Nichols v. Shelter Life Ins. Co., 90-1119

Citation923 F.2d 1158
Decision Date21 February 1991
Docket NumberNo. 90-1119,90-1119
PartiesLouis Harold NICHOLS, Individually and as Executor of the Estate of Doris Maxine Nichols, Deceased, Plaintiff-Appellee, v. SHELTER LIFE INSURANCE COMPANY, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Robert L. Moore, Thomason, Hendrix, Harvey, Johnson, Mitchell, Blanchard & Adams, Memphis, Tenn., for defendant-appellant.

Gary P. Snyder, Bridgforth, Woods & Snyder, Hugh H. Armistead, Olive Branch, Miss., for plaintiff-appellee.

Appeals from the United States District Court for the Northern District of Mississippi.

Before WISDOM and HIGGINBOTHAM, Circuit Judges. *

WISDOM, Circuit Judge:

Today we decide whether, under Mississippi law, the Shelter Life Insurance Company ("Shelter") may be held liable for the misrepresentations made by its agent to one of its insureds as to whether a particular claim would be covered. We conclude that a Mississippi jury can find Shelter liable. Accordingly, we find that the district court did not err in refusing to grant a directed verdict in favor of Shelter on the grounds that the contract between Mr. Nichols and Shelter allowed Shelter to deny payment of medical bills incurred as a result of a pre-existing condition. We further find that the district court did not err by failing to grant a partial directed verdict on punitive damages and emotional distress. We AFFIRM.

BACKGROUND

In this case the plaintiff alleged and the jury found that, in the spring of 1986, Randy Holland, while employed as an agent for the defendant Shelter, made a fraudulent or grossly negligent misrepresentation to Mrs. Doris Maxine Nichols in an attempt to induce her to purchase an insurance policy from Shelter. The testimony showed that in response to a question from Mrs. Nichols, Holland told her that her previous condition and treatment for leiomyosarcoma would not be considered pre-existing under the terms of a particular Shelter policy. In reliance on this statement, the Nichols purchased the Shelter policy and cancelled an existing policy which would have covered many of Mrs. Nichols's medical expenses if the cancer recurred, which it did. When Mrs. Nichols filed a claim for medical expenses incurred because of cancer treatment, Shelter denied coverage based on the clause in the policy which excluded from coverage losses occurring within two years after the policy was issued and were attributable to conditions which pre-existed the effective date of the policy.

The Nichols filed suit in Mississippi state district court seeking damages for Shelter's denial of Mrs. Nichols's claims. Shelter had the case removed to federal court. Mrs. Nichols died during the pendency of the lawsuit. The district court substituted Mr. Nichols, as executor of her estate, to represent her claims. After a three day trial, the jury answered special interrogatories and found that Mr. Nichols was entitled to recover under the insurance contract in the amount of $50,247.84; that Mr. Nichols was entitled to emotional distress and mental anxiety damages of $75,000; and that Mr. Nichols was entitled to recover punitive damages of $200,000. The district court denied Shelter's motions for a judgment notwithstanding the verdict and a new trial.

Shelter now appeals to us, contending that the district court should have directed a verdict because, under Mississippi law, the Nichols were bound by the language in the insurance contract, no matter what Shelter's agent told them. Shelter further maintains that, even if we uphold the verdict on liability, the punitive damage award should not stand. We disagree with Shelter's position.

DISCUSSION
A. Compensatory Damages

Shelter contends that the provisions in its insurance application and policy that specifically exclude pre-existing conditions entitle it to judgment as a matter of law, citing National American Life Insurance Co. v. Williams, 204 So.2d 174 (Miss.1967), to support its contention. There is no dispute that Shelter's policy exclusion for pre-existing conditions is ordinarily valid and enforceable in Mississippi, assuming no misconduct on the part of the insurer or its agents occurred. See Blue Cross & Blue Shield of Miss., Inc. v. Mosley, 317 So.2d 58 (Miss.1975).

The issue, however, is whether the pre-existing condition exclusion in the contract between Mr. Nichols and Shelter can be altered by any statements made by Shelter's agent Randy Holland. The Nichols alleged, and the jury believed, that Holland made certain promises to Mrs. Nichols concerning the insurability of her condition in the event it should re-manifest itself. Although it was disputed at trial, Mrs. Nichols testified that she made full disclosure to Holland of her medical history and told him who her doctors were. The doctors' names and addresses are listed on the application. Holland gave Shelter only scant information concerning Mrs. Nichols's doctors, thereby failing to follow Shelter's guidelines for taking applications. Only Mr. Nichols signed the application, and neither of the Nichols read it.

