In this week’s Alabama Law Weekly Update, we bring you a case from the Alabama Supreme Court addressing the duty to read a life insurance agreement.
Alfa Life Insurance Corporation et al. v. Wanchetta Reese, [1140053, June 30, 2015] (Ala. 2015) (failure to fulfill duty to read resolved on summary judgment).
The Alabama Supreme Court reversed the trial court’s order denying the defendants' summary-judgment motion and remanded. Wanchetta Reese was the owner and beneficiary of a life insurance policy issued on the life of her husband, Lee Reese. Mr. Reese and Ms. Reese met with Alfa agents in April of 2010 and purchased a $15,000 life insurance policy. Mr. Reese had numerous existing health problems and died the following month. Ms. Reese applied for benefits under the policy. Alfa subsequently denied the claim.
Ms. Reese sued Alfa and the agents who sold her the policy, claiming breach of contract, bad faith, fraud, and outrage. In a nutshell, Ms. Reese claimed that the insurance agents who sold her the policy misled her about her husband's eligibility, allegedly stating that he was eligible for up to $15,000 of coverage irrespective of his health problems. Further, she claimed that although she did not read the insurance application (the agents filled it out), she verbally advised the agents of her husband's health problems, and they assured her the policy would be effective despite incorrect statements in the application about his health. Alfa counterclaimed and filed a motion to dismiss, seeking rescission of the insurance policy. Alfa argued that Mr. Reese's application contained numerous misrepresentations, omissions, misstatements, and concealed facts, and that accurate responses on the application would have rendered Mr. Reese ineligible for coverage. After Alfa's renewed motion for summary judgment was denied, Alfa petitioned the Alabama Supreme Court for a permissive appeal.
The Alabama Supreme Court addressed three issues, centered around the “duty to read” rule – which requires that a plaintiff has a general duty to read the documents received in connection with a particular transaction, along with a duty to inquire and investigate.
The first issue was whether a misrepresentation to Ms. Reese by Alfa's agents regarding the contents of the insurance documents is sufficient for a reasonable jury to find that Ms. Reese was excused from her legal duty to read the documents. Second, whether Ms. Reese could nevertheless be relieved of her duty to read in the absence of evidence of either (i) a special relationship between the parties or (ii) that she suffered from a disability rendering her unable to discern the contents of the document. Third, whether information that Alfa's agent allegedly obtained in the application process could be imputed to Alfa where the application agreement states, “No information or knowledge obtained by any agent … in connection with this Application shall be construed as having been made known to or binding upon the [insurance] Company.”
Ruling in favor of Alfa, the court answered all three questions in the negative and stated that there was no issue for a jury to resolve. The court explained that the undisputed evidence showed that Ms. Reese improperly relied on the agents’ oral representations regarding the validity of the application without attempting to read the life insurance policy application, that Ms. Reese made no attempt to inquire into or to investigate any inconsistencies between the agents’ oral representations and the language of the application, that no exception to the duty to read applied, and that information obtained by Alfa's insurance agents in the application process cannot be imputed to Alfa.