Akers v. Columbus Life Insurance Company

Filing 30

MEMORANDUM OPINION & ORDER : Deft, Columbia Life Insurance Company's 22 MOTION for Summary Judgment is SUSTAINED. A Judgment in favor of Defendant will be entered contemporaneously herewith. Signed by Judge Henry R. Wilhoit, Jr on 7/19/18.(JLS)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
ASHLAND
CIVIL ACTION NO. 17-34-HRW
PAUL W. AKERS,

v.

PLAINTIFF,

MEMORANDUM OPINION AND ORDER

COLUMBUS LIFE INSURANCE CO.,

DEFENDANT.

This matter is before the Court upon Defendant Columbus Life Insurance
Company's Motion for Summary Judgment [Docket No. 22]. The matter has been fully
briefed by the parties [Docket Nos. 22-1, 25 and 26]. For the reasons set forth herein, the
Court finds that Defendant is entitled to judgment as a matter of law.
I.

This case arises from the termination of a life insurance policy, Policy No.
CM3264530 issued to Plaintiff Paul Akers on May 17, 1993 by Defendant Columbus
Life Insurance Company ("Columbus Life"). A copy of the policy is part of the record at
Docket No. 22.2.
A. The Policy
The policy is not whole life insurance policy, but, rather, a flexible premium life
insurance policy. Columbus Life describes this species policy as follows:
[This policy] provides for fixed premium payments
throughout the duration of the policy, a flexible premium
life insurance policy gives the insured the ability to pay
various premium amounts throughout the life of the policy.
The only caveat to this flexibility is that the insured must

make sure that there is enough paid into the policy in
premium payments to cover the monthly cost and expenses
of insurance (collectively the "Cost of Insurance"). Thus,
the insured has the flexibility to make large lump sum
payments, increase premium payments in some months,
decrease them in others, or even skip payments - so long as
the cash balance in the policy is sufficient to cover each
month's Cost oflnsurance. Any amounts paid into the
Policy exceeding the monthly Cost of Insurance create a
cash value "savings" within the policy that earns interest on
a tax deferred basis.
[Docket No. 22-1, pg. 1]. Plaintiff does not dispute this description.
The Policy identifies four situations that trigger the automatic lapse or termination
of coverage:
(1) You request that coverage terminate. (Such request will
require a surrender of this policy.)
(2) The insured dies. Some riders may provide benefits for
other covered persons beyond the insured' s death.
(3) The policy matures.
(4) The grace period ends.

Id. (emphasis added).
It is the fourth scenario which is at issue in this case.
According to the policy, premium payments are "flexible." The insured could
"choose the amount and frequency of payments." [Docket No. 22-2, at p. 8]. However,

the Policy states that the "possib[ility] that coverage will expire prior to the maturity date
if premiums paid are not large enough to continue coverage to that date." Id. at p. 3. The
Policy explains that, if premiums paid are not sufficient to cover the Cost of Insurance,
there will be a grace period of 61 days for the insured to remedy the deficiency. Id. at 9. If
the deficiency is not remedied, the Policy lapses and is terminated. Id.

2

The "grace period under" the Policy is described as a "period of 61 days" from
which there is "insufficient [cash] value" in the Policy to cover the monthly Cost of
Insurance. [Id.]. If the Policy fell into grace, Akers was obligated to pay the "amount of
premium needed to make the value sufficient ... at any time during the 61 day grace
period." [Id.]. If the necessary premium needed to make the cash value sufficient was
"not paid within the grace period, all coverage under [the Policy] will terminate without
value at the end of the 61 day period." [Id.].
Each year, the insured receives a Flexible Premium Adjustable Life Annual
Report ("Annual Report") that summarized the status of the Policy. Copies of the Annual
Reports sent to Plaintiff from 2006 to 2015 are part of the record at Docket No. 22-4. The
Annual Reports reveal the beginning and ending account value for the Policy each
year, as well as the net cash value and monthly expense charges and deductions (Cost of
Insurance) necessary to determine whether the Policy has sufficient value to maintain
coverage. In addition, the Annual Reports contained a phone number for Client Services,
should the insured have questions concerning his Policy. Id.
In his deposition, Plaintiff testified that although he received a copy of the Policy
upon issuance in 1993, he has never read it. [Deposition of Paul Akers, pp.18, 94]. In
addition, he testified that although he received the Annual Reports, he did not read them
or "pay any attention " to them. Id. Plaintiff does not dispute this testimony. Yet he
maintains that the independent agent who sold the policy, Luther Waldrop, did not
explain to him the difference between a whole life policy and a flexible life policy. Id. As

3

Waldrop is not a party to this action, nor has his deposition, if taken, been filed in the
record, one may only speculate as to what he may, or may not have, said.

