Eichenseer v. Reserve Life Ins. Co., EC85-415-LS-D.

• Decision Date: 18 March 1988
• Docket Number: No. EC85-415-LS-D.,EC85-415-LS-D.
• Parties: Patricia Stephenson EICHENSEER, Plaintiff, v. RESERVE LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Mississippi

682 F. Supp. 1355

Patricia Stephenson EICHENSEER, Plaintiff, v. RESERVE LIFE INSURANCE COMPANY, Defendant.

No. EC85-415-LS-D.

United States District Court, N.D. Mississippi, E.D.

March 18, 1988.

Thomas L. Kesler, Sams & Kesler, DeWitt T. Hicks, Jr., Gholson, Hicks & Nichols, Columbus, Miss., for plaintiff.

L.F. Sams, Jr., John S. Hill, Mitchell, McNutt, Bush, Lagrone & Sams, Tupelo, Miss., for defendant.

OPINION

SENTER, Chief Judge.

In this diversity action, plaintiff alleges that the defendant insurer acted with reckless disregard for her contractual rights and was grossly negligent by denying her claim for health insurance benefits. Plaintiff seeks an award of both extracontractual compensatory damages and punitive damages as a result of the defendant's actions.

A nonjury trial has been conducted, and the court now issues the following findings of fact and conclusions of law. Rule 52(a), Fed.R.Civ.P.

Findings of Fact

a) The Parties

Patricia Stephenson Eichenseer, plaintiff herein, was born on February 4, 1945, the daughter of Mr. and Mrs. Woodie Taylor. She has resided in Mississippi all her life with the exception of a brief stay in Michigan. She presently lives with her father in the community of Westville, located in Monroe County.

The Reserve Life Insurance Company is a Texas corporation with its principal place of business in Dallas. The company is qualified to do business in Mississippi and has issued insurance policies to people in this state for many years.

b) General Background

Plaintiff is five feet six inches tall and weighs 175 pounds. Her educational background is unknown but presumably includes attendance through at least the high school level. She has previously worked at the local hospital and at a pants factory in Greenwood Springs.

Plaintiff's health was excellent until 1982 when her mother passed away. As a result of the stress and anxiety accompanying this loss, plaintiff began to suffer from a multitude of ailments, including colds, high blood pressure, nervousness, depression, esophagitis, stomach and abdominal pain, and gastritis. Plaintiff visited her treating physician, Dr. L.R. Murphree, a total of eleven times during the year and was admitted to the local hospital for treatment of abdominal pain in December, 1982. Medications prescribed for her health problems included alderil, clavil, lasix, othoxicol, decatron, reglan, darvon, talwin, benedril, and mylanta. The abdominal pain which caused the plaintiff to be hospitalized was cured by administering an enema.

The Taylors first purchased health insurance from Reserve Life in 1949. One of the insureds named in the policy was Patricia, then five years old. Over the next thirty-five years, Patricia made one or two minor claims under this policy, and all were apparently paid without dispute.

Sue Wilson, an agent for Reserve Life since 1979, sold the Taylor family a medicare supplement policy in mid-1982. In late 1982, Wilson contacted the plaintiff about purchasing her own health insurance. Plaintiff declined Wilson's offer at that time due to financial difficulties, but agreed to contact her in the near future when her financial outlook improved.

Plaintiff met with Sue Wilson again on January 5, 1983, and agreed to take out a major medical policy. While plaintiff orally responded to the application questions, Wilson wrote the answers as given. Plaintiff stated, inter alia, that Dr. L.R. Murphree was her treating physician, that she had not seen him in recent months, and that she was not on any medications at that time. The application also contained a medical release, executed by plaintiff, which authorized Reserve Life to contact Dr. Murphree or any other doctor to verify the condition of her health. Wilson called Dr. Murphree to see if the plaintiff had regular pelvic examinations and was told that "everything was fine." After making this notation on the application, Wilson collected the appropriate premium payment and informed the plaintiff that she was insured.

On January 23, 1983, eighteen (18) days after the effective date of the policy, plaintiff experienced severe pain in her lower abdomen. During a visit to Dr. Murphree the next day, the physician recommended hospitalization. On the hospital admission sheet, Dr. Murphree noted:

Chief Complaint: Pain in the lower abdomen.

present illness: The pain has been present in the lower abdomen in period for the last 2-3 years. This attack started about three days ago and has become progressively worse. She has occasional headaches. The head is hurting now, some sore throat. Occasional cough which she contributes to smoking. Appetite is terrific. Bowels have not been moving well the last few days. Nicturia 2-3 times at night. (Emphasis added.)

