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Phillips v. Salk

JUNE 6, 1974.




APPEAL from the Circuit Court of Cook County; the Hon. FRANCIS T. DELANEY, Judge, presiding.


Plaintiff, Edna S. Phillips, brought suit in chancery for the reformation of a term life insurance policy against defendant All American Life and Casualty Company (hereinafter All American) and for damages against All American and defendant Salk, Ward & Salk, Inc. (hereinafter Salk) for the alleged failure to procure and provide the policy intended. After a trial by the court without a jury a decree was entered in favor of plaintiff against defendant All American, ordering reformation, and for a judgment against both defendants in the amount of $18,299. Both defendants have appealed.

Upon appeal, defendant Salk contends that (1) the trial court erred in finding that Salk was engaged to obtain a level term life insurance for plaintiff's decedent; (2) the duty, if any, was extinguished by the decedent's personally securing the policy from defendant All American; and (3) the policy which issued fully complied with the term life insurance requirement contained in the application for a mortgage loan.

Defendant All American contends in its appeal that the trial court erred (1) in excluding from the evidence the mortgage loan contract between All American and plaintiff and her decedent; (2) in finding that the insurance contract between All American and plaintiff's decedent was the result of a mutual mistake and subject to reformation; and (3) in finding that All American breached its obligation to provide the term insurance contemplated by the parties. The facts follow.

Plaintiff, Edna S. Phillips, is the widow of Don R. Phillips; together they were the co-obligors upon a certain note executed by them evidencing a loan made to them by defendant Salk and sold by Salk to All American. The note was secured by a mortgage on a commercial building and land and, as further security, by a life insurance policy on the life of Don R. Phillips issued by All American and assigned to it. Decedent and his wife, plaintiff, were the sole owners of a Michigan corporation. In 1963, decedent was approximately 57 years of age and was the president and sole salesman of the corporation. The Phillipses decided to move the company plant to Illinois and to borrow funds to build at the new location. Unable to obtain a bank loan, they were referred to private mortgage sources. Their attorney contacted Salk — mortgage investment brokers — who occasionally made loans out of their own funds, and it was understood that this application would be offered to institutional investors by Salk acting as agent for the Phillipses. The Phillipses signed an application for a loan dated March 28, 1963, prepared by Salk on a printed form and rider, by which Salk was appointed as the Phillipses' agent for a period of 60 days for procuring a $100,000 mortgage loan. Paragraph 6 of the rider provided:

"Term Life Insurance in the amount of $50,000 on Don R. Phillips will be instituted with a company selected by Salk, Ward & Salk, Inc. It is understood and agreed that the mortgagee has the option to reduce the outstanding principal balance or disburse the proceeds to a beneficiary."

The above application, although included in the record on appeal, upon objection of defendants was refused admission into evidence by the trial court. Salk submitted the loan application to All American. On April 25, 1963, All American delivered a written approval and commitment for a loan of $100,000 to the Phillipses, specifically providing:

"This commitment is subject to DON R. PHILLIPS furnishing a $50,000 Life Insurance Policy acceptable to the Company as further collateral which is to be assigned to ALL AMERICAN LIFE & CASUALTY COMPANY."

Subsequently, on April 30, 1963, Salk acknowledged and accepted the commitment of April 25, 1963, from All American by returning to All American an executed copy of the commitment. Again, although included in the record on appeal, the April 25, 1963, commitment and the April 30, 1963, acceptance were, on plaintiff's objection, excluded from evidence by the trial court. The record is silent as to how the direct contact came into being, but on April 26, 1963, Don R. Phillips, decedent, appeared at the construction loan department of All American, which referred him to R. Dean Ballard in its insurance department. Mr. Ballard was an employee in the agency department and a licensed agent for writing life insurance. He knew that Mr. Phillips had been referred by the construction loan department in connection with a contemplated loan of $100,000 which All American was making to the Phillipses. Mr. Phillips then signed an application for term life insurance which Mr. Ballard had prepared in his presence. The insurance application which was incorporated by reference into the policy stated that the application was for a $50,000 "Home Security 10 yrs-8 yrs pay" plan policy. The quoted expression is not defined in the application. The insurance application and the term life insurance policy issued thereon remained at all times in the possession of All American. At a later date Mr. Phillips executed a separate form of assignment of the policy to All American as collateral for the loan, but neither he nor his wife, the named beneficiary, ever received the original or a copy of either the insurance application or the policy. Mr. Ballard testified that he had no specific recollection of his conversations with Mr. Phillips concerning the policy. He was paid a commission by All American.

Edward Walle, an employee of Salk, testified at trial that Salk did not refer Phillips to All American; that Salk never selected All American as the company to issue the term insurance required by the mortgage loan application; and that neither Phillips, his wife, nor his attorney ever requested that Salk obtain insurance coverage for Phillips. Walle stated that Salk first became aware that All American had issued an insurance policy to Phillips some time in October 1963, when a letter accompanying an insurance assignment form was received from All American requesting that Salk forward the assignment form to Phillips for execution and collect the first annual premium from him for All American. However, correspondence from Salk to Charles F. Meyers, which was introduced into evidence, indicates that Salk became aware of the issuance of the policy some time prior to September 5, 1963. Walle testified that Salk received no commission for the policy issued to Phillips and that its only remuneration for the entire transaction was a 2 percent commission based on the amount of the mortgage loan, and thereafter a fee for servicing the loan for All American. Walle further testified that Salk extended interim financing to the Phillipses for construction costs until All American tendered the mortgage loan funds, and that Salk did not require the Phillipses to secure this short term financing with anything other than fire insurance.

On April 29, 1963, the Phillipses, through their attorney, signed a new loan application and rider prepared by and submitted to Salk, intended as a revision of the prior application following All American's April 25 commitment. Paragraph 7 provided:

"A 10-year Term Life Insurance Policy in the amount of $50,000.00 on Don R. Phillips will be secured with a company to be selected by Salk, Ward & Salk, Inc. In the event of the death of the insured, the mortgagee shall have the option to reduce the outstanding principal balance or disburse the proceeds to a beneficiary."

On June 20, 1963, Don R. Phillips and Edna S. Phillips, his wife, executed a $100,000 installment note as co-obligors. The trust deed prepared by Salk and executed to secure the note provided in paragraph 12 of a rider thereto:

"It is further covenanted and agreed that there has been assigned to ALL AMERICAN LIFE & CASUALTY COMPANY, an Illinois corporation, all ...

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