Parker v. Prudential Ins. Co. of America, s. 89-3263

Decision Date16 May 1990
Docket Number89-3271,Nos. 89-3263,s. 89-3263
PartiesShirley G. PARKER, Individually, and to the use of Syreeta Parker, a minor, Plaintiff-Appellant, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellee. Shirley G. PARKER, Individually, and to the use of Syreeta Parker, a minor, Plaintiff-Appellee, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.
CourtU.S. Court of Appeals — Fourth Circuit

John F.X. Costello, McCarthy, Bacon, Costello & Stephens, Landover, Md., for plaintiff-appellant, cross-appellee.

Thomas Moss Wood, IV, Frank, Bernstein, Conaway & Goldman, (Peter F. Axelrad, Brian L. Wallace, Frank, Bernstein, Conaway & Goldman, on brief), Baltimore, Md., for defendant-appellee, cross-appellant.

Before ERVIN, Chief Judge, WILKINSON, Circuit Judge, and YOUNG, Senior District Judge for the District of Maryland, sitting by designation.

PER CURIAM:

Shirley Parker appeals the grant of a directed verdict for the defendant Prudential Insurance Company on her claim for the benefits of a life insurance policy purchased by her deceased husband. Prudential cross appeals the denial of its alternative motion for a directed verdict. We hold that the district court should not have directed a verdict on the issue of accord and satisfaction but that Prudential was entitled to a directed verdict on the grounds of misrepresentation because the application failed to disclose a history of smoking and drug use.

I

On December 30, 1985, Michael Parker purchased a $100,000 life insurance policy from Prudential. A Prudential agent read him the background question; he responded verbally; and the agent wrote the responses on the form. After answering the questions, Parker read and signed the application form. He was killed in a head-on automobile accident approximately four months later. His widow filed a claim as the primary beneficiary under the life insurance policy.

Prudential instituted an investigation and discovered through medical records that Parker had been a smoker and had used cocaine and heroin. 1 On the policy application form, two relevant questions were answered as follows:

24: Has the Proposed Insured or spouse ever smoked?

Answer: No.

27(c): Has any person to be covered ever used or is any such person now using barbiturates or amphetamines, marijuana or other hallucinatory drugs, or heroin, opiates or other narcotics, except as prescribed by a doctor?

Answer: No.

Prudential decided that the above responses constituted material misrepresentation in light of Parker's medical records and that, as a result, the company would not pay the claim. In the letter informing plaintiff of its position, Prudential indicated that its only liability was to refund the premium paid, plus interest ($76.90), and it offered to send a check for that amount.

Plaintiff retained an attorney, William Thornton, who engaged in some discussions with Prudential and then requested a check for the premium refund. Mrs. Parker deposited the check shortly after receiving it. Neither the letter from Prudential nor the check contained any language indicating that the check was sent in full satisfaction of all claims. After consulting a new attorney, plaintiff sent her check to Prudential to return the premium refund and indicated that she was still pursuing collection of the policy benefits. Prudential has retained that check without negotiating it.

Plaintiff filed this action in Maryland state court to collect the $100,000 policy benefit. The defendant removed the case to federal court based on diversity of citizenship. The case went to trial, and, at the conclusion of the plaintiff's case, Prudential moved for a directed verdict on the alternative grounds of accord and satisfaction and rescission of the contract for material misrepresentation. Prudential claimed that acceptance of the premium refund check constituted an accord and satisfaction. Mrs. Parker, however, testified that she believed she could continue to pursue her claim against Prudential after depositing the check. Her former attorney testified as to his actions, but assertion of the attorney-client privilege prevented any testimony about the substance of his advice to her concerning the acceptance of the premium refund check.

The trial judge held that Prudential had shown accord and satisfaction as a matter of law and granted a directed verdict but rejected misrepresentation as a basis for his decision. Plaintiff now appeals the grant of a directed verdict, and Prudential cross-appeals the denial of its alternative motion for a directed verdict for misrepresentation. The parties present four issues:

(1) did the trial court use the proper standard in assessing the motion for a directed verdict (2) did the trial court err in allowing the plaintiff's former attorney to testify;

(3) did the trial court properly grant a directed verdict for accord and satisfaction; and

(4) did the trial court properly deny the defendant's motion for a directed verdict for misrepresentation?