Shelter first argues that any misrepresentations made were made to Mrs. Nichols, not Mr. Nichols, and that Mrs. Nichols was not a party to the contract since she did not sign it. Mr. Nichols certified the contents of the application as being true, and he possessed a brochure and a copy of the insurance policy which clearly defined pre-existing condition. Shelter cites authority holding that to substantiate a claim for fraudulent inducement, misrepresentations as to post anniversary date coverage must have been made to the insured. See Gorman v. Southeastern Fidelity Ins. Co., 621 F.Supp. 33, 39 (S.D.Miss.), aff'd, 775 F.2d 655 (5th Cir.1985). Shelter argues that Mr. Nichols could not have relied on any misrepresentations since no misrepresentations were made to him, and one who has not relied directly on a misrepresentation does not have a cause of action for misrepresentation. See Baroni v. United States, 662 F.2d 287, 289 (5th Cir.1981). Consequently, Shelter argues, since Mr. Nichols was not fraudulently induced to read the contract or have it read to him, he must abide by its terms. See Pedersen v. Chrysler Life Ins. Co., 677 F.Supp. 472, 475 (N.D.Miss.1988).

These arguments are an attempt by Shelter to create a false distinction between the Nichols. The cases cited by Shelter, while stating general principles of law, do not address situations analogous to the Nichols's. Mrs. Nichols was a party to the insurance contract with Shelter. Mrs. Nichols was handling the purchase of a policy for herself and Mr. Nichols. Mrs. Nichols was shown as spouse on the application, and premiums were paid for her coverage. She was a "covered person" under the policy. Contrary to Shelter's position, Mrs. Nichols was anything but a stranger to the contract. Shelter's argument that the Nichols did not rely on any misrepresentations because Mrs. Nichols possessed the brochure and the policy must also fail because Mrs. Nichols asked Holland to explain a specific clause in the policy which she had read.

Shelter next argues that the Nichols did not make out a case for misrepresentation because all they showed was that Holland rendered an opinion that the cancerous tumor Mrs. Nichols had in 1985 would not be considered a pre-existing condition. Mississippi law holds that the expression of opinion cannot be the basis of an action for misrepresentation. See Davidson v. State Farm Fire & Casualty Co., 641 F.Supp. 503, 514 (N.D.Miss.1986). In Davidson, the court found that the statements that (1) State Farm had offered the best insurance the plaintiffs could purchase and (2) if the plaintiffs ever had a loss, State Farm would pay, were unenforceable opinions on which the plaintiffs had no right to rely. Davidson is not similar to the Nichols's case because it did not involve misstatements by the insurance agent as to the terms of the policy.

The Nichols's case is more apposite to Independent Life & Accident Insurance Co. v. Peavy, 528 So.2d 1112 (Miss.1988) in which the Mississippi Supreme Court affirmed an award of actual and punitive damages to a plaintiff who, after questioning agents of the defendant insurance company, was misinformed as to when to file his waiver of premium notice. Another similar case is Ross v. Western Fidelity Insurance Co., 872 F.2d 665 (5th Cir.1989) where this Court reversed a summary judgment in favor of an insurer whose agent had incorrectly assured plaintiffs that the underwriting department would investigate their daughter's medical history before granting coverage. The Court stated that these "statements were not merely promises as to future actions; rather, they were representations relating to the company's underwriting procedures." Ross, 872 F.2d at 670.

Most recently, in the case of Andrew Jackson Life Insurance Co. v. Williams, 566 So.2d 1172 (Miss.1990), the Mississippi Supreme Court issued a comprehensive opinion discussing Mississippi law in a case where an insurance company's agents misrepresented the provisions of a policy to an insured. Insurance agents had met with Willie Williams, a forklift operator, and persuaded him to drop his current insurance policy by guaranteeing him immediate enrollment in Andrew Jackson's retirement program. This "retirement program" was touted as being more than an ordinary life insurance policy since it also entitled the insured to an immediate cash benefit of a $1,000 check. Willie and his wife Jerlean responded to questions by the agents, who completed the policy. The agents told Willie his policy would arrive at the plant within two to three weeks. Several weeks passed, and the policy did not arrive.

In the meantime, Jerlean died of a heart attack. Willie's policy had still not arrived, and the agents tried to induce him to settle for $1,000, which he refused. Several months later, Willie received a letter from an Andrew Jackson official denying his claim for...

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