American General Assurance Co. v. Pappano

WILNER, J. Maryland Code, § 5-101 of the Courts and Judicial Proceedings Article contains the State’s general statute of limitations. It requires that a civil action be filed within three years after the date it accrues, unless a different period of time is prescribed by some other statute. The issue before us is whether the Circuit Court for Montgomery County erred in entering a summary judgment that Martha Pappano’s action against petitioners was barred by that statute. The Court of Special Appeals concluded that the trial court did err and therefore reversed the judgments.

Pappano v. Chevy Chase Bank, 145 Md.App. 670 , 806 A.2d 334 (2002). We agree in part and disagree in part with the intermediate appellate court. BACKGROUND Ms. Pappano’s action arises from the failure of Chevy Chase Bank F.S.B. and Chevy Chase Financial Services Corporation (collectively, Chevy Chase) to provide credit life insurance on her husband’s life in connection with a home equity loan that the Pappanos jointly obtained in 1990 and increased in 1994. She sued Chevy Chase for negligence, breach of contract, and various other wrongs, and she also sued a number of insurance companies for vicarious liability, on the theory that Chevy Chase had acted as their agent and that they were therefore responsible for its wrongful conduct.

In September, 1990, Mr. and Ms. Pappano applied to Chevy Chase for a $75,000 home equity loan. They both signed the application and on it they checked a box next to the statement “I (we) would like Credit Life Insurance.” That statement was followed by another that said that credit life insurance was optional, that the premium would vary based on the ³⁴² amount of the loan, and that the premium would be included in the monthly payments. The question of credit life insurance arose again at closing on the loan, which occurred on October 9, 1990. In an affidavit submitted in response to the motions for summary judgment, Ms. Pappano said that she and her husband made inquiry of the settlement officer, who explained that the insurance would pay the outstanding balance of the loan in the event of death and that it would be most beneficial if it covered the spouse with the higher income.

Ms. Pappano was retired on disability, -with an annual disability income of less than $20,000; her husband was employed and earned $37,000. They decided, she said, to have the insurance on both lives, with the understanding that, if either one died, the full insurance limit would be applied to the outstanding balance of the loan. Accordingly, through appropriate checks and circles in boxes on the settlement sheet, they indicated that “we,” rather than “I,” desired credit life insurance and that the insurance was to be “joint” as opposed to “single.” The rate quoted for single insurance was $.83 per $1,000; the rate for joint insurance was $1.38 per $1,000. Ms. Pappano stated that they did not receive a copy of the settlement sheet and that they were never given any documents regarding the credit life insurance, either before or after closing. ■ At the time, Chevy Chase had in force a group policy issued by Security of America Life Insurance Company, under which Chevy Chase was authorized to offer to its eligible customers credit life insurance in a maximum amount not to exceed the lesser of the amount of the loan or $50,000.

The agreement called for Security of America to furnish certificates of insurance to Chevy Chase which Chevy Chase was obliged to issue to the customers within 30 days after the effective date of the insurance. Chevy Chase was responsible for taking the application from the customer and forwarding it to Security of America. Upon satisfactory proof of death of' an insured customer, the insurer agreed to pay the amount of insurance in force to Chevy Chase, in reduction of the outstanding loan. There was apparently no direct contact between Security of ³⁴³ America and the insured customer.

The premiums stated in the group policy were $.8265 for single life and $1.3775 for joint life — somewhat less than the rates noted on the Chevy Chase application form. Pursuant to that group policy and agreement, a policy was issued, but it was a single policy covering only Ms. Pappano and not her husband. The policy was dated October 9, 1990 and was in the amount of $50,000. Notwithstanding Chevy Chase’s obligation to forward the policy to Ms. Pappano, she averred in her affidavit that she never received either the policy or any other documents regarding credit life insurance.

Effective July 15, 1994, Chevy Chase terminated the group policy with Security of America. From and after that date, it offered its loan customers credit life insurance through Union Security Life Insurance Company. The agreement it had with that company is not in the record before us, and we therefore do not know whether, or to what extent, it differed from the agreement with Security of America. In 1994, the Pappanos decided to increase the loan.

The application for increase is not in the record extract. On the settlement sheet, signed in connection with the July 18, 1994 closing, the Pappanos checked the box stating that “Ewe desire credit life insurance” but did not circle the “we” or check either “single” or “joint,” as they had done before. Ms. Pappano stated that they again discussed the matter with the settlement officer, who recommended insurance on Mr. Pappano’s life alone, because of the cheaper cost, but that they decided to continue the joint coverage. They did not made a selection on the form between “joint” and “single” because, unlike the 1990 form, this one did not state the premiums for the insurance and they decided not to check any blank lines.

