death of Mrs. Bush, followed by Ford Life's December 14, 1990, *48 refusal to honor Mr. Bush's claim. Mr. Bush filed his negligent procurement claim against Ben Atkinson on December 11, 1992, within the two years allowed by the statute of limitations.
As to the bad faith claim against Ford Life, Mr. Bush argues as follows:
The substance of Mr. Bush's argument is that Ford Life improperly created an "automatic debatable reason" and, because that reason was improperly created, he says, he should be able to maintain a bad faith claim. Although we understand Mr. Bush's argument, if we accepted it and determined that this was an "extraordinary" case, we believe that to do so would change the law of bad-faith-refusal-to-pay as established by this Court.
When this Court created the bad-faith tort in Chavers v. National Security Fire &amp; Casualty Co., 405 So. 2d 1, 7 (Ala.1981) it stated:
Later, in National Security Fire &amp; Casualty Co. v. Bowen, 417 So. 2d 179, 183 (Ala.1982), this Court held:
This Court has held that the plaintiff must go beyond a mere showing of nonpayment and prove bad faith nonpayment, a nonpayment without any reasonable ground for disputea failure to pay even though the insurer had no legal or factual defense to the claim. Bush v. Alabama Farm Bureau Mut. Casualty Ins. Co., 576 So. 2d 175 (Ala.1991). We hold that Mr. Bush failed to meet his burden of proof as to the bad faith claim.
In National Savings Life Ins. Co. v. Dutton, 419 So. 2d 1357 (Ala.1982), this Court emphasized the heavy burden a plaintiff must bear in a bad faith case:
419 So. 2d  at 1362. Dutton also stated that "[w]hether an insurance company is justified in denying a claim under a policy must be judged by what was before it at the time the decision [was] made." Id. The Ford Life policy provided that Ford Life reserved the right to review the policyholder's medical records if he or she died within one year from the effective date of the policy.
Based on the foregoing, we reverse the summary judgment in favor of Ben Atkinson Motors on the negligent procurement claim, but we affirm the summary judgment in favor of Ford Life on the bad faith claim. The cause is remanded.
AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.
AS TO PART I:
SHORES, HOUSTON, KENNEDY, INGRAM, COOK, and BUTTS, JJ., concur.
HOOPER, C.J., and MADDOX, J., dissent.
AS TO PART II:
HOOPER, C.J., and MADDOX, SHORES, HOUSTON, and COOK, JJ., concur.
KENNEDY, INGRAM, and BUTTS, JJ., dissent.
HOOPER, Chief Justice (concurring in part; dissenting in part).
I concur with the majority opinion insofar as it affirms the summary judgment in favor of Ford Life Insurance Company on the bad faith claim. However, I must respectfully dissent from the reversal of the summary judgment in favor of Ben Atkinson Motors on the negligent procurement claim.
The plaintiff filed this action after the two-year statutory limitations period had run as to the negligent procurement claim. The majority calculates the statute of limitations period as running from the date Ford Life denied Mr. Bush's claim. In that way, Mr. Bush meets the statutory period by three days. I think the limitations period began to run on the date of Mrs. Bush's death; measuring the two-year period from that date, I conclude that Mr. Bush's action was barred.
In Hickox v. Stover, 551 So. 2d 259, 264 (Ala.1989), this Court overruled prior cases holding that the statutory limitations period for negligent procurement actions begins to run on the date the insurer provides the unsatisfactory policy. Hickox held that negligent procurement claims accrue at the time of the loss, e.g., on the date of a flood that damages the house of an insured person. For claims involving life insurance, the time of loss is the date of death of the insured person. The cause of action in this case accrued at the time of the lossMrs. Bush's death.
The majority cites only two cases addressing negligent procurement. Hickox, supra, and Weninegar v. S.S. Steele &amp; Co., 477 So. 2d 949 (Ala.1985). This Court held in Weninegar that a cause of action for negligent procurement accrues when a loss triggering liability occurs. 477 So. 2d  at 956.
