Pnc Bank, National Association, Trustee of the Harold G. Fulmer, Iii Irrevocable… v. Amerus Life Insurance Company

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 06-3743
PNC BANK, NATIONAL ASSOCIATION, TRUSTEE OF THE HAROLD G.
FULMER, III IRREVOCABLE DEED OF TRUSTEE DATED 8/21/97
v.
AMERUS LIFE INSURANCE COMPANY,
Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(05-cv-02966)
District Judge: Honorable John P. Fullam
Submitted pursuant to Third Circuit LAR 34.1(a)
September 12, 2007
Before: RENDELL, FUENTES, and CHAGARES, Circuit Judges.
(Filed: October 15, 2007)

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The cash value was the “account value” (total premiums paid, plus interest, minus the1
cost of insurance) less a contractually established “surrender fee.”
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OPINION OF THE COURT
FUENTES, Circuit Judge.
This is an appeal from a bench trial in an insurance case, brought in federal court
under diversity jurisdiction. The dispute concerns a $10 million life insurance policy (the
“Policy”) purchased by Harold G. Fulmer III from AmerUs Life Insurance Company
(“AmerUs”), appellant in this action. The Policy lapsed when Fulmer failed to make a
required premium payment. The District Court held that AmerUs was responsible for the
lapse and acted in bad faith by cancelling the policy. For the reasons set forth below, we
will reverse the decision of the District Court.
I. Facts and Procedural History
Immediately after purchasing the Policy, Fulmer transferred it to an irrevocable
trust (the “Fulmer Trust”). PNC Bank, National Association (“PNC”), appellee,
ultimately became the trustee of the Fulmer Trust. Under the terms of the Fulmer Trust,
Fulmer was responsible for paying the quarterly premium payments on the Policy.
According to the Policy, if Fulmer did not pay his premium, the cash value of the Policy1
could be applied toward the premiums until the remaining cash value would not cover the
monthly deductions made to the Policy. Furthermore, there was a 60-day grace period

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during which the Policy would stay in effect after the cash value became insufficient to
cover the monthly deductions. Under the Policy, AmerUs only had to communicate with
PNC and, as a matter of practice, AmerUs sent communications regarding the Policy only
to PNC. PNC did not have an obligation under the trust agreement to keep Fulmer
informed as to premiums due, but, in general, PNC informed Fulmer about all
communications regarding the Policy.
In 1993, Fulmer made the investment decision to fund the Policy premiums with
the cash value whenever possible and instructed AmerUs to inform him when payments
needed to be made on the account. AmerUs responded that it would send a pending lapse
notice whenever funding was required on the account. After Fulmer made this decision,
the Policy occasionally entered the grace period and AmerUs sent late payment offers to
PNC, which PNC forwarded to Fulmer with cover letters indicating that a premium had to
be paid or the Policy would lapse.
On February 3, 2004, Harold Fulmer’s wife, Judith Fulmer, called AmerUs to see
how long the cash value would cover the premiums. Mrs. Fulmer was told by a customer
service representative at AmerUs that a $511 payment would keep the account active
through March 2004. The Fulmers paid the $511 to AmerUs that day. The information
conveyed in that call was accurate, as the account was in effect through April 2004.
On February 11, 2004, Tonya Allen, an administrative assistant at PNC, called
AmerUs to inquire into the status of the Policy. The customer service representative at
AmerUs told Allen that the Policy had a cash value of $25,238 and would be “okay” for