II

Before examining the merits of the motions for a directed verdict we consider two other issues raised by the parties.

A. Attorney-Client Privilege

Prior to trial Mrs. Parker filed a motion in limine to preclude the testimony of her former attorney, William Thornton, based on the attorney-client privilege. The defendant argued that she had waived the privilege by answering questions during a prior deposition. The court held that she had not waived the privilege and granted the motion to prevent the defendant from asking Thornton questions about the substance of the legal advice he gave her. The court did allow testimony from Thornton concerning his actions.

During trial Prudential elicited testimony from Thornton to establish that (1) he represented the plaintiff, (2) he attempted to collect the benefits of the policy, (3) he had discussed with her the issue of accepting the check, and (4) she directed him to obtain the premium refund check after those discussions. He was not allowed to testify directly about the substance of any advice he gave her.

Plaintiff now argues that the court used this testimony to infer that he must have told her that accepting the check would constitute accord and satisfaction. This alleged inference, she argues, constitutes an impermissible intrusion on the attorney-client privilege. In addition, she argues that the inference is not warranted by his testimony.

We agree that the trial court impermissibly used testimony from Thornton to draw an inference about the substance of her conversations with him. The trial judge relied upon that testimony in his ruling, emphasizing that "there was an attorney who advised this lady to take the check and cash it" when he directed a verdict for accord and satisfaction.

Thornton's testimony relates to Mrs. Parker's state of mind when she deposited the check from Prudential. However, the testimony is only probative if one infers that the attorney told her acceptance of the check either would or would not waive further claims for the policy benefits. 2 Any such inference would intrude upon the protected realm of the attorney-client privilege. The privilege was created to protect the right to effective counsel. "[A]n individual in a free society should be encouraged to consult with his attorney whose function is to counsel and advise him and he should be free from apprehension of compelled disclosures by his legal advisor." State v. Pratt, 284 Md. 516, 398 A.2d 421, 423 (1979); Helferstay v. Creamer, 58 Md.App. 263, 473 A.2d 47 (1984). To protect that interest, a client asserting the privilege should not face a negative inference about the substance of the information sought.

Prudential complained that her invocation of the privilege made it difficult to prove whether she knew the legal effect of accepting the premium refund check. However, Prudential misstates the issue. The legal effect of depositing the check depends on the terms of the agreement, if any, between the parties. Prudential bears the burden of proving that agreement. Plaintiff had no duty to disclose the contents of her conversations with her attorney or to produce any other evidence on the issue. Any difficulties in proof faced by Prudential stem from its failure to obtain a clear agreement, not from plaintiff's invocation of the attorney-client privilege. 3

B. Standard for Assessing a Motion for a Directed Verdict

In considering a motion for a directed verdict, the court must construe the evidence in the light most favorable to the party against whom the motion is made. Garraghty v. Jordan, 830 F.2d 1295, 1302 (4th Cir.1987). Plaintiff argues that the district court incorrectly construed all evidence in favor of Prudential rather than in her favor. During the oral argument on the defendant's motion for a directed verdict, the court stated that it must "look at [the evidence] in the light most favorable to the Defendant...." (Emphasis added.) The court also indicated that the plaintiff bore the burden of proving the affirmative defense of accord and satisfaction.

While both of these statements are incorrect, a reading of the entire transcript of the hearing suggests that the district judge either misspoke or was temporarily confused. When making his ruling, the judge clearly stated that "even if I look at [the evidence] in a light most favorable to [the plaintiff]," the evidence was insufficient to reach the jury. The judge did not clarify in his ruling which party bore the burden of proving accord and satisfaction but appears to have considered that the evidence in favor of the defendant was so overwhelming that the placement of the burden did not matter.

Even if the district court erred, however, the issue is not crucial on appeal. A motion for a directed verdict raises a question of law, so this court reviews the decision de novo. Miller v. Premier Corp., ...

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