Opinion ID: 2751752
Heading Depth: 4
Heading Rank: 2

Heading: Ruling Regarding Endorsement to 2008 Contract

Text: Turning to the language of the endorsement, we recognize that it concerns three separate issues, only two of which are germane to the present dispute. The first matter addressed is the amendment of Section 2.03, which pertains to surrender value, and the second subject of the endorsement is the deletion of Section 3.02–both of which are quoted in full above. Since the parties are in agreement that no surrender charges apply, the issue that the trial court purportedly considered was whether there was any ambiguity in the language of the endorsement as it pertained to surrender value. Without any significant discussion of the terms included in the amendments to Section 2.03,47 the trial court simply declared that the subject language lacked ambiguity. In marked contrast to the trial court, we are not convinced that the terms used in the amended Section 2.03 of the endorsement are either unambiguous or capable of application without reference to the documents that were included as part of the 1991 Contract. In a calculated effort to exclude from its consideration any of the documents that comprised the 1991 Contract, the trial court decided that the only documents relevant to its interpretation of the 2008 Contract were the 2008 Contract and a Letter of Understanding 47 With no analysis of what qualified as “another funding entity,” the trial court summarily concluded that VALIC’s transfer of funds to the Short Term Fixed Income Pool in December 2008, at the IMB’s request, constituted “‘another funding entity’ for purposes of the Endorsement.” 30 (“2008 Letter of Understanding”) from Craig Slaughter, the Executive Director of the IMB, to Jim Coppedge. Given the manner in which the 2008 Contract came into existence–as an investment vehicle for funds invested in the 1991 Contract upon VALIC’s disallowance of the aggregate removal of those funds–and the representation by AIG’s senior vice president and general counsel that the 2008 Contract would be “materially similar” to the 1991 Contract with express reference to “form, endorsements, rates, and terms,” we would be hard pressed to wholly disregard evidence that may relate to the meaning of the endorsement language in dispute. While declaring the subject endorsement to be unambiguous, the trial court violated the well-established tenet of insurance and contract law that precludes reference to extrinsic evidence to prove the meaning of unambiguous terms. See Larew v. Monongahela Power Co., 199 W.Va. 690, 694, 487 S.E.2d 348, 352 (1997) (“The parol evidence rule . . . generally prohibits the introduction of any extrinsic evidence to vary or contradict the terms of written contracts [.]”). In this case, the trial court included what clearly constitutes parol evidence in finding that “VALIC would not have entered into the 2008 Contract had it not included the withdrawal restriction contained in the Endorsement.” This statement, attributed to Mr. Coppedge in the trial court’s ruling, clearly goes outside the four corners of the two documents the trial court identified as defining the rights of the parties with regard to the 2008 Contract. 31 The petitioners argue that the amended language of Section 2.03 governing surrender value is not applicable under the facts of this case. As support for their position that no withdrawal restrictions were invoked, the petitioners look to the terms employed in the endorsement and VALIC’s past practice of permitting participants to have full and immediate access to their funds when surrender was requested.48 Looking at the phrase “withdrawal for transfer to another funding entity,” the petitioners maintain that the funding entities encompassed within this endorsement language were the fund providers to whom the DCP plan participants were permitted to transfer their funds subject to the annual 20 percent limitation imposed on money market and guaranteed investment contracts. The endorsement simply reflects the very terms insisted upon by the Board with regard to permitting and encouraging DCP participants to regularly assess and move their retirement funds between the various investment options provided. This is clear, argue the petitioners, from a review of the language of Section 2.03 which fully comports with VALIC’s submitted proposal49 by removing the 20 percent restriction from transfers that are made to the West Virginia ORP Common Stock Fund or the West Virginia ORP Bond Fund. And, it similarly interfaces with VALIC’s Example #5, quoted above, as part of its submitted proposal. The petitioners insist 48 Based on limited legislative windows provided for opting out of DCP and into TRS, DCP participants were previously permitted by VALIC to withdraw their funds from the 1991 Contract with no temporal or quantitative restrictions in 1995 and 2001. 49 In its proposal, VALIC provided: “An employee may reallocate any percentage of his/her contribution to another [investment] option without restriction. Additionally, a participant may transfer 100% of his/her V-PLAN account balance to the Common Stock Fund or the Bond Fund at the end of each quarter.” 32 that the endorsement’s withdrawal restrictions were solely intended to apply to transfers that were made to other investments included within the DCP plan. In contrast, surrenders that involved the participants’ outright removal of their funds from the DCP were not subject to any restriction under the annuity policy other than a possible six-month delay in payment following a request for funds.50 Because VALIC prepared the endorsement at issue, the petitioners correctly observe that any ambiguities in that document are required to be construed against VALIC and in their favor. See Syl. Pt. 4, Nat’l Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987) (“It is well settled law in West Virginia that ambiguous terms in insurance contracts are to be strictly construed against the insurance company and in favor of the insured.”). In deciding whether an ambiguity exists, this Court has held: “Whenever the language of an insurance policy provision is reasonably susceptible of two different meanings or is of such doubtful meaning that reasonable minds might be uncertain or disagree as to its meaning, it is ambiguous.” Syl. Pt. 1, Prete v. Merchants Prop. Ins. Co., 159 W.Va. 508, 223 S.E.2d 441 (1976). And, in those cases where uncertainty or ambiguity exists regarding the construction of the terms used in a written instrument, evidence of 50 The delay in payment is authorized by Section 6.08 of the annuity contract, which permits VALIC to defer payment of any partial or total surrender for up to six months. 33 custom or usage may be considered.51 See Syl. Pt. 5, Cotiga Dev. Co. v. United Fuel Gas Co., 147 W.Va. 484, 128 S.E.2d 626 (1962). VALIC insists that the condition necessary to invoke the subject endorsement occurred when IMB requested that VALIC transfer all of the funds in the 2008 Contract to the Short Term Fixed Income Pool on December 18, 2008. In this Court’s opinion, the issue of whether the terms of the endorsement were even applicable to this full surrender request by the IMB is far from clear. Upon our considered examination of the record in this case, we are convinced that the language in the endorsement pertaining to “a withdrawal for transfer to another funding entity” is decidedly ambiguous. In light of our determination that the endorsement language under review is of such doubtful meaning that reasonable minds might be uncertain or disagree as to its meaning, we reverse the trial court’s decision 51 When the 1991 Annuity became unallocated (specific funds no longer attributable to specific participants) in the late 1990s, VALIC submits that this policy alteration impacted the endorsement to permit the operation of the withdrawal restrictions on a group rather than an individual level. The withdrawals that occurred following the change to an unallocated policy, according to VALIC, simply did not involve sufficient funds to require application of the withdrawal restrictions. While we need not decide this issue, we observe that the lack of any separate documentation (other than self-serving statements announcing VALIC’s position) which evidences a clear, bargained for limitation may make this position untenable. See Cabot Oil & Gas Corp. v. Huffman, 227 W.Va. 109, 117, 705 S.E.2d 806, 814 (2010) (recognizing that “courts are not at liberty to, sua sponte, add to or detract from the parties’ agreement”). We further note that a statutory definition of what constitutes an “unallocated annuity contract” may further call VALIC’s position into question. See W.Va. Code § 33­ 26A-5(25) (2011) (excepting from definition of unallocated annuity any annuity contract where annuity benefits are guaranteed). 34 that the endorsement is unambiguous and its related conclusion that the 2008 Contract and Letter of Understanding restricted the IMB’s requested withdrawal from the 2008 Contract on December 18, 2008.