In this week’s Alabama Law Weekly Update, we review one decision from the United States Court of Appeals for the Eleventh Circuit and one from the Supreme Court of Alabama.

ELEVENTH CIRCUIT COURT OF APPEALS

Fidelity & Guaranty Life Insurance Co. v. Thomas, No. 13-11814 (11th Cir. March 11, 2014) (granting summary judgment to insurance company as beneficiary could not provide written evidence that agent had authority to waive certain provisions). 

This case concerned the appeal of a decision by the district court granting summary judgment for Fidelity & Guaranty Life Insurance Co. (“Fidelity”) rescinding an insurance policy that was reinstated on the basis of a material misrepresentation.

In January 2008, Carol Thomas and her husband purchased an insurance policy on the life of her husband naming Thomas the sole beneficiary. The premiums were paid by monthly checking account deductions. On August 25, 2010, Fidelity did not receive the premium payment due to an insufficient balance in Thomas’ checking account. Thomas also missed her payments for September and October of 2010. The policy documents provided that the policy would terminate if payments were not made within 31 days of the due date. Fidelity sent multiple communications to Thomas warning them of the potential policy lapse, including a “Notice of Lapse” stating that the policy had lapsed effective November 2, 2010.

In February 2011, Thomas had a call with an unidentified Fidelity agent. According to Thomas, the agent stated that the policy would not lapse if, by the end of March, Thomas paid her January and February premiums. In mid-March Fidelity received Thomas’ application for reinstatement and payment. One of the reinstatement application questions asked whether the person covered by the policy had cancer in the last five years. Thomas answered that her husband had not, which was a misrepresentation because he had been diagnosed with lung cancer in December 2010.

Thomas’ husband passed away in May 2011 and Thomas made a claim under the policy in June 2011. After an investigation, Fidelity determined that a misrepresentation had been made and filed suit in federal district court to rescind the policy under the Georgia Insurance Code. Thomas contended that the policy had never actually lapsed, was therefore never reinstated, and accordingly the misrepresentation had no effect. Thomas argued that the deal struck with the agent on the phone call waived Fidelity’s right to cancel the policy for her missed payments.

The court considered Thomas’ arguments, noting that in order for the suit to survive summary judgment her agreement with the Fidelity agent would need to have effectively waived the policy’s termination for nonpayment provisions. Even accepting Thomas’ version of events, under Georgia law oral statements by an agent of an insurance company cannot generally bind the insurance company. Further, under the express terms of the policy, the provision could only be waived by one of several named executives with Fidelity’s home office.  Since Thomas could not produce any writing by the agent, or demonstrate that the agent had authority to waive the provision, the court determined that Thomas did not raise a genuine issue as to whether the policy had lapsed, and Fidelity was therefore entitled to judgment as a matter of law.

Bonnie Wehle et. al. v. Thomas H. Bradley II, as co-personal representative of the estate of Rober G. Wehle, deceased, et. al., No. 1101290, ___ So.3d ___ (Ala. 2014) (reversing summary judgment, in part, regarding interest owed to heirs for payments made to estate representatives without court approval)

Robert G. Wehle died on July 12, 2002. His will was admitted to probate and letters testamentary issued to Bradly, McGowan and Hartzog as co-personal representatives (the “Representatives”) of the estate. In October 2005, the Representatives petitioned the probate court for final settlement, which included a final accounting indicating that they had paid themselves compensation in the amount of approximately $1,964,000, representing 5% of the value of the estate at the time the final settlement was filed. The decedent’s daughters filed an objection and the administration of the estate was moved to circuit court. After a series of proceedings, including an earlier appeal to the Supreme Court of Alabama, the circuit court approved the compensation of the Representatives, denied the daughters’ petition to remove the Representatives as administrators of the estate, and awarded the Representatives attorney’s fees related to their defense against the daughters’ claims. The daughters appealed.

Under Alabama law, a personal representative is entitled to reasonable compensation for services as may appear to be fair considering the factors of the administration. In addition, there is a statutory limitation that effectively caps the compensation in an amount of 5% of the estate. The Supreme Court noted that determinations of reasonable compensation, as a mixed question of law and fact, were properly within the discretion of the trial judge. The decedent’s estate was large and complex, and included unusual assets, such as partial interests in thoroughbred horses and artwork. Further, the amount of compensation paid to the Representative was below the statutory limitation. Based on a review of the circuit court’s reasoning, the Supreme Court concluded that the trial court did not exceed its discretion.

The Supreme Court then considered the question of payments made to the Representatives without prior court approval. Under Alabama law, in order for a personal representative to make such payments without approval the will must include an express provision allowing such payments. The Supreme Court noted its prior ruling that Mr. Wehle’s will did not include such a provision, and concluded that the circuit court erred in denying the daughters’ claim to interest from the Representatives for such improper payments.

The Supreme Court also considered the award of attorneys’ fees to the Representatives. The Supreme Court noted that there was no evidence in the record supporting the Representatives’ claim for the reimbursement of the amounts awarded, and rejected the circuit court’s award of such fees based on lack of supporting evidence.

On the basis of the foregoing, the Supreme Court affirmed the circuit court’s decision on the amount of compensation awarded the Representatives, but reversed and remanded the order with respect to the daughters’ interest claims and the award of attorneys’ fees to the Representatives.