Eichenseer v. Reserve Life Ins. Co., 88-4421

• Decision Date: 11 July 1991
• Docket Number: No. 88-4421,88-4421
• Citation: 934 F.2d 1377
• Parties: Patricia Stephenson EICHENSEER, Plaintiff-Appellee, v. RESERVE LIFE INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1377

934 F.2d 1377

60 USLW 2083

Patricia Stephenson EICHENSEER, Plaintiff-Appellee, v. RESERVE LIFE INSURANCE COMPANY, Defendant-Appellant.

No. 88-4421.

United States Court of Appeals, Fifth Circuit.

July 11, 1991.

L.F. Sams, Jr., John S. Hill, Donna M. Barnes, Tupelo, Miss., Larry L. Simms, Gibson, Dunn & Crutcher, Washington, D.C., for defendant-appellant.

Thomas L. Kesler, Dewitt T. Hicks, Jr., Columbus, Miss., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Mississippi.

ON REMAND FROM THE SUPREME COURT OF THE UNITED STATES

Before POLITZ and JOHNSON, Circuit Judges. ¹

JOHNSON, Circuit Judge:

The instant case has bounced through the federal courts like a yoyo on a long string. Most recently, the United States Supreme Court examined this case on a writ of certiorari. The Supreme Court, --- U.S. ----, 111 S.Ct. 1298, 113 L.Ed.2d 233, vacated our prior decision, reported at 881 F.2d 1355, and remanded the case for reconsideration in light of Pacific Mutual Life Insurance Co. v. Haslip, --- U.S. ----, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991). Accordingly, we revisit a controversial issue: whether a substantial punitive damages award violates the Due Process Clause of the Fourteenth Amendment. We conclude that, under the circumstances of the case, the award of punitive damages did not violate due process.

I. FACTS AND PROCEDURAL HISTORY

A complete statement of the facts and procedural history of this case is found in this Court's prior opinion. Eichenseer v. Reserve Life Ins. Co., 881 F.2d 1355 (5th Cir.1989). We will briefly summarize. On January 5, 1983, Reserve Life Insurance Company ("Reserve Life") issued a major medical insurance policy to Patricia Eichenseer ("Eichenseer"). Eighteen days after the effective date of the policy, Eichenseer was admitted to the hospital with severe abdominal pain. On the hospital admission sheet, Dr. L.R. Murphree noted that Eichenseer had experienced pain in the lower abdomen "in period for the last 2-3 years." Dr. Murphree diagnosed acute pelvic inflammatory disease and, subsequently, performed a total hysterectomy on Eichenseer.

In late February 1983 Eichenseer received medical bills that totalled $6658.35. She submitted these bills to Reserve Life for payment. After Eichenseer signed a "proof of claim" form on March 23, 1983, Reserve Life forwarded payment on a fraction of the medical bills covered under a separate insurance policy that Eichenseer's parents had purchased. Reserve Life formally denied, however, the claim that Eichenseer submitted under the major medical insurance policy she purchased in January. Reserve Life claimed that Eichenseer's acute pelvic inflammatory disease was a preexisting illness which the policy did not cover.

On June 21, 1983, Eichenseer called Reserve Life and requested an explanation. The employee who handled Eichenseer's claim, Dena Marie Brannon, revealed that she had interpreted Dr. Murphree's notes on the hospital admission sheet to suggest that Eichenseer had suffered from her illness since 1980-81. Significantly, Brannon admitted that she had not consulted either Dr. Murphree or a Reserve Life in-house physician before she reached this decision. Eichenseer called Reserve Life several more times during the following weeks, but she received no relief. On August 22, 1983, after receiving one such telephone call, a Reserve Life employee wrote Dr. Murphree a letter requesting Eichenseer's medical records. Dr. Murphree promptly forwarded these records to Reserve Life. The insurance company, however, lost the records. Two months later, despite the absence of the medical records, Reserve Life notified Eichenseer that it had again denied her claim.

Eichenseer sent Reserve Life a second set of her medical records. Reserve Life received these records on October 26, 1983, but did not acknowledge receipt until December. At that time, Dena Brannon informed Eichenseer that the insurer could not consider payment of her claim until Dr. Murphree altered the medical records to clarify the "2-3 years" notation. Dr. Murphree initially declined to alter the hospital records as requested. Convinced that such a change was not ethically permissible, he instead agreed to sign an affidavit recanting the "2-3 years" remark. Eichenseer subsequently mailed Reserve Life a notarized affidavit in which Dr. Murphree asserted that the medical records were incorrect and should have stated that his patient had suffered lower abdominal pain for "2-3 days." Reserve Life received the affidavit, but lost it in the following weeks.

