Continental Life & Acc. Co. v. Songer

• Decision Date: 27 September 1979
• Docket Number: CA-CIV,No. 1,1
• Citation: 124 Ariz. 294,603 P.2d 921,18 A.L.R.4th 1099
• Parties: , 18 A.L.R.4th 1099 CONTINENTAL LIFE & ACCIDENT COMPANY, Appellant and Cross-Appellee, v. David SONGER and Nancy Songer, husband and wife, Appellees and Cross- Appellants. 4124.
• Court: Arizona Court of Appeals

Page 921

603 P.2d 921

124 Ariz. 294, 18 A.L.R.4th 1099

CONTINENTAL LIFE & ACCIDENT COMPANY, Appellant and Cross-Appellee, v. David SONGER and Nancy Songer, husband and wife, Appellees and Cross- Appellants.

No. 1 CA-CIV 4124.

Court of Appeals of Arizona, Division 1, Department A.

Sept. 27, 1979.

Rehearing Denied Nov. 16, 1979.

[124 Ariz. 296] Gust, Rosenfeld, Divelbess & Henderson by Richard A. Segal, Daniel P. Hutchinson, Phoenix, for appellant and cross-appellee.

Thur & Preston, by Calvin C. Thur, Scottsdale, for appellees and cross-appellants.

OPINION

CONTRERAS, Judge.

This appeal and cross-appeal present a substantial number of issues concerning the legal remedies available to a medical insurance applicant whose injury occurs prior to the date the application is either accepted or rejected by the insurance company's home office. The issues arose out of an action brought by appellees and cross-appellants David and Nancy Songer (Songers) against appellant and cross-appellee Continental Life and Accident Company (Continental), two other insurance companies, and two insurance agents. The action involves an effort to recover damages including benefits allegedly due under a medical insurance policy.

The complaint filed by plaintiffs was framed in three counts. Count One alleged the existence of a medical insurance contract and requested damages for the medical expenses payable under the policy, for mental distress, and punitive damages. Count Two alleged negligence on the part of the agents and Continental in processing the application for medical insurance and sought damages for the medical expenses payable under the policy and for mental distress. Count Three was based on a theory of estoppel and sought damages only in the amount that would be payable under the terms of the policy.

After summary judgment was granted in favor of all defendants except Continental and one of its agents, the case proceeded to trial. The jury returned a general verdict against Continental only, and assessed damages in the sum of $4,000. Judgment was entered in the amount of the verdict, together with attorneys' fees in the amount of $2,000 and costs. The trial court denied Continental's motion for a new trial or for judgment notwithstanding the verdict. In addition, the court denied the Songers' motion for a new trial on the issue of punitive damages. Continental has appealed the judgment against it and the denial of its post-trial motions. Coextantly, the Songers have cross-appealed from the denial of their motion for a new trial on the issue of punitive damages.

With the exception of the testimony concerning a "binder", the facts giving rise to the Songers' action are not in substantial dispute. In the summer of 1973, the Songers were planning an extended visit to the Island of Ponape. ¹ Anticipating difficulties they might encounter in procuring insurance coverage once they left the States, the Songers wanted to obtain medical insurance before departure which would cover them on their trip. With these thoughts in mind, on August 6, 1973, they discussed major medical coverage with insurance agents, including an agent of Continental, and began to fill out an application. In the course of filling out the application, Nancy Songer mentioned that she had been advised by one of her physicians that she had an "innocent" heart murmur. Arrangements were made for her to have a medical examination, which she promptly received. After her medical examination, on August 13, 1973, the agents returned to complete the application. On that date, David Songer signed the completed application, gave the Continental agent a check in the amount of $133 for the first six months' premium, and received a receipt signed by the agent. ²

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

The record reflects a sharp conflict in the testimony concerning the contemporaneous statements by Continental's agent regarding the effective date of coverage and the conditions and terms affecting that coverage. The Songers testified that, during their discussion with the agents, they were assured there was a "binder", and that they were immediately covered unless and until they heard otherwise from the company. Although Continental's agent admitted he used the word "binder" in both meetings, he claimed that he intended the term to be taken in its slang sense rather than in the sense which imparts a legal significance and obligation on the part of Continental. The agent testified that he did not tell the Songers that there was immediate coverage, but instead explained to them that coverage would begin as of the date of application if the application was later accepted by the company. ³

