People's Bank of Elk Valley v. American Bankers Financial Services, Inc.

• Court: Court of Appeals of Tennessee
• Decided: December 10, 2001
• Docket: 01A01-9506-CV-00260
• Status: Published

Opinion

PEOPLE'S BANK OF ELK VALLEY, ) ) Plaintiff/Appellant, ) Appeal No. ) 01-A-01-9506-CV-00260 v. ) ) Lincoln Circuit AMERICAN BANKERS FINANCIAL ) No. 128-88 SERVICES, INC., et al, )

Defendants/Appellees. ) ) FILED December 10, 2001 COURT OF APPEALS OF TENNESSEE Cecil Crowson, Jr. MIDDLE SECTION AT NASHVILLE Appellate Court Clerk

APPEAL FROM THE COURT FOR LINCOLN COUNTY

AT FAYETTEVILLE, TENNESSEE

THE HONORABLE LEE RUSSELL

STEPHEN G. ANDERSON Baker, Donelson, Bearman & Caldwell 900 Gay Street, S.W., Suite 2200 P. O. Box 1792 Knoxville, Tennessee 37901 ATTORNEY FOR PLAINTIFF/APPELLANT

Walter W. Bussart Barbara G. Medley Bussart & Medley 101 West Commerce, Suite 306 Lewisburg, Tennessee 37091 ATTORNEYS FOR DEFENDANTS/APPELLEES

REVERSED AND REMANDED

SAMUEL L. LEWIS, JUDGE O P I N I O N

Plaintiff, People's Bank of Elk Valley ("People's Bank"),

appeals from the trial court's order granting summary judgment to

defendant, American Banker's Financial Services, Inc. ("American")

and dismissing People's Bank's complaint.

The complaint focused on American's failure to insure loans

that American had allegedly agreed to insure. Initially, People's

Bank sought to recover the entire amount of all the loans and

consequential damages regardless of whether the underlying loans

had gone into default. As the case progressed, however, People's

Bank norrowed its focus to those loans that had actually gone into

default and the portions of those loans (principal and interest)

that American had allegedly agreed to insure.

Following discovery, both parties moved for summary

judgment. In February 1992, the trial court denied People's Bank

motion for partial summary judgment, granted American's motion for

summary judgment, and dismissed People's Bank's complaint.

People's Bank appealed the trial court's judgment as to thirty-

eight of the original fifty-two loans.

The facts out of which this case arose are as follows. In

the summer of 1985, Manufacturer's Mortgage Underwriters, Inc.

("MMU") approached the president of People's Bank . MMU proposed

an arrangement in which People's Bank would fund loans secured by

manufactured homes. If People's Bank made the loans under certain

conditions, they could package the loans and resell them on the

secondary market. MMU represented to People's Bank that the risk

was small because People's Bank could obtain credit insurance and

would only hold the loans for a brief time.

2 As part of this arrangement, American issued a manufactured

home credit insurance policy in August 1985 naming People's Bank as

the insured. The section of the insurance policy entitled

"Insuring Agreement" provided:

We agree to provide insurance coverage for losses caused by the default of a borrower whose loan is secured by a manufactured home which occur during the Commitment Period shown on the Commitment of Insurance. Your coverage is subject to all policy terms and conditions.

The relevant portions of the "General Policy Conditions"

were as follows:

1. REQUIREMENT FOR INSURANCE We [American] agree to issue a Commitment for Insurance for each eligible loan advanced by You after the effective date of the policy. You agree to submit a Request for Commitment of Insurance on forms furnished by Us on all eligible loans advanced by You after the effective date of this policy. Your request must be made by the 10th of the month following the purchase date of the loan. We agree to provide You with the Commitment of Insurance within 30 days after receipt of Your request.

* * *

5. MISREPRESENTATION AND FRAUD We [American] have the option to cancel an individual Commitment of Insurance if one of Your employees or appointed agents has concealed or materially misrepresented any of the information We require on a loan or borrower.

8. INFORMATION AND REPORTS On any loan to be insured You must supply Us with the information and documentation We require by the 10th of the month following the date of the loan.

If at any time We request additional information You will promptly provide Us with the information.

18. CANCELLATION You [People's Bank] may cancel this policy at any

3 time by returning it to Us.

We [American] reserve the right to cancel this policy at any time by mailing a 10 day written notice to You at Your address last known to Our authorized agent with postage fully pre-paid.

The policy provided that People's Bank would pay a single

premium to American which would cover the life of the loan.