B. The Grace Periods, Thrice Commenced
Despite Plaintiffs suggestion that he did not understand the nature of the specific
type of policy he purchased, his actions throughout the twenty-plus years he had it
demonstrate otherwise.
In 2013, Plaintiffs policy went into the grace period described supra. By letter
dated November 15, 2013 to Plaintiff from the Client Services Department at Colombus
Life, he was informed that his policy lacked sufficient value and that, in order for his
coverage to continue, a payment of $444. 70 was to be received by December 17, 2013.
[Docket No. 22-5]. The letter also explained that automatic withdrawals from Plaintiffs
checking account would be discontinued until the payment was received.

Id. Plaintiff

paid the amount due and the Policy did not lapse ..
The grace period was triggered again in 2014. Again, Columbus notified Plaintiff
by letter, and, again, Plaintiff paid and, again, his policy did not lapse. [Docket No. 226].
The Policy went into the grace period, for the third time, on April 17, 2016.
Columbus Life notified Plaintiff of this fact in two separate writings. Plaintiff was sent
an Annual Report dated May 17, 2016, showing a Cash Surrender Value of $233.67,
along with the Cost of Insurance for each month. As shown on the Annual Report,
Akers' Policy had an insufficient cash value because $233.67 was less than the Cost of

4

Insurance for the month of April ($234.77). [Docket No. 22-8, p. 2]. The Annual Report
included the statement; "your policy is in its Grace Period in accordance with the terms
of [the] policy." Id The report also provided that "no monthly deductions and expense
charges shall be applied to [his] policy's Account Value until [Columbus Life] receive[s]
a premium sufficient to maintain coverage in force." [Id].
As was the case with the prior Annual Reports and the Policy itself, Akers
testified that he received this Annual Report, but never read it. [Deposition of Paul Akers,
p. 50].

By letter dated May 18, 2016, Columbus Life informed that his Policy "does not
have sufficient value to continue coverage and is now in its grace period." [Docket No.
22-7]. He was instructed to "send a payment of $24 7 .52 along with the enclosed payment
stub by 06/18/2016" to maintain coverage under the Policy and that "[i]f this full
payment amount is not received by 06/18/2016, your policy will terminate without value
and all insurance coverage [will] end." Id The letter further advised Plaintiff that "[t]he
Pre-Authorized withdrawals from your checking account have been discontinued" and
would only be resumed upon receipt of the required payment by the June 18,
2016 due date. Id Notably, typed in bold print across the top of the letter:
"IMPORTANT NOTICE*** YOUR POLICY IS ABOUT TO LAPSE***." Id
Plaintiff testified that he received the letter but he did "nothing" with
it and never read it. [Deposition of Paul Akers, p. 52]. Plaintiff does not dispute this
testimony. He concedes that he "should have known better." [Id at p. 65].

5

Indeed, Plaintiff testified that he was completely unaware of any problem with the
Policy until he received a notice from Columbus Life stating that the Policy had lapsed
for lack of payment on June 18, 2016. Id at p. 59. A notice, dated the same day, was
sent to Plaintiff in this regard. [Docket No. 22-9].
At some point thereafter, Plaintiff called his daughter, Brenda Cordial, who
reviewed June 18, 2016 notice as well as the letter of May 18, 2016 and knew that
Plaintiff "was supposed to mail a check" and had missed his deadline for doing so.
[Deposition of Brenda Cordial, pp. 19-20]. She testified that the letter was "absolutely
clear". Id.
II.
The following April, Paul Akers filed this lawsuit against Columbia Life,
asserting claims for: (1) declaration that Columbus Life wrongfully terminated the life
insurance policy; (2) specific performance; (3) unjust enrichment; (4) violation of the
Kentucky Insurance Code, KRS 3014-15; (5) breach of contract; and (6) breach of the
implied duty of good faith and fair dealing. [Docket No. 1-1].
Columbia Life seeks summary judgment as to vall claims alleged herein.
III.
In order to sustain a motion for summary judgment, a Court it must find that there
is no genuine dispute as to any material fact and the moving party is entitled to judgment
as a matter oflaw. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of
specifying the basis for its motion and of identifying that portion of the record which
demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett,

6

477 U.S. 317, 322, 106 S.Ct. 2548, 91L.Ed.2d265 (1986). Once the moving party
satisfies this burden, the non-moving party thereafter must produce specific facts
demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S.

