Opinion ID: 1209968
Heading Depth: 1
Heading Rank: 3

Heading: Strother v. Capitol Bankers Life Insurance Company [11]

Text: In 1983, Respondent Susan B. Strother's husband, Mark Strother, D.V.M., graduated as a veterinarian from Washington State University. At that time, he purchased a group policy with Mutual Life Insurance Company of New York (MONY) for a face value of $40,000 through agent Skip Carbon. In 1984 Dr. Strother purchased a veterinary clinic in Monroe, Washington from Dr. Thomas Van Meter. As a condition of the sale, Dr. Strother was required to maintain life insurance sufficient to cover his 10-year debt to Dr. Van Meter. Dr. Strother worked with an insurance consultant in Portland, Oregon who put him in contact with another MONY agent, Walter Steeves. Mr. Steeves arranged a $250,000 life insurance policy for Dr. Strother from MONY that became effective in September 1984. The agent for Capitol Bankers Insurance Company (Capitol Bankers) was Donald Mason, who also arranged for Dr. Van Meter's insurance needs. He was a social acquaintance and business associate of Dr. Van Meter. Dr. Van Meter testified at trial that he had an arrangement with Mr. Mason under which Mr. Mason paid him a portion of commissions earned on the sale of insurance contracts to persons or entities referred to him by Dr. Van Meter. Mr. Mason testified at trial that approximately 85 percent of his business involves replacement insurance policies. Dr. Van Meter referred Dr. Strother to Mr. Mason in 1984. Mr. Mason was aware of the sale of the clinic and of the condition requiring purchase of insurance. He prepared a number of policy proposals for Dr. Strother, but the record does not indicate whether Dr. Strother was ever presented with them. Dr. Strother chose at that time to purchase the MONY life insurance policy and not the Capitol Bankers policy. The MONY policy insured him against, among other things, the risks of mountain climbing. Approximately one year later, in September 1985, Mr. Mason again contacted Dr. Strother about life insurance. On September 17, 1985, Mr. Mason filled out an application for a $250,000 life insurance policy which Dr. Strother signed that day. The trial judge, the Honorable Anthony P. Wartnik, determined that the application contained certain misrepresentations when it indicated (1) that Dr. Strother, an avid mountain climber, had not participated in mountain climbing within the last 3 years; (2) that the insurance policy was not intended to replace another; and (3) that Dr. Strother had a $40,000 policy with MONY, but did not disclose that he also had a $250,000 policy with MONY. No replacement insurance notices were issued to Dr. Strother or MONY as required by regulations issued by the Washington Insurance Commissioner (WAC 284-23-400 through -485). Those insurance regulations require that, when replacement policy transactions are initiated, a written notice must be provided to applicants informing them of the consequences of replacing an existing life insurance policy. The regulations also require a replacing insurer to send notice to an existing insurer advising it of the proposed replacement. The existing insurer is then free to contact the applicant to caution against replacement. The Court of Appeals affirmed the determination by the jury that, for purposes of the insurance regulations and despite Dr. Strother's indication on the application that it was not a replacement policy, Mr. Mason knew or should have known that Dr. Strother intended to replace the existing MONY insurance policy with the Capitol Bankers policy. On September 19, 1985, two days after Dr. Strother signed the application for the Capitol Bankers policy, he instructed his wife, Susan B. Strother, D.V.M. (Respondent), who followed his instruction, to stop payment on the last premium on the MONY policy which was scheduled for automatic withdrawal from their checking account that day. The $250,000 policy was issued by Capitol Bankers on November 21, 1985. It did not insure Dr. Strother against the risks of mountain climbing. On December 2, 1985, the approved Capitol Bankers policy was sent to Dr. Strother, with a copy of the application attached. On August 15, 1986, Dr. Mark Strother died in a mountain climbing accident at Mount Robson, British Columbia. Capitol Bankers refused to issue payment on the $250,000 life insurance policy, claiming that the application contained material misrepresentations which voided the policy. Dr. Susan B. Strother (Respondent Strother) filed suit against Donald Mason, Corporate Concepts, Inc., and Capitol Bankers Life Insurance Company, claiming that Capitol was precluded from voiding the policy because that would violate the public interest and the Consumer Protection Act. She argued that Capitol was precluded from that action under equitable estoppel. Respondent Strother also claimed breach of contract, negligent infliction of emotional distress, and negligence generally. The claim against Mr. Mason was dismissed without prejudice prior to trial. After concluding that the incorrect answers on the application were material misrepresentations, the trial judge determined that the sole question for the jury was whether Donald Mason knew or should have known that the 1985 Capitol Bankers policy was intended as a replacement policy. The jury answered in the affirmative. The trial court concluded that, as a matter of public policy, Capitol Bankers was precluded from voiding the insurance policy because of its failure to comply with notice requirements under the insurance regulations. The trial court also rejected Respondent Strother's claim under the Consumer Protection Act, concluding that no causal link had been established between an unfair trade practice and Respondent's injury and that Respondent was precluded from recovering because of Dr. Strother's attempt to perpetrate a fraud. Capitol Bankers filed an appeal claiming that the trial court erred in applying a public policy theory to a breach of contract claim. Respondent Strother argued that the trial court had properly decided the public policy claim, but had erred in dismissing her Consumer Protection Act claim. The Court of Appeals, Division One, affirmed the trial court's conclusion that, based upon the evidence, Mr. Mason knew or should have known that the Capitol Bankers policy was intended to replace the MONY policy and that Capitol Bankers violated WAC 284-23-400 through -485. However, stating that persons who have committed fraud cannot claim equitable estoppel or assert a claim under the Consumer Protection Act, the court reversed the trial court's conclusion that Capitol Bankers was precluded on public policy grounds from voiding the insurance policy; but affirmed dismissal of the Consumer Protection Act claim. The Court of Appeals addressed a negligence theory not briefed by the parties. It concluded that Capitol Bankers had breached its duty to notify under insurance regulations, and remanded the case for further proceedings to determine proximate cause between the breach and the injury claimed by Respondent Strother. [12] Capitol Bankers petitioned this court for discretionary review of the decision of the Court of Appeals, claiming that the court erred in remanding for further proceedings on the theory of negligence which had not been briefed by either party. Respondent Strother filed a response and cross petition for review, arguing that review should not be granted. In the alternative, Respondent Strother asked this court to reverse the decision of the Court of Appeals and reinstate the decision of the trial court on the public policy claim.