803 F.2d 304 (7th Cir. 1986), 85-1224, In re Air Crash Disaster Near Chicago

Docket Nº:85-1224.
Citation:803 F.2d 304
Party Name:In re AIR CRASH DISASTER NEAR CHICAGO, ILLINOIS, ON MAY 25, 1979. Lora LUX, Widow and Personal Representative of Walter H. Lux, Deceased, Plaintiff-Appellee, v. McDONNELL DOUGLAS CORPORATION, Defendant-Appellant.
Case Date:October 09, 1986
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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803 F.2d 304 (7th Cir. 1986)

In re AIR CRASH DISASTER NEAR CHICAGO, ILLINOIS, ON MAY 25, 1979.

Lora LUX, Widow and Personal Representative of Walter H.

Lux, Deceased, Plaintiff-Appellee,

v.

McDONNELL DOUGLAS CORPORATION, Defendant-Appellant.

No. 85-1224.

United States Court of Appeals, Seventh Circuit

October 9, 1986

Argued Nov. 7, 1985.

Page 305

Norman J. Barry, Rothschild Barry & Myers, Chicago, Ill., for defendant-appellant.

Page 306

William J. Harte, Chicago, Ill., for plaintiff-appellee.

Before WOOD, Circuit Judge, ESCHBACH, Senior Circuit Judge, and CAMPBELL, Senior District Judge. [*]

ESCHBACH, Senior Circuit Judge.

Defendant McDonnell Douglas Corp. ("MDC") appeals from a judgment of $3,000,000 for plaintiff Lora Lux in this wrongful death action governed by Arizona law. The primary issues presented in this appeal are: (1) whether evidence relating to the plaintiff's receipt of insurance proceeds should have been admitted; (2) whether evidence of the decedent's income tax liability should have been admitted; and (3) whether the jury should have been instructed that its award would not be subject to taxation. For the reasons stated below, we will reverse and remand for a new trial on damages.

I

The facts, as set forth in the district court's opinion, are as follows:

On May 25, 1979, Walter Lux was killed while piloting American Airlines Flight # 191, which crashed shortly after takeoff at Chicago's O'Hare International Airport....

On the date of the accident, Walter Lux was 52 years old; [his wife] Lora Lux was 49 years old, and their only son, Michael, was 22 years old.... Walter Lux' income from American Airlines as a captain pilot was $78,954 in 1978. In addition to his annual income, Walter Lux enjoyed various fringe benefits from his employment with American Airlines. These benefits included life insurance, medical and dental insurance, and pension benefits. At trial, plaintiff claimed a total of $1,589,930 in economic loss, of which approximately $1,000,000 represented lost income....

...

Walter and Lora Lux had been married 24 years at the time of the accident.... The Luxes had bought a summer home in Wisconsin and later remodeled the home into a year-round residence. Walter performed all of the electrical and plumbing work on the house. The Lux family lived year-round in the Wisconsin residence from 1965 until 1972. In 1972, they moved to Phoenix, Arizona.... [but] continued to use the Wisconsin home for vacations and holidays.

On the morning of Walter's death, Lora accompanied her husband to work at the airport in Phoenix. Walter was scheduled to pilot a plane from Phoenix to Chicago. Lora understood that Walter would fly to Chicago and then travel to the Wisconsin home to spend the Memorial Day weekend putting up wallpaper and carpeting the house. At about 1:00 p.m. that afternoon, Lora received a call at work from Walter's sister. Walter's sister informed Lora that a plane had crashed in Chicago. Lora responded that Walter was safe because he was on his way to the Wisconsin home. Unknown to Lora, however, Walter had been reassigned at the last minute to pilot Flight # 191 from Chicago to Los Angeles. Minutes after Lora spoke with Walter's sister, a friend called and told Lora that American Airlines had just informed her that Walter was the pilot on the airline which crashed. Lora immediately went home and was met by a sales representative of American Airlines.

At the house, Lora took a tranquilizer and watched reports of the crash on the television. Michael soon arrived and the sales representative then drove Lora and Michael to the Phoenix airport. Michael and Lora flew to Chicago, arriving at 6:30 a.m. on Saturday. They were met by the chief pilot for American Airlines and immediately they were introduced to the pilot originally scheduled to pilot Flight # 191. Later that morning, Lora

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and Michael traveled to their Wisconsin home.

In Wisconsin, Lora made plans for a memorial service for Walter because she understood that Walter's body had been burned in the crash. The evening before the scheduled service, however, the funeral director informed Lora that American Airlines had sent Walter's remains for burial. Upon such short notice, Lora decided to have Walter's remains cremated.

