HUTCHENS v. JOHN HANCOCK LIFE INSURANCE COMPANY (2025)

OPINION

This is the second appeal to this Court from an order of the Jefferson Circuit Court. In this case, the circuit court granted summary judgment in favor of the appellees, John Hancock Life Insurance Company (“John Hancock”), Kenneth O'Neil (“O'Neil”), and Kentucky Planning Partners (“KPP”). Previously, this Court upheld a judgment of the circuit court that had ruled against those same parties who sought to dismiss the action and compel arbitration. In this appeal, we again uphold the opinions and orders of the Jefferson Circuit Court.

FACTUAL & PROCEDURAL HISTORY

In 2016, James Hutchens (“James”) began searching for life insurance through O'Neil, his long-time financial advisor. O'Neil was employed with KPP and licensed to sell insurance to more than a dozen companies. On October 18, 2017, O'Neil submitted an application on James’ behalf for a two million dollar term life insurance policy with John Hancock.

In order to submit an application, John Hancock required brokers to go through its agent, LPL Financial. That agency required both James and O'Neil to execute a financial Account Holder Acknowledgement (“AHA”), along with the application.¹ The application itself was forwarded to John Hancock, through LPL Financial, acting as an intermediary throughout the process. Relevant to the policy effective date, the application stated:

Any life insurance policy issued as a result of this application will be effective on the later of the date the first premium has been paid in full and the date the policy has been delivered to the Policy Owner, provided that the Proposed Insured is still living ․

(Emphasis added.)

Additionally, the application recognized that a temporary insurance agreement (“TIA”) could be used in conjunction with the 2 million dollar policy:

If premiums are paid prior to delivery of the policy and the terms and conditions of the TIA are satisfied, insurance prior to the effective date shall be provided under the TIA and according to its terms.

In light of this, O'Neil recommended James apply for temporary life insurance to act as a bridge policy until the two million dollar policy came into effect. James took his advice and applied for temporary life insurance with John Hancock. O'Neil advised James via email:

Please bring a check for $1,500 made payable to John Hancock. This will be for your Temporary Insurance Agreement. If you decide not to proceed for any reason, you get these funds back. Upon accepting the policy you would owe the remaining payment of $6,828.

James paid the premiums for this TIA and received a Temporary Life Insurance Receipt & Agreement from John Hancock for one million dollars.

On October 31, John Hancock received James’ application but notified O'Neil of some mistakes within the application.² Later testimony established that those errors were minor and resolved within a couple of days.³ The underwriter testified that it was very common for applications to have such mistakes, and on November 13, 2017, John Hancock's underwriter approved the application. O'Neil promptly forwarded that notice to James by email, stating:

Wow, was totally surprised that they did not even need initials or another signature. They questioned your EKG last week but Lori and her team pushed the situation up the food chain and they agreed with us. So Congratulations! We will keep you posted when the policy comes in and such.

James responded, “Thanks Ken. Glad I got it.”

James had designated Dale Rae Hutchens and Adam Hahn Hutchens (collectively referred to as “the Hutchens”) as beneficiaries of the life insurance with John Hancock. On November 24, a John Hancock employee inquired of O'Neil as to whether James really intended to name his minor son as a primary beneficiary. In response, O'Neil sent a forceful email confirming his client's intentions and urging John Hancock to “send the dag gone policy please” and not make any further changes or requests.

On November 28, 2017, James suddenly passed away from a cardiovascular event. Upon James’ death, the Hutchens filed a claim with John Hancock for the proceeds of the two million dollar term life insurance policy. John Hancock denied owing the money because it had not issued the coverage nor delivered the policy to James. Rather, John Hancock asserted at the time of James’ death, he was only covered by the TIA, and they issued payment for one million dollars, plus interest and premiums.

As a result, the Hutchens filed a complaint in the Jefferson Circuit Court against Hancock, O'Neil, and KPP (collectively, “the defendants”). In the complaint, the Hutchens alleged breach of contract, common law bad faith, unjust enrichment, negligence, and violation of Kentucky Revised Statutes (“KRS”) 304.12-230, KRS 304.12-235, and KRS 304.12-010. The defendants filed a motion to compel arbitration, relying upon the AHA referenced above.

In 2019, the Jefferson Circuit Court denied the motion to compel arbitration, resulting in the first appeal. See generally O'Neil v. Hutchens, Nos. 2019-CA-1675-MR & 2019-CA-1683-MR, 2021 WL 1826768 (Ky. App. May 7, 2021). This Court affirmed, holding that the arbitration provision in the insurance application form was unenforceable as a matter of law, and the matter returned to the circuit court for further proceedings. Id. In response, the Hutchens filed an amended complaint adding additional claims for unfair claims practices and bad faith based on the defendants’ reliance upon the arbitration clause.

