Megee v. United States Fidelity and Guaranty Co.

Ralph Megee (plaintiff) was a self-employed contractor who applied for disability income insurance from United States Fidelity and Guaranty Company (USF&G) (defendant). Megee filed his application through an agent, Chandler McEvilly, who worked for Vertex Insurance Agency (Vertex). At the time of his application, Megee did not tender any premium because Vertex could not guarantee that Megee would qualify for the coverage he desired. Megee indicated that he would withhold his first payment of premium until Megee knew the amount of coverage provided by the policy. Unfortunately, the policy was only effective, by its terms, when the policy was issued, and the first premium was paid or if the premium was paid with the application. Megee filed his application on May 14; the application was received by USF&G’s Philadelphia office on May 20 and forwarded to the Baltimore home office on May 21. A credit investigation was completed on May 25, and a physical examination was conducted on June 1. The policy was then issued on June 1 and sent from the Baltimore office on June 2 to the Philadelphia office, where the policy was received on June 4. Vertex then received the policy at its offices in Newark on June 5. On June 5, Megee was injured and unable to work. On June 7, McEvilly asked for instructions from USF&G, who told McEvilly not to deliver the policy and not to accept the first premium. On June 10, Megee mailed a check for the first premium, but the check was returned uncashed on June 30, with a letter declining to provide coverage. Megee then sued USF&G, arguing that as the policy was issued, Megee was due coverage and that, subject to the reasonable-expectations doctrine, the policy should have been interpreted in favor of coverage. Megee also argued that USF&G was negligent in not processing his application quicker. USF&G moved for summary judgment, arguing that no insurance contract existed, and the trial court granted that motion. Megee then appealed.