                 IN THE COURT OF APPEALS OF TENNESSEE
                            AT KNOXVILLE
                                   October 2, 2002 Session

 CINDERELLA FERRELL OSBORNE v. MOUNTAIN LIFE INSURANCE
                       COMPANY

                     Appeal from the Circuit Court for Hawkins County
                            No. 10123    John K. Wilson, Judge

                                 FILED FEBRUARY 19, 2003

                                 No. E2002-01023-COA-R3-CV


         This appeal raises a question of coverage under a policy of credit life insurance. The
Plaintiff, Cinderella Ferrell Osborne, brought this action against Mountain Life Insurance Company
(“Mountain Life”), alleging that it wrongfully denied her claim under a credit life insurance policy
on the life of her deceased husband, Kenneth Scott Osborne. The Trial Court granted Mountain
Life’s motion for summary judgment, finding that Mr. Osborne died within six months after the
effective date of coverage, from a disease for which he received medical treatment within six months
of the effective date of the insurance. The Court held that these facts triggered a limitation of
liability provision in the policy, which limited Ms. Osborne’s recovery to the premium paid. We
reverse the judgment of the Trial Court.

    Tenn R. App. 3 Appeal as of Right; Judgment of the Circuit Court Reversed; Cause
                                       Remanded

HOUSTON M. GODDARD , P.J., delivered the opinion of the court, in which HERSCHEL P. FRANKS and
D. MICHAEL SWINEY, JJ., joined.

Douglas P. Jenkins, Rogersville, for Appellant, Cinderella Ferrell Osborne

Lewis S. Howard and Delicia R. Bryant, Knoxville, for Appellee, Mountain Life Insurance Company

                                            OPINION

       Both parties agree that the relevant facts in this case are undisputed. It appears that in
January of 1997, Mr. Osborne purchased a tractor and some other farm equipment from Jones
Tractor in Rogersville, Tennessee. Ms. Osborne’s brief states as follows about this transaction:

               Kenneth Scott Osborne first incurred the indebtedness in question in
               January, 1997. At that time, Mountain Life issued a certificate of
               insurance on his one-year, single-pay note. The note was
               subsequently renewed January 1998, January 1999, and January 2000.

The initial note which was executed in January 1997 is not included in the record, nor is there any
indication of the amount of this note. Apparently this note was executed in favor of Jones Tractor
and assigned to First Community Bank of East Tennessee the same day.

       Mountain Life’s brief states as follows regarding the transactions that subsequently occurred:

               [Mountain Life] has an agreement with First Community Bank of
               East Tennessee to provide group credit life and credit accident and
               health insurance to certain customers of the Bank in connection with
               financing and loan transactions.
                       Prior to January 13, 2000, Mr. Osborne had credit life
               insurance with [Mountain Life] as a result of issuance of Group
               Insurance Certificate No. 01286122 which was issued on February
               25, 1999. However, this certificate was cancelled on January 13,
               2000 and a partial premium refund in the amount of $19.01 was
               issued.
                       On January 13, 2000, Kenneth S. Osborne was issued Group
               Insurance Certificate No. 40101984 providing group credit life
               insurance in connection with a Retail Installment Contract and
               Security Agreement executed in favor of Jones Tractor in Rogersville,
               Tennessee. The Installment Contract was assigned to First
               Community Bank the same day.

       Mr. Osborne died on March 21, 2000. The cause of his death was described as “sepsis due
to metastatic gastric cancer.” Mr. Osborne received medical treatment for metastatic gastric cancer
beginning in November of 1999.

        Ms. Osborne filed this action on December 15, 2000, after Mountain Life denied her claim
under the policy issued January 13, 2000. Mountain Life answered and filed a motion for summary
judgment, relying upon the following provision, which it alleged was part of the policy agreement
between Mountain Life and First Community Bank, and also included in the Group Insurance
Certificate issued to Mr. Osborne:

               The Company’s liability is limited to the premiums paid by the
               Debtor if liability arises by reason of death occurring within six
               months after the effective date of coverage and resulting from a
               disease, injury, or condition of health for which the debtor was
               hospitalized or received medical or surgical treatment or advice
               within six months of the effective date of the debtor’s insurance.



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The Trial Court found this provision applicable and, because Mountain Life had refunded the amount
of the premium, granted summary judgment in favor of Mountain Life. Ms. Osborne appeals, raising
the issue of whether the Court erred in determining that Mountain Life is entitled to summary
judgment as a matter of law.

        Ms. Osborne argues that the “effective date of coverage” and “effective date of insurance”
should be construed as the date on which the insurance covering the initial indebtedness became
effective, i.e., in January of 1997. She states in her affidavit:

                The effective date of the insurance coverage at issue in this matter, so
                far as my husband and I understood, was on or about January 1997
                when my husband made the subject notes to Jones Tractor Company.
                All my husband, Kenneth Scott Osborne, ever did was renew the
                same notes at Jones Tractor. To my knowledge, he never talked to
                the insurance company or the bank.

Mountain Life counters this argument with the affidavit of Mary E. Bunting, its Vice President,
which states as follows:

                Group Insurance Certificate No. 40101984 [issued January 13, 2000]
                was not a renewal or continuation of any prior issuance issued to
                Kenneth S. Osborne and such Certificate could not have been issued
                unless and until the prior Certificate (No. 01286122) had been
                cancelled.