After several more years of litigation and discovery, both parties moved for summary judgment. The circuit court reserved on Hutchens’ claim of bad faith (due to John Hancock's delay of payment on the TIA policy) but granted summary judgment in favor of O'Neil and KPP on all other claims. Thereafter, the parties agreed to a dismissal of the remaining claims against John Hancock, resulting in a final and appealable judgment.

STANDARD OF REVIEW

“The proper standard of review on appeal when a trial judge has granted a motion for summary judgment is whether the record, when examined in its entirety, shows there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law.” Motorists Mut. Ins. Co. v. First Specialty Ins. Corp., 706 S.W.3d 120, 124 (Ky. 2024) (internal quotation marks and citation omitted).

ANALYSIS

On appeal, the Hutchens argue the circuit court erred in finding that: 1) O'Neil was not John Hancock's agent and, thus, John Hancock was not vicariously liable for O'Neil’s negligent conduct; 2) John Hancock's processing delays were not unreasonable; 3) O'Neil was not negligent in his representations; and 4) the efforts by O'Neil and KPP to previously compel arbitration did not constitute bad faith or unfair practices sufficient to proceed to a jury trial.

In response, John Hancock argued that the circuit court properly granted summary judgment because the two million dollar life policy never came into existence as it was never issued or delivered. Secondly, John Hancock argues the circuit court properly found that O'Neil was not its agent, and thus it has no vicarious liability for O'Neil’s conduct. Regardless, John Hancock argues the circuit court's finding that O'Neil was not negligent renders moot any discussion of vicarious liability.

O'Neil and KPP argue the circuit court correctly found that they were not negligent, had not supplied false information, nor otherwise misrepresented the status of the application to James. Finally, they argue the circuit court correctly found they had not acted in bad faith nor conducted unfair claims practices.

1) Claims Against John Hancock

James applied for both the term policy (2 million dollar coverage) and the TIA (one million dollar coverage). The TIA came into effect before James died and provided coverage until the term policy came into effect. O'Neil submitted James’ application for the term policy on October 18, 2017; John Hancock received it on October 31, 2017; and James died on November 28, 2017. As of the date of his death, John Hancock had not yet issued or delivered the two million dollar term policy.

The circuit court held that the two million dollar term policy was not enforceable because the policy's express terms required delivery – a condition precedent – before it became effective, and delivery did not occur before James’ death. “Condition precedent” – a legal term of art with a clear meaning – is “[a]n act or event, other than a lapse of time, that must exist or occur before a duty to perform something promised arises.” Superior Steel, Inc. v. Ascent at Roebling's Bridge, LLC, 540 S.W.3d 770, 785 (Ky. 2017) (internal quotation marks and citation omitted). “[W]here there is a clearly expressed condition precedent of liability, the court must give that condition [full] force and effect.” Mullins v. Nat'l Cas. Co., 273 Ky. 686, 117 S.W.2d 928, 931 (1938); Jett v. Doe, 551 S.W.2d 221, 223 (Ky. 1977) (citing Mullins, 117 S.W.2d at 931). “[T]he performance [of a condition precedent] must be stated, or a waiver pleaded, or excuse given for noncompliance.” Louisville & N.R. Co. v. Home Fruit & Produce Co., 310 Ky. 269, 220 S.W.2d 558, 560 (1949) (citation omitted).

For over 100 years, our Courts have held that if the express terms of a policy required delivery (while the insured was alive) before the company would incur obligation, and that delivery never occurred, then no binding policy existed. See Smith v. Commonwealth Life Ins. Co., 157 Ky. 146, 162 S.W. 779, 780 (1914); see also Monumental Life Ins. Co. of Balt. v. Borders, 271 Ky. 294, 111 S.W.2d 653, 655-56 (1937); American Life & Acc. Ins. Co. v. Scruggs, 242 Ky. 760, 47 S.W.2d 720 (1932). Here, the term policy – in clear, unambiguous language – stated that it did not take effect until delivery. That condition precedent – delivery – was not met and, hence, the insurer (John Hancock) did not yet incur an obligation.

However, the Hutchens argue the two million dollar policy should be enforceable because the delay in delivery was not reasonable and James bore no fault in the non-delivery. Thus, they assert, John Hancock waived that condition precedent. In so arguing, the Hutchens point to Life & Casualty Insurance Company of Tennessee v. Central Steel Products, Inc., 709 S.W.2d 830 (Ky. App. 1985).

