Doyle v. Fairfield Machine Co., Inc.

• Court: Ohio Court of Appeals
• Writing for the Court: NADER; CHRISTLEY; FORD
• Citation: Doyle v. Fairfield Machine Co., Inc., 120 Ohio App.3d 192, 697 N.E.2d 667 (Ohio App. 1997)
• Decision Date: 05 May 1997
• Docket Number: No. 96-T-5488,96-T-5488
• Parties: DOYLE, Appellee and Cross-Appellant, v. FAIRFIELD MACHINE COMPANY, INC. et al., Appellants and Cross-Appellees.

Page 192

120 Ohio App.3d 192

697 N.E.2d 667

DOYLE, Appellee and Cross-Appellant, v. FAIRFIELD MACHINE COMPANY, INC. et al., Appellants and Cross-Appellees.

No. 96-T-5488.

Court of Appeals of Ohio Eleventh District, Trumbull County.

Decided May 5, 1997.

Ellen S. Simon, Cleveland, for appellee and cross-appellant.

Nicholas D. Satullo, Donald J. Moracz, Beverly Sandacz and Phillip J. Campanella, Cleveland, for appellants and cross-appellees.

NADER, Judge.

This is an appeal from a jury trial in the Trumbull County Court of Common Pleas awarding plaintiff-appellee, Matthew Doyle, a $1.4 million verdict against defendants-appellants Fairfield Machine Company, Inc. ("Fairfield"), its president and CEO, Alexander Shashaty, its controller, James Hynes, and its independently run subsidiary, Northeast Fabricators, Inc. ("Northeast"). ¹

Matthew Doyle was employed by State Mutual Life Assurance Company ("State Mutual") in September 1980. After a short training period, Doyle was appointed group insurance representative with a compensation package that based his salary upon his productivity in selling group insurance. Doyle's employment record was clean, and his compensation, over $100,000 in 1989, had increased every year, with the exception of the year 1990, in which his father-in-law was being treated for cancer.

James Hynes was employed by Fairfield in December 1989, to serve as the controller for Fairfield, Northeast and Cyril. ² Alexander Shashaty handpicked Hynes for this position. One of Hynes's first duties was to find group health insurance for Fairfield, after learning Fairfield's system and balancing its account records. Hynes was required to locate group health insurance for Fairfield because Fairfield's current health insurance carrier, Blue Cross/Blue Shield of Northern Ohio, indicated it would raise the premiums for all Fairfield employees based upon Fairfield's recent claims history. When Blue Cross/Blue Shield notified Hynes of this premium increase, it supplied him with a claims history for Fairfield employees over an eight-month period which showed each claim for each employee. ³ The claims reflected some serious health problems for several Fairfield employees and their dependents. For instance, Stephen McNally's youngest son, Sean, suffered from congenital central hypoventilation syndrome, which causes serious breathing abnormalities. He must submit to a bronchoscopy every six months so that his trachea will not close. In addition, Sean must wear a respirator while he sleeps because his respiratory system literally shuts down while he sleeps. This condition is permanent. Also, Curtis Petrey's wife, Louise, ⁴ suffered from late-stage cancer, which required radical, aggressive treatment. Moreover, Shashaty also suffered from a serious cardiac condition, which required several bypass surgeries.

When Hynes realized he would need to search for more economically feasible group health coverage, he contacted several independent insurance sales agents, including Sophocles Sophocleous of Alpha Benefits. ⁵ He provided Sophocleous with the claims history provided him by Blue Cross/Blue Shield for the period of April to November 1989. First, Sophocleous contacted Atlantic Administrators Fairfield's interim insurer, a self-funded plan. ⁶ Hynes testified that he was unaware that the Atlantic Administrators plan was self-funded until many of Fairfield's claims were denied. Actually, there was approximately $200,000 in claims that were unpaid. As a result, Hynes began to search for another group insurance plan. Again, Hynes contacted Sophocleous and other independent sales agents to obtain proposals from different insurance carriers. Sophocleous then contacted Hynes and requested that he distill the information in the large claims history into a one-page report so that he could submit the request to State Mutual that afternoon, stating that the claims history was too cumbersome. Upon receiving this request, Hynes condensed the information in the twenty-seven-page report into one-half page, which listed the total claims submitted for each company during that time period.