On October 16, 1984, Eichenseer mailed Reserve Life a demand letter requesting either payment of the claim or an extended explanation for its denial. Six weeks later, Dena Brannon sent Eichenseer a telegram stating that the insurance company was "having difficulty in assembling the file." Later, on January 4, 1985, Reserve Life mailed a letter that reaffirmed its denial of Eichenseer's claim. Reserve Life commented in the letter that it based its decision on Dr. Murphree's failure to correct the hospital records.

Thereafter, Eichenseer filed the instant action against Reserve Life. During the course of pretrial discovery, defense counsel learned that Reserve Life had lost its copy of Dr. Murphree's affidavit. The counsel recommended that Reserve Life officials review this affidavit. They did so, and on June 16, 1986--three years and three months after her initial request for payment--Reserve Life paid Eichenseer's claim. Despite the payment of the benefits under the insurance policy, however, Eichenseer continued to pursue the instant action for extracontractual damages and punitive damages. After a bench trial, the district court awarded Eichenseer $1000 in compensatory damages and $500,000 in punitive damages. ² Reserve Life appealed.

This Court, in its original consideration of this case, ruled that the award of punitive damages against Reserve Life was "consistent with the guarantees enumerated in the United States Constitution, as well as Mississippi law." 881 F.2d at 1356. The Court denied Reserve Life's Petition for Rehearing and Suggestion for Rehearing En Banc. ³ Reserve Life then filed a petition for writ of certiorari. The Supreme Court, after granting the petition, vacated our original decision and remanded the case for reconsideration in light of Pacific Mutual Life Insurance Co. v. Haslip, --- U.S. ----, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991).

II. DISCUSSION

In the present era of large damage awards, perhaps no issue has generated as much interest and controversy as the proposition that substantial punitive damages awards might violate certain guarantees of the United States Constitution. Until recently, however, the Supreme Court had offered little more than vague suggestions that large punitive damages awards might offend constitutional requirements. ⁴ In Pacific Mutual Life Insurance Co. v. Haslip, the Court finally converted these suggestions into substance: the Court recognized that, under certain circumstances, an award of punitive damages may "cross the line into the area of constitutional impropriety." 111 S.Ct. at 1046. Significantly, the Court concluded that the specific circumstances in Haslip did not raise constitutional concerns. Id.

The plaintiffs in Haslip purchased health insurance from Union Fidelity Life Insurance Company through its agent Lemmie L. Ruffin, Jr., who also was a licensed agent of Pacific Mutual Life Insurance Company. After several months, Union Fidelity had not received any premium payments on the health insurance. Union Fidelity sent Ruffin notices of lapsed health coverage to forward to the plaintiffs. These notices were not forwarded. The plaintiffs learned that their insurance had lapsed only after one of the plaintiffs, Cleopatra Haslip, was hospitalized and could not recover payment on her policy. The plaintiffs filed a lawsuit against Ruffin and, under a theory of respondeat superior, Pacific Mutual. They claimed that Ruffin had collected premiums from the plaintiffs, but had failed to remit these premiums to Union Fidelity. A jury agreed that Ruffin had acted fraudulently and returned a verdict awarding the plaintiffs approximately $200,000 in compensatory damages, including $4000 in out-of-pocket expenses, and $840,000 in punitive damages.

Noting that punitive damages have long been a fixture of traditional state tort law, the Supreme Court in Haslip refused to conclude that punitive damages are per se unconstitutional. Id. 111 S.Ct. at 1043. A majority of the Court emphasized, however, that the antiquity of the practice did not insulate punitive damages from constitutional challenge. ⁵ The Court concluded that in some cases a substantial award of punitive damages might violate the Due Process Clause of the Fourteenth Amendment. Interestingly, the Court eschewed a formal due process standard:

We need not, and indeed we cannot, draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case. We can say, however, that general concerns of reasonableness and adequate guidance from the court when the case is tried to a jury properly enter into the constitutional calculus.

Id. at 1043. In essence, the Court in Haslip reasoned that the constitutionality of an award of punitive damages is a function of two practical considerations: (1) whether the circumstances of the case indicate that the award is reasonable, and (2) whether the procedure used in assessing and reviewing the award imposes a sufficiently definite and meaningful constraint on the discretion of the factfinder. Id. The Court determined, in light of both considerations, that the award of punitive damages to the plaintiffs in Haslip was constitutional.

The circumstances of the case indicated that the award was reasonable. The punitive damages award in Haslip was more than four times the...