Posting for

Monday, July 27, 1998

by: Bert Rush

brush@firstam.com

POWER OF ATTORNEY/AGENCY/INCAPACITY OF PRINCIPAL

Let's play "You Be the Judge."

Vermont resident Gaston Trepanier made a claim under his long-term disability insurance policy with Bankers Life & Casualty Co. In the event of disability he was entitled to $400 per month, apparently for life.

On March 2, 1993, Bankers Life proposed in a letter to Trepanier that he accept a lump sum payment of $20,000 in exchange for a release of further claims under his policy. The letter said that should Mr. Trepanier decide "to accept our offer," he could "jot a note at the bottom of this letter and return it."

Having received no reply, on April 2, 1993 Bankers Life sent another letter reminding Trepanier of the offer and urging a timely response if he wanted to "accept the offer."

According to Clemence Trepanier, Mr. Trepanier's wife, she and Mr. Trepanier discussed the offer and he decided to accept it. He instructed he to write a note on the bottom of the March 2 letter and return it. Clemence wrote the note on April 6 and placed it in an envelope, intending to mail it the next day. But on April 7 Mr. Trepanier was hospitalized and the letter didn't get mailed.

Mr. Trepanier lapsed into a coma on April 8. On April 12 Clemence mailed the letter to Bankers Life--accepting the offer. On April 14, Mr. Trepanier died.

When Bankers Life learned of Mr. Trepanier's death, it revoked the offer of a lump sum payment and instead issued a final payment based on the monthly policy benefit of $400.

Clemence Trepanier filed suit on behalf of her husband's estate, claiming that Bankers Life breached its contract to pay the lump sum amount, acting in bad faith and in violation of fiduciary duties to its insured. Bankers Life answered that (1) the March 2 letter was not an offer, (2) even if it was, Clemence was not authorized to accept it, (3) even if she was, she failed to perform a condition precedent by signing a release of the insurer's liability under the policy, (4) there was no evidence of bad faith, and (5) in any event, Clemence's authority to act as agent for her husband terminated when he lapsed into a coma on April 8--four days before she mailed the letter.

So...how do you decide this?

On cross-motions for summary judgment, the trial court assumed (without deciding) that there was an offer, Clemence was authorized to accept, and that mailing the letter on April 12 was legally sufficient for acceptance--but the judge ruled that as a matter of law Clemence's agency terminated when her husband became comatose, so no contract was formed by the mailing on April 12.

The Vermont Supreme Court reversed. Mindful of the general rule that an agency terminates with the death or incapacity of the principal, the Court said an individual in a comatose state is "generally not considered to be permanently incapacitated under general agency principles."

The Court explained that acts done on behalf on individuals who are temporarily incapacitated are, at most, voidable. In this case, the actions directed by Mr. Trepanier (assumed legally sufficient to form a contract) were not "voided" by him before his death, and there was no evidence he would have done so before he died.

The case was remanded for further proceedings on issues "assumed" but not decided in the summary judgment (ie., whether there was a valid offer, whether Clemence was authorized to accept, and whether the mailing was a valid acceptance.) From here on, I'm betting with Clemence.

The official citation is Trepanier v. Bankers Life & Casualty Co. (Vt.Sup.Ct. 1997) 706 A.2d 943.

Not to argue with the result, but if a comatose person who doesn't regain consciousness before death isn't "incapacitated," do we need a new word here? The Court didn't cite authority for its views in this regard--and maybe there are some cases out there--but it's still a dicey issue.

This is yet another example of risks involved in relying on powers of attorney. I'd have reservations about relying on a standard (non-durable) power of attorney if the grantor was comatose. As said before, we should always inquire about the whereabouts and condition of the grantor--and take it from there.

Questions, comment, argument? Just press the "reply" button….

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Following Monday's posting, Jim Dondero (Grand Rapids) writes:

I question Clemence's authority to accept the offer in the first place, but am not surprised at the reversal in her favor (and, too, would bet on her ultimately prevailing).

The purpose of this reply is not to give my opinion on the result, but to advise that Michigan has a statute which entitles third persons to rely on an attorney-in-fact's authority under a power of attorney unless and until they were to receive ACTUAL NOTICE of its revocation or death of the principal. With a "durability clause", another statute allows the agent's power to survive the incapacity of the principal.

I'm sure that there are similar statutes in other states which certainly provide us some comfort in these regards. As you suggest, however, good practice dictates that we verify the whereabouts and condition of the principal, and circumstances necessitating the use of the power -- still a "dicey issue"!

Reply to Jim: California also has a "good faith reliance" statute--discussed in the write-up of the Kona, HI story in Claims Chronicles 8.

And Keith Pearson (L.A./Glendale) writes:

Interesting case. There appears to be three intertwined issues. One is the authority of the agent wife to act. The second is whether there is a timely proper acceptance of the offer. The third issue is whether Clemence was authorized to mail the acceptance after the coma or her husband.

As to the first issue, the general rule as I understand it is that a party signing at the direction of the principal can bind the principal. Therefore since Clemence was instructed to write and sign the acceptance letter by her husband, she acted as his agent and could bind him and the insurance company to the agreement.

The second issue is timely acceptance. This turns in my opinion on whether the law of the state involved follows the mailbox rule (acceptance deemed when mailed) or the receipt rule (acceptance deemed when received by offeror). I did not see any limitation on the offer as to receipt being necessary for agreement.

The last issue is whether the power to act had terminated by reason of the coma and subsequent death of the husband. I think that since the instruction to sign had already been made to Clemence, and all that happened after the coma were ministerial acts to consumate the acceptance, the offer should be deemed accepted, and the insurance company bound.

There are additional equity issues about whether Clemence had clean hands (I'm sure she was a little more motivated to send the letter when her husband's death seemed imminent, thus ending the payments) but we all know sympathetic plaintiffs make bad law.