Colford v. Chubb Life Ins. Co. of America

• Decision Date: 03 December 1996
• Docket Number: Docket No. S,No. 7768,7768
• Citation: 687 A.2d 609
• Parties: Carroll COLFORD v. CHUBB LIFE INSURANCE COMPANY OF AMERICA. DecisionLawom 94 928.
• Court: Maine Supreme Court

Page 609

687 A.2d 609

Carroll COLFORD v. CHUBB LIFE INSURANCE COMPANY OF AMERICA.

Decision No. 7768.

Law Docket No. Som 94 928.

Supreme Judicial Court of Maine.

Argued May 7, 1996.

Decided Aug. 13, 1996.

Reissued Dec. 3, 1996.

Daniel G. Lilley (orally), Mark L. Randall, Daniel G. Lilley Law Offices, P.A., Portland, for Plaintiff.

William J. Kayatta, Jr. (orally), Catherine R. Connors, Pierce, Atwood, Scribner, Allen, Smith & Lancaster, Portland, for Defendant.

Jack H. Simmons, Paul F. Macri, Berman & Simmons, P.A., Lewiston, for University Scholars and Law Professors.

Paul R. Dumas, Jr., Joyce, Dumas David and Hanstein, P.A., Mexico, for Consumer Federation of America.

Edward W. Gould, Gross, Minsky, Mogul & Singal, P.A., Bangor, for Maine Trial Lawyers Association.

Christopher C. Taintor, Norman, Hanson & Detroy, Portland, for UNUM, American Council of Life Ins., Health Ins. Assoc. of America.

Before ROBERTS, GLASSMAN, CLIFFORD, RUDMAN, DANA and LIPEZ, JJ.

CLIFFORD, Justice.

Chubb Life Insurance Company of America (Chubb) appeals from a judgment entered in the Superior Court (Somerset County, Kravchuk, J.) awarding plaintiff Carroll Colford compensatory and consequential damages for the breach of an insurance contract. Chubb contends that the court erred as a matter of law in concluding that two conditions of the contract issued to Colford, conditions that Colford did not meet, did not preclude contract recovery. Colford cross-appeals from the judgment notwithstanding the verdict in favor of Chubb on Colford's claim for intentional infliction of emotional distress and an award of punitive damages. Colford contends that Chubb did not properly preserve the contract issue, that in any event the court correctly construed the contract, that there was sufficient evidence to support the emotional distress claim and, therefore, the court erred in setting aside the jury's verdict and assessment of emotional distress and punitive damages. We conclude that Chubb properly preserved the issue of the validity of the contract. The formation of a binding insurance contract with Colford was contingent on Colford being "acceptable on that date under the Company's rules ... for the [plan] and benefits ... applied for." Because those conditions were not satisfied, there was no contract in effect and thus there was no breach of contract. Accordingly, we vacate the judgment on the breach of contract claim. Because Chubb's conduct does not rise to the level of outrageousness necessary to support a claim of intentional infliction of emotional distress, we affirm the judgment notwithstanding the verdict on that claim and on the award of punitive damages.

Carroll Colford was a self-employed insurance sales agent who sold policies for a number of insurance carriers, including Chubb. On April 22, 1991, Colford applied for disability insurance with Chubb. Colford applied for coverage providing a benefit amount of $2000 per month, payable in the event he became permanently disabled. ¹ Colford also applied for the additional "own occupation" benefit available under the plan, which covers the insured if he becomes disabled and unable to perform his listed occupation, even if he is not disabled for purposes of other types of work. On that date, Colford was given a one-page "Receipt and Conditional Insurance Agreement." The conditional receipt states in pertinent part:

1. DATE INSURANCE BEGINS. The insurance will begin on the latest of the date of the Receipt, the date of the Application, or the date of the last Medical Application, Part II, required by the Company on all persons proposed for insurance SUBJECT TO THESE TERMS AND CONDITIONS AND THOSE OF THE POLICY APPLIED FOR.

a. An advance payment at least equal to one month's premium must be made in exchange for the completed receipt which bears the same date and number as the application; it cannot be less than $50.00; and

b. All persons proposed for insurance are acceptable on that date under the Company's rules for standard rates for the plan, benefits and amounts applied for.

2. DATE INSURANCE ENDS. Insurance will end on the earliest of these dates, if it begins under the Conditional Insurance Agreement:

a. 60 days after the date of the receipt;

c. The date the advance payment is mailed to the Owner;

d. The date the policy is issued and delivered to the Owner on a standard basis; the first premium must be paid in full.