Shortly after American issued the policy, a representative of

American met with two officers from People's Bank to discuss the

policy. The representatives from People's Bank disclosed to

American that People's Bank did not have experience in mobile home

financing or in selling loans on the secondary market.

People's Bank made fifty-two loans, which were secured by

manufactured homes, between 30 August 1985, the date the policy was

issued, and January 1986. The loans had an aggregate face value of

approximately one and one-half million dollars.

American admitted receiving requests for commitments of

insurance on forty-eight loans. It issued commitments for

insurance on ten of the loans and refused to insure the remainder.

People's Bank divided the forty-eight loans into four

categories based on American's disposition of the requests for

commitment of insurance. First, there were eighteen loans that

American refused to insure because the requests for commitment of

insurance were allegedly made after the time period provided in the

policy. Second, there were seven of the preceding eighteen loans

that American refused to insure because it claimed that People's

Bank had made misrepresentations regarding the employment or deaths

of the loan applicants. Third, American refused to insure twenty

loans because of the alleged misrepresentations made in the other

loans. Fourth, there were ten loans which American insured, but

4 for which it cancelled payment. The parties have resolved the

issues regarding this last group of loans.

American refused to issue commitments for insurance on the

first eighteen loans because they did not promptly receive the

requests for commitment of insurance. American alleged that they

received the requests for commitment of insurance on 23 December

1985 and that People's Bank made the loans in September, October,

and November 1985. American insisted that the policy required that

they be in receipt of the requests by the 10th of the month

following the month in which People's Bank made the loans.

Although the policy obligated American to act upon the requests for

commitment of insurance within thirty days, American did not advise

People's Bank of its refusal to insure these loans until 19 June

1986, some five months after People's Bank submitted the requests

for commitment of insurance. American's letter conveying their

refusals stated in pertinent part:

Thankyou [sic] for forwarding me a copy of the agreement between Manufactured Mortgage Underwriters and The Peoples[sic] Bank.

In addition to the lists of loans furnished you in my letter of May 30, 1986, I am enclosing a list of loans that were received at our office on December 23, 1985. This list totals 18 loans.

Unfortunately, we are unable to insure these loans because they do not comply with Paragraph 1 under General Policy Conditions of the Manufactured Home Credit Insurance Policy. All of these loans had effective dates of September and October, 1985 and therefore should have been submitted to American Bankers by the 10th of the following month.

American insisted that it did not have an obligation to

issue commitments for insurance as to the seven loans in the second

group because of alleged misrepresentations concerning the

borrowers' debts or places of employment. American found these

misrepresentations through phone audits, credit reports, and

investigations conducted by Equifax. American did not allege that

5 the misrepresentations were attributable to People's Bank.

American refused to issue commitments for insurance as to

the twenty loans in the third group because of the alleged

misrepresentations in the other loans. American also insisted that

People's Bank did not adequately explain discrepancies in the

applications. As a result, American suspended its obligation to

insure the loans. American explained its action in a letter dated

30 May 1986, four months after People's Bank submitted the requests

for commitment of insurance to American and three months after

American would have ordinarily issued the commitments for

insurance. That letter stated in pertinent part:

This letter confirms our telephone conversation on Friday, May 23 in which I advised you that we had not yet received the delinquency report from Manufactured Mortgage Underwriters for the month of April. Also, I advised you that in recent audits we had discovered discrepancies on employment relative to the borrower. As information, the amount that is past due for May is $502.87.

Attached is a list of loans that were returned to Manufactured Mortgage Underwriters on May 23, 1986. As I indicated on the phone, we would not be underwriting these loans until audit discrepancies were cleared up and until we were confident all conditions of the above policy were complied with.

Please consider the above policy suspended for coverage of any additional loans not shown on the attached list of inforce loans. The suspension is effective immediately and is in effect until further notice.

On 18 July 1986, American notified People's Bank that it had

cancelled the policy. People's Bank insisted that it suffered

losses on the loans because of borrowers' defaults and because of

American's refusal to insure the loans.

People's Bank presented four issues on appeal. They are as

follows:

I. Did the Manufactured Home Credit Insurance Policy ("the Policy") issued by American Bankers Insurance Company of Florida ("ABIC")

6 create an enforceable obligation on the part of ABIC to insure all "eligible" loans made by the People's Bank of Elk Valley ("People's Bank")during the term of the Policy or until it was terminated by ABIC? II. Did ABIC breach its obligation under the Policy when it refused to insure eligible loans for no reason other than unexplained discrepancies in other loans? III. Did ABIC breach its obligation under the Policy by refusing to insure loans solely because they were not submitted for insurance within the time period specified in the Policy? IV. Did ABIC breach its obligation under the Policy by refusing to insure any loans in which a borrower misrepresented his employment history or debts?

