525 N.W.2d 342 (Wis.App. 1994), 92-2708, Estate of Plautz by Pagel v. Time Ins. Co.

• Citation: 189 Wis.2d 136,525 N.W.2d 342
• Date: 08 November 1994
• Docket Number: 92-2708.
• Parties: ESTATE OF Glenn F. PLAUTZ, by Charlotte PAGEL, Personal Representative, Plaintiff-Appellant-Cross Respondent, Tracie Plautz Burkart, Allyson Plautz and Carole Plautz Hofstetter, Involuntary-Plaintiffs, v. TIME INSURANCE COMPANY, Defendant-Respondent-Cross Appellant, ABC Insurance Company, Defendant.
• Court: Wisconsin Court of Appeals

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525 N.W.2d 342 (Wis.App. 1994)

189 Wis.2d 136

ESTATE OF Glenn F. PLAUTZ, by Charlotte PAGEL, Personal

Representative, Plaintiff-Appellant-Cross Respondent,

Tracie Plautz Burkart, Allyson Plautz and Carole Plautz

Hofstetter, Involuntary-Plaintiffs,

v.

TIME INSURANCE COMPANY, Defendant-Respondent-Cross Appellant,

ABC Insurance Company, Defendant.

No. 92-2708.

Court of Appeals of Wisconsin.

November 8, 1994

Oral Argument Oct. 6, 1993.

Opinion Released Nov. 8, 1994.

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[Copyrighted Material Omitted]

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[189 Wis.2d 138] For the plaintiff-appellant-cross respondent and involuntary-plaintiffs the cause was submitted on the briefs of Aiken & Scoptur, S.C., with Timothy J. Aiken and Kelly L. Centofanti of Milwaukee. There was oral argument by Timothy J. Aiken.

For the defendant-respondent-cross appellant the cause was submitted on the briefs of Riordan, Crivello, Carlson, Mentkowski & Steeves, S.C., with Timothy F. Mentkowski, Mary Beth Castino, and Barbara L. Henderson of Milwaukee. There was oral argument by Timothy F. Mentkowski and Mary Beth Castino.

Before WEDEMEYER, P.J., and FINE and SCHUDSON, JJ.

[189 Wis.2d 139] SCHUDSON, Judge.

With this appeal the Estate of Glenn Plautz presents an issue of first impression: whether a beneficiary/claimant under a life insurance policy can bring a bad faith claim against an insurance company following the death of the named insured. The Estate appeals from the trial court judgment entered in favor of Time Insurance Company, following a judgment notwithstanding the verdict, based on the trial court's conclusion that a life insurance beneficiary could not bring a bad faith emotional distress claim against an insurance company. We conclude, however, that such a cause of action does exist and, accordingly, we reverse the trial court's judgment notwithstanding the verdict.

In its cross-appeal, Time Insurance Company argues: (1) the Estate's suit was filed in violation of the two-year statute of limitations; (2) the trial court erroneously instructed the jury on the degree of emotional distress required in a bad faith action; (3) insufficient evidence existed to support the jury's award for emotional distress; (4) the compensatory damages award was excessive; and (5) the punitive damages award was excessive and violated Time's substantive due process rights. We conclude that Time waived any statute of limitations objection due to its failure to request that the issue be submitted to the jury. We also conclude that the omission of the word, "severe," and of any definition of "severe emotional distress" from the jury instruction was error. Additionally, we conclude that the omission of "substantial other damages" from the jury instruction on bad faith emotional distress was error. Because the errors in the jury instruction were not harmless, we reverse and remand for a new trial. ¹

[189 Wis.2d 140] I. BACKGROUND

In 1964, Lois Plautz bought a $2,000 whole life insurance policy from Time, listing her husband Glenn Plautz as the beneficiary. In November 1977, Mrs. Plautz did not pay the premiums and defaulted on the policy. Because of the "extended term" provision of the policy, however, the policy did not lapse. Under that provision, the cash value of the whole-life policy paid for a term death benefit on a year-to-year basis. Because of the extended term provision, Mrs. Plautz had enough cash value to pay the premiums for coverage through 1996.

In September 1986, Mrs. Plautz converted the extended term policy back to a whole-life policy. Time calculated the remaining cash value from the extended term policy as $162.06, applied a portion of that sum to the first two years of premiums, and refunded the remainder. After the expiration of the two years' worth of pre-paid premiums, Mrs. Plautz was required to make the premium payments. In February 1988, Time sent Mrs. Plautz a premium notice advising her that she would have to pay the premium in order to keep the policy in effect. Mrs. Plautz did not pay the premium and, in April 1988, Time sent Mrs. Plautz a notice advising her that the policy had lapsed. Mrs. Plautz died in December 1988.

