June Davis Wood, Administratrix of the Estate of Lewismelvin Wood, Deceased, Plaintiff-appellee, Cross-appellant, v. Old Security Life Insurance Company, Defendant-appellee,bank of Red Bay, Defendant-cross-appellee,billy Marl Bolton, Pat Childers, Ollis Weatherford, and Dr.z. L. Weatherford, Partners, D/b/a Weatherfordinsurance Agency, Defendants-appellants,cross-appellees, 617 F.2d 1158 (5th Cir. 1980)

This appeal presents questions of Alabama law that we believe are appropriate for resolution by the Supreme Court of Alabama. We accordingly defer our decision in this matter and certify the questions to that Court.¹ 

CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT TO THE SUPREME COURT OF ALABAMA, PURSUANT TO RULE 18, ALABAMA RULES OF APPELLATE PROCEDURE.

TO THE SUPREME COURT OF ALABAMA AND THE HONORABLE JUSTICES THEREOF:

It appears to the United States Court of Appeals for the Fifth Circuit that the above-styled case in this Court involves questions or propositions of law of the State of Alabama that are determinative of the cause, and there appear to be no clear, controlling precedents in the decisions of the Supreme Court of Alabama. The United States Court of Appeals for the Fifth Circuit therefore certifies the following questions of law of the State of Alabama to the Supreme Court of Alabama for instructions concerning such questions of law, based on the facts recited herein, pursuant to Rule 18, Alabama Rules of Appellate Procedure, as follows:

I. Style of the case.

The style of the case is June Davis Wood, Administratrix of the Estate of Lewis Melvin Wood, Deceased, Plaintiff-Appellee-Cross-Appellant, v. Old Security Life Insurance Company, Defendant-Appellee, Bank of Red Bay, Defendant-Cross-Appellee, Billy Marl Bolton, Pat Childers, Ollis Weatherford, and Dr. Z. L. Weatherford, Partners, d/b/a Weatherford Insurance Agency, Defendants-Appellants, Cross-Appellants, No. 79-1870, United States Court of Appeals for the Fifth Circuit, an appeal from the United States District Court for the Northern District of Mississippi.

II. Statement of facts.

This diversity action, controlled by Alabama law, was brought by June Davis Wood (hereinafter referred to as Plaintiff or Mrs. Wood), administratrix of the Estate of Lewis Melvin Wood, against Old Security Life Insurance Company (hereinafter referred to as Old Security or Insurance Company) to recover the proceeds under a policy of credit life insurance. The policy named the Bank of Red Bay (hereinafter referred to as Bank) as a creditor beneficiary and the estate of the insured as beneficiary. Also named as defendants were the Bank and Billy Marl Bolton, Pat Childers, Ollis Weatherford, and Dr. Z. L. Weatherford, partners d/b/a Bolton, Childers, Weatherford & Weatherford Insurance Agency, (hereinafter referred to as Insurance Agency or Agency), based on their alleged negligence in obtaining and effecting the life insurance policy. Old Security filed a cross-claim against the Insurance Agency contending that if Old Security was found liable on the policy, its loss was caused by a breach of duty of the issuing agent, thereby making the Insurance Agency liable to Old Security for the amount of the loss.

Following a jury trial with a verdict based upon special interrogatories, the district court judge: (1) awarded judgment for the plaintiff and Bank against Old Security for $31,876.32, the amount of proceeds under the policy; (2) awarded judgment for Old Security on the cross-claim against the Insurance Agency for that same amount³  ; and (3) dismissed the plaintiff's claims against the Bank and Insurance Agency.

From this judgment, two appeals are prosecuted, each appeal involving a certified question of Alabama law. The Agency appeals the judgment against it on Old Security's cross-claim, and plaintiff appeals the dismissal of her claims against the Bank and Insurance Agency.

B. Facts.

On January 19, 1976, Lewis Melvin Wood and his wife, June Davis Wood, were loaned $34,153.20 by the Bank of Red Bay, Alabama. The loan was evidenced by a promissory note. The principal and interest on the note were payable over a five-year period. To secure the debt, the Woods gave the Bank a deed of trust on their residence located in Itawamba County, Mississippi.

The Bank official who handled the loan was Billy Marl Bolton, executive vice president of the Bank. At Mr. Wood's request, Bolton procured the credit life insurance policy at issue as additional security for the loan.

At the time the loan was made and the insurance procured, Bolton was a partner in the Insurance Agency of Bolton, Childers, Weatherford and Weatherford. The other partners were Pat Childers, a vice-president of the Bank, and Dr. Z. L. Weatherford, chairman of the Bank's Board of Directors. Ollis Weatherford, the Bank's senior vice-president, had been training with the Insurance Agency during January, 1976, writing credit life insurance policies; on February 1, 1976, he became a partner in the Agency.

The subject life insurance policy was issued by the Insurance Agency as soliciting agent for Old Security Life Insurance Company. The initial amount of insurance was $34,153.20, the amount of the Woods' debt to the Bank. The policy, designated as a "Diminishing or Joint Term" policy, provided for diminishing coverage as payments were made on the loan.

