Inez Seals and Terry Hurd v. Life Investors Insurance

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
JULY 9, 2003 Session
INEZ JEAN SEALS and TERRY HURD v. LIFE INVESTORS INSURANCE
COMPANY OF AMERICA, ET AL.
Direct Appeal from the Chancery Court for Sequatchie County
No. 1810 John W. Rollins, Chancellor
No. M2002-01753-COA-R3-CV - Filed December 30, 2003
This is a case involving the reformation of a settlement agreement terminating claims on two policies
between plaintiffs and the defendant insurance company. The trial court refused to reform the
settlement agreement and denied defendants their attorney’s fees. For the following reasons, we
affirm in part, reverse in part, and remand this case for further proceedings.
Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Chancery Court Affirmed in Part,
Reversed in Part and Remanded
ALAN E. HIGHERS, J., delivered the opinion of the court, in which DAVID R. FARMER , J., and HOLLY
M. KIRBY, J., joined.
Charles J. Gearhiser, Sam D. Elliott, Chattanooga, TN, for Appellant
Howard L. Upchurch, Pikeville, TN, for Appellees
OPINION
Facts and Procedural History
In May 1997, Charles Seals was shot and killed by James Newby. Mr. Seals had two
accidental death policies with Life Investors Insurance Company (“Life Investors”) on his life
naming his wife, Inez Jean Seals (“Seals”), and his stepson, Terry Hurd (“Hurd”), as the
beneficiaries. The two policy numbers were GXB5030053 and GXB5034274 (collectively the
“GXB policies”) and each contained benefits other than accidental death benefits, including, but not
limited to, medical benefits.
In her attempts to collect the accidental death benefits after her husband’s death, Seals
encountered difficulties as Life Investors defended on the basis that the GXB policies did not cover
the circumstances surrounding Charles Seals’ death. After threatening litigation against Life
Investors, Seals retained an attorney, Stephen Greer (“Greer”), to handle her claims for accidental
death benefits under the GXB policies. In addition, Seals requested Greer handle her medical
benefits claims against Life Investors, though Greer informed Seals he would handle the accidental
death benefits claims first.
In the course of his representation of Seals, Greer obtained copies of the GXB policies
themselves from either Seals or Life Investors’ attorneys, Charles Poss (“Poss”) or Charles Dooley
(“Dooley”), but Greer did not read through the policies nor did he discuss their contents with Seals
or Hurd. The GXB policies themselves describe their scope of coverage. Greer’s understanding of
the GXB policies was that they concerned only accidental death benefits, and Seals at no point
explained that the policies addressed other medical insurance benefits. In addition, Poss and Dooley
never mentioned the GXB policies covered more than accidental death benefits nor did they state
to Greer that the policies covered only accidental death benefits.
During negotiations for a settlement, Seals expressed her concerns about jeopardizing her
hospital indemnity and medical benefit claims against Life Investors, though she did not state that
such benefits stemmed from the GXB policies. After Poss and Dooley submitted a draft of a
settlement agreement, Greer returned the draft with deletions and suggested additions1 he wrote by
hand on a copy of the draft. This language was added to the final draft of the settlement agreement
and, essentially, acted to terminate all claims and rights Seals and Hurd had under the GXB policies
including their hospital indemnity and medical benefits claims. In addition, on the first page of the
settlement agreement, it states that Seals and Hurd discharge Life Investors from “any and all claims
for benefits pursuant to the [GXB policies].” Seals and Hurd failed to read over the final draft of the
settlement agreement before they executed it in July 1999 and simply relied upon Greer’s mistaken
interpretation of the settlement agreement’s effect. Seals and Hurd even initialed next to a
typographical error in the paragraph at issue, which Greer added. Upon executing the settlement
agreement, Life Investors paid Seals and Hurd with a check for $175,000.
When Seals attempted to collect on her medical benefit claims, Life Investors defended by
stating such claims were released in the settlement agreement. Subsequently, Seals and Hurd filed
this action in the Chancery Court of Sequatchie County against Life Investors, Poss and Dooley’s
law firm, Leitner, Williams, Dooley and Napolitan, PLLC (“Leitner, Williams PLLC”), and Poss
individually, seeking reformation of the settlement agreement on theories of unilateral and mutual
mistake. A bench trial was held. After the trial, the trial court refused to reform the agreement,
though it also refused to award Life Investors its attorney’s fees despite the terms of the settlement
agreement. Life Investors subsequently appealed seeking this Court’s review of whether the trial
1
Specifically, as evidenced in trial exhibit 6, Greer handwrote the following addition:
This release shall not, however, prevent or act as a bar to any claims or rights that
the Releasors may have against the Releasee as a result of matters arising prior to
July 16, 1999, under policies in force, prior to July 16, 199 9, other than Certificates
of Group Insurance No. GXB5030053 and GXB5034274. (emphasis added).