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Note that the representation that the Policy would be “okay” for “about” three months2
was not far off, as the Policy did not lapse for another 72 days.
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about three months. The representation of the Policy’s cash value was incorrect.2
On February 23, 2004, AmerUs sent PNC a premium notice for the quarterly
planned premium payment amount of $22,045.70, due on March 23, 2004. On March 17,
2004, AmerUs sent a late payment offer to PNC, identical to the ones it had sent to PNC
in the past. The March 2004 late payment offer required a $24,268.51 payment, and
indicated, as the previous ones had, that:
YOUR POLICY IS NOW IN THE GRACE PERIOD
BUT IT’S NOT TOO LATE
The AMOUNT DUE must be paid by the end of the grace period to keep
your policy from lapsing. If the AMOUNT DUE is not received by the end
of the grace period, your policy’s coverage will terminate.
(J.A. 1459-60.) PNC did not forward AmerUs’s request for payment to Fulmer, believing
it to be an unnecessary request for a premium, and did not take any other action on the
account. As no payment was made on the account, the Policy lapsed. AmerUs then
determined that Fulmer was uninsurable and refused to reinstate his policy.
PNC initiated a law suit against AmerUs in Pennsylvania state court for breach of
contract, seeking reinstatement of the policy. In its complaint, PNC alleged that AmerUs
had breached the express terms of the Policy by failing to continue coverage under the
policy despite receiving a premium payment during the Policy’s grace period. The state
court dismissed the non-diverse parties and AmerUs removed the action to the Eastern
District of Pennsylvania, based on diversity jurisdiction. The case went to trial before the

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District Court. At trial, PNC abandoned the theory that AmerUs breached the express
terms of the Policy and, instead, argued that AmerUs had breached the implied covenant
of good faith and fair dealing because AmerUs cancelled the Policy after causing the
breach.
The District Court found that AmerUs had improperly cancelled the Policy,
holding that but for AmerUs having provided incorrect information to PNC, the
premiums would have been paid and the Policy would not have lapsed. The Court held
that AmerUs did not act in good faith by cancelling the policy after causing the default
and directed AmerUs to indicate the amount of premium payments necessary to sustain
the Policy and Fulmer to pay the overdue premiums.
II. Jurisdiction
The District Court had diversity jurisdiction over this case pursuant to 28 U.S.C.
§§ 1332 and 1441. We have jurisdiction over the appeal pursuant to 28 U.S.C. § 1291.
III. Standard of Review
We will review the District Court’s determination of contract law de novo. Martin
v. Monumental Life Ins. Co., 240 F.3d 223, 232 (3d Cir. 2001). We will review the
District Court’s factual determinations for clear error. Fed. R. Civ. P. 52(a). Any legal
conclusions drawn from the facts will be reviewed de novo. Martin v. Selker Bros., Inc.,
949 F.2d 1286, 1292 (3d Cir. 1991).
IV. Analysis
A. Proximate Cause of the Policy Lapse

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Superseding cause is an intervening act or force that the law considers sufficient to3
override the cause for which the original wrongdoer was responsible, thereby exonerating
that wrongdoer from liability. Black’s Law Dictionary 213 (7th ed. 1999).
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In its decision, the District Court found that AmerUs was responsible for the
Policy lapsing because Fulmer would have paid the necessary premium but for AmerUs
providing PNC with incorrect information during the February 11, 2004 phone call. As
previously stated, AmerUs sent PNC a premium notice indicating the amount due on the
account and a late payment offer, which clearly indicated that the Policy would lapse if
payment was not made on the account. PNC ignored the late payment offer.
Under Pennsylvania law:
Proximate causation is defined as a wrongful act which was a substantial
factor in bringing about the plaintiff's harm. Proximate cause does not exist
where the causal chain of events resulting in plaintiff's injury is so remote
as to appear highly extraordinary that the conduct could have brought about
the harm.
Dudley v. USX Corp., 606 A.2d 916, 923 (Pa. Super. Ct. 1992) (citations omitted). In
this case, we conclude that PNC’s failure to heed or follow up on the premium notice or
late payment offer, and not AmerUs's misrepresentation on the telephone, was the
proximate cause of the Policy’s lapse. Moreover, though not argued by the parties, we
believe that PNC’s failure to act on the March 2004 late payment offer from AmerUs
constituted the superseding cause of the policy’s lapse that removed the initial
misrepresentation by AmerUs as the proximate cause.3
In its analysis, the District Court cited to cases in which the insurer prevented the
insured from performing on the policy. Amrovcik v. Metro. Life Ins. Co., 180 A. 727