Approximately one week after the application was submitted and the check received by Continental, the Songers left for the Island of Ponape. After being gone from the United States for about 60 days, and since the Songers had not heard anything from Continental about their application, Nancy Songer wrote a letter to her mother, Mrs. Knowles, asking her to inquire into the matter. On the day she received the letter October 23, 1973 Mrs. Knowles phoned Continental's agent and asked the reason for the delay of over two months. The agent replied that the delay was due to the fact that Continental was having difficulty in obtaining necessary medical records from Mrs. Songer's doctor, apparently because the records were filed under her maiden name. On October 24, 1973, this problem was resolved and the doctor's office forwarded the necessary information to Continental.

On October 30, 1973, Mrs. Songer was involved in a motor vehicle accident on the Island of Ponape and was severely injured. A few days later, Continental gave written notice that the Songers' application for medical insurance was being declined for medical and other reasons. This notice was by means of a letter written and mailed on November 3, 1973, by Continental's agent to Mrs. Knowles. Accompanying the notice was a refund check from Continental dated October 29, 1973. The Songers never endorsed the check or accepted the refund.

The appellant's primary contention on appeal is that it was error for the trial court to submit to the jury certain instructions which misstated the law regarding temporary insurance contracts and erroneously allowed the jurors to consider oral representations to vary or contradict the written terms of the insurance application and receipt. Additionally, appellant contends that there was no legal or evidentiary basis for the submission of the case on a theory of negligence with the accompanying negligence instructions. Appellant also asserts that the instructions on damages were erroneous because they allowed consideration of elements of damage which were improper under the theory of the case as presented and were not supported by the evidence. Finally, appellant argues that it was error for the trial court to deny appellant's motion for a directed verdict.

The Songers, on the other hand, contend that the case was properly submitted on the theories presented and that the instructions were proper and were supported by the evidence. In their cross-appeal, they raise several additional issues concerning the instructions with respect to punitive damages. Basically, they contend that the trial court erred in refusing to instruct on the issues of reckless disregard, willful and wanton conduct, and intentional infliction of mental suffering. The cross-appellants ask that they be granted a new trial on these issues alone.

The numerous issues raised in this appeal and cross-appeal can be considered and better understood by discussing those issues under the headings of (1) the insurance contract theory; (2) the negligence theory; and (3) the damages.

THE INSURANCE CONTRACT THEORY

One of the primary issues presented to the jury for resolution in this case was whether a temporary contract for insurance arose on the basis of alleged statements by Continental's agent that the Songers would immediately be covered by temporary insurance upon payment of the first premium and issuance of the receipt. The jury was instructed to determine whether an oral contract did in fact exist. ⁴ Appellant contends that the trial court erred in instructing on an oral contract because such instruction erroneously allowed the jury to alter the written terms of the application and receipt on the basis of inadmissible parol evidence. Appellant further contends that additional instructions improperly defined the term "binder" and incorrectly stated the standard to be used in determining whether an agreement for temporary insurance existed and the terms of such an agreement. ⁵

In opposition to these enumerated contentions, appellees respond that the instructions were properly given, and thus the statements of the agents were properly considered. This position is asserted on the premise that A.R.S. § 20-1120 specifically provides for oral "binders" which, of necessity, must be proven by parol evidence. ⁶ Appellees further contend, through their cross-appeal, that the trial court erred in refusing to give their requested instruction, consisting of a verbatim recitation of A.R.S. § 20-1120A and -1120B which, they argue, sets forth the applicable statutory definition of a "binder" or other contract for temporary insurance in Arizona.

Our review of the record, and of the substantial and conflicting body of law with respect to temporary contracts of insurance, leads us to the conclusion that it was error to instruct the jury as to the possibility of an oral contract of insurance resulting in a "binder". Our conclusion is not based upon a determination of whether there is sufficient evidence in the record to warrant the giving of those instructions. Towers v. Johnson, 11 Ariz.App. 455, 465 P.2d 592 (1970). Rather, it is based upon a determination of questions of law relating to the parol evidence rule and...