*50 Thus, under both Hickox and Weninegar, the cause of action for negligent procurement accrued when Mrs. Bush died. The majority states that this Court held in Weninegar "that no legal injury occurred until the Weninegars' house was flooded and the insurer refused to cover the loss." 682 So. 2d  at 47. (Emphasis original.) I think the following quote from Weninegar more accurately states its holding: "[T]he cause of action accrues when a loss triggering liability under the lapsed policy occurs.... We believe this to be the proper rule and overrule [Moore v. United States Pipe &amp; Foundry Co., 384 So. 2d 1108 (Ala.Civ.App.1980)], a case in which the Court of Civil Appeals used the date of policy lapse instead of the date of injury for determining the beginning of the limitations period, to the extent it conflicts with our holding in this case." 477 So. 2d  at 956. (Citations omitted.) The majority today de facto overrules Hickox and Weninegar, without stating that it is making new precedent. If this Court wants to create new precedent, it should do so clearly and explicitly. Clarity today would prevent future confusion as to the correct precedent to be followed in cases like this one.
Nevertheless, I dissent from the holding reversing the judgment for Ben Atkinson Motors and overruling this Court's precedent. I would affirm that judgment.
MADDOX, Justice (concurring in part; dissenting in part).
I agree that the summary judgment in favor of Ford Life Insurance Company on the bad faith claim is due to be affirmed. However, I must respectfully dissent from the reversal of the summary judgment for Ben Atkinson Motors, because I disagree with the majority's resolution of the statute of limitations issue.
Although I understand Mr. Bush's argument that the trial court incorrectly entered the summary judgment against his negligence procurement claim against Ben Atkinson on the ground that the statute of limitations had run, I cannot agree with Mr. Bush's claim that the cause of action did not accrue until he received notice from Ford Life that his claim would not be honored.
I believe, as the defendant Ben Atkinson claims, that the applicable two-year statute of limitations (Ala.Code 1975, § 6-2-38) barred the plaintiff's negligent procurement claim. Alfa Sue Bush died on September 18, 1990, and Mr. Bush did not file this action against Atkinson until December 11, 1992, more than two years later. The event that triggered liability in this case was the loss that gave rise to liability under the policythat was the death of Mrs. Bush; therefore, I believe the statute of limitations barred the claim.
I note that this Court in Hickox v. Stover, 551 So. 2d 259, 264 (Ala.1989), held that a negligent procurement action does not accrue when the policy is delivered but when the loss that is insured against occurs. In the Hickox case, the insured's oil field equipment and inventory were destroyed by a lightning fire on June 12, 1984; this Court held that the statutory limitations period began to run on June 12, 1984, the date of the loss. In Weninegar v. S.S. Steele &amp; Co., 477 So. 2d 949, 956 (Ala.1985), this Court held that a negligence claim did not accrue when the policy lapsed, but when a loss that would trigger liability under the policy occurred. Based on the Hickox rule, I conclude that the event that triggered liability in this case was the death of Mrs. Bush on September 18, 1990. Mr. Bush filed his action on December 11, 1992. That was too late; the claim is barred by the statute of limitations.
INGRAM, Justice (concurring in part; dissenting in part).
I concur in the reversal of the summary judgment for Ben Atkinson Motors on the negligent procurement claim. However, I must respectfully dissent from the affirmance of the summary judgment for Ford Life on the bad faith claim.
As to the bad faith claim, Mr. Bush argues that Ford Life, through the construction of its credit life insurance policy, established for itself a "debatable reason" that would defeat a bad faith claim by creating a fact issue on the breach of contract claim. Mr. Bush contends that Ford Life does this by requiring the applicant to give a subjective opinion as to the state of her own health. Mr. Bush *51 also argues that Ford Life does not provide any qualifications, guidance, or questionnaires to assist the applicant in understanding the term "good health." Thus, Bush argues, Ford Life attempts to give itself a fail-safe provision whereby it may contact physicians and obtain medical records to make its own determination of "good health" if the insured dies within one year of its issuing the policy. Based on this delayed inquiry into the health of the insured, Ford Life may then deny the claim. Mr. Bush maintains that questions of fact exist as to whether Mrs. Bush was in "good health" when she completed the application.
The majority correctly sets out the history of the tort of bad faith. However, the Court noted in National Savings Life Ins. Co. v. Dutton, 419 So. 2d 1357 (Ala.1982), that the standard to be applied in "normal" or "ordinary" bad faith cases allows room for a different standard to be applied in certain unusual or extraordinary cases.