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Note that, as in this case, McGowan was a diversity case governed by Pennsylvania law.4
372 F.2d at 40.
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(Pa. Super. Ct. 1935) (insurer could not deny coverage for failure to submit proof of
disability where insurer refused to provide the necessary proof of disability forms to the
insured); Aetna Cas. & Sur. Co. v. Netz, No. 91-6944, 1993 WL 89766, at *8 (E.D. Pa.
Mar. 29, 1993) (insurance company could not deny coverage where it misled insureds
into believing that their vehicle was covered). These cases are inapposite, however, as
AmerUs did not prevent PNC from performing.
The case that is most instructive here is McGowan v. Prudential Ins. Co. of Am.,
372 F.2d 39 (3d Cir. 1967). In McGowan, the insured sought to have his life insurance4
policy stay in force without payment of premiums. The insurance agent represented to
the insured that he thought that he would be able to add an automatic loan feature to the
policy so that the premiums would be paid automatically from the cash equity of the
policy. However, it turned out that the feature was not available for the policy. The agent
then sent the insured a letter instructing him to sign a loan agreement in order to keep the
policy active, indicating that he intended to use the proceeds from the loan to pay the
insurance premiums. The insured never returned the loan agreement to the agent and
never paid the premiums. Thereafter, the insured received notice that his policy would
lapse for nonpayment of premiums and, ultimately, he was informed that his policy had
lapsed. Thereafter, the insured was killed in an accident. The plaintiff argued that
because the agent gave the insured assurance that payment would be made from the loan,

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Note that in McGowan the insurance agent expressed that the premium probably could5
be skipped, whereas in this case, apparently, AmerUs conveyed that the premium could
be skipped. This difference does not excuse PNC for ignoring the notices it received
from AmerUs.
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the insurer could not disclaim liability on the policy. The Court rejected this argument,
holding that the “insured had [no] reasonable basis . . . to assume that the premiums were
being loaned.” Id. at 43.
PNC distinguishes McGowan on the basis that the insured in McGowan was
attempting to alter the terms of the policy by obtaining a loan to pay the premiums and,
here, Fulmer was acting within the existing contract to apply the cash value of the policy
to the premiums. This is a distinction without a difference. In both cases, the insurer
suggested that the insured did not need to pay a premium because the cash value could be
applied to the premium payment. In both cases, this representation turned out to be
wrong. Moreover, in both cases, the insurer subsequently sent a notice indicating that
action needed to be taken or the policy would lapse. Finally, in both cases, the premium
deficiency notice was ignored and the policy ultimately lapsed because the insured failed
to pay the required premiums. PNC could not rely on one false representation after5
subsequent communications made clear that additional actions were necessary to preserve
the account.
Drelles v. Mfrs. Life Ins. Co., 881 A.2d 822, 840-41 (Pa. Super. Ct. 2005), does
not command a different result. In Drelles, the Pennsylvania Supreme Court held that
policyholders are not obligated to read insurance policies and can rely upon an insurance

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agent’s representations as to the contents of a policy. PNC advances this case as support
for its argument that it could rely on the representation made by AmerUs on February 11,
2004. However, the Drelles court held that “the recipient of a fraudulent
misrepresentation . . . cannot recover if he blindly relies upon a misrepresentation the
falsity of which would be patent if he had used his opportunity to make a cursory
examination or investigation.” Id. at 840. PNC cannot recover here because it blindly
relied on misleading information it received in a telephone call without making a cursory
examination of the late payment offer from AmerUs. The late payment offer should have
alerted PNC to the fact that a premium needed to be paid, or, at the very least, should
have put PNC on inquiry notice of a possible problem on the account. PNC completely
disregarded AmerUs’s premium payment and potential lapse notices and, therefore, did
not have “any reasonable basis. . . to assume that the premiums were being” paid.
McGowan, 372 F.2d at 43.
B. Implied Duty of Good Faith
The District Court found that AmerUs was obliged to act in good faith and fair
dealing, citing to Dercoli v. Pa. Nat’l Mut. Ins. Co., 554 A.2d 906 (Pa. 1989) and Huang
v. BP Amoco Corp., 271 F.3d 560 (3d Cir. 2001). As we find that AmerUs did not cause
the lapse, it violated no implied duty by cancelling the Policy.
V. Conclusion
For the reasons set forth above, the decision of the District Court will be reversed.

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