Approximately one week after Hynes submitted this condensed statement to Sophocleous, he received a proposal from State Mutual that was very attractive, falling within the company's annual budget of approximately $300,000. Hynes scheduled a meeting during which he would complete a detailed application that would provide a more accurate premium schedule. At this meeting, held on August 27, 1990, in Hynes's office at Fairfield, were Hynes, Sophocleous and Doyle. During the meeting, Doyle orally presented the application to Hynes by asking him the questions contained in the application, then transcribing Hynes's responses. At all times, the detailed claims history was in a file cabinet in Hynes's office. At no time did Doyle request a copy of the claims history from Hynes; however, there was evidence that Doyle may have received a claims history.

The portion of the application that has served as the source of this action involved two "gatekeeper" questions, as the parties call them. The first of these two questions was "Have any employees or dependents incurred $5,000 or more in claims during the last 12 months?" Hynes answered this question "No." The second question queried, "Has any person to be insured been treated for a serious illness which is not included in the details of [the previous question]?" Hynes also answered this question "No." In his testimony, however, Hynes claimed that he qualified these answers during this meeting, but could not remember any specifics of this qualification. Doyle and Sophocleous testified that Hynes stated the answers to these questions unequivocally. Hynes also testified that Doyle left only one page of the application regarding some COBRA- employees with him to complete after reviewing company documents. To the contrary, Doyle testified that he left the entire application with Hynes to complete at a later date. In either case, Hynes's signature appears on the last page of the State Mutual application.

At the close of the meeting, Hynes presented Doyle with a "letter of binding" to sign. This letter, according to Hynes, was drafted in response to a situation in which Fairfield found itself without life insurance benefits because it did not have "something in writing" during the pendency of its life insurance application. Shashaty contradicted this testimony by saying the letter was intended to bind State Mutual to coverage immediately, even though Shashaty admitted that he was aware that an agent like Doyle did not have the authority to bind coverage. Doyle testified that he told Hynes that he had no authority to sign the letter, but Hynes insisted it was just a favor to satisfy Shashaty and that it would not "come back to haunt" Doyle. Doyle signed the letter because he felt Fairfield had a "clean application" and there should be no problem underwriting their group health insurance. Doyle did not retain a copy of the letter for his own files or for State Mutual's files.

Shortly after the meeting, Louise Petrey called State Mutual to request preapproval for some experimental chemotherapy treatment with a follow-up bone marrow transplant. ⁷ Upon learning of the treatment Petrey sought, Doyle immediately contacted Hynes to inquire whether there was an error in the application. Doyle surmised that Louise Petrey's condition was advanced due to the nature of the treatment she was seeking. When asked, Hynes merely inquired whether this "new" information would affect Fairfield's application and eligibility for insurance with State Mutual. Upon receiving this information, State Mutual declined to offer group coverage to Fairfield.

Within one month after State Mutual denied coverage to Fairfield, Hynes completed an application for group insurance with New York Life. Again, Hynes failed to disclose the serious medical conditions of its employees and their dependents. This time, however, New York Life provided coverage. After one year of coverage, New York Life significantly raised Fairfield's premiums due to the claims history generated in the previous twelve months. Evidence of this subsequent application was submitted, over objection, at trial.

On November 29, 1990, after State Mutual denied coverage to Fairfield, Hynes filed a grievance with the Ohio Department of Insurance stating:

"It is my contention that Fairfield Machine had a binding contract at September 1, 1990 or at least was deceived into believing so and that State Mutual is responsible for any and all claims incurred during the month of September 1990 and for the $100,000 of additional cost to Fairfield Machine which was a direct result of their actions."

The Ohio Department of Insurance sent a copy of this letter to State Mutual. Shortly thereafter, in January 1991, Lawrence Blanchard, Vice President of Employee Benefit Services at State Mutual, asked Doyle to resign or be fired. Blanchard stated that Doyle was fired because of a series of events that caused Doyle to lose credibility with the underwriting staff. Blanchard cited four events that led to this credibility problem. First, Doyle signed an application on behalf of a client, the president of Ives & Associates, who had previously completed and signed an application but due to changes in benefits was required to complete another application with somewhat different inquiries. There was conflicting testimony whether Doyle had authority to do so. Second, Doyle's productivity declined in 1990, due to the illness of his father-in-law. Third was the letter of binding and complaint to the Ohio Department of Insurance regarding State Mutual. Fourth was Doyle's involvement in underwriting insurance for a company that leased employees (a temporary agency), R.E. Lowe/Tailored Management. Testimony was elicited, however, that this final act occurred after Doyle resigned from State Mutual....