Abdelsamed v. New York Life Ins. Co., 91CA0705

• Decision Date: 27 August 1992
• Docket Number: No. 91CA0705,91CA0705
• Citation: 857 P.2d 421
• Parties: Ahmed ABDELSAMED, a/k/a John Adams, Plaintiff-Appellee, v. NEW YORK LIFE INSURANCE COMPANY, Defendant-Appellant. . I
• Court: Colorado Court of Appeals

Page 421

857 P.2d 421

Ahmed ABDELSAMED, a/k/a John Adams, Plaintiff-Appellee, v. NEW YORK LIFE INSURANCE COMPANY, Defendant-Appellant.

No. 91CA0705.

Colorado Court of Appeals Div. I.

Aug. 27, 1992.

Rehearing Denied Dec. 10, 1992.

Certiorari Granted (Abdelsamed)

Aug. 23, 1993.

Cross-Petition forCertiorari Denied

Aug. 23, 1993.

Andrew T. Brake, P.C., Andrew T. Brake, Lee T. Judd, Denver, for plaintiff-appellee.

Grant McHendrie, P.C., Donald B. Gentry, Denver, for defendant-appellant.

Opinion by Chief Judge STERNBERG.

Defendant, New York Life Insurance Company (NYL), appeals a judgment entered on a jury verdict in favor of plaintiff, Ahmed Abdelsamed, on his claims of breach of an insurance contract and bad faith and against NYL on its counterclaim for rescission. We reverse and remand for a new trial.

In December 1985, the plaintiff, a resident of New Jersey and a self-employed engineer and consultant, applied to NYL for disability insurance coverage. In his application, he stated that his gross annual income for 1985 was $392,000 and that he had no other disability insurance. However, in the preceding four months, he had applied for disability insurance from three other companies, and at the time of his application to NYL, he was insured by two of them under policies which would provide him with monthly disability benefits totalling $10,000. Although NYL later became aware of these policies, there is conflicting evidence as to whether the plaintiff disclosed this information to NYL before the coverage began or whether NYL acquired knowledge of the policies after the plaintiff initiated his lawsuit.

NYL's coverage, which began on March 27, 1986, provided for monthly benefits of $3,080 beginning on the 31st day after a total disability occurred. The policy also provided, in somewhat ambiguous language, for a two-year contestability period during which NYL could investigate and rescind the policy if it determined that there were material misrepresentations on the application.

Only a few days after coverage became effective, while the plaintiff was traveling on business in Egypt, he was admitted to a psychiatric hospital in Cairo. He was not discharged until August 31, 1986. He was hospitalized in a second Egyptian hospital from late September until January 30, 1987, at which time he began his return journey to the United States. However, he was admitted to a psychiatric hospital in Germany after apparently suffering another psychotic episode during which he lost all his travel documents and personal papers. After the plaintiff's condition stabilized in March 1987, State Department personnel helped him to arrange travel to his requested destination of Colorado Springs.

Within days of his arrival in Colorado Springs, the plaintiff was committed to Colorado State Hospital, and following his release, seventeen days later, he lived in a community shelter house. He was subsequently deemed eligible for Social Security disability benefits based upon his psychiatric disability and has continued ever since to receive psychiatric care.

The plaintiff filed a claim of total disability with NYL in April 1986. NYL undertook a contestability investigation, which included hiring investigators in Egypt to verify the plaintiff's hospitalization. NYL also asked the plaintiff for daily hospital records from Egypt and authorization to obtain records from the IRS and the Small Business Administration to verify his earnings.

The plaintiff responded by providing one-page hospital discharge summaries and what he represented to be copies of his 1984 and 1985 tax returns. NYL contended this documentation was insufficient, and in August 1987, it notified the plaintiff that his file was closed pending receipt of the requested information. The plaintiff provided no further information, and NYL neither approved nor denied the claim.

In November 1987, 19 months after filing his claim, the plaintiff sued NYL for breach of contract, bad faith, and outrageous conduct, seeking both actual and exemplary damages. NYL defended on the basis that the plaintiff was malingering (feigning mental illness) and that it was acting reasonably when it requested additional information from the defendant.

NYL also counterclaimed for rescission on the grounds that because the plaintiff had failed to provide proof other than his own assertions regarding his income, it had concluded that he had misrepresented this income. It argues that this, together with his failure to disclose other disability insurance coverage on his application, constituted material misrepresentations.