Central Steel Products held that insurers might be obligated on a non-delivered policy if there was a showing that the company would have accepted the risk, and if it held the application for an unreasonable time, and then only rejected the policy application because of the death of the applicant. Id. at 832. However, Central Steel Products is factually distinct from the situation before us. In that case, the policy application stated the insurer incurred an obligation at the time the application was submitted. Id. Here, the policy application explicitly stated the policy became effective on the later of two dates: either the date the premium was paid in full or the date the policy was delivered to the (living) policy owner. Nothing in Central Steel Products implies a court should disregard the explicit language of the policy. Again, we must give express conditions precedent full force and effect. Mullins, 117 S.W.2d at 931.

Further, an application for coverage is simply a proposal for insurance. Cent. Steel Prods., 709 S.W.2d at 832. “There is quite a difference between an offer to enter into a contract that may or may not be accepted [as we have here], and a contract that has been executed.” See Northwestern Mut. Life Ins. Co. v. Neafus, 145 Ky. 563, 140 S.W. 1026, 1031 (1911). In Kentucky, there is no “duty to accept or reject an application in a reasonable time[.]” Cent. Steel Prods., 709 S.W.2d at 832. In fact, even if a delay in processing an application was ultimately deemed unreasonable,⁴ the insurer could still avoid liability if they denied the policy for some reason other than the applicant's death. Id. Therefore, the circuit court did not err in finding the Hutchens failed to establish the existence of a binding contract given the unfulfilled condition precedent and the lack of a duty on an insurer to process a claim within a reasonable time.

Next, the Hutchens argue the circuit court erred in holding that O'Neil was not John Hancock's agent. Because of that ruling, John Hancock was found not vicariously liable for any negligence on the part of O'Neil. However, the circuit court also ruled in favor of O'Neil and KPP as a matter of law. Concluding that there was nothing false, misleading, or deceptive about O'Neil’s representations, the dismissal of those claims against O'Neil also resulted in no liability upon John Hancock, even if he had been considered their agent.⁵ If the court properly granted summary judgment to O'Neil and KPP on the claims of negligence, fraudulent misrepresentations, and deceptive insurance practices, we agree that the arguments as to John Hancock's vicarious liability are rendered moot. As will become apparent, we find the agency argument is moot.

2) Claims Against O'Neil and KPP

O'Neil was James’ long-time financial consultant, and James asked O'Neil for assistance with life insurance in 2016. O'Neil initially assisted James with an application to another insurance company, Symetra. After approval, James elected not to accept that coverage. One year later, James again asked O'Neil to assist. After evaluation, O'Neil recommended John Hancock and recommended TIA coverage while the main policy application was pending. O'Neil assisted James with the application, submitted the application to John Hancock on October 18, 2017, and five days later contacted John Hancock for an update. He updated James that same day. John Hancock finally received the application on October 31, 2017.

There were some errors within the application, leading to the need for further follow-up, but all application issues were resolved by November 15. According to the only testimony in the record on the delay issue, it is rare to have applications that do not have some error or require some follow-up. On November 13, O'Neil received an email from John Hancock indicating that the preferred non-smoking rate had been approved. He forwarded that email to James with a congratulatory note and a promise to keep him posted when the policy was received. Tragically, on November 28, James died before he or O'Neil received the policy. All agree, his death was quite unexpected.

The Hutchens assert that this email informing James he had been approved for a non-smoking preferred rate “misled” him into believing that the policy was in effect. We do not read that email so broadly. A note of congratulations does not transform into misleading communications or fraudulent misrepresentations. As the circuit court noted, O'Neil previously communicated that the policy had to be delivered and that Hutchens could still elect not to accept the policy. James had rejected the prior Symetra policy after approval.⁶ There was nothing false or deceptive about O'Neil’s representation. He did not tell him that he now owed the full premium. Instead, the record confirms O'Neil told James that the premium would not be owed until he accepted the policy, and if he decided not to proceed for any reason, the initial payment would be refunded.

As the circuit court noted, the Hutchens presented no authority for their position that O'Neil failed in his duties owed to James, misrepresented facts, or committed fraud. Fraud and misrepresentation require proof, by clear and convincing evidence, of the following six elements: (1) the declarant made a material representation to the plaintiff; (2) this representation was false; (3) the declarant knew the representation was false or made it recklessly; (4) the declarant induced the plaintiff to act upon the misrepresentation; (5) the plaintiff relied upon the misrepresentation; and (6) the misrepresentation caused injury to the plaintiff. Flegles, Inc. v. TruServ Corp., 289 S.W.3d 544, 549 (Ky. 2009) (citation omitted). The circuit court did not err in finding there was no false representation, knowingly made by O'Neil and relied upon by James. Even in the light most favorable to the non-moving party, the Hutchens failed to demonstrate any genuine issue of material fact. See Paintsville Hospital Co. v. Rose, 683 S.W.2d 255, 256 (Ky. 1985) (citation omitted).

