Equitable Life & Casualty Insurance Co. v. Lee

• Citation: 310 F.2d 262
• Decision Date: 14 November 1962
• Docket Number: No. 17031,17038.,17031
• Parties: EQUITABLE LIFE & CASUALTY INSURANCE CO., Appellant, v. Virgil N. LEE, Appellee. EQUITABLE LIFE & CASUALTY INSURANCE CO., Appellant, v. Margaret L. PAGETT, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

310 F.2d 262 (1962)

EQUITABLE LIFE & CASUALTY INSURANCE CO., Appellant, v. Virgil N. LEE, Appellee.

EQUITABLE LIFE & CASUALTY INSURANCE CO., Appellant, v. Margaret L. PAGETT, Appellee.

Nos. 17031, 17038.

United States Court of Appeals Ninth Circuit.

November 14, 1962.

Buss & Pihl, Donald A. Buss, Hollie Pihl, Kent Holman, and Arthur Nielson, Portland, Or., for appellant.

Weiser, Bowles & Young, and Rollin E. Bowles, Portland, Or., for appellee.

Before HAMLEY, HAMLIN and KOELSCH, Circuit Judges.

KOELSCH, Circuit Judge.

Defendant appeals from the two judgments of the United States District Court for the District of Oregon. Both are diversity cases involving fraud in the sale of insurance policies. Plaintiff Lee asked for the sum of $3,000 general damages, and the sum of $10,000 punitive damages. Plaintiff Pagett sought $1500 general damages, and $10,000 punitive damages. The Court, sitting as finder of the facts, resolved the issues in plaintiffs' favor and allowed each of them substantial punitive damages in addition to general damages. The facts of these cases, as well as the questions of law, are substantially the same and therefore they will be discussed together.

We have examined all of the defendant's contentions, find none of them sound, hence we affirm both judgments of the District Court.

Plaintiff Lee was first contacted by defendant's sales agent, Leo Rognlie, late in 1955 or early in 1956. Dr. Lee testified that during the next few weeks he was also contacted by O. R. Myers, a sales agent of defendant, and Walter A. Reklau, General Sales Manager for the Portland office of the defendant. During the course of these visits he was informed of a profit-sharing life insurance policy, to be a $16,000 policy paid up in twenty payments of $1,000 per year. Dr. Lee testified that he told the sales agents he wanted income rather than insurance, and that they advised him there were five different ways in which such a profit-sharing policy would earn dividends over and above what an ordinary insurance policy might enjoy, that he would receive profits other policy-holders would not receive, and that in a number of years there would undoubtedly be "stock splits." However, he knew that he was not buying stock in the company. A book, "Hidden Ways to Wealth," which outlined the experience of other similar companies, was left by Myers. Dr. Lee testified that the above book indicated, and defendant's agents told him, the policy would be self-supporting in five to seven years, and thus he would have to pay no more premiums after that period. According to Dr. Lee, Reklau gave him most of the figures.

Dr. Lee testified that he had perhaps ten visits with either Reklau, Myers and Rognlie, or any of the three together, and that they told him the regular dividend started at eight per cent and went as high as ten per cent, but could eventually be much more; and that also due to the fact that he fell within a certain age group, he was to receive an additional dividend of 11.9 per cent. These dividends, totaling approximately 21.9 per cent, were to be paid, accumulatively, on the total premiums paid in. That is, although no dividend would be paid on the first year's premium, at the end of the second year he would receive $219; at the end of the third year $438, etc.

Dr. Lee further testified that before he bought the policy Reklau showed him a yellow schedule of longhand computations concerning dividends, and stated that a 25 per cent minimum return on the policy was expected by the third year. Plaintiff testified that figures on the schedule indicated that at the end of 20 years he would get $443,373 for his investment, but that in conversation with Reklau the exact amounts were not given. On cross-examination Dr. Lee was asked if he actually expected to earn the money indicated by the figures on the yellow schedule. He replied that that was his expectancy, although he would have been moderately satisfied with considerably less.

Plaintiff, in fact, received a twenty-payment life insurance policy having a $16,074 face value, on an annual premium of $1,000. Dividends were to be computed on the basis of the annual premium as opposed to the total premiums paid. The policy, which Dr. Lee read, contained a clause stating that:

"Any apportionment, distribution of profits, or declaration of dividends shall be at the sole and exclusive discretion of the Board of Directors and the methods and principles employed in the determination of such apportionment, distribution of profits, and declaration of dividends shall be conclusive upon all parties having or claiming any interest under this policy."

