Davenport v. Mutual Benefit Health & Accident Ass'n
| Decision Date | 23 December 1963 |
| Docket Number | No. 18780.,18780. |
| Citation | 325 F.2d 785 |
| Parties | Clarke E. DAVENPORT, Appellant, v. MUTUAL BENEFIT HEALTH & ACCIDENT ASSOCIATION and Continental Casualty Company, Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Howard R. Lonergan, Portland, Or., for appellant.
King, Miller, Anderson, Nash & Yerke, and Clifford N. Carlsen, Jr., Portland, Or., for appellee Mutual of Omaha Ins. Co.
Hollister & Thomas, and Robert H. Hollister, Portland, Or., for appellee Continental Cas. Co.
Before BARNES, HAMLEY and DUNIWAY, Circuit Judges.
This is an appeal from a judgment dismissing the action below for lack of jurisdiction. An appeal lies here (28 U.S. C.A. § 1291). The action below relies for jurisdiction upon diversity (28 U.S. C.A. § 1332). Defendant's answer claims the amount in controversy does not exceed $10,000. Plaintiff urges it does.
Plaintiff set forth an action at law for deceit against the two defendant insurance companies, alleging they had defrauded him out of the benefits under his sickness and accident policies by representing to him that his condition was neither sickness nor accident and would not come within the policy coverage, thereby for a small amount of money obtaining his release from all future liability under these policies, although at the time both companies knew his condition was within the policy coverage, and that he would inevitably become entitled to large payments thereunder. Plaintiff claimed as damages not only the expected benefits from these policies which were less than $10,000, but also exemplary damages, making the total amount of damages claimed against both companies the sum of $100,000 (Tr. I, pp. 1, 2, 11, 12).
The answers of both defendants admitted the contracts and the obtaining of releases, but denied the fraud and the amount in controversy (Tr. I, pp. 3-9).
The facts disclose that after some discussion about plaintiff's claim between the two companies, claims agents for each company visited plaintiff (Tr. II, pp. 73, 74, 76, 77, 80). Each of these claims agents told plaintiff the same story — that his condition was neither sickness nor accident and was not within the policy coverage, but, to help him out, each would pay a small sum ($150 and $250, respectively) for a release. He took the money and signed the releases, which released future as well as past benefits. Nothing was said about future disability (Tr. II, pp. 12-21, 78, Ex. 10, 14).
The defendants admitted that the claims agents were acting within the course and scope of their employment and were not menial employees and, at the time they obtained the releases, knew plaintiff's condition was a sickness within the coverage of their policies (Tr. I, p. 27, Tr. II, pp. 72, 74, 76, 77).
Here the judge dismissed because in his opinion it appeared from the proof that the plaintiff was not entitled to recover the jurisdictional amount. In such a case, where the complaint asserts a claim in the jurisdictional amount, the action should not be dismissed unless the proof not only shows that the plaintiff cannot recover that amount, but also shows this with such certainty as to indicate a lack of good faith on the part of the plaintiff in bringing the action in the federal court. St. Paul Mercury Indemnity Co. v. Red Cab Co. (1938) 303 U.S. 283, 289, 58 S.Ct. 586, 82 L.Ed. 845; McDonald v. Patton, 4th Cir., 240 F.2d 424, 426; Matthiesen v. Northwestern Mutual Insurance Company, 5 Cir. 1961, 286 F.2d 775.
Appellees urge that the claim made by plaintiff for exemplary or punitive damages cannot be made in good faith. If made in good faith, punitive damages may be included in computing the amount necessary for federal jurisdiction. Young v. Main, 8 Cir. 1934, 72 F.2d 646. However, if under the applicable state law it would be legally impossible to recover actual and exemplary damages, the addition of such exemplary damages to the claim will not create a sufficient good faith claim.
In a diversity case, we are required to follow the state law of Oregon. Erie R. Co. v. Tompkins (1938) 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188.
Defendants say the law of Oregon prevents recovery of exemplary or punitive damages for fraud except where the fraud is aggravated, "as where it is gross, malicious, or wanton," (Cays v. McDaniel, et al., (1955) 204 Or. 449 at 457-458, 283 P.2d 658, 661-662) and citing in support of that theory Perez v. Central Nat'l Ins. Co. of Omaha, (1958) 215 Or. 107, 372 P.2d 1066; Ridgeway v. McGuire, (1945) 176 Or. 428, 158 P.2d 893. We do not find them based on a factual situation similar to the peculiar ones here alleged to exist.
We accept defendant's position as correctly stating the law of Oregon. It was expressed somewhat more broadly in Fisher v. Carlin, 219 Or. 159 at 162, 346 P.2d 641, 643 (a later case, 1959), where Chief Justice McAllister said:
"To justify punitive damages, the jury must be satisfied that the injury was done maliciously or willfully and wantonly or committed with bad motive or recklessly so as to imply a disregard of social obligations."
Appellant relies largely on Equitable Life & Cas. Ins. Co. v. Lee, 9 Cir. 1962, 310 F.2d 262, but again, we do not find the factual situation in that case similar to this. No question of menial employment, without power to represent the corporations, is raised.
This is not a suit on the policies. This is a claim for fraud and deceit — that "defendants by their agents and employees falsely represented to plaintiff that his condition was neither accident nor sickness and would not come within either policy" ; that said statements "were false, were known to be false when made, were meant to defraud plaintiff of his rights under the aforesaid policies."
Plaintiff asserts that under Oregon Law fraud (a) may be "innocent" and support an action for rescission but not damages; (b) may be negligent or intentional, which would support an action for damages; or (c) may be "gross fraud," or "fraud with malice," which will support an action for damages, both compensatory and exemplary.
In support of his position that he has a factual question present whether exemplary damages are properly available under Oregon law, appellant refers us (a) to Exhibit 12, which indicated Dr. Johnson's opinion was that plaintiff's condition arose from "sickness," not "injury," which opinion was known to defendants; (b) to Exhibit 15, a letter from one insurance company written after each had interviewed Dr. Johnson, telling appellant he "may have suffered an eye injury"; (c) to the following excerpts from the testimony produced:
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