Over the next few days, plaintiff was given antibiotics through intravenous injection. Her temperature never exceeded 100 degrees, but remained above normal (98.6°). Lab tests revealed an elevated white blood cell count of 18,000, which later declined to 9,343 with treatment.

Dr. Murphree treated the plaintiff for sixteen days before deciding to operate. In addition to prescribing antibiotics, lab reports indicate that a sonogram was performed on January 31, 1983, revealing the possible presence of an adnexal cyst, endometriosis, or pelvic inflammatory disease. A total hysterectomy was performed by Dr. Murphree on February 9, 1983. In his post-operative report, the doctor noted the presence of a) chocolate cystic ovaries, b) markedly thickened and enlarged fallopian tubes, c) pelvic adhesions, and d) displaced ovaries. A pathologist's report later confirmed that the plaintiff had also suffered from endometriosis and cervicitis.

Plaintiff's recovery was largely uneventful, and she was discharged from the hospital on February 19, 1983. In his discharge summary, Dr. Murphree reaffirmed his initial diagnosis of acute PID, but noted the presence of peritonitis, chocolate cysts, tubo-ovarian abscesses, chronic cervicitis, and massive adhesions, indicating the presence of endometriosis.¹

Plaintiff received $6,658.35 in medical bills during the following weeks and submitted them to Reserve Life in late February for payment. Coverage under her parent's policy was never disputed, and partial payments were made by April of 1983. A majority of the bills fell under the new policy, however, and the decision of Reserve Life to deny payments under this policy gives rise to the instant dispute.

On February 28, 1983, the "Major Medical Unit" of Reserve Life's claims department received plaintiff's hospital bill. A work sheet was set up on March 2, 1983, and the file was sent to another department six days later to be examined. Plaintiff signed a "proof of claim" form and submitted it to Reserve Life on March 23, 1983. On April 21, 1983, she received payment under the old policy, but noted the absence of payment under her new policy.

c) Denial of the Claim and Commencement of Litigation

Reserve Life formally denied plaintiff's claim under her major medical policy on June 2, 1983. This decision was communicated to the plaintiff by form letter and its exact contents are unknown since both she and the insurer failed to retain a copy of the correspondence. It is undisputed, however, that the letter listed as the reason for the denial the fact that the plaintiff had a pre-existing illness which was not covered by the terms of the policy.

Plaintiff called Reserve Life on June 21, 1983, and requested an explanation for the denial. Al Vick, a Reserve Life employee, told the plaintiff that her file was still with the claims department, but that he would call her back once he had been able to find her file.

Unbeknownst to the public, Reserve Life was by mid-1983 experiencing severe organizational problems. Due to the unexpected success of a recently offered insurance policy, numerous claims were being received by Reserve Life in addition to the normal number of claims. The employees, faced with the task of matching claim correspondence with policyholders' files, often lost documents or were unable to find and file them for weeks at a time. Although the company has since computerized its operations, claims submitted in 1983 were often processed manually and mishandled.

Dena Marie Brannon was the Reserve Life employee responsible for handling plaintiff's claim. Prior to denying her claim, Brannon had obtained only Dr. Murphree's admission summary and had relied solely on the following statement to support a denial: "The pain has been present in the lower abdomen in periods for the last 2-3 years. This attack started about three days ago...." Although the documents then held also listed as an admitting diagnosis "Acute PID," Brannon interpreted the reports to indicate that the plaintiff had been suffering from her illness since 1980-81. Importantly, Brannon did not consult with either the plaintiff or Dr. Murphree before making this decision and chose not to consult with an in-house physician retained by Reserve Life on a part-time basis.

Although the plaintiff made repeated telephone calls to Reserve Life during the following weeks, she received no relief. On August 22, 1983, after receiving one such call, Reserve Life employees wrote a letter to Dr. Murphree requesting plaintiff's medical records from his clinic. These records were sent to the insurer in a timely fashion, but were apparently misplaced due to the ongoing organizational crisis.

Plaintiff called Reserve Life again on September 20, 1983, to inquire about the status of her claim. The employee who talked to the plaintiff was unable to find either the file or her clinical records, but when asked if the records had been received, responded by stating that the file was still with the claims department. An exhaustive "stop search" was conducted for the records, but once again ended in failure.

Plaintiff again called Reserve Life on October 24, 1983, and asked Al Vick about her claim....