American Family Life Assur. Co. of Columbus v. Teasdale, 83-1907

• Decision Date: 03 May 1984
• Docket Number: No. 83-1907,83-1907
• Citation: 733 F.2d 559
• Parties: 15 Fed. R. Evid. Serv. 1515 AMERICAN FAMILY LIFE ASSURANCE COMPANY OF COLUMBUS, Appellant, v. Joseph P. TEASDALE, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 559

733 F.2d 559

15 Fed. R. Evid. Serv. 1515

AMERICAN FAMILY LIFE ASSURANCE COMPANY OF COLUMBUS, Appellant, v. Joseph P. TEASDALE, Appellee.

No. 83-1907.

United States Court of Appeals,

Eighth Circuit.

Submitted Jan. 26, 1984.

Decided May 3, 1984.

Robert B. Hoemeke, Michael P. Casey, Richard A. Wunderlich, Lewis & Rice, St. Louis, Mo., for appellant American Family Life Assur. Co. of Columbus.

John Ashcroft, Atty. Gen., William F. Arnet, Asst. Atty. Gen., Jefferson City, Mo., Patrick E. Hartigan, Kansas City, Mo., for appellee.

Before McMILLIAN, Circuit Judge, FLOYD R. GIBSON, Senior Circuit Judge, and JOHN R. GIBSON, Circuit Judge.

FLOYD R. GIBSON, Senior Circuit Judge.

The American Family Life Assurance Company of Columbus, Georgia, ("American"), a seller of cancer insurance policies in Missouri and throughout the United States, appeals a jury verdict dismissing American's nine-million dollar suit against the former Governor of the State of Missouri, Joseph P. Teasdale. American also appeals the district court's ^* award to Teasdale of $63,287.21 in attorney's fees expenses, pursuant to 42 U.S.C. Sec. 1988. We affirm the jury verdict and the district court's, 564 F.Supp. 1571, award of attorney's fees.

I. Facts

On April 24, 1981, American filed a monumental nine million dollar lawsuit against former Governor Teasdale, claiming Teasdale violated its federally protected civil rights (Sec. 1983), tortiously interfered with its state contractual rights, and uttered injurious falsehoods against it. The suit, filed after Teasdale had lost his re-election bid for Governor, stemmed from a May, 1980, press release issued by Teasdale, in his capacity as Governor. The press release said that Governor Teasdale was directing the Division of Insurance to ban the future sale of cancer policies in Missouri; existing policies were to be left in force. The stated reasons for the directive were: (1) cancer insurance policies, though generally understood by consumers to provide broad protection, actually afforded extremely limited payment of benefits--averaging less than 35 cents of every dollar in premiums; (2) sellers of cancer policies employed trickery and deception to lure unsuspecting elderly consumers into purchasing the policies. At the time, one hundred and nine insurance companies were selling cancer policies in Missouri.

On the heels of the press release, the Division issued an order to show cause why cancer insurance policies should not be prohibited. After conducting hearings, the Division, on November 3, 1980, issued a cease and desist order, withdrawing approval of all cancer insurance policies in Missouri. In early 1981, Teasdale's term as Governor ended and the newly elected administration took over. This new administration did not oppose the efforts to have a state court overrule the November 3, 1980 cease and desist order. Without conducting any adversarial proceeding or making any findings of fact, the state court issued a one page consent decree lifting the cease and desist order of November 3, 1980.

In its complaint, American alleged Teasdale knew he was without statutory or constitutional authority to direct the ban on the sale of cancer insurance, but he did so anyway as part of a politically motivated propaganda scheme. The press release allegedly led the public to brand all cancer insurance sellers as culprits and caused the Division to hold biased and perfunctory hearings--bluntly referred to by American as "sham hearings". As ground for relief, American claimed the press release deprived it of its property rights without due process, tortiously interfered with its contractual relations with policyholders, and severely damaged its business reputation.

Teasdale responded by filing a motion for summary judgment dismissal of the complaint, asserting a qualified good faith immunity defense. On November 24, 1981, the district court denied Teasdale's motion, holding that there were material factual issues concerning whether Teasdale "knew or reasonably should have known that the action he took within his sphere of official responsibility would violate the constitutional rights of [plaintiff] or ... took the action with the malicious intention to cause a deprivation of constitutional rights or other injury". Quoting Harlow v. Fitzgerald, 457 U.S. 800, 815, 102 S.Ct. 2727, 2737, 73 L.Ed.2d 396 (1982).

