Key-Man Life Insurance, Material Misrepresentation, Recission


Protective Life Ins. Co. v. Apex Parks Group, LLC, [Ms. 1180508, Sept. 18, 2020] __ So. 3d __ (Ala. 2020). The Court (Mendheim, J.; Bolin, Wise, Bryan, Sellers, and Stewart, JJ., concur; Parker, C.J., dissents; Mitchell, J., recuses) reverses a judgment entered on a jury verdict rendered in the Jefferson Circuit Court against Protective Life Insurance Company and in favor of Apex Parks Group in a breach of contract and bad faith action arising from Protective Life’s refusal to pay

$10,000,000.00 in key-man life insurance benefits based upon material misrepresentations in the application for the policy. The Court renders a judgment in favor of Protective Life.

The substantive contract issues concerning the policy and its condition are governed by California law because the policy was issued and was delivered to Apex in California, Ms. *25, explaining

The contract at issue – the policy – is governed by California law because the policy was issued and was delivered to Apex in California. See, e.g., Lifestar Response of Alabama, Inc. v. Admiral Ins. Co., 17 So. 3d 200, 213 (Ala. 2009) (explaining that, “[u]nder the principles of lex loci contractus, a contract is governed by the law of the jurisdiction within which the contract is made”).

Ms. *25. Because the lawsuit was filed and tried in Alabama, procedural questions are governed by Alabama law. Id., quoting Middleton v. Caterpillar Indus., Inc., 979 So. 2d 53, 57 (Ala. 2007) (noting that “lex fori – the law of the forum – governs procedural matters.”).

The Court also explains that Apex’s filing of a petition for bankruptcy under Title 11 of the Bankruptcy Code did not impair the Court’s appellate jurisdiction to decide the appeal because the automatic stay imposed by 11 U.S.C. § 362(a)(1) “‘operates as a stay, applicable to all entities, of

… the commencement or continuation, including the issuance or employment of process, of a judicial … proceeding against the debtor that was or could have been commenced before’ the filing of the bankruptcy petition.” Ms. *27. Because Apex initiated the action against Protective Life, § 362(a)(1) did not impose a stay of the appeal from Apex’s judgment against Protective Life because the stay only operates to stay actions “against the debtor [Apex].” Ms. *28, citing Freeman v.

Comm’r, 799 F.2d 1091, 1092-93 (5th Cir. 1986), the Court observes

“[C]ourts of appeals that have considered this issue have held that whether a proceeding is against the debtor within the meaning of Section 362(a)(1) is determined from an examination of the posture of the case at the initial proceeding.

... If the initial proceeding is not against the debtor, subsequent appellate proceedings are also not against the debtor within the meaning of the automatic stay provisions of the Bankruptcy Code.”

The Court holds the automatic stay under § 362 “… does not prevent entities against whom the debtor proceeds in an offensive posture – for example, by initiating a judicial or adversarial proceeding - from ‘protecting their legal rights’ … but is applicable only to actions against the bankrupt or to seizures of property of the bankrupt.” Ms. *30, quoting Justice v. Financial News Network, Inc. (In re Financial News Network, Inc., 158 B.R. 570, 572-73 (S.D. N.Y. 1993).

Analyzing Ms. **31-61, the allegations by Protective Life that Apex and its insured made material misrepresentations in the policy application by failing to reveal additional medical examinations and a surgical procedure which followed the date of the original application for the policy, the Court decides under California law that Protective Life’s motions for judgment as a matter of law should have been granted. Accordingly, the judgment in favor of Apex on the breach-of-contract claim is reversed and judgment is rendered as a matter of law in favor of Protective Life.

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