It is the obligation of courts "to enforce contracts

according to their plain terms." Bob Pearsall Motors, Inc. v.

Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580 (Tenn. 1975).

Courts are to interpret insurance policies, like other contracts,

by giving words their common and ordinary meaning. Tata v.

Nichols, 848 S.W.2d 649, 650 (Tenn. 1993). "[T]he paramount rule

of construction in insurance law is to ascertain the intent of the

parties." Blue Diamond Coal v. Holland-America Ins. Co., 671

S.W.2d 829, 833 (Tenn. 1984). If language in a policy is found to

be ambiguous, i.e., "susceptible of more than one reasonable

interpretation," it will be "construed against the insurance

company and in favor of the insured." Tata, 848 S.W.2d at 650.

We are reviewing the dismissal of People's Bank complaint

on motion for summary judgment.

In determining whether or not a genuine issue of material fact exists for purposes of summary judgment, courts ... must take the strongest legitimate view of the evidence in favor of the nonmoving party, allow all reasonable inferences in favor of that party, and discard all countervailing evidence. Then, if there is a dispute as to any material fact or any doubt as to the conclusions to be drawn from that fact, the motion must be denied.

Byrd v. Hall, 847 S.W.2d 208, 210 (Tenn. 1993) (citations omitted).

It has been repeatedly stated by this Court that the purpose of a summary judgment preceding is not

7 the finding of facts, the resolution of disputed factual issues, or the determination of conflicting inferences reasonably to be drawn from the facts. The purpose is to resolve controlling issues of law, and that alone.

Bellamy v. Federal Express Corp., 749 S.W.2d 31, 33 (Tenn. 1988).

Summary judgment is appropriate when, after construing all of the

evidence most favorably to the nonmoving party, there are no

genuine issues of material fact and the law entitles the movant to

a judgment. Byrd, 847 S.W.2d at 214.

With these rules in mind we discuss the issues presented by

the plaintiff. People's Bank has stated that the central issue on

appeal is whether American's "refusal to issue certificates of

insurance on thirty-eight loans was a breach of the credit

insurance policy it issued to People's Bank." The question we must

answer is when did the obligation of American to insure attach to

a specific loan.

People's Bank insisted that American's obligation to insure

a loan attached, if at all, at the time People's Bank made the

loan. That is, if the loan met the eligibility requirements at

that time, the policy obligated American to insure the loan and to

issue a commitment for insurance. They admitted that the policy

did not obligate American to insure a loan if the loan did not meet

the eligibility requirements.

People's Bank further argued that "any factual review of

loan documentation undertaken by the insurance company after the

loan is advanced is done not to decide whether the company wants to

insure the loan but to confirm whether the loan, when made, met the

eligibility requirements in the Policy." Stated another way,

People's Bank insisted that once they made the loan, American no

longer had the discretion to decide whether it wanted to insure the

8 loan. If the loan met the objective criteria the parties had

agreed to, it was an "eligible" loan and the policy entitled

People's Bank to insurance regardless of whether American was

"comfortable" with it.

The trial court, however, found that there was no obligation

to insure any of the loans until after American had made a

discretionary decision that it wanted to insure a specific loan and

had issued a commitment for insurance as to that loan. The trial

court held that refusing to insure the thirty-eight loans was

defensible because American had no obligation to insure the loans

unless and until it was comfortable with the paperwork and it had

actually issued commitments for insurance.

From our review of this record, we are of the opinion that

People's Bank has shown that there is a genuine issue of material

fact as to whether American agreed to insure all eligible loans and

as to whether the eligibility of a loan was a fact that People's

Bank could determine prior to making the loan by referring to the

objective criteria set forth in the policy. There is also a

material question as to whether the thirty-eight loans issued by

People's Bank met the eligibility criteria at the time People's

Bank made the loans.

Therefore, it results that the summary judgment granted to

American is reversed, and the cause is remanded to the trial court

for any further necessary proceedings. Costs on appeal are

assessed to defendant/appellee, American Bankers Financial

Services, Inc.

__________________________________ SAMUEL L. LEWIS, JUDGE

9 CONCUR:

_________________________________ HENRY F. TODD, P.J., M.S.

_________________________________ WILLIAM C. KOCH, JR., J.