242, 247-48, 106 S.Ct. 2505, 91L.Ed.2d202 (1986).
Although the Court must review the evidence in the light most favorable to the
non-moving party, the non-moving party is required to do more than simply show there is
some "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The rule
requires the non-moving party to present specific facts showing that a genuine factual
issue exists by "citing to particular parts of materials in the record" or by "showing that
the materials cited do not establish the absence ... of a genuine dispute [.]" Fed.R.Civ.P.
56(c )( 1). "The mere existence of a scintilla of evidence in support of the [non-moving
party's] position will be insufficient; there must be evidence on which the jury could
reasonably find for the [non-moving party]." Anderson, 477 U.S. at 252, 106 S.Ct. 2505.

IV.
A.Breach of Contract
The Court will first address Plaintiffs claim of breach of contract. As this is a
diversity action, Kentucky state law applies to the merits of this case. Erie Railroad v.

Tompkins, 303 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).
Under Kentucky law, the interpretation of an insurance contract is a question of
law for the Court to decide. Kemper Nat'! Ins. Cos. v. Heaven Hill Distilleries, Inc., 82
S.W.3d 869, 871 (Ky.2002); Equitania Ins. Co. v. Slone & Garrett, P.S.C., 191 S.W.3d

7

552, 556 (Ky.2006). "In construing a contract, a court's primary objective is to ascertain
and to effectuate the intention of the parties to the contract from the contract itself."
Logan Fabricom, Inc. v. AOP P'ship LLP, 2006 WL 3759412, *2 (Ky.Ct.App. December
22, 2006). "[I]n the absence of ambiguity, a written instrument will be enforced strictly
according to its terms, and a court will interpret a contract's terms by assigning language
its ordinary meaning and without resort to extrinsic evidence." Frear v. P. TA. Indus.,
Inc., 103 S.W.3d 99, 106 (Ky.2003) (quotation and citation omitted). See also York v.
Kentucky Farm Bureau Mutual Ins. Co., 156 S.W.3d 291, 293 (Ky.2005) ("The clear and
unambiguous words of an insurance contract should be given their plain and ordinary
meaning.").
In his Complaint, Plaintiff alleges that Columbus Life breached its contract, i.e.
the Policy, by "fail[ing] to notify [him] of in a timely fashion of his declining account
value and inadequacy of his monthly premium amounts" and "misle[ading] [him]
regarding the onset of the grace period." [Docket No. 1, iii! 47-48].
With regard to the notification, the Policy clearly states that Columbus Life "shall
send [Plaintiff] at least once each year a report which shows the current cash surrender
value, premiums paid and charges made since the last report, and outstanding policy
loans." [Docket No. 22-2 p. 8 (Annual Report Provision)].
Columbus Life did, in fact, send these reports to Plaintiff. Plaintiff admits he
received these reports each year since the purchase of his policy but did not read them.
It is undisputed that the Annual Reports, each a page long, include financial

information about Plaintiff's Policy, including the cash value, monthly premiums,
8

monthly deductions and expense charges (Cost of Insurance), as well as the ending
account balance for each monthly anniversary date of the Policy. [Docket No. 22-8]. The
Annual Reports clearly establish that the value of his Policy steadily declined from 2007
until 2016. Id.
Casting a rather large shadow of doubt over Plaintiff's claim that he was unaware
of the precarious nature of his Policy is the fact that his failure to pay sufficient premiums
triggered the Policy's "grace period" on three separate occasions, in 2013, 2014 and,
finally, in 2016. In 2013 and 2014, Plaintiff paid the required premium and his Policy
continued rather than lapsing.
Moreover, had Plaintiff simply reviewed the single page reports, he would have
been aware that his Policy was losing value each year.
Regardless of what Plaintiff did or did not do, it is undisputed that, pursuant to the
terms of the Policy, Columbus Life sent the reports and Plaintiff received them, thereby
absolving Columbus Life of breaching the Policy in this regard.
Plaintiff was also notified, pursuant to the terms of the Policy, of its impending
lapse and ultimate termination. The Policy, "all coverage under [the Policy] will
terminate without value at the end of the 61 day period" if the necessary premium is not
paid within the same 61- day period. [Docket No. 22-2, p. 9]. It is undisputed that the
Policy had an insufficient value on April 17, 2016 and the 61-day Grace Period began to
run on that date.