Subsequently, American conducted sweeping discovery; it deposed every defense witness, served motions for production of voluminous documents, and served a set of interrogatories and four sets of requests for admissions on Teasdale. With some reluctance, the district court allowed this extensive discovery to continue because American's attorneys represented that it was needed to uncover evidence of Teasdale's bad faith. Just prior to trial, the court concluded that American's persistent and probing discovery efforts "failed to uncover any of [former Governor Teasdale's] bad faith". The district court nevertheless indulged this absence of proof, accepting American's assurances that during trial it could adduce evidence of Teasdale's bad faith.

American's trial strategy focused on attempts to show: (1) the press release caused it to suffer enormous financial losses, and (2) Teasdale acted in bad faith. As to the first aspect, American tried to demonstrate, principally through testimony of its own corporate officers, that Teasdale's press release led policyholders to cancel existing policies or permit them to lapse, causing premiums and profits to plummet. American's key witness, Senior Vice-president Frank Kimbrough, conceded that he could not say why Missourians cancelled policies or allowed them to lapse since American undertook no customer surveys. Kimbrough also acknowledged that American had experienced a significant downturn in premiums before the press release. The former customers testifying about their lapsed policies almost uniformly admitted that they were unaware of the press release and that it had no effect on their decisions not to renew. Only a couple of customers stated that the press release had "some bearing" on their decision not to renew. An actuary, who had previously testified for American in various other court actions, testified that American suffered sales losses between 1980 and 1982. Like Kimbrough, however, he was both unable and unqualified to offer reason(s) why premiums dropped and cancellation and lapses rose. In its closing argument, American--apparently recognizing it had not supported a claim for any actual and punitive damages, let alone a claim for nine-million dollars--merely asked the jury to return a nominal sum against Teasdale because of his alleged bad faith.

In attempting to demonstrate Teasdale's bad faith, American focused almost entirely on Teasdale's admission that he knew the contents of the news release and was aware that Missouri insurance laws required a hearing prior to any attempt to revoke approved policy forms. Teasdale took the position that he had the authority, as chief executive officer of the state, to order the Division to take necessary steps to prohibit the sale of cancer policies. Teasdale also admitted that he gave speeches, after the press release, stating he had ordered the Division to ban the sale of cancer insurance.

Perhaps more revealing than any other aspect of American's case were the frank admissions of its key witnesses as to why suit was brought against Teasdale. American's Senior Vice-president Kimbrough and Chief Financial Officer Jeter testified, on cross-examination, that five states had either banned entirely or severely restricted the sale of cancer policies. In March, 1980, a comprehensive 292 page congressional committee report, entitled "Cancer Insurance: Exploiting Fear for Profit", leveled scathing criticisms against the cancer insurance business for atrociously low loss ratios and generally deceptive selling practices. Jeter admitted that American's own loss ratio over the next thirty years would not rise above 56%, sharply contrasting with the 80% to 90% loss ratios experienced by general health insurance providers. Kimbrough and Jeter also acknowledged that, following the adverse congressional report, American filed numerous lawsuits, similar to this one, against its various public critics, including a congressional investigator, the American Broadcasting Company, the Changing Times magazine, and a former insurance commissioner in Pennsylvania. Kimbrough candidly admitted that these suits, none successful on the merits, were part of American's hard-nosed policy that "anyone who does not take American Family seriously is a fool and should be fully prepared to legally defend its position". This policy may have entailed filing frivolous lawsuits against critics.

After American completed its three day case-in-chief, the district court told the parties, outside of the jury's presence, that, while Teasdale was entitled to a directed verdict, it would allow the case to proceed. Teasdale and his numerous defense witnesses then presented testimony detailing the events and factors leading to the press release. Two of Teasdale's administrative assistants testified that, from the beginning of his term, Teasdale sought to implement a more consumer-oriented regulatory policy with respect to the insurance industry. As part of that policy, Teasdale's administration investigated and attempted to correct abuses in various areas in the insurance business. Teasdale's consumer affairs director testified that as early as 1978, the Division of Insurance had supplied the Governor with information regarding abusive and deceptive practices employed in the sale of cancer insurance policies in Missouri.

Governor Teasdale's chief of staff testified that the Governor conducted numerous staff meetings to discuss the abuses in the sale of cancer policies. During these meetings, the Governor and his staff reviewed the reports of...