Barber v. Balboa Life Ins. Co.

• Decision Date: 20 April 1999
• Docket Number: No. 97-CA-00342-COA.,97-CA-00342-COA.
• Parties: Annie Jewell BARBER, Appellant, v. BALBOA LIFE INSURANCE COMPANY, Appellee.
• Court: Mississippi Court of Appeals

747 So.2d 863

Annie Jewell BARBER, Appellant, v. BALBOA LIFE INSURANCE COMPANY, Appellee.

No. 97-CA-00342-COA.

Court of Appeals of Mississippi.

April 20, 1999.

Rehearing Denied July 20, 1999.

J. Andrew Phelps, Mark Thomas Finch, Hattiesburg, Attorneys for Appellant.

J. Robert Ramsay, Sheila Marzoni Bossier, Hattiesburg, Attorneys for Appellee.

EN BANC.

BRIDGES, J., for the Court:

¶ 1. Annie Jewell Barber appeals from the judgment of the Forrest County Chancery Court granting her damages for breach of an insurance contract in the amount of $77,277.57. Aggrieved by the chancery court's ruling, Annie alleges on appeal the following issues: 1) that the chancellor erred in failing to award punitive damages, 2) that the appellant is entitled to an additur as to compensatory damages, 3) that the chancellor's findings were against the overwhelming weight of the evidence as to damages, and 4) that the chancellor erred in denying the appellant's motion for reconsideration. On cross appeal, Balboa Life Insurance Company argues: 1) that the chancellor erred in finding an improper recission of the insurance contract and that the appellee had ratified the insurance contract, resulting in a waiver by the appellee to declare the contract void; and 2) that since the chancellor found that there was a material misrepresentation by the appellants, it was error to award any damages. Finding no merit to the issues raised, we affirm.

FACTS

¶ 2. On February 21, 1992, L.C. Barber (deceased) and Annie Jewell Barber entered into a secured real estate loan with United Companies Mortgage of Tennessee, Inc. The loan was arranged by United's employee, Doug Nobles, and was to be secured by a deed of trust covering the couple's personal residence. Along with the loan, the Barbers also purchased a credit life insurance policy from Balboa Life Insurance Company through United Companies Mortgage of Tennessee, Inc. that would provide death benefits on the life of L.C. Barber. This policy was calculated to coincide roughly with the projected declining balance of the loan for a period of 60 months with United as the creditor beneficiary.

¶ 3. The Barbers entered into a second loan secured by the aforementioned real estate with United on August 24, 1993, and a second credit life insurance policy was purchased with Balboa. This certificate provided joint decreasing life insurance on the lives of both L.C. and Annie for a period of 60 months with United as the creditor beneficiary.

¶ 4. According to the record, it was the practice of United to prepare the loan instruments prior to the closing and to insert the totals that included the cost of the credit life insurance. Then, United would "pitch" the credit life insurance to the borrower at the closing. However, if the borrower declined the credit life insurance, the documents would have to be redone. In addition, pursuant to an agreement between United and Balboa, United received a 45% commission on each sale.

¶ 5. In the case sub judice, L.C. Barber answered "No" on the 1992 application to the question listed under the heading "LIFE" in the footnote below, and both L.C. and Annie Barber answered "No" and initialed their answer on the 1993 transaction.¹ Thus, according to their answers on the applications, the Barbers satisfied the eligibility requirements.

¶ 6. On February 1, 1994, L.C. Barber died as the result of widespread metastatic malignant melanoma. According to the death certificate, the interval between onset and death was 1 ¼ years. At the time of his death, the amounts owing on the loans were $9,792.54 and $7,485.03. Annie Barber submitted a claim to Balboa on February 23, 1994. Wayne Ogasawars, a Balboa claims examiner, sent an unsigned letter to Annie Barber on March 21, 1994, stating that Balboa needed additional information from her husband's physician.

¶ 7. Balboa soon discovered that L.C. Barber had received treatments for hypertension on August 13, 1991, and prior, and that these treatments continued for at least three more occasions throughout 1991 and 1992. In addition, Balboa discovered that L.C. Barber had a cancerous left toe removed in November of 1992.² In December of 1993, L.C. Barber was diagnosed with widespread malignant melanoma.

¶ 8. Pursuant to the above findings, Mr. Ogasawara recommended on May 1, 1994,— that Balboa rescind the coverage based upon the material misrepresentation of L.C. Barber's prior treatment for high blood pressure. On May 19, 1994, Balboa sent Annie Barber two letters, one for each insurance certificate, rescinding the coverage as of the effective date due to a material misrepresentation. On June 7, 1994, the premium refunds were applied to Annie Barber's outstanding balance; however, no interest was refunded.