Mountain Life, in support of its assertion that the insurance certificate issued on January 13, 2000
was a certification of an entirely “new” policy, unrelated to the previous certificates of insurance sent
to Mr. Osborne in prior years after his renewals of the underlying note and payment of premiums,
cites T.C.A. 56-7-907, which states in relevant part:

                (b)(1) . . .If insurance on the life of a debtor is provided under a group
                policy, the term of such insurance shall not be continued for a period
                greater than the duration of the indebtedness.
                                *               *                *
                (c) If the indebtedness is discharged due to prepayment, the credit life
                insurance in force shall be terminated. If the indebtedness is
                discharged due to renewal or refinancing prior to the scheduled
                maturity date, the insurance in force shall be terminated before any
                new insurance may be issued in connection with the renewed or
                refinanced indebtedness. In all cases of termination prior to scheduled
                maturity, a refund shall be paid or credited as provided in § 56-7-909.



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         We do not find it necessary to reach the question of whether the insurance at issue was
“new”insurance of such a character as to trigger the requirement of T.C.A. 56-7-907(c) that the
“insurance in force” be terminated. This is because, even assuming (without deciding) that Mountain
Life is correct in its assertion that the January 13, 2000, issuance was an entirely new policy, under
the undisputed facts of this case, we believe Mountain Life must be held to be estopped from relying
on the limitation of liability provision at issue.

        In the case of Vulcan Life & Accident Ins. Co. v. Segars, 391 S.W.2d 393 (Tenn. 1965), the
insurer relied upon a provision contained in the certificate of insurance which provided that “this
insurance shall not take effect hereunder unless the insured-debtor named herein is alive and in
sound health. . .” The insured, Mr. Segars, had suffered a “severe heart attack” less than one month
before applying for the credit life insurance at issue in the case. Two days after the issuance of the
insurance certificate, Mr. Segars died of another heart attack.

       The Supreme Court stated that

               It is undisputed the agent, Williams, made no inquiry as to the
               condition of insured's health. Williams told the insured the insurance
               would pay the note in the event of his death if unpaid at that time.
               Nor did Williams call to the insured's attention the condition
               precedent of sound health as provided in the certificate.
                               *              *               *
               We think it was negligence for the agent to issue the certificate of
               insurance without inquiring as to the insured's health. He knew or
               should have known the insurer would deny liability in the event it was
               determined the insured was not of sound health when the policy was
               issued. He took that chance which resulted in this lawsuit. His act
               was the act of the insurer and the company should be the party to
               suffer.

Segars, 391 S.W.2d at 396, 397. The Segars court further stated as follows:

                With respect to such a situation it is said in Vance, Insurance, 3rd
               Ed., Anderson, Section 89, page 540:
                “After all, the man on the street purchases his insurance policy in
               very much the same way that he purchases his automobile or his
               reaper or other chattels. He knows no more about the making of a
               contract of insurance than he does about the making of an automobile,
               and he naturally relies upon the skill and good faith of those who hold
               themselves out to be experts in such matters, by advertising their
               wares for sale. It would seem to be the clear duty of the insurer,
               professing to draw an instrument protecting the applicant's property
               against certain defined perils, to exercise due diligence to supply a


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               policy which will effect the purpose intended. Any damage caused
               to the applicant through the agent's mistakes or negligence in making
               inquiries that he should know to be pertinent should rest on the
               insurer. The situation seems to be strikingly analogous to that
               expressed in the familiar rule of the law of sales to the effect that a
               vendor supplying an article which he knows is to be used for specific
               purpose impliedly warrants that the article furnished is suitable for
               that purpose.”

Segars, 391 S.W.2d at 397-98.

       In the present case, the insurance certificate issued to Mr. Osborne is not provided in the
record before us. The record does contain the following relevant excerpts from Ms. Bunting’s
deposition:

               Q: Was Mr. Osborne required to make any formal application for this
               certificate? And when I say “this certificate,” I mean 40101984, the
               one that we’re going to talk about?

               A: No, he was not.

               Q: Okay. Was he required to give any information about his health
               or the status of his, you know, physical well being at that time?

               A: No.

                               *               *               *

               Q: Would Mr. Osborne have been required to sign anything or have
               been given anything, for that matter, that would have informed him
               of the exclusions or exemptions in this policy?

               A: He wouldn’t sign anything, but he would receive the customer
               copy of the certificate that was issued.

        In this case, as in Segars, there was no misrepresentation on the part of the insured as to the
condition of his health. As the Segars court found in that case, “[i]nsured had no reason to believe
the policy contained the provision.” Indeed, Mr. Osborne had no reason to expect that circumstances
would be any different from the previous instances where he had renewed the note, paid the premium
and received the life insurance coverage. Under Segars, we find that it was incumbent upon
Mountain Life to inquire about the condition of Mr. Osborne’s health in order for it to subsequently
rely on the “pre-existing” health condition provision, which was not provided in any application
document or other paper required to be signed by Mr. Osborne.


                                                   -5-
        The record does contain the document which Mr. Osborne was required to sign, which is
styled a “retail installment contract and security agreement.” It is marked “renewal” and lists the
amount financed as $23,850.96, which includes an insurance premium for the life insurance at issue
in the amount of $329.33. The agreement calls for a single payment “due at maturity on January 12,
2001" in the amount of $26, 994.65. A box for “credit life” insurance is checked, and Mr. Osborne’s
handwritten initials appear on the line beside the word “insured.” Pursuant to the above analysis,
we hold that under the facts of this case, Mountain Life is estopped to rely upon the pre-existing
health condition limitation of liability provision, and find that Ms. Osborne, as surviving widow and
sole heir, is entitled to the proceeds of the insurance policy, less the amount of the already-refunded
premium.

        For the foregoing reasons the judgment of the Trial Court is reversed and the cause remanded
for collection of the amount owing under the policy, and of the costs below which are, as are costs
of appeal, adjudged against the Appellee, Mountain Life Insurance Company.



                                               _________________________________________
                                               HOUSTON M. GODDARD, PRESIDING JUDGE




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