Eckenrode v. Life of America Insurance Company

• Decision Date: 03 August 1972
• Docket Number: No. 71-1103.,71-1103.
• Citation: 470 F.2d 1
• Parties: Katherine M. ECKENRODE, Plaintiff-Appellant, v. LIFE OF AMERICA INSURANCE COMPANY, a corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

470 F.2d 1 (1972)

Katherine M. ECKENRODE, Plaintiff-Appellant, v. LIFE OF AMERICA INSURANCE COMPANY, a corporation, Defendant-Appellee.

No. 71-1103.

United States Court of Appeals, Seventh Circuit.

Argued February 14, 1972.

Decided August 3, 1972.

Louis G. Davidson, Keith L. Davidson, Chicago, Ill., for plaintiff-appellant.

Henry A. Waller, Paul Bernstein, Chicago, Ill., for defendant-appellee.

Before CASTLE, Senior Circuit Judge, KILEY, Circuit Judge, and GRANT, District Judge.¹

KILEY, Circuit Judge.

Plaintiff, a resident of Pennsylvania, filed this three count diversity complaint to recover damages for severe emotional injury suffered as a result of the deliberate refusal of Life of America Insurance Company (Insurer), of Chicago, to pay her the proceeds of Insurer's policy covering the life of her husband. The district court dismissed the suit. Plaintiff has appealed. We reverse.

In Count I plaintiff sought recovery of the face amount of the policy. In Count II she sought compensatory damage for Insurer's "outrageous conduct" in refusing to pay her the policy proceeds when its duty was clear and when it knew of plaintiff's and her family's financial distress. In Count III she sought compensatory and punitive damages 1) because Insurer allegedly defrauded decedent into the insurance contract by its promise of payment of benefits immediately upon proof of the insured's death from "accidental causes," while at the time its practice was not to pay meritorious claims; and 2) because Insurer allegedly sought by "economic coercion" to compel plaintiff — so increasingly financially distressed — to accept less than the face value of the policy or be forced to sue for payment of the proceeds.

The district court dismissed Counts II and III as stating no claim on which relief could be granted, and then dismissed "without prejudice" Count I. After the complaint was dismissed plaintiff filed an action in the Circuit Court of Cook County based on Count I to recover the face amount of the policy and attorney's fees under Ch. 73, § 767, Ill.Rev.Stats. That case was settled. Only Counts II and III, therefore, are before us on this appeal.

I.

Taking the allegations, properly pleaded in Counts II and III, as true, the following facts are stated: Defendant's life insurance policy covering plaintiff's husband issued September 22, 1967. Under the policy Insurer agreed to pay plaintiff $5,000 immediately upon due proof of death from "accidental causes." On December 17, 1967, insured was an accidental victim of a homicide. Plaintiff met all conditions of the policy and repeatedly demanded payment, but Insurer refused to pay. Decedent left plaintiff with several children, but no property of value. She had no money, none even for the funeral expenses. Denied payment by Insurer, she was required to borrow money to support her family, while her financial condition worsened. The family was required to live with, and accept charity from, relatives.

Further: Insurer knew or should have known of the death of decedent from accidental causes and of plaintiff's dire need of the policy proceeds. Yet Insurer repeatedly and deliberately refused her demands for payment, and as a proximate result she was caused to suffer "severe distress and disturbance of her mental tranquility." Instead of paying her the proceeds of the policy, and being fully aware of the accidental cause of decedent's death and of plaintiff's financial distress, Insurer breached the policy promise to pay immediately upon proof of death. Insurer, knowing full well that plaintiff needed the proceeds of the policy to provide necessaries for her children, applied "economic coercion" in refusing to make payment on the policy, and in "inviting" plaintiff to "compromise" her claim by implying it (Insurer) had a valid defense to the claim.²

II.

The issue before us with respect to Counts II and III is whether plaintiff — beneficiary of her husband's life insurance policy — may on the foregoing "facts" recover damages for severe mental distress allegedly suffered as a result of Insurer's conduct. Illinois law controls our decision, and, in anticipation³ that the Illinois Supreme Court would hold as we do, we decide the issue in favor of plaintiff.

