State Farm Fire & Cas. Co. v. Owen, 1961950.

• Decision Date: 21 August 1998
• Docket Number: No. 1961950.,1961950.
• Citation: 729 So.2d 834
• Parties: STATE FARM FIRE AND CASUALTY COMPANY v. Katherine K. OWEN.
• Court: Alabama Supreme Court

729 So.2d 834

STATE FARM FIRE AND CASUALTY COMPANY v. Katherine K. OWEN.

No. 1961950.

Supreme Court of Alabama.

August 21, 1998.

Opinion Modified on Denial of Rehearing March 12, 1999.

Micheal S. Jackson and Michael B. Beers of Beers, Anderson, Jackson, Hughes & Patty, P.C., Montgomery, for appellant.

Toby D. Brown and David G. Wirtes, Jr., of Cunningham, Bounds, Yance & Brown, L.L.C., Mobile, for appellee.

HOOPER, Chief Justice.

The defendant State Farm Fire and Casualty Company appeals from the judgment entered on a jury verdict awarding the plaintiff Katherine Owen $1,339 in compensatory damages and $130,000 in punitive damages for fraudulent suppression. Owen's claim arose from the sale of a State Farm personal articles insurance policy by State Farm's agent George Jones. State Farm argues that the trial court erred in denying its renewal of the motion for a judgment as a matter of law, or in the alternative, for a new trial.

In determining whether State Farm was entitled to a judgment as a matter of law, we apply the same standard the trial court applied in addressing the motion initially. Thus, we must determine whether Owen produced sufficient evidence in support of each element of her fraudulent-suppression claim to produce a conflict warranting a jury's consideration. Ogle v. Long, 551 So.2d 914, 915 (Ala.1989). The standard for testing the sufficiency of the evidence is the "substantial evidence rule." Substantial evidence is "evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved." West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala.1989). In considering the sufficiency of the evidence, we must view the evidence in the light most favorable to the nonmovant, Owen. Bussey v. John Deere Co., 531 So.2d 860, 863 (Ala.1988).

The evidence presented at trial, either undisputed or viewed in the light most favorable to Katherine Owen, was substantially as follows. Owen is a schoolteacher who holds a master's degree. In 1985, her mother gave her a .42 carat diamond as a gift. Intending to use it as an engagement ring, Owen had a Mobile jeweler mount the diamond in a gold band. In 1987, when she filed insurance claims on two bicycles that had been stolen from her home, Owen became concerned about insuring the ring. On April 9, 1987, Owen went to the office of George Jones to inquire about insuring the engagement ring and another ring. Jones, a State Farm agent who lived in Owen's neighborhood, had previously sold Owen a renter's policy and a homeowner's policy. Owen executed an application for a personal-articles policy. Jones told Owen that, to purchase the policy, she needed to have the jewelry appraised "to see how much insurance [she] needed." Owen took both pieces of jewelry to a jeweler, who appraised the engagement ring for $1,000. She returned the appraisal form to Jones's office the next day, but did not speak to Jones because he was out of the office.

The application Owen signed contained the following language immediately above the signature line:

"I understand that State Farm has the option of repairing or replacing the lost or damaged property and, that in the event of a cash settlement, I will be paid no more than the Company's cost to replace the item."

(Emphasis added.) Owen did not recall reading the application before signing it. State Farm subsequently issued Owen what is commonly known as a "replacement cost" policy. This type of policy provides that, in the event of a loss, either the insured item will be replaced or the policyholder will be paid the lower of the policy limits or the amount it would cost the insurer to replace the item. Owen believed that State Farm's cost to replace the jewelry would be the same as the appraisal price of the jewelry. Owen's policy included a liability limit of $3,700 and an "inflation guard," which increased the policy limits each year according to the rise in jewelry prices. Owen asked Jones to keep the policy in his office; she did not read it.

In 1995, Owen's engagement ring was stolen from her home. At the time of the theft, the policy limit applicable to the engagement ring had risen to $1,339. When Owen filed a claim for the loss, State Farm requested that she obtain another appraisal of the stolen ring. Owen went to the same jeweler who had originally appraised the ring, and, based on a description of the ring, he appraised it for $1,475.86. The State Farm adjuster, however, was able to obtain a replacement ring of like kind and quality for $898.70 from a local jeweler State Farm often used as a replacement vendor. Although that jeweler was not a part of the program, State Farm maintains a program that provides it with replacement jewelry at costs significantly lower than retail prices. State Farm established the replacement vendor system for some personal articles in 1983, but jewelry was not included in the program until the early 1990s. Owen, who was now divorced, decided that she did not want the engagement ring replaced. After she refused State Farm's offer to replace the ring, State Farm tendered a check to her for $898.70, the amount that would have been its cost to replace the ring.