Ms. Pappano stated that, as was the case with the 1990 loan, they never received a copy of the settlement sheet or any documents regarding the credit life insurance. During the life of the loan, the Pappanos received monthly statements that showed amounts for insurance, but the statements did not indicate either the amount of the insurance or ³⁴⁴ whose life it insured. The amounts varied from month to month, presumably based on the outstanding balance of the loan, but they do not seem to match any of the rates stated on the 1990 settlement sheet or in the group policy issued by Security of America. Because we are not privy to the subsequent agreement between Chevy Chase and Union Security and because the settlement sheet applicable to the 1994 loan does not disclose the premiums, there is no way to tell, on this record, whether the premiums included in the monthly installments are consistent with a joint life or single life policy.

Mr. Pappano died on August 19, 1996. Until sometime in the Spring of 1997, however, Ms. Pappano did nothing to investigate the matter of the insurance she believed existed on his life — insurance that would have either paid or reduced the balance of the loan. 1 She claimed that her inattention to the matter was the result of various personal and family crises— grief over the loss of her husband, having to handle household finances for the first time, disputes over other insurance benefits, and surgery that she underwent in January, 1997. Sometime in the Spring of 1997 — the date, and even the month, being uncertain — Ms. Pappano inquired of the manager of a Chevy Chase branch bank whether there was insurance that applied to the loan, and he responded that there was none. Although admittedly naive, she said that she “still had a sense that something was not right.” She therefore “repeated this inquiry at the bank a few more times, hoping there had been some mistake, asking different managers,” and “[ejach time I was told that there was no insurance.” In 1999, facing serious financial difficulties, she decided to sell her home.

In connection with that sale, she received a letter from Chevy Chase dated July 21, 1999, addressed to ³⁴⁵ Mr. Pappano, showing an outstanding principal balance of $123,426, plus a $1,720 finance charge, $54.47 for “Insurance (Credit Life),” and a $15 release preparation fee, for a total payoff balance of $125,216. That letter, she said, marked the first time she saw the term “credit life” in connection with any documents from Chevy Chase since the 1994 settlement. With that revelation, on August 2, 1999, she called the death benefits department at Chevy Chase and again inquired about “whether there was any insurance that applied to the loan.” She was told, first, that there was such insurance on Mr. Pappano’s life, but about 45 minutes later, the bank called back, apologized, and informed her that the insurance was on her life alone and not on her husband’s, and that, as a result, no benefits were payable. On August 10, 1999, the home was sold and, from the proceeds, the loan was paid.

In her brief in this Court, Ms. Pappano states that she “first learned of the existence of Security of America Life Insurance Company through [Chevy Chase’s] pre-suit production of documents following her inquiry in August, 1999.” She does not indicate what information she had about Security, although there is some indication that she was then supplied with the group policy and the individual policy in her name. On December 17, 1999, Ms. Pappano filed suit against Chevy Chase for negligence, negligent misrepresentation, promissory estoppel, unjust enrichment, breach of contract, civil conspiracy, and breach of fiduciary duty. Alleging some of the facts recounted above, she complained that Chevy Chase had failed to place the insurance on the life of her husband, as promised, and had failed, as well, to notify them that the insurance had not been so placed. With respect to the negligence actions, she averred that, by undertaking to advise the Pappanos regarding credit life insurance, Chevy Chase had assumed the fiduciary duties of an insurance and financial advisor and had failed to exercise ordinary care.

She also complained that Chevy Chase had failed to produce the credit life insurance applications and related documents, claiming that it was unable to locate those documents. Chevy ³⁴⁶ Chase answered the complaint and raised, among other defenses, that the actions were barred by limitations. Although aware of the existence of Security of America, Ms. Pappano did not initially join that company as a defendant. She did, however, continue to seek documents from Chevy Chase regarding the application for and placement of credit life insurance.

Her concern, in those requests, seemed to focus on the relevance of the documents to her claims against Chevy Chase or to various defenses that Chevy Chase might raise, rather than any search for additional defendants. 2 On May 15, 2000, the court ordered Chevy Chase to produce those documents. What was produced, and when, is not clear from the record. On September 5, 2000, Ms. Pappano filed an amended complaint that added six insurance companies as defendants— American General Assurance Company, American General Indemnity Company, Security of America Life Insurance Company, United States Life Insurance Company, USLIFE Indemnity Company, and USLIFE Credit Life Insurance ³⁴⁷ Company. She claimed that Security of America was the company that was supposed to provide the insurance on Mr. Pappano’s life and that the other companies were “successors of, and have assumed the obligations of’ Security of America.

