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O'Connell v. Transamerica Indemnity Co.

April 30, 1991; As Amended May 15, 1991.

JAMES F. O'CONNELL & ASSOCIATES, ET AL, APPELLANTS,
v.
TRANSAMERICA INDEMNITY COMPANY, RESPONDENT



Munson, J. Green, C.j., and Shields, J., concur.

Author: Munson

James F. O'Connell & Associates, James F. O'Connell, and Sharon O'Connell (Mr. O'Connell) appeal the summary judgment dismissing their complaint and granting Transamerica Indemnity Company's*fn1 request for a declaration it is not required to provide coverage for them. Mr. O'Connell contends (1) material issues of fact preclude summary judgment, and (2) Transamerica's defense based on allegations of misrepresentation is precluded by statute. We reverse and remand for trial.

Mr. O'Connell, a life insurance broker, sold insurance to Norma and Joey August in 1978-79. In the spring of 1984, Mr. O'Connell arranged to meet with Mr. August, his son Nick August, and their attorney to review the adequacy of the Augusts' life insurance in light of increases in their

assets. Mr. O'Connell proposed replacing the existing policies on Mr. and Mrs. Augusts' lives, having a total face value of $491,171, with a single joint survivorship policy with a $1 million face value, plus a policy for Mrs. August having a face value of $200,000. The Augusts' lawyer indicated he was doing some reorganization work and suggested Mr. O'Connell postpone ordering the policies. In light of Mr. August's recent health problems, Mr. O'Connell indicated he would explore whether the insurance he was suggesting would be available. A few weeks later, Mr. O'Connell met with the Augusts and explained to them the need for medical examinations and releases.

Mr. O'Connell eventually found a policy consistent with his proposal which he recommended to the Augusts. According to the Augusts, Mr. O'Connell told them their attorney had approved the changes in their insurance. According to Mr. O'Connell, the Augusts' attorney failed to return his many telephone calls, so he advised Mr. August to discuss the matter directly with the attorney. Mr. O'Connell assumed Mr. August had done so.

After the new policy was issued and the previous insurance had been canceled, Mrs. August learned the new insurance would not provide any benefits until both she and her husband had died. She told her husband, who called their attorney. Ultimately, the new policy was canceled and an attempt was made to reinstate the old life insurance policies. Mr. O'Connell, in the following months, determined the old policies could not be reinstated. He was unable to obtain comparable new insurance for the Augusts.

In November 1985, the Augusts' attorney indicated his intention to refer the matter to the Insurance Commissioner. That same month, an attorney responded on behalf of Mr. O'Connell. On February 7, 1986, the Augusts' attorney wrote to Mr. O'Connell's attorney stating the policy was not adequately represented to the Augusts and had they known the true facts they would not have purchased it. He again stated the matter would be referred to the

Insurance Commissioner. Discussions between the attorneys ceased in March 1986. There was no further written communication on the matter until April 1987.

On February 19, 1986, Mr. O'Connell submitted an application for professional liability insurance to Transamerica. Mr. O'Connell was then insured by American Home Assurance Company; the expiration date of that policy was April 1, 1986. The Transamerica application required Mr. O'Connell to answer the following questions: "c) Sustained an E&O loss or had a claim made against you? d) Any reason to anticipate any claim against you?"*fn2 In response to the first question, Mr. O'Connell disclosed he was sued in 1977 but that a jury found in his favor and no damages were awarded. In response to the second question, Mr. O'Connell stated "no." On February 24, Mr. O'Connell learned his application had been completed on an expired form, so he immediately filled out the appropriate application and resubmitted it to Transamerica. The same questions were asked and answers given.

On February 25, Mr. O'Connell learned the American Home policy then in effect would not be renewed. He was offered an automatic free 1-year extension or the opportunity to purchase a 5-year extended reporting period. However, because a claims-made policy was issued by Transamerica, effective ...


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