We have no doubt, in view of Knierim v. Izzo, 22 Ill.2d 73, 174 N.E.2d 157 (1961), that the Illinois Supreme Court would sustain plaintiff's complaint against Insurer's motion to dismiss.

In Knierim, plaintiff filed a wrongful death action alleging, inter alia, that defendant Izzo threatened her with the murder of her husband, carried out the threat, and thereby proximately caused her severe emotional distress. The trial court dismissed her complaint, but the Illinois Supreme Court reversed and held that plaintiff had stated a cause of action for an intentional causing of severe emotional distress by Izzo's "outrageous conduct."

The court recognized the "new tort" of intentional infliction of severe emotional distress, following similar recognition by an "increasing number of courts," and cited several state decisions. 174 N.E.2d at 163. The court rejected reasons given by other courts not recognizing the "new tort." As to the reason that mental disturbance is incapable of financial measurement, the court pointed out that "pain and suffering" and "mental suffering" are elements of damage, respectively, in personal injury and malicious prosecution cases. 174 N.E.2d at 163. As to the reason that mental consequences are too evanescent for the law to deal with, the court noted that psychosomatic medicine had learned much in the past "thirty years" about the bodily effects of man's emotions, and that symptoms produced by "stronger emotions" are now visible to the professional eye. 174 N.E.2d at 164. As to the reason that recognizing the "new tort" would lead to frivolous claims, the court observed that triers of fact from their own experiences would be able to draw a line between "slight hurts" and "outrageous conduct." Id. And finally, as to the reason that mental consequences vary greatly with the individual so as to pose difficulties too great for the law, the court adopted an objective standard against which emotional distress could be measured. The court thought that the standard of "severe emotional distress to a person of ordinary sensibilities, in the absence of special knowledge or notice" would be a sufficient limit for excluding "mere vulgarities * * * as meaningless abusive expressions." 174 N.E.2d at 165. The court noted that the "reasonable man" is well known to triers of fact who are also well acquainted with "the man of ordinary sensibilities."

The court added a cautionary note, expressing confidence that Illinois trial judges would not permit litigation to introduce "trivialities and mere bad manners" under the cloak of the "new tort." The court concluded — with implications from the famous Warren-Brandeis article on the "new tort" or privacy — that peace of mind is a personal interest of sufficient importance to receive the law's protection against intentional invasion by "outrageous conduct," and that the allegations in Mrs. Knierim's complaint stated a cause of action.

In Knierim the court, inter alia, relied upon State Rubbish Collectors Association v. Siliznoff, 38 Cal.2d 330, 240 P.2d 282 (1952), and Restatement, Torts § 46 (1948 Supp.). In Siliznoff the California Supreme Court, in an opinion by Justice Roger Traynor, recognized the "new tort" for the first time and held that Siliznoff could recover from the cross-defendant Rubbish Collectors Association for mental distress caused by the Association's severe threats to beat him up, destroy his truck and put him out of business unless Siliznoff offered to pay over certain proceeds to the Association. Later, the California Supreme Court en banc affirmed a trial court judgment against an insurance company, including $25,000 for mental suffering caused by the insurance company's earlier unreasonable refusal to accept a settlement within the limits of the liability policy. Crisci v. Security Ins. Co. of New Haven, 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173 (1970). There Mrs. Crisci's mental distress claim was in addition to her loss of property caused by the insurance company's failure to settle. The court thought that where there were substantial damages apart from the mental distress, the danger of fictitious claims was reduced. Subsequently in Fletcher v. Western National Life Ins. Co., 10 Cal.App.3d 376, 89 Cal.Rptr. 78 (1970), an appellate court relying upon Siliznoff and Crisci, held that the defendant insurance company's threatened and actual bad faith refusals to make payments under the disability policy were essentially tortious in nature and could legally be the basis for an action against the company for intentional infliction of emotional distress. The decision rested on the finding that the refusals were maliciously employed by the company in concert with false and threatening communications directed to the badly injured plaintiff-insured for the purpose of causing him to surrender his policy or disadvantageously settle a nonexistent dispute. 89 Cal.Rptr. at 93. The court found sufficient evidence showing emotional distress of the "requisite severity" (i. e., outrageousness), and thus affirmed the trial court's denial of judgment N.O.V.

We think that the California court...