3. PREMIUM REFUND. Return of the advance payment will be made to the Owner, if insurance is declined, or the policy, if any, as issued is not taken. If the policy is taken, the advance payment will be a credit toward the first year's premium due under the policy.

(Emphasis added.) An integration clause at the bottom of the receipt provides: "This Agreement states all the terms and conditions of your agreement with the Company for Conditional Insurance."

As of April 25, 1991, Colford had completed the application, tendered one month's premium, and submitted to the required medical examination. On April 30, 1991, Colford fell down a flight of stairs and seriously injured his back. The pain and stiffness resulting from his injury was aggravated by sitting, thus rendering prolonged driving intolerable. As a self-employed insurance sales agent, Colford drove approximately one thousand miles per week.

Colford did not immediately inform Chubb of his injury. On May 3, Philip Wolfe, the Chubb underwriter responsible for evaluating Colford's eligibility for a permanent insurance policy, informed Colford that he was not eligible for the "own occupation" benefit because this extra rider was not available for the job classification "insurance agent." On May 20, Wolfe offered Colford a permanent insurance plan at standard rates, but with two changes from Colford's initial application: (1) the "own occupation" benefit rider would not be included; and (2) there would be an exclusion rider for back injuries. Colford was not offered "whole body" coverage because his medical history revealed a 1989 diagnosis for scoliosis and a spinal dislocation/misalignment known as "subluxation." Pursuant to Chubb's underwriting policies and guidelines, this pre-existing condition precluded coverage for back injuries. Colford did not file a claim for his injury until June 4. ² Because Chubb had already determined that the conditions stated in the conditional insurance agreement had not been satisfied, Chubb denied Colford's claim for lack of any existing coverage in effect.

Colford filed this action in March 1992. Colford's final amended complaint asserts three claims: (1) breach of contract on the part of Chubb for failure to pay benefits due under the temporary, conditional insurance agreement (Count I); (2) intentional infliction of emotional distress based on actions Chubb took in the course of its investigation and in denying coverage to Colford, and other actions of Chubb (Count III); and (3) negligent infliction of emotional distress (Count IV). ³ In addition, Colford seeks punitive damages for Chubb's allegedly malicious conduct toward him.

By agreement of the parties, the court reserved for itself the question whether a binding contract for insurance existed as of the date of Colford's injury. The court determined that the contract was valid and in effect on the date of the injury. The jury was told that there was a contract and was instructed to determine whether Chubb acted in good faith in denying coverage under the contract, whether Colford was in fact disabled so as to trigger Chubb's obligation to pay benefits, whether Colford, by virtue of his prior income, was eligible for the $2000 monthly coverage amount he had applied for, and whether Colford had fraudulently overstated his yearly income on his initial application. The parties agreed that the court would calculate the present value of all past and future disability payments, and the jury would determine the amount of any consequential contract damages arising from the failure to pay benefits. All elements of Colford's tort claims, Counts III and IV, were to be determined by the jury.

At the close of the plaintiff's case, Chubb moved pursuant to M.R.Civ.P. 50(a) for judgments as a matter of law on Counts III and IV. The court granted Chubb's motion on Count IV, the negligent infliction of emotional distress claim. ⁴ At the close of all the evidence, Chubb's renewed motion pursuant to M.R.Civ.P. 50(b) for judgment as a matter of law on Count III, the intentional infliction of emotional distress claim, was denied. The court denied Chubb's request to allow the jury to determine whether Colford was eligible for the "own occupation" benefit and for whole body coverage.

The jury returned a special verdict form, answering the interrogatories in favor of Colford on all the questions: that Chubb had refused to issue a permanent policy to Colford in bad faith, that Colford had not misrepresented his income, that he was in fact disabled, and that Chubb's actions satisfied all of the elements of the tort of intentional infliction of emotional distress. The jury awarded Colford consequential breach of contract damages in the amount of $1 million, ⁵ and compensatory damages in tort for emotional distress in the amount of $500,000. In addition, the jury found that Chubb had acted with malice. Subsequently, after a second hearing, the jury awarded Colford punitive damages for the emotional distress claim in the amount of $24,002,000.

Prior to the court's entry of a judgment, Chubb filed a motion for judgment as a matter of law pursuant to M.R.Civ.P. 50(d) as to Count I. On Count I, the court determined the value of past and future disability benefits to be $465,350 and entered a judgment for Colford on Count I in the amount of $1,465,350 (the $465,350 plus the $1 million in consequential damages found by the jury). The court later reduced the jury's consequential damages award from $1 million to $352,000, and entered a...