Gulf Atlantic Life Ins. Co. v. Barnes

• Decision Date: 02 October 1981
• Citation: 405 So.2d 916
• Parties: GULF ATLANTIC LIFE INSURANCE COMPANY, a corporation v. Rosezenna BARNES. 80-256.
• Court: Alabama Supreme Court

Page 916

405 So.2d 916

GULF ATLANTIC LIFE INSURANCE COMPANY, a corporation v. Rosezenna BARNES.

80-256.

Supreme Court of Alabama.

Oct. 2, 1981.

Alex T. Howard, Jr., and Steven T. Stine of Johnstone, Adams, May, Howard & Hill, Mobile, and J. Connor Owens, Jr. and Charles C. Simpson, III, Bay Minette, for appellant.

James R. Owen of Owen & Ball, Bay Minette, for appellee.

BEATTY, Justice.

Rosezenna Barnes, the appellee, filed suit in the Circuit Court of Baldwin County against the Gulf Atlantic Insurance Company, the appellant. The action arose out of a dispute between the parties concerning the amount of coverage to which the appellee was entitled as a result of the death of one of her children, an insured.

Plaintiff's complaint, as finally amended, contained four counts: (1) breach of contract for life insurance, (2) fraud and misrepresentation, (3) wrongful, intentional and unreasonable refusal to pay and (4) negligent or wanton breach of an implied duty to deal in good faith and to exercise due care in the contractual relationship. With respect to count one, plaintiff demanded judgment in the amount of $7,000, which she claimed was the face amount of the policy. As to counts two, three and four, plaintiff demanded judgment in the amount of $2,500,000.

The Company contended that it owed only $1,000, the amount of insurance plaintiff applied for, and that $1,000 of the $7,000 claimed under count one had been paid. The Company, by counterclaim, sought reformation of the contract of insurance based upon the following allegations: (a) that the plaintiff applied for benefits of $9,683 in the event of her death and $1,000 in the event of a child's death; (b) that the policy makes the application part and parcel of the insurance contract; (c) that through a mistake in encoding, the initial policy issued to the plaintiff shows that $7,437 was payable in the event of her death and that $7,000 was payable in the event of an insured child's death; and (d) that the policy did not reflect the understanding between the parties and was due to be reformed to reflect $9,906 in benefits on the plaintiff's life and $1,000 in benefits on each child's life.

The case was tried before a jury on April 16, 1980. At the close of the presentation of the evidence and upon the appropriate motions, the trial court directed a verdict in favor of the Company on count two (fraud and misrepresentation), but denied the Company's motions for directed verdict as to counts one, three and four; the court also denied the plaintiff's motions for directed verdict as to counts one, three and four.

The jury returned a verdict for the plaintiff on counts one, three and four in the amount of $1,100,000 "compensatory and punitive damages plus $6,000 plus interest from balance due on policy 9/4/78." The Company filed a motion for judgment notwithstanding the verdict, or in the alternative, for a new trial, which motion the trial court denied.

The Company raises the following issues on appeal: (1) whether an insurer is liable in tort for the failure to pay the larger of two amounts as to which there is a legitimate question regarding which is the proper coverage amount; (2) whether it was error for the trial court to refuse to reform the contract; (3) whether it was error for the trial court to limit the opening statement of the appellant and to sharply admonish the counsel for the appellant in the presence of the jury; (4) whether a cause of action for intentional bad faith should support an award of punitive damages unless the actions of the defendant were malicious, oppressive, gross or committed with intent to injure; (5) whether the trial court erred in overruling appellant's objection to improper closing argument on the part of the appellee; (6) whether the trial court erred in admitting certain evidence over the appellant's objections; (7) whether the trial court erred in giving certain jury instructions requested by the plaintiff, and in refusing certain instructions requested by the Company; and (8) whether the trial court erred in denying the Company's motion for new trial.

Rosezenna Barnes, a resident of Baldwin County, Alabama, applied to purchase insurance from Gulf Atlantic at her home in February or March of 1978. Mr. T. A. Sherman of the G. L. Sherman and Associates Insurance Agency, which is located in Pascagoula, Mississippi, met with Mrs. Barnes at that time to discuss an insurance program approved by her credit union. Employees of G. L. Sherman and Associates sold life insurance to members of the Bay Slacks Credit Union, which was affiliated with Mrs. Barnes's employer, Manor Slacks Company. Sherman and Associates forwarded applications received from Manor Slacks employees, such as Mrs. Barnes, to Gulf Atlantic in San Francisco. Testimony presented at trial tended to show that the Bay Slacks Credit Union had an arrangement with Gulf Atlantic whereby the Credit Union would lend its members the amount of the yearly premium on the insurance purchased by participating employees and forward the premium to Gulf Atlantic. In return for the money lent to purchase insurance, employees, such as Mrs. Barnes, signed a note for the loan and also executed an agreement whereby certain payments were withheld from the paychecks of the participating employees to be applied to the repayment of the premium loan. In Mrs. Barnes's case, her premium was $4.00 each week, or $208 annually, which was deducted from her wages in order to repay the premium loan advanced by the Bay Slacks Credit Union.