The six insurance companies answered the complaint and raised, among other defenses, limitations. They also cross-claimed against Chevy Chase which, in turn, cross-claimed against them. On March 13, 2001, Ms. Pappano filed a Second Amended Complaint, in which she dismissed the six insurance companies sued in the Amended Complaint but added two others — Union Security Life Insurance Company and ABC Insurance Company. Ms. Pappano stated that the name “ABC Insurance Company” was fictitious and was “intended to identify all insurance carriers who were under contract with Chevy Chase to provide or underwrite credit life insurance to or for the benefit of Chevy Chase customers at any time during the interval from July 18, 1994 to August 19, 1996.” Concomitant with that pleading, she entered into a stipulation expressly dismissing the six insurance companies with prejudice.

Two days later, in derogation of that stipulation, Ms. Pappano filed a Third Amended Complaint in which the six insurance companies were again added as defendants. She explained that “[tjhe identity of the original insurer of the credit life insurance for which the Pappanos applied was unknown to Mrs. Pappano until 1999” and that “[i]t was only after she retained counsel, following which Chevy Chase produced some papers containing the names of insurance companies, that Mrs. Pappano had any indication as to the identity of the carrier.” Nowhere in the Third Amended Complaint did Ms. Pappano make any specific allegations as to the times during which any of the eight insurance companies (including the fictitious one) had assumed liability for offering or maintaining credit life insurance for Mr. Pappano. Nor did she allege which companies had contractual arrangements with Chevy Chase in October, 1990, when the first loan was obtained, in July, 1994, when the second loan was obtained, or August, 1996, when Mr. Pappano died. ³⁴⁸ All of the defendants moved for summary judgment, arguing, among other defenses, limitations. Chevy Chase contended that all of the elements of Ms. Pappano’s causes of action were in place when her husband died on August 19, 1996, and that, because she believed at that time that her husband was, in fact, covered by credit life insurance supposedly placed by Chevy Chase, she was on inquiry notice of her claim at that time as well.

As the initial suit was not filed until December, 1999 — more than three years later — it was time-barred. The insurance companies, added as defendants from and after September, 2000, took that position as well but also noted Ms. Pappano’s expressed disbelief, in the Spring of 1997, that there was no insurance. Finding that Ms. Pappano was on inquiry notice of her claims as of her husband’s death on August 19, 1996, and that the statute of limitations began to run at that time, the court held the actions barred and granted the motions for summary judgment. In the Court of Special Appeals, Chevy Chase argued that the Pappanos were on inquiry notice that their application for credit life insurance had not been processed at an even earlier time — within days after the two loan closings, when the Pappanos received no documents regarding the insurance — but that, at the latest, Ms. Pappano was on notice as of the day her husband died.

Ms. Pappano argued that “the earliest time that she was put on inquiry notice was in the Spring of 1997, when she made her initial inquiry of [Chevy Chase] as to the existence of credit life insurance coverage and was told that the coverage was on her life, not her late husband’s.” Pappano v. Chevy Chase Bank, supra, 145 Md.App. at 681 , 806 A.2d at 340 . The intermediate appellate court correctly recognized that an action “accrues” for purposes of § 5-101 when “the claimant in fact knew or reasonably should have known of the wrong” and that the knowledge necessary is “express cognition, or awareness implied from knowledge of circumstances which ought to have put a. person of ordinary prudence on inquiry [thus charging the individual] with notice of all facts which such an investigation would in all probability have ³⁴⁹ disclosed if it had been properly pursued.” Id. at 680, 806 A.2d at 339 (quoting Poffenberger v. Risser, 290 Md. 631, 637 , 431 A.2d 677, 681 (1981), quoting in part Fertitta v. Bay Shore Dev. Co., 252 Md. 393, 402, 250 A.2d 69, 75 (1969)). The court agreed with the defendants that any breach by Chevy Chase, of either a tort or contract duty, occurred at the date of closing on the loans or shortly thereafter “when the requested policy of insurance was not issued to the Pappanos.” Pappano, supra, 145 Md.App. at 682 , 806 A.2d at 341 .

It concluded, however, that the reasonableness of Ms. Pappano’s conduct in not making immediate inquiry was an issue of fact, and that, on the record then before it, a trier of fact could find that her cause of action did not accrue until the Spring of 1997, when she first made inquiry of Chevy Chase and was told that there was no insurance. Because the court was unable to rule that her failure to make inquiry before then was unreasonable as a matter of law, it held that the issue was not susceptible to resolution on summary judgment, and on that basis reversed the judgments entered in the Circuit Court. DISCUSSION In a nutshell, we agree with the Court of Special Appeals that it was error to enter summary judgment for Chevy Chase. Whether, under the Poffenberger standard, Ms. Pappano was on inquiry notice, prior to her first conversation with the Chevy Chase branch manager in the Spring of 1997, that insurance had not been provided on her husband’s life is a triable issue of fact, not one that, on this record, may be resolved as a matter of law.

Where the appellate court went astray, however, was in failing