Alabama Supreme Court Holds Failure to Read Documents Constitutes Contributory Negligence

On May 9, 2014, the Supreme Court of Alabama released an important decision that will have a major impact on lawsuits arising out of contractual negotiations. In Alfa Life Ins. Corp. v. Colza, [Ms. 1111415, May 9, 2014] __ So. 2d __ (Ala. 2014), the Court reversed and rendered a judgment for Alfa Life Insurance Corporation as well as one of its agents, Brandon Morris. The lawsuit was filed by the widow of Dante Colza after he suddenly died the day after his life insurance medical exam. A Jefferson County jury entered a judgment of over half a million dollars in Colza’s favor.

The Supreme Court reversed the trial court’s judgment as to Alfa on a bad-faith-failure-to-pay claim. The Court explained that because medical results had not yet been processed as of Dante’s death, Alfa had not yet made a determination as to his insurability at the anticipated premium rate. Additionally, certain answers in the application appeared to have been incorrect, leaving unsatisfied a condition precedent of the contract. Because no contract of insurance was formed, Alfa could not have committed bad faith by failure to pay benefits.

The court also rendered a judgment as a matter of law for Morris on a negligent-procurement claim, in a holding much more consequential for Alabama businesses, especially insurers. Citing a precedent from the Court of Civil Appeals, Morris argued that the Colzas were contributorially negligent because the insurance documents they signed made clear that coverage was not immediately in place. The Supreme Court acknowledged it had never found a failure to read documents to constitute contributory negligence, and had in fact previously rejected such a theory. The Court referenced its long line of fraud cases, however, which held that a plaintiff’s reliance was not reasonable where the plaintiff failed to read and appreciate the terms of a contract. The Court concluded there was “no reason this principle should not apply to other claims as well.” The court held, as a matter of law, that “in this day and age, any adult of sound mind capable of executing a contract necessarily has a conscious appreciation of the risk associated with ignoring documents containing essential terms and conditions related to the transaction that is the subject of the contract.” Therefore, the court held that the Colzas were contributorially negligent.

This case could be tremendously important for insurers which necessarily require time to process underwriting information. The decision may also have ramifications in other contexts where contracts are dependent upon certain as-yet unfulfilled conditions.  Christian & Small will monitor decisions that apply this principle to various contexts.

Prepared by Jonathan M. Hooks HooksJonathan