T. A. Sherman, the G. L. Sherman and Associates employee who contacted Mrs. Barnes, testified that he and Frank Williams, a co-employee, went to Mrs. Barnes's home one evening in February or March, 1978, and presented their insurance program to her. That evening Mrs. Barnes signed an application of insurance and Mr. Sherman completed the application in her presence with the exception for his agent's report on the back of the application. Mr. Sherman testified that he informed Mrs. Barnes that she would receive $9,683 insurance for herself, and $1,000 coverage on each of her seven children. Mr. Sherman filled out the amount of insurance in her presence. The application, without dispute, shows these amounts of insurance applied for. The testimony of Mrs. Barnes conflicted with that of Mr. Sherman, however, she testified:

Q What did these gentlemen tell you about this insurance policy?

A Well, they asked me was I interested in joining good insurance from Gulf Atlantic and I was undecided and tried (sic) if they could explain it to me-

Q How were the premiums to be paid for this policy?

A I was suppose (sic) to pay four dollars a week and I got paid every two weeks and that made it eight dollars every two weeks.

Q Were there some kind of arrangements where you could do it through your credit union at Manor Slacks?

A Yes.

Q As a result of this conversation with these agents did you agree to take out an insurance policy with Gulf Atlantic Life Insurance Company?

A Yes.

Q What coverage did these agents tell you you were to receive under this policy?

A They said I would get seven thousand dollars on each child and talked about seventy-two thousand dollars (sic) on myself.

Q You mean seventy-four hundred on yourself?

A Yes, when it came back it was seven thousand four hundred and something on myself.

Q How much was it on the children?

A Seven thousand.

Q All right. Did you sign an application when these gentlemen were out there?

A Yes.

In directly conflicting testimony, Mr. T. A. Sherman stated that Mrs. Barnes had not told him that she wanted approximately $7,500 insurance on her own life, and he also said that he did not ever discuss with Mrs. Barnes any amount of insurance for her children other than the $1,000 amount. Mr. Sherman added that, under the insurance plan in which Mrs. Barnes enrolled, coverage for any child under the children's rider benefit in an amount in excess of $1,000 was not available.

Subsequently, Mrs. Barnes received through the mail in or around April of 1978, a policy of insurance which is the subject of the controversy. The application attached to the policy showed that Mrs. Barnes applied for $9,683 insurance on her own life and $1,000 children's rider benefit coverage on each of her seven children. The computer printout page of the policy which was received by Mrs. Barnes, however, indicates that Rosezenna Barnes, the primary insured, was insured for $7,437, not the $9,683 amount that appeared in the application for insurance. Additionally, the policy shows a face amount of $7,000 children's rider insurance instead of the $1,000 on the application for children's rider benefits for each child.

The circumstances directly giving rise to the instant lawsuit were triggered in September of 1978, on the death of Glenn E. Barnes, one of the children of Rosezenna Barnes who was listed in the application of insurance signed by Mrs. Barnes earlier that year.

After her son's death, Mrs. Barnes assigned the policy of insurance in question to Hodge's Funeral Chapel, the funeral home which handled her son's burial. Hodge's Funeral Chapel gave Mrs. Barnes photocopies of a portion of the policy, including the computer printout page, but did not furnish her with a photocopy of the application.

Following the death of her son, Mrs. Barnes called Gulf Atlantic in San Francisco to report her son's death, and with the help of Frank Williams, an employee of G. L. Sherman and Associates Insurance Agency, filled out and submitted a claim to Gulf Atlantic with respect to her son's death. Subsequently, Mrs. Barnes retrieved the initial policy from Hodge's Funeral Chapel and submitted it to Gulf Atlantic in San Francisco in support of the death claim.

The death claim was processed by Clifford "Steve" Rabisa, the death claims examiner for Gulf Atlantic. On October 31, 1978, Gulf Atlantic issued a $7,000 check payable to Mrs. Barnes....