As to whether O'Neil’s statements or actions in completing the application and attempting to secure the coverage were negligent, the Hutchens again provide no authority for this contention. They simply argue that the circuit court erred by not permitting them to present this claim to a jury. We do not agree. The sole testimony before the circuit court on the application process indicated that O'Neil’s errors in the application process were not unusual and resulted in no more than a couple of days delay. We have found no Kentucky law that delay, even if unreasonable, would subject the insurer or an agent or broker to tort liability. Simply, the Hutchens did not meet their burden of establishing fraud or misrepresentation. See Flegles, Inc., 289 S.W.3d at 549.

Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file show there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Paintsville Hospital Co., 683 S.W.2d at 256. In its 31-page opinion, the circuit court demonstrated significant familiarity with the evidence and the law, and we find no error in this regard, even viewing the evidence in a light most favorable to the Hutchens.

3) Violations of Bad Faith or Unfair Claims Practices

In their final argument on appeal, the Hutchens assert the circuit court erred in dismissing their statutory claims under KRS 367.170; KRS 304.47-020; and KRS 304.12-020, all statutes relevant to false, misleading, or fraudulent acts by insurance entities or other commercial transactions (collectively, “bad faith or unfair claims practices actions”).

The Hutchens amended their complaint after the prior appeal based upon the defendants’ pursuit of arbitration under the AHA application. KRS 417.050(2) prohibits arbitration provisions in insurance agreements, except between insurers. In our prior Opinion, we held that applications for insurance also fall within the purview of KRS 417.050(2). See O'Neil, 2021 WL 1826768, at *6-7. Finding that the application was akin to an offer under contract law, we found the arbitration provision unenforceable. Id.

Armed with this ruling, the Hutchens added these new claims for bad faith and unfair claims practices. The circuit court found that the pursuit of arbitration by the defendants under the AHA form was protected litigation conduct and could not serve as the basis for these claims. To that extent, these claims were dismissed. However, the court reserved for future proceedings whether the delay in paying the one million dollar TIA policy could form the basis for bad faith or unfair claims practices. The parties then settled and agreed to dismiss those specific claims.

Both parties and the circuit court pointed to Knotts v. Zurich Insurance Company, 197 S.W.3d 512, 521 (Ky. 2006), to support their position. In Knotts, the Supreme Court held that permitting evidence of insurers’ litigation strategies and tactics would impede insurers’ access to the courts and the right to defend. Id. at 520-21. The Supreme Court discussed numerous approaches across the country and adopted the rationale of the Montana Supreme Court in favor of exclusion of an insurer's post-filing litigation conduct. Id. at 519-20. Once litigation has commenced, an insurer relies heavily on its attorney and uses common litigation strategies to defend the claim. Id. Insurance counsel would be placed in an untenable position if seeking to compel arbitration or filing an appeal could then be used as evidence of bad faith. Id. Instead, the remedy, if the conduct was improper, is found within the Rules of Civil Procedure. Id. The fact that the circuit court and this Court found the signed arbitration form unenforceable does not constitute grounds for a bad faith action.⁷ The court did not err in this ruling, but rather properly followed the Supreme Court's directive in Knotts.

CONCLUSION

In light of the foregoing, we AFFIRM the Jefferson Circuit Court.

FOOTNOTES

1.   The AHA contained an arbitration provision which became the subject of the prior appeal.

2.   James’ application was the first application ever submitted by O'Neil to John Hancock.

3.   Hutchens’ name was misspelled; a question concerning his existing annuities was answered incorrectly; a box was incorrectly checked; and another box regarding any hazardous activities was improperly left unchecked.

4.   The Hutchens also argue that the reasonableness of the delay is a question of fact for the jury and as such, an issue of material fact precluding summary judgment. However, the reasonableness of the delay is not “material” under these circumstances in light of the absence of a condition precedent and considering Kentucky does not require processing to occur within a reasonable time. See Cent. Steel Prod., 709 S.W.2d at 832.

5.   The circuit court did engage in a thorough discussion of the agency claim and vicarious liability claim against John Hancock, ultimately finding that the undisputed facts indicated no grant of authority by John Hancock to O'Neil to act as its agent.

6.   During this application process, James had also, on his own, submitted an application to State Farm. The Hutchens argue that because of this email communication from O'Neil, James contacted State Farm and told them he was withdrawing that application. However, the communication from James to State Farm advised he was withdrawing that request because John Hancock's premiums were less than half of the quote from State Farm. There is nothing in the record to indicate he would have proceeded with State Farm before his sudden and unexpected death.

7.   The Hutchens also assert that our finding of unenforceability of the AHA provision illegitimized the form to compel arbitration. We did not so hold.

CETRULO, JUDGE:

ALL CONCUR.