After Mrs. Plautz's death, Mr. Plautz took a number of insurance policies to his insurance agent, Elmer Rehse, and asked him to determine the status of the policies. On February 13, 1989, Sue Welch, a claims adjuster for Time, wrote to Rehse and advised him that the 1964 policy had been replaced by the 1986 extended [189 Wis.2d 141] term policy, which had

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lapsed on March 1, 1988, because Mrs. Plautz had failed to pay the premiums.

Mr. Plautz then contacted his attorney, Doug Plier, and asked Plier to investigate Time's denial of coverage. On February 21, 1989, Plier wrote to Time, requesting documents confirming that Time had sent Mrs. Plautz a premium notice in February 1988. Welch responded, sending Plier copies of computer print-outs, which indicated that the premium notice and the lapse notice had been sent. On May 23, 1989, Plier again wrote to Time requesting a copy of the actual lapse notice and all information Time had in its file. Although the parties disputed at trial whether Time fully complied with Plier's request, Time did send Plier file materials. On August 1, 1989, Plier wrote to Time once again, seeking additional information about the calculation of the cash value. The head of Time's policyholder services department, Robert Reindl, referred the matter to Mike Krugel, an actuary for Time. Krugel discovered that Time had made an error in calculating the Plautz policies.

According to Krugel's trial testimony, sometime between 1981 and 1986, a computer programming glitch caused Time to miscalculate the cash value of policies to the detriment of policyholders. Krugel discovered the error sometime in late 1986 or early 1987. Krugel explained that Time had no easy way to determine which policies had been affected by the glitch and he estimated that it would have taken "hundreds, if not thousands of man hours" to even attempt to determine what policies had been affected. Krugel testified that he discussed the matter with his boss and it was decided that Time would not attempt to identify the affected policies. Krugel stated that it was his experience that only about 100 extended term policies were [189 Wis.2d 142] typically surrendered during a year and that, in his estimation the glitch would have generated, on average, only a $3 error per policy.

As it turned out, however, in Mrs. Plautz's case the error was much more. Because she kept the extended term policy for eight and one-half years instead of immediately surrendering it and obtaining the cash value, Time erroneously calculated Mrs. Plautz's remaining cash value in the extended term policy as $162.06 when, in fact, the cash value was $266.06. The $104 difference would have covered an additional year of premiums and thus would have afforded coverage at the time of Mrs. Plautz's death.

On August 29, 1989, after Time had figured out what had happened with Mrs. Plautz's policy, Welch wrote to Plier and explained that an error had been made and that Time would pay the claim. On September 15, 1989, Time mailed Mr. Plautz a check for $2,181.66 (the $2,000 death benefit, plus interest). Mr. Plautz died on November 6, 1989, but still had not cashed the check.

On July 2, 1991, the Estate of Glenn Plautz filed suit against Time. ² On August 28, 1991, the Estate filed an amended complaint alleging bad faith in the denial of the life insurance benefits from the policy. The amended complaint also alleged bad faith emotional distress and wrongful death and sought compensatory and punitive damages.

On March 19, 1992, Time filed a motion for summary judgment, alleging, among other things, that the Estate's cause of action for bad faith was barred by the statute of limitations. The trial court denied Time's [189 Wis.2d 143] motion and the matter proceeded to trial. Although the jury rejected the Estate's wrongful death claim, the jury did find bad faith and awarded the Estate $255,000 in compensatory damages and $2 million in punitive damages.

Both parties filed motions after verdict. The trial court granted Time's motion, concluding that a beneficiary of a life insurance policy cannot bring a bad faith claim against the insurer. The trial court did not decide any of the other arguments raised by the parties. The trial court vacated the jury verdict and dismissed the Estate's complaint with prejudice.

2. BAD FAITH

   Although noting that there were "forceful and compelling arguments as to why Glenn

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   ought to be able to pursue a bad faith action," the trial court nevertheless concluded that such a bad faith cause of action had not been recognized in Wisconsin. Relying on Combined Investigative Services, Inc. v. Scottsdale Insurance Co., 165 Wis.2d 262, 477 N.W.2d 82 (Ct.App.1991), the trial court stated:

   I am satisfied that Wisconsin recognizes only three bad faith insurance actions. They are:

   1. An insured's action against the insurer for bad faith in settling with a third party claimant where the ultimate judgment exposes the insured to a judgment in excess of the policy coverage;

   2. An insured's action against the insurer for failure to satisfy the insured's nondebatable claim; and

   3. A third party's action against the insurer for failure to reimburse a workers compensation claim.

   [189 Wis.2d 144] Time argues that the trial court correctly dismissed the Estate's bad faith claim because, as stated in Kranzush v. Badger State Mutual Casualty Co., 103 Wis.2d 56, 73, 307 N.W.2d 256, 265 (1981), "The insurer's duty of good faith and fair dealing arises from the insurance contract and runs to the insured." The Estate, however, argues for broader identification of the "true insured" in a life insurance contract after the named insured or policyholder dies. The Estate contends...