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court erred when it failed to require the plaintiffs indemnify Life Investors for its attorney’s fees and
other costs expended in successfully defending the reformation suit. Plaintiffs present the additional
issue of whether the trial court erred in finding no mutual mistake or unilateral mistake coupled with
fraud existed. For the following reasons, we affirm in part, reverse in part, and remand for further
proceedings consistent with this opinion.
Standard of Review
For a review of a trial court’s findings of fact sitting without a jury, this Court examines such
findings de novo upon the record accompanied by a presumption of correctness. Tenn. R. App. P.
13(d); Williams v. Botts, 3 S.W.3d 508, 509 (Tenn. Ct. App. 1999). This Court may not reverse such
findings of fact unless the evidence in the record preponderates otherwise. Tenn. R. App. P. 13(d);
Williams v. Botts, 3 S.W.3d at 509. There is no presumption of correctness for a trial court’s
conclusions of law. Union Planters Nat’l Bank v. Am. Home Assurance Co., 865 S.W.2d 907, 912
(Tenn. Ct. App. 1993); Hogan v. Yarbro, No. 02A01-9905-CH-00119, 1999 Tenn. App. LEXIS 673,
at *9 (Tenn. Ct. App. October 5, 1999); Tennessee Dep’t of Human Servs. v. Shepherd, No. 89-78-II,
1989 Tenn. App. LEXIS 783, at *3-4 (Tenn. Ct. App. November 29, 1989).
Mutual and Unilateral Mistake
We begin our review with Seals’ and Hurd’s argument that the trial court erred when it
refused to reform the settlement agreement to reflect their intentions. “To reform a written
instrument for mistake, there must have been a mutual mistake, or mistake of one party influenced
by the other’s fraud.” McMillin v. Great S. Corp., 480 S.W.2d 152, 155 (Tenn. Ct. App. 1972)
(citing Jones v. Jones, 266 S.W. 110 (Tenn. 1924)). As the Middle Section of this Court has stated:
A mutual mistake is one that must be common to both parties. It must be shown that
both parties intended to agree to the same thing, but the contract, through error, fails
to express that mutual and identical intent. A mutual mistake is one where both
parties to a bilateral transaction share the same erroneous belief, and their acts do not
in fact accomplish their mutual intent.
Russell v. Sec. Ins. Inc. et al. v. McPherson, No. 01A01-9803-CV-00135, 1999 Tenn. App. LEXIS
102, at *5 (Tenn. Ct. App. February 18, 1999) (citations omitted). A unilateral mistake by one party
is insufficient to invalidate an agreement. Mullins v. Parkey, 874 S.W.2d 12, 15 (Tenn. Ct. App.
1992). This rule does not apply when the party’s mistake is induced by fraud of the other party,
McMillin v. Great S. Corp., 480 S.W.2d at 155, or the other party knows or has reason to know of
the party’s mistake and that party can be returned to the status quo. Mullins, 874 S.W.2d at 15. To
demonstrate the necessity of reformation, whether on the ground of mutual mistake or unilateral
mistake accompanied by fraud, the evidence must be clear, cogent and convincing. Marron v.
Scarbrough, 314 S.W.2d 165, 173 (Tenn. Ct. App. 1958); McMillin, 480 S.W.2d at 155.
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First, appellees Seals and Hurd argue that it was the intention of both parties to settle only
the accidental death claims arising from Charles Seals’ death and the trial court erred when it found
no mutual mistake existed. After our review of the record, we hold the evidence does not
preponderate against the trial court’s finding on this issue. While Greer, Seals and Hurd each
testified they only intended to settle the claims related to Charles Seals’ death, Charles Poss, counsel
for Life Investors, stated it was his client’s intention to cover all of Seals’ and Hurd’s existing
policies in the agreement. In addition, Poss testified that Greer’s handwritten additions to the
agreement draft, which Seals and Hurd now object to, were consistent with his client’s intentions.
Seals had only expressed concerns about releasing her claims under the other policies to Greer and
did not convey such concerns to Poss, Dooley, or any other representative of Life Investors. Though
Seals’ lawsuit concerned collection of the accidental death benefits, she stated in her deposition that
she wrote letters to Life Investors threatening litigation over the accidental death claims and the
claims under the other existing policies. These circumstances demonstrate a unilateral mistake on
the part of Seals and Hurd. Therefore, we affirm the trial court’s conclusion that there was no mutual
mistake of both parties for this settlement agreement and we must now determine if Seals’ and
Hurd’s unilateral mistake falls within an exception.
Seals and Hurd alternatively argue that, because Life Investors failed to inform Greer that the
GXB policies covered more than accidental death benefits, this inaction resulted in a unilateral
mistake requiring reformation of the settlement agreement to conform with Seals’ and Hurd’s
understanding. Upon review of the record, we see no merit in this argument. At no time during the
negotiation period did Hurd or Seals discuss the terms of the settlement agreement with Poss, Dooley
or any other Life Investors representative. All discussions were with their own attorney, Greer.