A jury returned a verdict of $209,644.07 on the plaintiff's claim for breach of contract and $915,933.21 for bad faith; it found against NYL on its counterclaim for rescission. Thereafter, the court denied NYL's motions for judgment notwithstanding the verdict and a new trial.

NYL's principal argument is that it was denied a fair trial by the court's decisions concerning the admissibility of evidence relevant to NYL's theory that the plaintiff had a plan to defraud the company. We agree that evidentiary rulings of the trial court do constitute error, and that these errors require reversal.

I.

Evidentiary Issues

A.

"Other Acts" Evidence

In a previous application for disability insurance with another company, the plaintiff stated that he planned to travel outside the United States frequently. A similar statement in an application with a second company resulted in denial of coverage. Thereafter, on an application with a third company, the defendant responded "No" to the inquiry concerning foreign travel. Additionally, in the months prior to his application with NYL, the plaintiff filed a theft loss claim for some computer equipment and cash with another insurance company. NYL contended this claim was fraudulent.

When asked his opinion as to whether the plaintiff was feigning mental illness, the plaintiff's medical expert testified: "If you told me he had been arrested a number of times or he had had bogus claims for one thing or another, I would say that might put him more in this direction." NYL was not permitted to cross-examine him on whether his opinion would be changed by the knowledge of the plaintiff's misrepresentations on other applications or his alleged false loss claim.

NYL argues that evidence of these acts should have been admitted under CRE 404(b) to show the plaintiff's plan to defraud, his intent, and absence of mistake. It further argues that, because this evidence was excluded, NYL was unable effectively to cross-examine the plaintiff's medical expert. We agree.

Although CRE 404(b) is most frequently applied in criminal prosecutions, it also applies in civil cases if the proffered evidence is relevant to the issues. College v. Scanlan, 695 P.2d 314 (Colo.App.1985).

Under the four-part analysis required to determine whether evidence of other acts is admissible to prove plan, intent, or absence of mistake, a court must ask 1) whether the evidence is relevant to a material fact; 2) whether it is logically relevant; 3) whether the logical relevance is independent of the intermediate inference that the defendant has a bad character; and 4) whether its probative value is substantially outweighed by the danger of unfair prejudice. People v. Spoto, 795 P.2d 1314 (Colo.1990).

A trial court has broad discretion to determine both the relevancy of evidence and its relative probative value and prejudicial effect. People v. Hulsing, 825 P.2d 1027 (Colo.1991). Here, however, the court's only stated basis for refusing to admit the "other acts" evidence was that it did not find these matters were "an issue" in the trial. Based upon our review of the record, we conclude this was error.

The jury did receive evidence that the plaintiff had not initially disclosed to NYL that he had other disability insurance. The additional fact that the plaintiff had made misrepresentations on other disability applications could lend support to the defendant's theory that the plaintiff had a plan to defraud his insurers. Evidence that he filed an allegedly false loss claim with another company is relevant to this theory as well.

Nor can we conclude that the probative value of this evidence was outweighed by its prejudicial effect. Although the plaintiff argued that introduction of these matters would cause confusion for the jury, the issue of the plaintiff's malingering was central to the defendant's case, and proof of a plan to defraud was an important element in establishing a motive for feigning mental illness.

Therefore, we hold that the "other acts" evidence should have been admitted and that, on retrial, NYL should be permitted to cross-examine the plaintiff's medical expert on this issue.

B.

Expert Opinion Evidence by Non-Expert

We also agree with NYL's contention that the testimony of an employee of the Division of Insurance was improperly admitted.

The plaintiff had filed a complaint with the Division under § 10-3-1104, C.R.S. (1987 Repl.Vol. 4A), which regulates competition and business practices in the insurance industry, and he had called the employee to testify as to the Division's opinions about "the nature of the misconduct ... in this case." Over NYL's objection, the court ruled that:

the witness will be allowed to testify ... as to her employment, her training and experience, her knowledge of standards that may be set by the state and her knowledge of matters that she's determined through her investigation are facts in this case, but that testimony should not go to the point of her expressing opinions as to whether or not a claim has been handled in good faith, nor should it go to the point of expressing official positions of the Division of Insurance as to whether or not there has been some preliminary or final determination of violation of statute or rule.

Despite this ruling, and over objection, the witness was permitted to testify that, based upon her review of ...