Owen returned State Farm's check and subsequently sued State Farm and George Jones, alleging fraudulent misrepresentation and suppression. Owen claimed State Farm had misled her into believing that, in the event of a loss, she would receive the appraisal value of the jewelry. She was not informed that appraisal values are often inflated, a fact stated in State Farm's underwriting manual, and that State Farm would be able to obtain a replacement ring at a price significantly lower than the appraisal. Furthermore, she alleged that State Farm had failed to inform her that her premiums would be based on the appraisal value. This was a fraudulent practice by State Farm because, she claimed, State Farm would never pay her more than its discounted replacement cost.

Following a jury trial, State Farm and George Jones moved for a judgment as a matter of law on both fraud counts. The trial court granted their motion as to the misrepresentation claim, but denied it as to the suppression claim. The trial judge submitted that claim to the jury, framing it as follows:

"[T]he Plaintiff alleges that ... State Farm and Mr. Jones had a duty to inform me that the premiums I would pay for the personal articles coverage would be based on the appraised value rather than the replacement cost value, that this appraised value was greater than the replacement cost ... when the defendants knew ... that the replacement cost would be the amount paid if there was a loss, a total loss. And further ... that the defendants knew at that time that the replacement cost was substantially less than the appraised value."

The jury returned a verdict on the suppression claim in favor of George Jones, but found State Farm liable and awarded Owen $1,339 in compensatory damages and $130,000 in punitive damages. The trial judge entered a judgment on the jury's verdict and later denied State Farm's renewal of the motion for a judgment as a matter of law, or, in the alternative, a new trial. State Farm appealed.

The tort of fraudulent suppression is codified at § 6-5-102, Ala.Code 1975:

"Suppression of a material fact which the party is under an obligation to communicate constitutes fraud. The obligation to communicate may arise from the confidential relations of the parties or from the particular circumstances of the case."

To support her fraudulent suppression claim under that section, Owen was required to produce substantial evidence establishing: (1) that State Farm had a duty to disclose the existing material fact; (2) that State Farm suppressed this material fact; (3) that State Farm's suppression of this fact induced her to act or to refrain from acting; and (4) that she suffered actual damage as a proximate result. Booker v. United American Ins. Co., 700 So.2d 1333, 1339 (Ala.1997). In addition, State Farm can be liable for suppression only if it had knowledge of the material fact it allegedly suppressed. Dodd v. Nelda Stephenson Chevrolet Inc., 626 So.2d 1288, 1293 (Ala.1993).

It is well established that a party's mere silence as to a material fact does not constitute fraud unless that party is under a duty to disclose that fact. Foremost Ins. Co. v. Parham, 693 So.2d 409 (Ala.1997); Jewell v. Seaboard Industrial, Inc., 667 So.2d 653 (Ala.1995); Bulger v. State Farm Mut. Auto. Ins. Co., 658 So.2d 425 (Ala.1995). Any analysis of a fraudulent-suppression claim must begin by asking the fundamental question whether the parties, given the situation, should be required to speak. In answering this question, we must examine what the parties actually did, as well as judge what they ought to have done. That process requires both legal analysis and factual inquiry. Our legal system assigns to the judge the responsibility of deciding questions of law, while it assigns to the jury the task of deciding the facts of a case. Because the analysis of whether there was a duty to disclose the fact involves both of these aspects, confusion has arisen at times over who properly is to decide the duty question—the judge as the arbiter of the law or the jury as the factfinder. Indeed, Alabama's caselaw has suffered from this confusion and is full of decisions on both sides of the issue.

This present case requires us to resolve this conflict. Katherine Owen contends that whether State Farm had a duty to disclose was a question of fact, to be resolved by the jury. Whataburger, Inc. v. Rockwell, 706 So.2d 1220 (Ala.Civ.App.1997); Ballard v. Lee, 671 So.2d 1368 (Ala.1995); Baker v. Bennett, 603 So.2d 928 (Ala.1992), cert. denied, 507 U.S. 912, 113 S.Ct. 1260, 122 L.Ed.2d 658 (1993). State Farm contends that whether it owed Katherine Owen a duty of disclosure is a question of...