Greer was provided with copies of the GXB policies, and, had he reviewed them, he would have
discovered they encompassed more than accidental death benefits. In addition to Greer’s failure to
examine copies of the GXB policies, Seals’ failure to discuss the GXB policies’ scope with Greer
only added to her counsel’s ignorance. The record is simply devoid of any evidence, let alone clear
and convincing evidence, of fraud or a material omission on the part of Life Investors, Poss or
Dooley. Therefore, we affirm the trial court’s denial of reformation of the settlement agreement.
Attorney’s Fees
Appellant Life Investors argues the trial court erred when it refused to award, pursuant to the
settlement agreement,2 its attorney’s fees incurred in defending the lawsuit brought against them by
2
Specifically, in paragraph 7 of the settlement agreement, it states that:
(7) Releasors agree to indemnify and hold Releasees, and each of them, harmless from
and against any and all claims, demands, dam ages, d ebts, liab ilities, obligations, costs,
expenses, liens, attorn ey’s fees, actions and causes of actio n (whether or not litigation is
commenced) arising from any m atter released herein or in connection with any lawsuit or
other proceeding brought or prosecuted contrary to the provisions of this Settlement
Agreement and Release, including, but not limited to, all remedies referred to in paragraphs
(continued...)
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Seals and Hurd. Tennessee follows the “American Rule” that, in the absence of a contract, statute
or recognized ground of equity, attorney’s fees are not recoverable from the unsuccessful party in
a lawsuit. State ex rel. Orr v. Thomas, 585 S.W.2d 606, 607 (Tenn. 1979); Pullman Standard, Inc.
v. Abex Corp., 693 S.W.2d 336, 338 (Tenn. 1985). When a provision in the contract provides for
the collection of attorney’s fees from the unsuccessful party in the event litigation arises, the
prevailing party is entitled to enforcement of the contract according to its express terms. Wilson
Mgmt. Co. v. Star Distribs. Co., 745 S.W.2d 870, 873 (Tenn. 1988); Keehn v. Hosier v. Crye-Leike
Commercial, Inc., No. M2000-01182-COA-R3-CV, 2001 Tenn. App. LEXIS 498, at *6-8 (Tenn.
Ct. App. July 17, 2001). Therefore, “parties who have prevailed in litigation to enforce contract
rights are entitled to recover their reasonable attorney’s fees once they demonstrate that the contract
upon which their claims are based contains a provision entitling the prevailing party to its attorney’s
fees.” Keehn, 2001 Tenn. App. LEXIS, at *7-8. When the contract provides that a prevailing party
is entitled to recover its attorney’s fees for enforcing the contract, “the trial court has no discretion
regarding whether to award attorney’s fees or not.” Id. at *15-16; see also Carson Creek Vacation
Resorts v. Dep’t of Revenue, 865 S.W.2d 1 (Tenn. 1993). It is the amount of the attorney’s fee award
that falls within the trial court’s discretion. Keehn, 2001 Tenn. App. LEXIS, at *16 (citing Albright
v. Mercer, 945 S.W.2d 749, 751 (Tenn. Ct. App. 1996); Airline Constr. Inc. v. Barr, 807 S.W.2d
247, 270 (Tenn. Ct. App. 1990)); see also Carson Creek Vacation Resorts, 865 S.W.2d at 2.
In this case, the trial court found in favor of the defendants, Life Investors, Leitner, Williams
PLLC, and Poss, and refused to reform the contract allowing its provisions to stand. However, the
trial court refused to award defendants their attorney’s fees incurred in defending the suit despite the
provision in the settlement agreement. The court below did not find the defendants had waived
litigation of the issue as its Judgment of Dismissal and the transcript of proceedings reflect that the
parties stipulated the proof of attorney’s fees could be submitted by affidavit after resolution of the
reformation issue. Therefore, we hold the trial court erred when it refused to enforce the
indemnification clause of the settlement agreement. For this reason, we reverse the trial court’s
denial of award of defendants’ attorney’s fees and remand for further proceedings consistent with
this opinion.
2
(...continued)
9 and 10. In this regard, Releasors agree that this Settlement Agreement and Release may
be pleaded as a defense and/o r as a Cross-C omp laint, Counter-Claim, Cross-Claim, or Third-
Party Compla int in such lawsuit or proceed ing, and may be used as the basis for an injunction
against any action, suit or other proceeding which may be prosecuted, instituted or attempted
by any party hereto in breach.
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Conclusion
For the foregoing reasons, we affirm in part, reverse in part, and remand this case for
further proceedings. Costs are judged against appellees, Inez Jean Seals and Terry Hurd, for
which execution may issue if necessary.
___________________________________
ALAN E. HIGHERS, JUDGE
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