Beware Estoppel

An insurance agent, insurance broker or employee of an insurance company should never give information to an insured without being certain that the information is true and accurate. In this case, an employee of the insurer advised the insured by phone that premium had been paid by electronic transfer when in fact it had not.

Read Barry Zalma's previous column, “Don't change a policy.”

Based on the lack of payment, Wisconsin Mutual Insurance Co. declared the policy had lapsed before an accident and denied coverage. After trial, Wisconsin Mutual appealed a judgment preventing it from denying coverage for Jean George's automobile accident based on her failure to pay the premium. Wisconsin Mutual claimed that her husband's testimony regarding a Wisconsin Mutual employee who assured the premium had been paid was insufficient to establish estoppel and incredible. The Wisconsin Court of Appeals agreed with the trial court that the equitable remedy of estoppel prevented Wisconsin Mutual from denying the claim.

Background

Jean George was involved in an accident on Oct. 28, 2003. Wisconsin Mutual denied coverage for nonpayment, asserting George's policy had lapsed on Oct. 22, 2003. The policy required monthly renewal. Several months before the Oct. 28 accident, George elected to make her premium payments by electronic transfer from her and her husband's bank account. On Oct. 10, 2003, Wisconsin Mutual sent George a policy renewal form, which stated that $178.60 would be withdrawn through an electronic funds transfer on Oct. 22. The renewal form also contained a nonpayment clause:

“If this notice is for premium due and not paid, the insurance coverage shall lapse at 12:01 a.m. central time on the due date or withdrawal date. The policy will not lapse if paid by the due date or withdrawal date or within 10 days thereof.”

On Oct. 22, Wisconsin Mutual initiated an electronic transfer from George's bank account. There were insufficient funds to cover the transaction and the premium was not paid.

The day after the accident, George's husband, John, contacted Wisconsin Mutual to inquire about the premium payment. A Wisconsin Mutual employee told him that the premium payment had been received and that George was covered for the accident. George took no further action and the 10-day grace period passed on Nov. 1, 2003.

Wisconsin Mutual again unsuccessfully attempted an electronic transfer on Nov. 5. Wisconsin Mutual's electronic transfer account manager testified that if the Nov. 5 transaction had been successful, Wisconsin Mutual would have provided coverage for the accident despite the grace period's expiration.

George filed suit against Wisconsin Mutual after it denied her claim. Following a trial, the circuit court found that George had relied on the Wisconsin Mutual employee's assurance that the premium had been paid. Accordingly, the circuit court ruled that Wisconsin Mutual, by its actions, could not deny. The insurer appealed.

Equitable estoppel

Equitable estoppel, the ground used by the court to prevent the insurer from denying coverage even though the policy had lapsed, is established by proof of the following elements:

1. Action or non-action,
2. on the part of one against whom estoppel is asserted,
3. which induces reasonable reliance thereon by the other, either in action or non-action, and
4. which is to his or her detriment.

The Court of Appeals concluded that the trial court's findings of fact were sufficient to establish equitable estoppel. A representative of Wisconsin Mutual assured George's husband that it withdrew the premium payment from their account. George's husband testified that he would have made the payment within the 10-day grace period if he had been told the electronic transaction was unsuccessful. He further stated that because of Wisconsin Mutual's representation, he made no additional efforts to determine whether it had received the premium payment. George relied on Wisconsin Mutual's statement to her detriment because the payment had not, in fact, been timely made. The circuit court's estoppel conclusion was supported by “clear, satisfactory and convincing” evidence.

Related “Negligent Agent Escapes Liability.”

To the extent Wisconsin Mutual attacks the credibility of George's husband, the Court of Appeals rejected the argument because the trial court is the ultimate arbiter of both the credibility of the witnesses and the weight to be given to each witness' testimony and not the province of an appellate court. The circuit court specifically found John George's testimony credible, and an appellate court will never overturn that type of finding.

Phone records admitted at trial indicate that on Oct. 29, John George placed two short calls to directory assistance and one call to his insurance agent. John George explained he asked directory assistance to transfer him to Wisconsin Mutual and spoke briefly with a Wisconsin Mutual representative:

Just trying to get the number for Wisconsin Mutual, their head office. First time I called they connected me to a number that wasn't the right number. It was something else. So I called back. And the second call was where they gave me—put me through to the right number finally.

When I called Wisconsin Mutual, I just explained that my wife—my money came out of my money transfer. My wife had been in an accident, and I wanted to make sure my payment had been made, the wire transfer had been made, I was covered, everything was fine, well, and good. She said, just a minute, Mr. George, I will look it up. She must have had a computer in front of her or some way to look it up. She came back on and said, yes, the wire transfer had been made on the 22nd. And I did not have it billed again until the 22nd of the following month.

The trial court could properly find, based on the phone records and the above testimony, that a Wisconsin Mutual employee represented that George's premium had been paid. Wisconsin Mutual nonetheless emphasizes the fact that John George could not recall the name of the employee with whom he spoke.

The issue in this case is not whether Wisconsin Mutual was estopped from denying the existence of a valid contract. After George permitted Wisconsin Mutual to automatically withdraw the premium from her joint account, no further act of acceptance was necessary on her part. All the elements of a valid contract—offer, acceptance, and consideration—were present before Wisconsin Mutual represented it received George's premium payment. The issue is whether that policy lapsed as a consequence of George's failure to perform.

Finding that Wisconsin Mutual represented that it received George's payment when in fact it did not was sufficient to allow George to rely on Wisconsin Mutual's statement and to prevent Wisconsin Mutual from denying coverage because of nonpayment.

The Wisconsin Supreme Court has held that when one telephones a person's place of business and someone there answers and undertakes to accept the communication, it is prima facie evidence that the message was delivered to someone authorized to receive the message on behalf of that person, even though the voice of the person is not identified.

In that case, the court held that the jury was entitled to find that the witness had spoken with a representative of the insurer, who promised to “attend to the coverage, notwithstanding the testimony of [another employee] that she did not recollect the transaction and found no record thereof….” The trial court also concluded that Wisconsin Mutual failed to provide a statutory notice of cancellation. Wisconsin Mutual contended the notice was not required. Because the Court of Appeals concluded that Wisconsin Mutual is estopped from denying coverage, it did not need to, nor did it, reach the issue.