9

The May 18, 2016 letter also served as notification of an issue and explicitly
explained that an additional premium payment of $247.52 was due by the end of the grace
period on June 18, 2016. [Docket No. 22-7].
However, Plaintiff did not read his Policy or the communications regarding. Yet,
Plaintiffs failures do not establish a breach of contract on behalf of Columbus Life.
Rather, pursuant to the terms of the Policy, the termination for nonpayment on June 18,
2016 was proper.
As for Plaintiff's argument that he believed that Columbus Life would
continue to make automatic withdrawals from his checking account during the Grace
Period and that this belief, somehow, renders Columbus Life for a breach of contract, it is
without merit. First, the Policy does not provide that automatic premium withdrawals
must continue during the grace period. If it is not a term of the contract, it cannot be
breached. Also, the notification letters of 2013 and 2015 and the May 18, 2016
letter, specifically states that "[t]he Pre-Authorized withdrawals from [Plaintiff's]
checking account have been discontinued." [Docket No. 22-7] (emphasis in original)].
Again, had Plaintiff read these letters, he would have known.
In a final attempt to salvage his claim, Plaintiff contends that the Policy is
ambiguous with regard to when the grace period begins.
"A contract is ambiguous if a reasonable person would find it susceptible to
different or inconsistent interpretations." Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94
S.W.3d 381, 385 (Ky.Ct.App.2002). "[T]he mere fact that a party attempts to muddy the

IO

water and create some question of interpretation does not necessarily create an ambiguity.

"Id (quoting Sutton v. Shelter Mut. Ins. Co., 971S.W.2d807, 808 (Ky.1997)).
The Policy's provisions regarding the grace period are crystal clear. "A grace
period of 61 days will begin on any monthly anniversary day when there is an insufficient
value" in the Policy. [Docket 22-2, p. 9]. "Insufficient value" is defined as when "the net
cash surrender value on the monthly anniversary day is less than the sum of the monthly
expense charges and monthly deduction .... " Id The Court finds no ambiguity in this
language.
In an effort to "muddy the waters", Plaintiff suggests the notification letters sent
to him were confusing with regard to the grace period. However, it is well established
that absent an ambiguity, the four comers of the contract define the limit of interpretation.

Secura Insurance Co., v. Gray Construction, Inc., 717 F.Supp.2d 710 (E.D. Ky. 2010).
In other words, only where a Court finds ambiguity may it consider patrol or extrinsic
evidence involving the circumstances surrounding the contract . Id (internal citations
omitted). Such is not the case here.
It bears mentioning, again, that Plaintiff admitted he received the letters but did

not read them. He concedes that if he had simply read the letter, he would have known
that his premium payments were no longer going to be automatically deducted from his
checking account and that he needed to tender an additional payment or his policy would
lapse. [Deposition of Paul Akers, pp. 55-56]. However, he failed to read the letters and
admits that he "should have known better." Id at p. 65. His own actions belie any claim

11

of confusion, ignorance or ambiguity and, most glaringly, breach of contract. At best, his
claim is disingenuous.
B.Other claims
In his Complaint, Plaintiff also asserts claims for specific performance, unjust
enrichment, violation of the Kentucky Insurance Code and breach of the implied duty of
good faith and fair dealing, as well a declaratory judgment. However, in his response to
Columbus Life's dispositive motion, Plaintiff makes no mention of these claims and
advances no argument in support of them, thereby abandoning them.

v.
Plaintiff has failed to demonstrate that any genuine issues of material fact exist in
the record. As such, Defendant is entitled to judgment as a matter of law.
Accordingly, IT IS HEREBY ORDERED that Defendant Columbus Life
Insurance Company's Motion for Summary Judgment [Docket No. 22] be SUSTAINED.
A judgment in favor of the Defendant will be entered contemporaneously herewith.
This

/q~ay

,2018.
Signed By~

Htnrv R. Wiihoit. Jr.
United States District Judge

12