Dr. Lee testified that he did not presume the facts and figures quoted him, the expectancy of the company, what they were doing, and what they anticipated doing, could be written into the policy. He testified that he was, however, somewhat suspicious of the company, and tried to ascertain its integrity by consulting insurance and investment specialists. Finding nothing to militate against the company or the transaction, he relied on the representations of the salesmen and purchased the policy.

In the fall of 1957, officials from the State Department of Insurance were in Dr. Lee's office twice, investigating defendant. They did not, however, tell Dr. Lee what facts they were trying to ascertain. Dr. Lee did not write to the company at this time to ask what dividends it was going to pay because, "according to the way the information was given to me, they did not know at the time, but it would be handsome. That was the expression used."

On January 20, 1958, the defendant sent plaintiff a $100 dividend check and a letter stating that the dividend was 10 per cent of the annual premium. Dr. Lee testified he then learned for the first time that the dividends promised to him might not materialize. Ray Ross, defendant's General Sales Manager, contradicted Dr. Lee on this point, testifying he met with Dr. Lee in October of 1957 and at that time correctly explained what dividends could be expected. Dr. Lee denied that the matter of dividends was discussed at this meeting.

When Dr. Lee received the $100 dividend he wrote to the defendant, seeking the cause of the shortage, but before receiving an answer sought to prevent loss of the policy by paying his next premium. He testified it was not until later that, by means of a letter and the personal visit of Ross, he learned that the policy was not as he had supposed.

Cecil I. Hust, who was one of defendant's sales agents from September, 1954 until some time in 1957, testified that Ross had told him such a policy would pay itself out in six or seven years. Another sales agent, Don Pruitt, claimed that Ross compared this policy to one sold by Kansas City Life which had paid dividends starting at 25 per cent and increasing 15 per cent per year for 20 years, saying that defendant's policy would pay at least as much. Neil D. Nadeau, also one of defendant's sales agents, testified that Reklau gave him the yellow schedule when he first began work for the defendant in August or September of 1956, and he believed that Reklau issued the schedules to every salesman. However, Pruitt testified that he thought the yellow schedule was not passed out until he left the company in 1957.

Leo H. Rognlie was defendant's first witness. He testified that Dr. Lee did not meet Reklau until after he purchased his policy, and at that time saw him in regard to another policy for his son. He testified Dr. Lee was told that a 10 per cent dividend had been declared by the Board of Directors for 1956, and that no other figures were mentioned to Dr. Lee, except that the experience of other similar companies, some of which had paid 10, 15 and 20 per cent, was mentioned for comparative purposes. However, the witness testified, Dr. Lee was told that this policy was highly speculative, and there was no way of knowing how much the dividends would be. Rognlie testified that the yellow schedule was given by Reklau to the salesmen only as a recommendation to the effect that if the defendant company could set up a stock pool it would earn those amounts appearing on the schedule. Rognlie did not know the schedule was shown to Dr Lee.

Defendant's next witness was Osborne R. Myers. He testified Dr. Lee was told only that the company expected to pay a 10 per cent non-accumulative dividend and that, as the company grew, he would share in the profits proportionately. He gave Dr. Lee a book entitled "Hidden Ways to Wealth," dealing with the experience of stockholders in other insurance companies. Myers testified that Dr. Lee was not buying stock, and this book was given to him only to show that this type of company was doing well and would not fail. He testified that he never used the yellow schedule, for two reasons; first, it was an impossibility, and second, he did not have to lie to sell. Myers testified that Reklau placed the schedule with all of the agents in March or May of 1956, and at that time Myers told Reklau that it was something that should not be used; that it did not relate to what they were doing. He testified, however, that Dr. Lee's information in regard to the yellow schedule was gained through his contacts with Reklau after he had purchased the policy.

The evidence in the Pagett case is strikingly similar. Mrs. Pagett was first contacted in March, 1955 by Myers and Jack Page, another of defendant's salesmen. Her testimony was that they told her a 20 per cent dividend was to be paid on policies of this type, that it was to be paid on the accumulated premiums, and that the policy would be paying for the premium in a period of seven years; further, that following the pattern of other older companies, only a limited number of these policies would be sold and that, as a result of these discussions, believing she was buying primarily an investment, she purchased the policy and thereafter paid a premium of $500 per year...