In Thomas v. Principal Financial Group, 566 So. 2d 735, 743 (Ala.1990), the Court held that the factual circumstances of that case made it an extraordinary case in which it would not be appropriate to allow the insurer to obtain a judgment as a matter of law on the bad faith claim. In Thomas, Principal issued a life insurance policy to Barbara Thomas; it issued the policy through her employer, on a program insuring employees and their dependent children. Ms. Thomas's 21-year-old daughter attended cosmetology school in Mobile. The daughter became disabled and could not attend school because of ovarian cancer. She died of cancer at the age of 24. The policy provided for coverage of dependents only if they were less than 25 years of age and were attending school on a full-time basis. An agent for Principal denied the claim because the daughter was not attending school full time at the time of her death and therefore was not, Principal contended, a dependent eligible for coverage. The Court reversed a summary judgment for the insurer, holding that a fact question existed as to whether the daughter was a "dependent" under the policy at the time of her death and that this case was not the "normal" or "ordinary" case to which the "directed verdict on the contract claim" standard should be applied.
The facts of the case at hand clearly bring it within the "extraordinary circumstances" exception to the "directed verdict on the contract claim" standard. A fact question exists as to whether Mrs. Bush was in "good health" when she signed the good health statement. Once again, this is not the "normal" or "ordinary" case to which the "directed verdict on the contract claim" standard should be applied.
The purely subjective good health statement, as in so many other credit life policies, reads "to the best of my knowledge, I am in good health." A fact question exists as to whether Mrs. Bush, "to the best of [her] knowledge," was in good health at the time she signed the statement.
The record reveals that Mr. Bush testified that he and Mrs. Bush were asked by the sales representative only "What do you consider your health to be?" He stated in his deposition as follows:
Mrs. Bush died approximately five months after the credit life policy was issued. In accordance with the policy, Ford Life obtained copies of Mrs. Bush's medical records and took a statement from Mr. Bush. Even though the evidence revealed that Mrs. Bush had had a two-year history of heart problems and had been briefly hospitalized on four *52 occasions, the affidavit of her cardiologist, Dr. Thomas Wool, supported her "good health" claim. His affidavit stated:
(Emphasis added.)
I disagree with the majority and would hold that this case is not the "normal" or "ordinary" case to which the "directed verdict on the contract claim" standard should be applied. It would not be appropriate to allow Ford Life to obtain a judgment as a matter of law on the bad faith claim merely by the subjective wording of its policy, in which it creates a fact issue on the breach of contract claim. In other words, because a fact issue exists as to whether Mrs. Bush was in "good health" at the time she signed the good health statement, Ford Life may not avoid a bad faith claim based upon such a limited inquiry into the state of Mrs. Bush's health at the time she signed the statement. Therefore, I would reverse the summary judgment on the bad faith claim in favor of Ford Life.
This Court has noted the problems connected with the failure of an insurance company to investigate an applicant's health history at the time the application is made; see Miller v. Dobbs Mobile Bay, Inc., 661 So. 2d 203 (Ala.1995), cert. denied, ___ U.S. ___, 116 S. Ct. 177, 133 L. Ed. 2d 117 (1995); and Huff v. United Ins. Co. of America, 674 So. 2d 21 (Ala.1995).
We stated in Miller v. Dobbs Mobile Bay, Inc., supra, quoting the Arkansas Supreme Court:
661 So. 2d  at 206, quoting Ford Life Ins. Co. v. Jones, 262 Ark. 881, 886, 563 S.W.2d 399, 402 (1978).
We further stated in Miller v. Dobbs Mobile Bay, Inc., quoting the Mississippi Supreme Court,
661 So. 2d  at 207, quoting Southern United Life Ins. Co. v. Caves, 481 So. 2d 764, 768 (Miss.1985).
I believe that the facts of this case demonstrate, once again, the need for a good faith investigation into an applicant's health before a company issues a policy, if the insurance company is to avoid subjecting itself to litigation over allegations of bad faith.
I would reverse Ford Life's summary judgment on the bad faith claim.
KENNEDY and BUTTS, JJ., concur.