¶ 9. Annie Barber filed an action in the Chancery Court of Forrest County on September 22, 1994, against Balboa, United, and United employee, Doug Nobles, seeking specific performance of the credit life insurance certificates. In addition, Annie Barber claimed bad faith, breach of contract, fraud, negligence, and conversion against the defendants, and sought injunctive relief against United to prevent them from collecting or foreclosing on the Barber's property that had been used as security for the loans. A settlement was reached between Annie Barber and United and its employee prior to the chancellor's judgment being rendered.

¶ 10. On August 1, 1996, the chancellor in his findings of facts and conclusions of law found that Balboa had the right to void the contract ab initio based upon the material misrepresentation made by L.C. Barber. However, the chancellor found that Balboa had failed in their effort to rescind the contracts by refunding the premiums to United instead of the Barbers; thus, ratifying and reviving the contracts and waiving their right to void the policies. The chancellor assessed actual damages for breach of the credit life insurance contracts in the amount of $17,277.57, and assessed $10,000.00 in extra-contractual damages for attorney's fees. Additionally, the chancellor found that Balboa had been negligent in unreasonably delaying the investigation of Annie Barber's claim, and awarded her $50,000.00 in damages for mental anguish and emotional distress. The chancellor dismissed the fraud and conversion claim and all other counts of negligence, and denied punitive damages. Mrs. Barber filed a motion for reconsideration which was denied, and this appeal followed.

ARGUMENT AND DISCUSSION OF LAW

¶ 11. Credit life insurance has been recognized to be something different than the normal policy of life insurance. Generally, a policy of life insurance is a standalone contract whose purpose is to provide a sum of money to the named beneficiary upon the death of the listed insured. A credit life insurance policy, on the other hand, is an integral part of a financial transaction involving a loan, consumer financing arrangement, or other form of credit obligation, with repayment of the anticipated obligation typically extending over a number of months or years. As a part of the transaction, a policy of life insurance is arranged on the life of the debtor with the creditor named as beneficiary. The purpose of the policy is to retire the balance of a debt should the debtor die prior to the end of the contemplated repayment period.

¶ 12. In Parnell v. First Savings & Loan Ass'n, 336 So.2d 764, 767-68 (Miss.1976), the supreme court held that "the inclusion of credit life insurance in a lender-borrower transaction is not for the sole benefit of, nor at the option of the lender." The Parnell case further holds that under Mississippi law, "credit life insurance is also a very important and vital part of the transaction to the borrower because it offers absolute protection to his estate for the unpaid balance of the debt in the event of his death before payment in full." Id. The distinct nature of credit life insurance has been recognized by the Mississippi Legislature, which has enacted separate insurance legislation regulating such contracts. See Miss.Code Ann. § 83-53-1 et seq. (Rev.1991).

DIRECT APPEAL:

I. WHETHER THE CHANCELLOR ERRED IN FAILING TO AWARD PUNITIVE DAMAGES.

¶ 13. Annie Barber argues on appeal that the chancellor erred in his finding that there was insufficient evidence to establish a finding of malice or gross negligence or disregard of the insured's rights. Specifically, Annie Barber contends that the following acts constituted a finding of malice or gross negligence or disregard of the her rights: 1) the "delay letter" sent by Balboa's employee, Mr. Ogasawara; 2) Mr. Ogasawara's initial testimony, which he later recanted, that stated he denied 50% of his claims; 3) Balboa's failure to produce approximately seventeen pages of a manual that allegedly did not exist according to Balboa, but was ultimately produced through a subpoena duces tecum; 4) Mr. Ogasawara's failure to sign the letters that were sent to Annie Barber which evidenced his apparent lack of concern for her; and 5) the remainder of Balboa's testimony.

¶ 14. Balboa contends that for a chancellor to award punitive damages, the following must be proven: 1) denial by the insurer of a legitimate claim by the insured for policy benefits; 2) that the insurer had no legitimate or arguable reason for denying the legitimate claim; and 3) that the insurer committed a willful, intentional or malicious wrong or acted with gross negligence or reckless disregard for the rights of [the] insured in denying the legitimate claim of the insured without a legitimate or arguable reason. See Pioneer Life Ins. Co. of Illinois v. Moss, 513 So.2d 927, 930 (Miss. 1987); State Farm Fire & Cas. Co. v. Simpson, 477 So.2d 242, 250-51 (Miss. 1985).

¶ 15. In A & S Trucking Co., Inc. v. First General Insurance Co., 578 So.2d 1212, 1215 (Miss.1990), the supreme court stated:

The trial judge is responsible for reviewing all the evidence before it in order to

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