Old Security gave instructions to the Insurance Agency related to the issuance of the policy in question.⁴  The instructions provided that prior to the issuance of a policy each applicant for insurance must answer three health questions and sign the application. The instruction (with exception not applicable here) further provided that in the event that any of the questions were answered "yes," the Agency was not to issue the policy but instead was required to submit the application to the Insurance Company for underwriting consideration. The three health questions were as follows:

1. To the best of your knowledge and belief, do you have any physical or mental impairments?

2. Have you ever been treated for or been told you had, any of the following conditions? High Blood Pressure; Heart Disease; Rheumatic Fever; Cancer or Tumor; Diabetes; Tuberculosis; Arthritis; Stroke; Epilepsy; Disease of the Liver, Kidney, Bladder, Stomach or Intestinal Tract?

3. Have you consulted a doctor or been treated within the past 5 years for any condition not listed above.

(For each "yes" answer, give details below. Give Doctor's name, address and date attended for each condition).

Wood's application for insurance appears to have been signed by Melvin Wood. Negative answers are shown in response to all three health questions.

Even though a negative answer was indicated regarding each question, uncontradicted evidence showed that in January, 1975 within the five-year period preceding the date of the application Wood had consulted Dr. Dempsey, his family physician, for chest pains and was hospitalized overnight. Dr. Dempsey, who at all times here involved was the president of the bank, testified that he diagnosed the disorder as cardiospasm, a spasm of the upper part of the stomach. While Dr. Dempsey did not believe that Wood's condition was heart-related, he nevertheless prescribed peritrate, a drug for heart disease, as a precautionary measure.⁵ 

Mr. Wood died of a heart attack on June 12, 1976. Plaintiff contended at trial that Mr. Wood did not sign the Old Security insurance application⁶  and that the three health questions were never submitted to Mr. Wood. Determining that "the evidence on this point was conflicting," the district court submitted these issues to the jury through a special verdict with interrogatories.⁷ 

The jury found that Wood did not sign the application and that the health questions were not read to him at the time of the loan transaction.

C. Insurance Agency's appeal from the judgment against it on Old Security's cross-claim.

Based on the jury's finding that the Insurance Agency issued the insurance policy without asking Mr. Wood the health questions, the district court concluded that the Agency issued the policy without authority and deprived Old Security of the right it reserved in the Soliciting Agent's agreement to decide whether to accept or reject Wood's application.⁸  Consequently, the court held that the Agency had proximately caused Old Security's loss, and that, therefore, Old Security was entitled to recover on its cross-claim against the Agency, the amount of recovery being the amount Old Security was required to pay the Bank (the creditor beneficiary under the policy) and the plaintiff on the policy.

The Insurance Agency attacks the court's judgment, inter alia, on the ground that Old Security failed to prove that its loss was proximately caused by the Agency's failure to comply with the Company's instructions; specifically, the Agency argues that Old Security did not show that it would not have issued the policy had the instructions been complied with and Wood's January, 1975, hospitalization been disclosed on the application.

D. Plaintiff's appeal of the dismissal of her claims against the Bank and Insurance Agency.

Even though her suit against Old Security to recover the proceeds of the insurance policy was successful, plaintiff seeks to hold liable the Bank and Insurance Agency because of the damages she incurred as a result of their alleged negligence in obtaining and effecting the policy. Plaintiff claims that the jury's finding that the health questions were not asked:

amounted not only to a determination that Bolton and Weatherford, acting as insurance agents, had breached their duty to the Insurance Company as found by the judge below, but that additionally, the findings by the jury amounted to a determination that Bolton and Weatherford, acting first and foremost as Bank officials and secondarily as insurance agents, had negligently breached their duty to Wood to exercise reasonable skill, care and diligence in obtaining and effecting the policy. Plaintiff Wood's brief at 17.

As a result of this alleged negligence, plaintiff asked recovery from the Bank and Insurance Agency for the following items of damages: (1) attorney's fees, (2) expert witness fees, (3) costs of prosecution, (4) mental anguish, (5) the amount of interest accrued on her debt to the Bank since the death of her husband, less the amount of interest she is entitled to on the judgment against Old Security, and (6) punitive damages.⁹ 

The district court dismissed plaintiff's claim against the Bank and Insurance Agency, holding that since these defendants had procured the policy requested by the insured, they were not liable in negligence to plaintiff.¹⁰ 

III. Questions to be certified to the Alabama Supreme Court.¹¹ 

1. Certified question arising from Insurance Agency's appeal: Assuming¹²  that Old Security has shown that the Insurance Agency breached a duty owing to Old Security by failing to ask Mr. Wood, the insured, the health questions required by the Soliciting Agent's agreement, and by supplying answers to the questions without Mr. Wood's authority,

(a) Does the burden remain on Old Security, in order to recover on its cross-claim against the Agency, to also prove that its loss on the policy was proximately caused by the Agency's breach of duty? For example, must Old Security prove that it would have rejected Wood's insurance application had the Agency asked the health questions?¹³  Or,

(b) Has Old Security established a prima facie case on its cross-claim against the Agency, thus shifting to the Agency the burden of proving that Old Security's loss on the policy was not proximately caused by the Agency's breach of duty? For example, must the Agency prove that, even absent its failure to ask the health questions, Old Security would have accepted Wood's insurance application?¹⁴ 

2. Certified question arising from plaintiff's appeal: Whether, under Alabama law, a cause of action in negligence lies against the party undertaking to procure insurance for another, where the party procures the insurance, but does so in a manner contravening the instructions of the insurer, resulting in damages to the insured arising from the delay and costs incurred by the insured in having to sue the insurer to collect the insurance proceeds?

The entire record in this case, together with copies of the briefs of the parties and certification in this Court, are transmitted herewith.

CERTIFIED.