About one month after the funeral, Lora returned to her work in Phoenix as a realtor. During this period Lora became depressed and began grinding her teeth. Lora's dentist first prescribed braces for her teeth and later surgery was required. After the surgery, however, Lora continued to grind her teeth. Lora was also treated by a psychiatrist for about one year. The psychiatrist prescribed tranquilizers in an effort to control Lora's depression.

On one occasion after the accident, Lora was flying from Chicago to Phoenix and was seated next to the Chicago fireman who first arrived at the scene of the crash. Not knowing Lora's identity, the fireman mentioned that he was the first fireman at the crash and that he "found the captain's body." On several occasions since the accident, Lora has been reminded of the crash by news reports and conversations with friends and acquaintances.

Since the accident, Lora has incurred about $13,000 in dental expenses and $1,900 in psychiatric expenses. She also has incurred the expense of hiring outside help for maintaining the Wisconsin house.

Lux v. McDonnell Douglas Corp., 608 F.Supp. 98, 100-02 (N.D.Ill.1984).

Lora Lux, acting as Walter Lux's widow and the personal representative of his estate, brought suit against MDC. MDC agreed not to contest liability for compensatory damages. The parties stipulated that the case would be governed by the law of Arizona, which was the place of residence of Walter Lux and his survivors. From February 21 to February 27, 1984, the case was tried to a jury on the issue of compensatory damages only. On February 28, 1984, the jury returned a verdict in the plaintiff's favor. It allocated $4,000,000 in damages to Lora Lux and $150,000 in damages to Michael Lux.

The district court found that, although the jury's verdict was not the result of passion, prejudice, or caprice, it was excessive. It ordered a remittitur of $1,000,000 with respect to the damages allocated to Lora Lux, which the plaintiff accepted. Lora and Michael Lux and MDC have agreed that MDC will pay $150,000 in full satisfaction of that portion of the judgment allocated to Michael Lux. MDC thus appeals from only that portion of the judgment in favor of Lora Lux.

II

  1. Evidence of Insurance Payments

    1. Pecuniary Damages

      The district court excluded evidence regarding the plaintiff's receipt of approximately $425,000 in insurance proceeds. MDC argues that the evidence should have been admitted as substantive evidence to reduce the plaintiff's pecuniary damages for lost support. 1 We disagree.

      The collateral source (or collateral benefits) rule provides that " '[p]ayments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor's liability, although they cover all or a part of the harm for which the tortfeasor is liable.' " Taylor v. Southern Pacific Transportation Co., 130 Ariz. 516, 519, 637 P.2d 726,

      Page 308

      729 (1981) (en banc) (quoting Restatement (Second) of Torts Sec. 902(2) (1979)). Arizona's collateral source rule squarely bars admission of evidence concerning the plaintiff's receipt of insurance payments. See, e.g., Michael v. Cole, 122 Ariz. 450, 452, 595 P.2d 995, 997 (1979); Hall v. Olague, 119 Ariz. 73, 74-75, 579 P.2d 577, 578-79 (Ct.App.1978). Since a federal court sitting in diversity must apply the collateral source rule of the state whose law governs the case, see Town of East Troy v. Soo Line Railroad Co., 653 F.2d 1123, 1132 (7th Cir.1980), cert. denied, 450 U.S. 922, 101 S.Ct. 1373, 67 L.Ed.2d 351 (1981), the district court properly excluded the evidence of insurance payments.

      MDC nevertheless asserts without citation to authority that the collateral source rule does not apply in this case because the insurance policy under which Lora Lux received payments was not purchased by Walter Lux with his own salary, but was provided by his employer. We do not agree. MDC recognizes that "insurance was as much a part of the compensation Captain Lux received from his employer as were his salary, fringe benefits, and pension benefits," Appellant's Brief 14; however, MDC does not realize the full import of this fact. To obtain life insurance as part of his compensation package, Walter Lux had to forego a higher salary than he otherwise would have received. Thus, for the purpose of Arizona's collateral source rule, his life insurance policy was purchased by him just as if he had accepted the higher salary and had written a check from his bank account to pay the premiums. See Rustin v. Cook, 143 Ariz. 486, 490, 694 P.2d 316, 320 (Ct.App.1984) (disability pay arising from collective bargaining agreement is a collateral benefit); Hall, 119 Ariz. at 74-75, 579 P.2d at 579 (military benefits that are paid for by accepting a lower salary than that which might be expected from the equivalent civilian occupation are collateral benefits).

      Moreover, MDC's argument that the collateral source rule does not apply "within the employment context," Appellant's Brief 36, would not benefit MDC even if it were correct. Even if payments pursuant to an insurance policy provided as part of an employment package might reduce damages in a suit against the employer, Walter Lux's employer was American, not MDC. Since Walter Lux's insurance was not underwritten by MDC, the proceeds from that insurance cannot reduce MDC's liability for plaintiff's lost support.

      ...

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