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.
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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
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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
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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
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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")
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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
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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
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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
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CONCUR:
_________________________________
HENRY F. TODD, P.J., M.S.
_________________________________
WILLIAM C. KOCH, JR., J.
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