Crossley v. State Farm Mut. Auto. Ins. Co., 23590

• Citation: 415 S.E.2d 393,307 S.C. 354
• Decision Date: 21 January 1992
• Docket Number: No. 23590,23590
• Court: United States State Supreme Court of South Carolina
• Parties: Clarence A. CROSSLEY, Respondent, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant. . Heard

Page 393

415 S.E.2d 393

307 S.C. 354

Clarence A. CROSSLEY, Respondent, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant.

No. 23590.

Supreme Court of South Carolina.

Heard Jan. 21, 1992.

Decided March 2, 1992.

Barbara H. McArthur and C. Mitchell Brown of Nelson, Mullins, Riley & Scarborough, Columbia, for appellant.

Otis Allen Jeffcoat of Jeffcoat & Associates, Myrtle Beach, for respondent.

HARWELL, Chief Justice:

This is an action for breach of an insurance contract. The jury awarded respondent Clarence A. Crossley both actual and punitive damages based on its determination that appellant State Farm (State Farm) breached its implied covenant of good faith and acted willfully or in reckless disregard of respondent's rights under the contract. State Farm alleges that the trial judge committed various errors. We affirm in part as modified, and reverse in part.

I. FACTS

Respondent applied for health insurance through State Farm on September 22, 1988. He denied any adverse medical history. The next day respondent consulted a cardiologist, complaining that he recently had experienced severe chest pains, as well as episodes of chest discomfort, shortness of breath, and sweating during the previous month. Respondent's EKG suggested coronary artery disease, and he was referred to the Medical University of South Carolina. Respondent was diagnosed as suffering from coronary artery disease and unstable angina. He underwent cardiac catheterization and an angioplasty.

State Farm denied respondent's application for health insurance by letter dated October 27, 1988, and refunded his premium payments. Respondent brought a cause of action alleging that State Farm breached the contract and its implied covenant of good faith under the contract. A jury awarded respondent $34,863.06 actual damages and $30,000.00 punitive damages. On appeal, State Farm asserts that the trial judge erred in denying its motions for directed verdict and judgment notwithstanding the verdict as to (1) whether a contract existed between the parties; (2) whether respondent's claim for insurance benefits resulted from a pre-existing condition; (3) whether State Farm breached its implied covenant of good faith under the contract; and (4) whether State Farm acted willfully or in reckless disregard of respondent's rights under the contract.

II. DISCUSSION

In passing upon State Farm's motions for directed verdict and for judgment notwithstanding the verdict, it is the duty of this Court to view the evidence and all inferences which may reasonably be drawn therefrom in the light most favorable to respondent. Woodward v. Todd, 270 S.C. 82, 240 S.E.2d 641 (1978). If more than one reasonable inference can be drawn from the evidence, the case must be submitted to the jury. Easler v. Pappas, 252 S.C. 398, 166 S.E.2d 808 (1969).

State Farm first contends that the evidence at trial does not support the existence of a contract between State Farm and respondent. We disagree.

When respondent applied for insurance with State Farm, he paid the first two months' premiums and executed a conditional receipt. ¹ Normally, a layperson who pays his premium at the time an application for insurance is filed is justified in assuming that payment will bring immediate protection. Poston v. National Fidelity Life Insurance Co., 303 S.C. 182, 399 S.E.2d 770 (1990). However, an insurer may reserve the determination of whether an applicant is an insurable risk on the date of the application. Vernon v. Provident Life and Accident Insurance Co., 266 S.C. 208, 222 S.E.2d 501 (1976). When the insurer does so, it must use clear and unequivocal language to evidence its intent to limit temporary coverage, and also must call limiting conditions to the attention of the applicant. Poston, 303 S.C. at 186, 399 S.E.2d at 772. Here, State Farm's local agent testified that she read and explained the conditional receipt to respondent. Respondent contested the version of the facts presented by State Farm's local agent, and testified that State Farm's local agent informed him that the policy was effective immediately.

After State Farm's home office received respondent's application, it began an investigation to determine whether it would issue respondent a health insurance policy. State Farm informed respondent by letter dated October 6, 1988 that "[w]hile the necessary information is being developed, we have asked the State Farm Pay Plan Department to discontinue your billings for this Health Insurance application." Shortly thereafter, State Farm billed respondent for the next month's premium. Respondent paid the premium on October 18, 1988. State Farm asserts that the billing was made in error and that it did not intend by sending a statement to create a contract of insurance. Nevertheless, State Farm accepted respondent's payment and processed his check. Circumstances may imply acceptance of an offer to purchase insurance. Moore v. Palmetto State Life Insurance Co., 222 S.C. 492, 73 S.E.2d 688 (1952). We find that the evidence regarding whether a contract was created is susceptible of more than one inference, and thus properly was submitted to the jury. Accordingly, we hold that the trial judge did not err in denying State Farm's motions for directed verdict and j.n.o.v. on the issue of whether a contract of insurance existed between State Farm and respondent.

State Farm next contends that, even if a contract did exist, State Farm did not breach the contract by denying benefits because respondent's claim resulted from a pre-existing condition. We disagree.

An insurer has the right to contract against liability resulting from pre-existing diseases. Before nonliability can follow as a matter of law, however, the only reasonable inference must be that the claim of the insured resulted from a disease already contracted and active at the time of the date and delivery of the policy. Johnson v. Wabash Life Insurance Co., 244 S.C. 95, 135 S.E.2d 620 (1964).

The insurance policy for which respondent applied defined a pre-existing condition in pertinent part as:

2. the existence of symptoms which would cause an ordinarily prudent person to seek diagnosis, care or treatment within a five (5) year period preceding the effective date of coverage of the Covered Person.

State Farm contends that an ordinarily prudent person would have sought medical treatment for the symptoms respondent experienced during the...